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Contract Termination

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This SOP has internal roles only.

Standard Operating Procedure Table of Contents

Purpose

To partly or fully terminate a contract for convenience or default.

Procedure

Termination of a contract for convenience does not hold a contractor at fault. The government might terminate for convenience if in its best interest, e.g., due to requirement changes or insufficient funds. This decision should be taken only after serious consideration because it is potentially costly.

Termination of a contract for default holds a contractor at fault due to an actual or anticipated failure to perform obligations, breach of contract conditions, or breaking federal law.

Non-profit and educational organizations on R&D contracts can be terminated for convenience but not default.

Procedures differ for terminating a contract for convenience or default, and for fixed price and cost reimbursement contracts. When considering a termination, the government bases its decision on a review by contracting and technical personnel and counsel. For details on conditions and procedures, see FAR Part 49.

Termination for Convenience

Contracting Officer's Representative (COR)

  • Promptly notify contracting officer (CO) when contemplating a termination for convenience.
  • Prepare memo to the CO requesting termination and stating the reasons. Get program division director approval of the request.
  • After the CO sends contractor a notice of termination, end contact with contractor unless directed otherwise by the CO. Any action that might encourage a contractor to continue performance may waive the government's rights.

Contracting Officer

  • Inform Office of Acquisitions (OA) and Division of Extramural Activities (DEA) directors of the impending action before issuing a termination notice.
  • Terminate a contract by sending contractor a written termination notice. See FAR Part 49 for requirements.
  • Evaluate contractor settlement claims, perform cost or price analyses, negotiate termination settlements, and execute settlement agreements on SF 30, Amendment of Solicitation/Modification of Contract. Place memorandum documenting negotiations in the contract file.

Termination for Default

Contracting Officer's Representative (COR)

  • After identifying unsatisfactory performance, failure to perform obligations, breach of contract conditions, or federal law violations, promptly notify contracting officer in writing. Contractor could interpret silence by the government as changed expectations of performance.
  • To begin termination, prepare a memo to contracting officer requesting termination and defining the reasons. See FAR Part 49. Get program division director approval.
  • After the CO sends contractor notice of termination, end contact with contractor unless directed otherwise by contracting officer. Any action that might encourage a contractor to continue performance may waive the government's rights.

Contracting Officer

  • After contracting officer's representative (COR) identifies a cause for termination, give the contractor written notice specifying the failure and providing a period of 10 days (or longer period as necessary) in which to cure the failure.
    • When the allotted time expires, you may issue a notice of termination for default unless you determine that the failure to perform has been cured.
    • See FAR 49.607 for a format for a cure notice.
  • If termination for default appears appropriate, you should, if practicable, notify the contractor in writing of the possibility of the termination.
    • This notice shall call the contractor’s attention to the contractual liabilities if the contract is terminated for default, and request that the contractor show cause why the contract should not be terminated for default.
    • The notice may further state that failure of the contractor to present an explanation may be taken as an admission that no valid explanation exists.
    • When appropriate, the notice may invite the contractor to discuss the matter at a conference.
    • See FAR 49.607 for a format for a show cause notice.
  • If the contractor is a small business, immediately provide a copy of any cure notice or show cause notice to the contracting office’s small business specialist and the Small Business Administration Regional Office nearest the contractor. Whenever practicable, you should consult with the small business specialist before proceeding with a default termination (see also FAR 49.402-4.)
  • Before formally issuing a termination notice, inform the OA chief, the DEA director, and the program division director of the impending action.
  • To terminate a contract, send the contractor a written termination notice.
    • Distribute the termination notice to the same people or groups who were notified of the contract originally.
    • Also notify the disbursing officer (Office of Financial Management) to withhold further payments under the terminated contract, pending further notice. To cancel that withholding, let the disbursing officer know as soon as possible..
  • When a contract is terminated for default, you should evaluate contractor settlement claims, perform cost or price analyses, negotiate termination settlements, and execute settlement agreements on SF 30, Amendment of Solicitation/Modification of Contract.
  • When a contract is terminated for default or a procedure authorized by FAR 49.402-4 is followed, you shall prepare a memorandum for the contract file explaining the reasons for the action taken. This memorandum should also document any negotiations that took place.

Contacts

See the Office of Acquisitions staff listing for the appropriate contract specialist.

If you have knowledge to share or want more information on this topic, email deaweb@niaid.nih.gov with the title of this page or its URL and your question or comment. Thanks for helping us clarify and expand our knowledge base.

Links

Contract Modifications SOP

Contracting Officer SOP

Contracting Officer’s Representative (COR) SOP

FAR Part 49

Last Updated May 24, 2012

Last Reviewed May 24, 2012