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Question 1

Termination for Convenience (T4C)

Answer 1

• Government limits its liability only to work completed at the time of the termination, must be justifiable
• Main reason for this authority: requirements change in the Government’s interest (not in bad faith)
• Can partially or completely terminate without being required to pay damages
• Can be invoked despite full contractor compliance with its contractual obligations

Question 2

Termination for Default (or Cause - Commercial Item Contracts); sometimes referred to as (T4D)

Question 3

Requirements for Termination

Answer 3

-A written notice to the terminated contractor
-A determination as to the reason for the termination
-The method of termination settlement
-A final accounting of all matters affected by the termination

Question 4

Categories of T4C

Answer 4

• Conversion from an improper termination for default (T4D)
• Reduction/elimination of requirements
• Failure to order work - multi-year contract
• Cancellation of award

Question 5

T4C Process

Answer 5

• Discuss the proposed action with your customer and legal representative while considering alternatives to termination
• Document the case for terminating the contract, whether it’s a partial or complete T4C
• Issue the termination notice to the contractor
• Meet with the contractor to develop a specific termination plan
• Determine the disposition of completed deliverables
• Review the reasonableness of the contractor’s termination settlement proposal and, when appropriate, any sub-contractor’s proposals
• Request any special pricing or legal assistance needed to analyze the contractor’s settlement proposal
• Resolve any open settlement issues between the prime contractor and any sub-contractors
• Prepare pre-negotiation position and negotiate
• Prepare settlement negotiation memorandum and obtain required reviews and clearances
• Make required payment to contractor (or demand repayment if appropriate)
• Calculate and deobligate excess funds

Question 6

Preparing the Termination Notice (in writing to multiple people, by certified mail with return receipt requested)

Answer 6

• An assertion that the contract is being terminated for the convenience of the Government under the contract clause authorizing the termination
• Effective date of the termination
• Extent of the termination (specific items or quantities, partially or completely)
• Any special instructions
• The steps the contractor should take to minimize the impact on personnel, if the termination will result in a significant reduction in the contractor’s work force

Question 7

Clauses for T4C

Answer 7

FAR 52.212-4, Contract Terms and Conditions - Commercial Items should be included in the Government’s commercial contracts to cover termination for convenience.

The clauses for non-commercial contracts are more specific (and a bit more confusing).

T4C clauses FAR 52.249-1 through FAR 52.249-7 may be applicable when crafting a non-commercial contract, depending on the type of contract. All are from FAR Subpart 52.249.

Question 8

No Cost Settlement (complete or partial, executed using SF30)

Answer 8

Required to issue a no-cost settlement instead of a termination notice when:
- It is known that the contractor will accept one
- Government property was not furnished
- There are no outstanding payments, debts due to the Government, or other outstanding contractor obligations

Question 9

3 basis for T4C settlement proposals

Answer 9

• Inventory Basis
• Total Cost Basis
• Other Basis

Question 10

Inventory Basis

Answer 10

FAR 49.206-2, the use of the inventory basis for settlement proposals is the preferred method.

The inventory basis calculates the actual costs incurred for preparations and work begun but not yet completed, plus:
- Associated indirect costs
- Sub-contract settlement costs
- Settlement proposal preparation expenses
- Other proper charges

The contractor and/or subcontractor will use SF 1435 when using the inventory method. Using this method, the costs are itemized.

Question 11

Total Cost Basis

Answer 11

Can only be used if authorized by the TCO in advance, and when the inventory basis appears impractical in light of the contractor’s accounting system.

In using the total cost basis, the contractor calculates the total amount spent and subtracts the contract prices for work already delivered and paid for.

The total amount payable to the contractor (exclusive of settlement costs) must therefore not exceed the contract price less payments made under the contract.

As a TCO, you may have to request assistance from Government personnel in other specialties to:
- Assist in dealings with the contractor
- Advise on legal matters
- Conduct accounting reviews and advise on financial matters
- Perform functions regarding termination inventory

Question 12

Other Basis

Answer 12

Contractor may not submit a settlement proposal on any basis other than inventory or total cost without the prior approval of the chief of the contracting or contract administration office.

