When is Termination for Default Converted to Termination for Convenience?

The Default clause in government contracting states if a court finds the government’s actions are improper, a termination for default is converted to termination for convenience. 

If the government and the contractor cannot reach a settlement agreements, the contracting officer will issue a decision determining the settlement based on “the cost” of the terminated work, a reasonable profit on that cost, and the contractor’s reasonable settlement expenses.

The termination for default clause also states that settlement, excluding the settlement expenses, cannot exceed the contract price and that the costs will be determined under the FAR allowable cost provisions for cost reimbursement contracts.

No Cost Termination Settlement

Often times when a termination for default is converted to termination for convenience, the government may elect to settle the case with a no cost settlement. Here the government in exchange for reversing the default termination will request that you sign a waiver and release of claims. 

However, many contractors elect not to take this option given the amount of work that has been performed and the amount of money it has spent.  If the issue cannot be settled, the appeals court will be left to decide the outcome. See how appeal courts look at contract termination for default cases.

When is a Termination for Default (T4D) Converted to Termination for Convenience?

When the contractor decides to appeal the default, the results may be that the court finds that the contractor has met its burden of proof that the government’s actions were unlawful. The result will be that the termination for default is converted to termination for convenience.

The facts of each will determine what damages the contractor will be entitled to. However, businesses must be aware that it would not likely recover more than the total contract price.

• Contractors should not expect that all government actions or inactions in a contract will get a default termination converted to a convenience termination.
• The appeals court can still sometimes uphold the default if the contractor had overwhelming problems during performance.

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For help with getting your Termination for Default Converted to Termination for Convenience under the contract termination for convenience clause, call our government  termination of contract and T4D attorneys at 1-866-601-5518. FREE INITIAL CONSULTATION.