TEN TERMINATION RULES TO REMEMBER

Whether its a termination for default or a termination for convenience, ten rules stand out as the most important to remember.

1. Every compensable change is an excusable cause of delay or non performance. They are acts (or omissions) of the government in its contractual capacity.
2. Even if the termination for default is upheld, the contractor may be entitled to an equitable adjustment under the changes clause.
3. The contractor should submit a pro forma termination for convenience settlement proposal when terminated for default.
4. Even if the contractor fails to appeal the termination for default, it can challenge the default by appealing the assessment of excess reprocurement costs.
5. The government bears the burden of proof in a termination for default.
6. The changes clause can be used to increase the contract price in a termination for convenience settlement or determination.
7. The changes clause can be used to defeat the application of the adjustment for loss formula in a termination for convenience.
8. In a termination for convenience, the cost principles apply unless the contract is for a commercial item.
9. A complete explanation of the essence of a termination for convenience is set forth in FAR 49.201.  
10. In a termination for convenience, recovery of settlement expenses includes fees for accountants and lawyers.

From a contractors point of view, challenging the termination for default involves an extensive examination of the acts or omissions of the government which may have caused or contributed to the alleged default.  This involves possible changes which also are compensable under the changes clause.  The contractor also should immediately file its termination for convenience settlement proposal.  If the termination for default is converted, the conversion reverts to the date of termination thereby allowing the contractor to recoup settlement expenses for time spent negotiating settlement.

From the government's point of view, the changes clause must be considered in any termination situation.  Also, FAR 49.201 is the central guidance to be followed in any termination settlement negotiation.  "The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement."

bill@spriggslawgroup.com      www.govconalert.com