Question 13

Subcontract Settlement Procedures

Answer 13

Basis and form of the sub-contractor’s settlement must be acceptable to the prime contractor, and supported by sufficient data for the TCO, who will examine each sub-contract settlement to determine if the:
- Sub-contract termination was made necessary by the termination of the prime contract
- Settlement was arrived at in good faith, is reasonable in amount, and allocable to the terminated portion of the contract

In evaluating the reasonableness of any sub-contract settlement, consider:
- Requirements for the settlement of prime contract terminations
- Sub-contract audit requirements FAR 49.107
- Agency review requirements FAR 49.111

Question 14

Profit for T4C

Answer 14

Allows reasonable allowance for profit, NOT anticipatory profit

Question 15

Settlements for T4C based on:

Answer 15

Business judgment, NOT strict accounting

Question 16

Steps for Issuing a Termination for Cause

Answer 16

Discuss the propriety of terminating the contract for cause with the customer and legal counsel, and consider alternatives to termination CO
Document the case for terminating the contract partially or completely CO
Issue the notice of the termination to the contractor CO
Inform parties who may be affected by the termination CO
Conduct a conference with the prime contractor to review the termination process TCO
Amend or rescind the termination notice as needed CO
Determine whether to accept completed items already produced under the contract TCO
Review the contractor’s proposal regarding the amount of payment for manufacturing materials he/she has already accepted from suppliers, and regarding the protection of property in the contractor’s possession TCO
Negotiate an agreement on the amount of payment for manufacturing materials delivered and accepted, and for the protection and preservation of the property in its possession TCO
Issue a final decision, if no agreement is reached on the amount of payment for manufacturing materials delivered and accepted, and for the protection and preservation of the property in its possession TCO
Determine the amount owed the contractor (if any) TCO
Select and apply one or more available remedies TCO
Reprocure the remaining requirement (when appropriate) CO
Demand payment by the terminated contractor for any amount owed the Government CO
Prepare a memorandum for the contract file explaining the reasons for the actions taken CO

Question 17

Notifying Parties of Termination for Cause

Answer 17

FAR 12.403 states that the contracting officer shall send a cure notice prior to terminating a contract for any reason other than late delivery, such as:
- The contractor’s failure to perform some other provision of the contract
- Failure to make progress so as to endanger performance of the contract

The written notice should describe the failure and provide the contractor a period of 10 days by which to cure the failure.

Question 18

Show Cause Notice

Answer 18

The show cause notice is issued when there is not sufficient time remaining in the delivery schedule to cure the problem (typically 10 days) or the contractor failed to act on a cure notice already sent.

The show cause notice advises the contractor of the consequences of a termination and asks the contractor to show cause why the contract should not be terminated.

Question 19

Termination for Cause Notice

Answer 19

When a termination for cause is appropriate, the contracting officer shall send the contractor a written notification regarding the termination.

At a minimum, the notification shall:
State that the contract is terminated for cause
Specify the reasons for the termination
Indicate the remedies that the Government intends to seek, or provide a date by which the Government will inform the contractor of a remedy
State that the notice constitutes a final decision of the contracting officer and that the contractor has the right to appeal the decision
It is important to note that when a contractor has defaulted by failure to make delivery of supplies or to perform a service within the specified time, no cure notice is required to be sent to the contractor before issuance of a show cause notice.

Even after a show cause notice is issued, all relevant factors should be discussed with the acquisition team prior to terminating.

Question 20

Notice to Interested Parties

Answer 20

Businesswoman on the phoneAs the contracting officer, you must inform interested parties who may be affected by the termination.

When the contractor is a small business, you need to consult with your small business specialist before proceeding with the termination.

Generally speaking, make the same distribution of the termination notice as was made of the contract. A copy should also be furnished to the contractor’s surety, if any.

