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Contract Terminations

Government Contract Termination Lawyers

Termination for Convenience • Termination for Default

The attorneys and staff and the office of Seidman & Associates offer innovative and strategic legal representation to businesses with established federal government contracts and business that are competing for contracts with the United States government. One of the specific types of services that the firm offers contractors is representation following termination of a government contract.

There are two main types of government contract terminations: terminations for convenience and terminations for default. Both are introduced below by excerpts from our firms publications.

Terminations for Convenience: The following is from Paul J. Seidman and David J. Seidman's "Maximizing Termination for Convenience Settlements/ Edition II - Part I," Briefing Papers No. 08-3, at 1-2, 10, February 2008:

The "Termination for Convenience of the Government" clause in a Government contract conveys broad rights on the Government to terminate the contract when termination is in the Government's interest. The Government may cancel the contract simply because its needs change regardless of contractor fault. In return for this privilege, the Government agrees to pay the terminated contractor its incurred costs and certain continuing costs in a traditional Government contract. Alternatively, in a contract for commercial items or services under Federal Acquisition Regulation Part 12, the Government agrees to pay the terminated contractor the percentage of contract price reflecting the percentage of completion and charges resulting from termination.

All too often, contractors do not know what costs they are entitled to recover following a convenience termination. Contractors may even resort to asking Government personnel for advice. Government personnel, however, are not always knowledgeable, and, more importantly, a contractor request for advice places them in an obvious conflict-of-interest position. Their job is to dispose of termination for convenience claims for as little money as possible rather than to maximize contractor recovery. As a result, contractors often do not claim all their allowable costs in termination settlement proposals and may accept improper disallowances of their claimed costs by Contracting Officers and Government auditors. In addition, contractors may accept less than what they are entitled to receive because of a desire not to offend the customer, or a need for immediate cash.

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A contractor whose contract has been terminated for convenience should obtain professional help from qualified Government contract attorneys and accountants. Terminations for convenience present arcane legal and accounting problems. The use of qualified professionals can greatly increase recovery. Cost should not be a barrier. Reasonable professional fees related to a termination for convenience are generally recoverable as settlement expenses under the FAR "Termination Costs" cost principle.

For more information on Terminations for Convenience, see the following publications from Seidman & Associates, P.C.:

Termination for Default: The following is from Paul J. Seidman and Robert D. Banfield's "How to Avoid and Overturn Terminations for Default," Briefing Papers No. 98-12 at 1-2, November 1998:

A termination of a contract for default can have disastrous consequences for the contractor. There is a sudden loss of work and its contribution to overhead. An opportunity to make a profit is lost. The contractor also faces the prospect of being forced to return progress payments, of being liable to the Government for any excess costs of reprocurement, and of having to resort to litigation to resolve the dispute. To make matters even worse, having a default termination on its record may limit the contractor's ability to obtain additional Government work.

The standard "Default" clauses used in fixed-price Government contracts generally give the Government the right to terminate a contract for default if a contractor fails to (a) deliver supplies or to perform the services or work within the time specified in the contract, (b) make progress so as to endanger contract performance or to prosecute the work with the diligence that will ensure its completion, or (c) perform and other provisions of the contract. The clauses would appear to permit the Government to terminate based on any failure by the contractor to strictly comply with the contract. However, court and agency board of contract appeals decisions have limited the Government's right to terminate by requiring the Contracting Officer to exercise sound discretion and by recognizing various contractor defenses.

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When the Government terminates a contract for default, the Government may be entitled to recover from you, the contractor, unliquidated progress payments, the excess costs of reprocuring the same or similar items, services, or work, and any other damages resulting from your failure to perform. The excess costs of reprocurement are the difference between the price of the affected deliverables in the defaulted contract and what the Government pays to reprocure the supplies or services to complete the work.

Even if you are ultimately able through litigation to overturn the Government's decision to terminate your contract for default, you still may incur substantial losses. Litigation is costly and disruptive. Time of key personnel is diverted from income-producing work to litigation-related tasks such as responding to interrogatories and requests for production of documents, depositions, and meetings with lawyers. In addition, a default termination results in poor past performance evaluations and negative responsibility determinations for your company that can seriously impede your ability to obtain other Government work.

For more information about preventing and responding to Terminations for Default, see Paul J. Seidman and Robert D. Banfield, "How to Avoid and Overturn Terminations for Default," Briefing Papers No 98-12, November 1998.

Seidman & Associates, P.C. can help your company or business seek all of the costs you are entitled to following termination of your government contract either for convenience or default. For more information about maximizing termination for convenience settlements, how to avoid and overturn terminations for default, and other Government Contracts issues, see our Publications on Government Contract Law.

If your business has inquiries or concerns regarding the termination of a government contract, get in touch with a lawyer at our firm today. A member of the firm can assess your situation and take the steps that are necessary to maximize your recovery for a termination for convenience.

The law firm of Seidman & Associates, P.C. is based in Washington D.C. and represents businesses across the globe in government contract issues and other government-related business matters.

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Seidman & Associates, P.C.
923 Fifteenth Street NW
Washington, DC 20005

Phone: (202) 737-5734
Fax: (202) 204-0001
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The Seidman & Associates law firm represents clients with government contracts claims,
litigation, and appeals in the U.S. Court of Federal Claims,
Board of Contract Appeals, U.S. District Court,
U.S. Court of Appeal for the Federal Circuit, and other U.S. Courts of Appeal.