Writing Your Termination for Convenience Settlement Proposal – What You should Know
Developing a termination for convenience settlement proposal can be very traumatic and confusing. You’re a federal government contractor who has invested countless hours and resources into a federal project, only to receive a termination for convenience notice out of the blue from the Contracting Officer (CO). The government has decided to terminate your contract for convenience under the guidance of the federal acquisition regulation (FAR).
What do you do now? How do I recouple any compensation? What compensation is allowed? This news can cripple the company.
The potential financial implications and complexity of preparing a government contract termination for a convenience settlement proposal (TSP) are enormous. Many contractors, small and large, get these alarming notices.
However, the successful companies, despite facing similar challenges, work through it and bring in legal and accounting experts to help. The goal is to avoid costly legal mistakes while maximizing termination costs and damages.
Reasons for convenience terminations can vary. It can include lack of federal funding, bid protests filed, changes in military strategy, technological advancement, federal operations, or national political agendas that change the government’s needs.
FAR 49.201(a) [Termination of Contracts] states, “…A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit….”
Since the CO ultimately decides what the government will pay you under a terminated contract, your termination for convenience settlement proposal must be convincing, have the appropriate support documentation, and tell your story.
What is Termination for Convenience?
FAR termination for convenience of government contracts occurs when the government decides to terminate a contract not due to any fault of the contractor, but because it is in the government’s best interest. This can happen for various reasons, such as budget cuts, changes in mission requirements, or shifts in government priorities. You generally sign contracts with the clause incorporated by reference.
Key FAR Clauses to Know:
- FAR 52.249-2: Governs fixed-price federal contracts and discusses the rights and obligations of both parties in the event of a contract termination for convenience.
- FAR Part 49: Provides detailed procedures and principles for handling contract terminations.
What are the Steps to Prepare Your Termination for Convenience Settlement Proposal?
1. Understand Your Immediate Obligations: The first step is to understand the specific obligations and instructions outlined in your contract and the termination notice. Review the termination clause (e.g., FAR 52.249-2) to determine your rights and the necessary steps you must follow.
2. Document Everything: From the moment you receive the termination notice, start documenting all related activities and costs. This includes:
- Termination Costs: Include costs directly related to stopping work, such as employee layoffs, lease terminations, and subcontractor settlements.
- Work Completed: Document all work completed up to the termination date, including materials, labor, and overhead costs.
- Preparation Costs: Costs associated with preparing the TSP, such as legal and accounting fees.
3. Communicate with the Contracting Officer
Maintain open communication with the Terminating Contracting Officer (TCO). Clarify any uncertainties and ensure you follow their guidance on submitting your TSP. Early and frequent communication can prevent misunderstandings and delays.
4. Prepare a Comprehensive Settlement Proposal
Your TSP should be thorough and well-supported by documentation. Key components include:
- Summary of Costs: A detailed breakdown of all incurred costs.
- Profit Calculation: Include a reasonable profit on work performed, as allowed under FAR 52.249-2.
- Supporting Documents: Attach all relevant invoices, receipts, and records to substantiate your claims.
Common Termination for Convenience Questions and Answers (FAQs)
Q1: What happens if I miss the 12-month deadline to submit my TSP?
A1: If you miss the deadline for filing a termination for convenience settlement proposal, you are in trouble. Unless you can find a reason to argue a tolling of the settlement proposal deadline, the only other option is to request a written extension.
Q2: Can I recover costs for work done by subcontractors?
A2: Yes, subcontractor costs can be included in your Termination for Convenience Settlement Proposal. Make sure that you notify your subcontractors right away. Subcontractor TSPs are subject to the same rules as the prime contractor. Subcontractor claims need to be well-documented and justified.
Q3: What if the government’s termination action appears unjustified?
A3: If you believe the termination was in bad faith or an abuse of discretion, you can challenge the decision at the Board of Contract Appeals or the U.S. Court of Federal Claims. However, proving bad faith on appeal requires clear and convincing evidence, which is a high standard to meet.
Q4: Are there special considerations for commercial item contracts?
A4: Yes, commercial item contracts have different termination provisions under FAR Part 12. These contracts are not subject to the same cost accounting standards, which can simplify the process but also limit the scope of recoverable costs.
Does Your Termination for Convenience Automatically Become a Contract Claim?
No. This is a common litigation point. The TSP only becomes a Contract Disputes Act (CDA) when the government and the contractor reach an impasse. An impasse is reached when an objective observer concludes that a resolution through negotiation is unwarranted or has been abandoned, and the contractor desires a decision. Ensign-Bickford Aerospace & Defense Company, ASBCA No. 58671, slip op. at 5 (5 May 2014).
Sometimes, on appeal, the government may try to argue that there was an impasse and, therefore, a claim was triggered. There has to be some level of negotiations to then reach a disagreement. A simple denial of a termination for convenience claim does to constitute an impasse. In addition, if the proper certification language is not in the TSP, then there can be an argument that it cannot turn into a CDA claim.
Other Important Stuff
One of the main issues when developing a termination for convenience settlement proposal is never automatically signing a release of claims. Releases become a major problem, especially when the contract is partially terminated or if only a task order or delivery order is terminated. Your termination for convenience settlement proposal must tell a compelling story that educates the contracting officer while pointing to the specific contract clause in the question of the FAR provision that allows you to claim certain damages.
Get Immediate Help
Facing a termination for convenience can initially seem like a setback, but with the right approach, it can be an opportunity to recover your costs and ensure fair compensation. By understanding the regulations, meticulously documenting your expenses, and effectively communicating with the TCO, you can navigate the complexities of the TSP process successfully.
Remember, you don’t have to go through this alone. Seeking professional advice from experienced legal and financial experts can significantly enhance your ability to prepare a compelling TSP and maximize your recovery. At Watson & Associates, LLC, our FAR termination for Convenience Clause lawyers specialize in helping contractors like you navigate the intricacies of government contract terminations.
Contact us today to learn how we can help you prepare your termination for convenience settlement proposal and achieve a favorable settlement. Call today at 1.866.601.5518.