In addition, you should notify the Defense Finance and Accounting Service (DFAS) to withhold further payments under the terminated contract, pending further advice.

Question 21

Conference with the Contractor and Amending the Termination for Cause Notice

Answer 21

You, as the contracting officer, need to conduct a conference only when it will facilitate the termination process. You can also schedule a meeting with the contractor to discuss the pending termination.

As a result of the meeting, the following may be amended to:
Correct minor mistakes in the notice
Add supplemental data or instructions
Rescind the notice entirely, if it is determined that the items terminated had been completed or shipped before the contractor’s receipt of the notice
With the written agreement of the contractor, you, as the contracting officer, may reinstate the terminated portion of a contract, in whole or part, by amending the notice of termination.

If a reinstatement of a portion of the terminated contract is appropriate, the reinstatement must be based on your written determination that:
Circumstances clearly indicate a requirement for the terminated items
Reinstatement is advantageous to the Government

Question 22

Repurchasing the Items

Answer 22

Termination guidelines for both commercial and non-commercial item contracts under FAR Part 13, Simplified Acquisition Procedures (SAP), state that the Government is not liable to the contractor for any amount. The contractor, however, is liable to the Government for any and all rights and remedies provided by law.

When the supplies or services are still required after termination, the Government’s preferred remedy is to acquire the same or similar supplies/services from another source and charge the defaulted contractor with any excess reprocurement costs.

You should:
Consider the Repurchase Against Contractor’ s Account requirements of FAR 49.402-6
Mitigate or reduce damages to the Government by promptly reprocuring at a fair and reasonable price
Compute excess reprocurement costs and incidental or consequential damages incurred because of the termination

Question 23

Reaching Agreement on the Amount Due

Answer 23

You should strive to negotiate an agreement with the contractor on the amount of payment for supplies delivered/services rendered.

In calculating the total amount owed to the contractor (if any) on a fixed-price termination, consider the following:
The contract price for completed supplies that have been delivered and accepted
The price negotiated or set by the contracting officer’s final decision for manufacturing materials that have been delivered and accepted by the Government, and for any protection and preservation of the property
Any deductions necessary to protect the Government against loss because of outstanding liens or claims of former lien holders
In the event no agreement can be reached, the contracting officer will issue a final decision. This is a unilateral decision, also referred to as a unilateral determination. If the contractor disagrees with the decision, the contractor can initiate dispute proceedings as long as the contractor’s settlement proposal was provided to the Government in a timely manner.

Question 24

T4D Financial Considerations - CLEAR grounds for termination, ALWAYS consult with legal counsel

Answer 24

As the result of a termination for default, the Government may:
Obtain various forms of damages from the contractor as relief
Charge the contractor whatever additional costs result from reprocuring the supply or service

Question 25

Procedures for Issuing a Termination for Default

Answer 25

Discuss the propriety of terminating the contract for default with the customer and legal counsel, and consider alternatives to termination CO
Document the case for terminating the contract partially or completely CO
Issue cure/show cause letter CO
Issue notice of termination CO
Inform parties who may be affected by the termination CO
Conduct a conference with the prime contractor to review the termination process TCO
Amend or rescind the termination notice (when appropriate) CO
Review and negotiate agreement on the contractor’s proposal on payment for manufacturing materials delivered and accepted, and for the protection of the property in its possession. Issue a final decision if no agreement is reached on these matters TCO
Determine the amount owed to the contractor (if any) TCO
Reprocure the remaining requirement (if still needed) CO
Demand payment from the contractor for any amount owed the Government CO
Prepare a memorandum for the contract file explaining the actions taken CO

Question 26

T4D Notice

Answer 26

Unlike terminating a cost-reimbursement contract for convenience, the contracting officer does NOT allow reimbursement of a contractor’s settlement proposal expenses when a cost-reimbursement contract termination for default is involved.

