FAR 2.101 defines a termination for convenience (T of C) as “the exercise of the government’s right to completely or partially terminate performance of work under a contract when it is in the government’s interest.” The government has broad rights to cancel a contract simply because its needs change but in return for this privilege, it agrees to pay the terminated contractor its incurred costs and certain continuing costs. Unlike private sector law that allows a seller’s damage to include anticipatory profit - profit a contractor would have earned on the cancelled work - anticipatory profit on government work is prohibited.
A “termination for convenience” clause is required in all government prime contracts. There are different clauses for different contract types: for example, FAR 52.249-2, for fixed price; FAR 52.249-1, fixed price (short form); 52.249-4, government services (short form); FAR 52.249-6, cost reimbursement and; FAR 52.212-4, commercial items where there is a recently contemplated addition of Alternative 1 which will apply to time-and-material and labor hour contracts for commercial items. If for some reason a clause is excluded from a prime contract, the “Christian Doctrine” provides that it is still read into the contract because regulations require it to be while the Doctrine does not apply to subcontractors.
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