Editor’s Note. Most contractors can expect to have at least one of their contracts terminated for the convenience of the government. An incomplete understanding on how to present the termination settlement proposal and what costs to include is one of the most costly impediments for full cost recovery we encounter in our consulting practice. In this two part article, we expand on an article we wrote a couple of years ago entitled "Maximizing Your Termination Recovery". We focus on (1) how to present your proposal and next issue (2) what costs to claim. Though our conclusions and some examples are often our own, we rely on two articles by Paul Seidman and Robert Banfield of the law firm Seidman & Associates written in the April 1995 and October 1997 issues of Briefing Papers.)

As government downsizing continues, terminations for convenience (T of C) have become common cost-saving actions. These terminations are carried out in accordance with the "Termination for Convenience of the Government" clause (FAR 52.249-2) that gives the government the right to terminate a contract when it is in their interest. In return for this unique privilege unavailable in the commercial world, the government agrees to reimburse the contractor for all reasonable and allocable performance costs, certain post-termination costs, settlement expenses and reasonable profit. In the next article, we will address specific ways to maximize recovery of these costs while in this issue we will explore the decisions you must make on how to present your proposal.

Time Limits

A prime contractor must submit its "final" termination settlement proposal within one year of the effective date of the termination. The "effective date" is the date on which the notice of termination requires contractors to stop contract performance. If the contractor receives their termination notice after the date fixed for termination, then the effective date is when the notice is first received.

The deadline for a subcontractor to submit their proposal to a prime (or upper-tier subcontractor) should be specified in the subcontract. Most often this period is six months, often less, to allow the prime contractor to submit its completed proposal on time.

The period allowed for submitting a proposal can be extended by the Termination Contracting Officer (TCO, who is often the contracting officer), prime contractor or upper-tier subcontractor. A time extension must be made in writing before the deadline. Deadlines must be met at all costs even if the proposal needs to be revised at a later date. If the deadline is not met, the contractor forfeits its right for a review by an appeals board or court. This means the CO can pay whatever it decides putting you in a very poor negotiating position since you have no judicial remedy.

If only part of the contract or subcontract is terminated, a contractor is entitled to an equitable adjustment of the price of the continued portion of the contract or subcontract to reflect there is less work to recover its fixed costs. The T of C clause requires a prime contractor to submit this request for a price adjustment within 90 days unless this period is extended in writing by the ACO. A subcontractor should look at its contract to determine its deadlines for submitting a request for equitable adjustment.

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