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Terminations for Convenience and What Costs Are Allowable For GSA Schedule Task and Delivery Orders?

 

 

We have recently received multiple requests for the proper way to handle Termination for the Government’s convenience, as well as what costs are allowable. Well, here I go without further ado!

The termination will be IAW FAR Part 8.406-5, terminations for convenience.  

8.406-5 -- Termination for the Government’s Convenience.

(a) An ordering activity contracting officer may terminate individual orders for the Government’s convenience. Terminations for the Government’s convenience shall comply with FAR 12.403.

(b) Before terminating orders for the Government’s convenience, the ordering activity contracting officer shall endeavor to enter into a “no cost” settlement agreement with the contractor.

(c) Only the schedule contracting officer may modify the schedule contract to terminate any, or all, supplies or services covered by the schedule contract for the Government’ convenience.

So, besides telling us that COs should endeavor to enter into a no cost settlement, the FAR then tells us that terminations shall be IAW FAR Part 12.403.  Here it is for your reading pleasure!

12.403 -- Termination.

(a) General. The clause at 52.212-4 permits the Government to terminate a contract for commercial items either for the convenience of the Government or for cause. However, the paragraphs in 52.212-4 entitled “Termination for the Government’s Convenience” and “Termination for Cause” contain concepts which differ from those contained in the termination clauses prescribed in Part 49. Consequently, the requirements of Part 49 do not apply when terminating contracts for commercial items and contracting officers shall follow the procedures in this section. Contracting officers may continue to use Part 49 as guidance to the extent that Part 49 does not conflict with this section and the language of the termination paragraphs in 52.212-4.

(b) Policy. The contracting officer should exercise the Government’s right to terminate a contract for commercial items either for convenience or for cause only when such a termination would be in the best interests of the Government. The contracting officer should consult with counsel prior to terminating for cause.

(d) Termination for the Government’s convenience.

(1) When the contracting officer terminates a contract for commercial items for the Government’s convenience, the contractor shall be paid --

(i) (A) The percentage of the contract price reflecting the percentage of the work performed prior to the notice of the termination for fixed-price or fixed-price with economic price adjustment contracts, or

(B) An amount for direct labor hours (as defined in the Schedule of the contract) determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rates(s) in the Schedule; and

(ii) Any charges the contractor can demonstrate directly resulted from the termination. The contractor may demonstrate such charges using its standard record keeping system and is not required to comply with the cost accounting standards or the contract cost principles in Part 31. The Government does not have any right to audit the contractor’s records solely because of the termination for convenience.

(2) Generally, the parties should mutually agree upon the requirements of the termination proposal. The parties must balance the Government’s need to obtain sufficient documentation to support payment to the contractor against the goal of having a simple and expeditious settlement.

Here is the section of 52.212-4 that deals with Termination for the Governments Convenience:

(l) Termination for the Government’s convenience. The Government reserves the right to terminate this contract, or any part hereof, for its sole convenience. In the event of such termination, the Contractor shall immediately stop all work hereunder and shall immediately cause any and all of its suppliers and subcontractors to cease work. Subject to the terms of this contract, the Contractor shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system, have resulted from the termination. The Contractor shall not be required to comply with the cost accounting standards or contract cost principles for this purpose. This paragraph does not give the Government any right to audit the Contractor’s records. The Contractor shall not be paid for any work performed or costs incurred which reasonably could have been avoided.

And finally, lest we forget, Alternate I, of 52.212-4, (Thanks, Brad deMers!):

(l) Termination for the Government’s convenience. The Government reserves the right to terminate this contract, or any part hereof, for its sole convenience. In the event of such termination, the Contractor shall immediately stop all work hereunder and shall immediately cause any and all of its suppliers and subcontractors to cease work. Subject to the terms of this contract, the Contractor shall be paid an amount for direct labor hours (as defined in the Schedule of the contract) determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rate(s) in the contract, less any hourly rate payments already made to the Contractor plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system that have resulted from the termination. The Contractor shall not be required to comply with the cost accounting standards or contract cost principles for this purpose. This paragraph does not give the Government any right to audit the Contractor’s records. The Contractor shall not be paid for any work performed or costs incurred that reasonably could have been avoided.

 

So, that is it. How clear is the FAR on this subject? About as clear as mud!  The FAR basically leaves us to our own devices.  Besides calling out the payment for the percentage of work that has already been completed, it is up to the agency level CO to determine what is reasonable. I would try to ignore FAR Part 49 as much as possible, except in the absence of a baseline to determine "reasonable". I recommend if/when this happens, that you include your OGC in all exchanges with the contractor.  Of course, I look forward to your comments, criticisms, and yes, even your smart remarks.

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