Termination of contracts
While federal contracts are similar to commercial contracts, they differ in some very important ways. They contain or make reference to many general contract provisions unique to the government. These provisions implement various statutory or regulatory requirements applicable solely to federal contracts. One of the important matters covered by these provisions is termination for default and termination for convenience. These matters are described in detail in the Federal Acquisition Regulation (FAR), Part 49 - Termination of Contracts. http://farsite.hill.af.mil
Termination for Default
Government contracts provide that the government many cancel (terminate) your
contract if:
Before terminating a contract for default, the contracting officer must, however, give you an opportunity to remedy defects in your performance or show why your contract should not be terminated. If your contract is terminated for default, you are entitled only to payment at the contract's price for items accepted by the government. If the government still needs the items that you failed to deliver, it has the right to procure the same items elsewhere and, if they cost more, charge the excess costs to you. If you can show that your failure to deliver or to make progress is excusable, your contract will not be terminated for default. To be excusable, a delay must be beyond your control and not caused by your fault or negligence. If your contract is terminated for default and you can prove the government's action was improper, the termination will be treated as one of the "convenience of the government."
Termination for Convenience
The government may unilaterally terminate all or part of a contract for its
convenience. This type of termination does not arise from any fault on the part
of the contractor. Termination for convenience protects the government's interests
by allowing it to cancel contracts for products that become obsolete or unnecessary.
As with terminations for default, the government must provide a written notice
of termination for convenience, but is not required to give advance notice.
The notice of termination will usually direct you to:
If you fail to follow these directions, you do so at your own risk and expense. You should receive detailed instructions as to the protection and preservation of all property that is (or may become) government-owned. After termination for convenience, the government will make a settlement with you to compensate you fully and fairly for the work you have done and any preparation made for the terminated portion of the contract. A reasonable allowance for profit is also included.
The information for this article came directly from the US Small Business Administration
(SBA) website at http://www.sba.gov/businessop/basics/contractor.html.