Question 27

Repurchasing the Supplies or Services

Answer 27

In calculating the total amount owed the contractor, if any, in a fixed-price termination for default, you should consider the following:
The contract price for completed supplies that have been delivered and accepted
The price negotiated or set by the contracting officer’s final decision for manufacturing materials that have been delivered and accepted by the Government, and for any protection and preservation of the property
Any deductions necessary to protect the Government against loss because of outstanding liens or claims of former lien holders

In the event no agreement can be reached, you, as the contracting officer, will issue a final decision. This is a unilateral decision, often referred to as a unilateral determination. If the contractor disagrees with the decision, the contractor can initiate dispute proceedings so long as his/her settlement proposal was provided in a timely manner.

Question 28

T4D Memorandum

Answer 28

The memorandum should include:
Rationale for the partial or complete termination
A copy of the termination notice
Any agreements negotiated with the contractor
The reprocurement file
Calculation of the amount due the Government as a result of the termination

Question 29

Indicators of a Possible Need to Terminate

Answer 29

A contractor’s response to the Government’s cure notice or show cause notice fails to show that a contract will be completed in accordance with its terms
Contractor failure to comply with any material contract term or condition
Contractor abandonment of work

Question 30

When Fault of the Contractor Cannot Be Clearly Demonstrated

Answer 30

When faced with a situation where the fault is not clearly the contractor’s, alternatives may include:
Cancelling a purchase order not yet accepted by the contractor
Permitting the contractor to complete the current contract when more cost-effective than terminating for convenience
Issuing a no-cost cancellation when:
The supply or service can readily be obtained elsewhere
A no-cost settlement is acceptable to the contractor
Government property had not been furnished to the contractor
There are no outstanding payments, debts, or other obligations due the Government
Terminating all or part of the contract for convenience when contract performance is unacceptable but the Government is partially responsible

Question 31

Contract Termination Summary

Answer 31

Different types of contract termination, e.g., convenience, cause, and default, and when use of each type is appropriated

Steps to follow when processing each type of termination

The primary differences between termination for convenience and termination for cause or default:
- Convenience - The Government is changing the requirement, therefore, we have to pay the contractor a reasonable amount for efforts
- Cause or Default - The contractor has not fulfilled their obligations, therefore, we only pay for goods or services we have accepted

Terminating a contract can be a costly and time consuming process; the A-12 termination is a good example of both. Remember, you have to determine that terminating a contract is in the best interest of the Government.

If you are faced with a contractor who is not meeting all of their contractual obligations, you have to decide, after talking to the contractor, your customer, and your legal counsel, what is in the best interest of the Government. In some situations, it may be to continue working with the contractor to resolve the problems. In other situations, it may be to terminate the contract and start over again.

Question 32

PAOC

Answer 32

The contracting officer decides whether post-award orientation is necessary and which form is appropriate? The contracting officer can choose to hold the post-award orientation in person, by virtual means, or they may choose to use a simple letter or other form of written communication.

The contracting officer must consider the type, value, and complexity of the contract as well. A small dollar commercial contract may not warrant a post award conference or perhaps just a very simplified one. Level of subcontracting? Small business? Urgency? Complex financing arrangements?

Goal is NOT to make changes to the contract

The chairperson must include all information and guidance given to the contractor during the meeting in the summary report. A contract modification referencing the a political terms of the contract must be executed for any change to the contract that is a result of the post-award orientation. The DD form 1484, Post-Award Conference Record, may be used by the chairperson in conducting the post-award conference and in preparing the conference report. The post-award conference chairperson must prepare and sign a report of the meeting that includes all items discussed, including areas requiring resolution, any controversial matters, the names of participants assigned responsibility, and further actions and the due dates for the actions.

As discussed previously, the report must also include all information guidance given to the contractor during the conference. Once complete, the chairperson must furnish copies of the report to the contracting office, the contract administration office, the contractor, and any others who would require the information.

Question 33

Describing Needs and Requirements

Answer 33

Include only necessary restrictive provisions or conditions to the extent necessary to satisfy nneds or as authorized by law

Describe requirements in terms of functions to be performed, performance required, and essential physical characteristics