Albo & Oblon, L.L.P - Arlington/Main Office.
2200 Clarendon Blvd., Ste. 1201
Arlington, VA 22201
(703) 312-0410
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Albo & Oblon, L.L.P -- Fairfax County Office
6367 Rolling Mill Place, Suite 102
Springfield, VA 22201
(703) 455-0046
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Albo & Oblon, L.L.P. -- Norfolk/Hampton Roads Office
World Trade Center
101 West Main Street, Suite 435
Norfolk VA 23510
(757) 200-7900
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Albo & Oblon, L.L.P. -- Washington, D.C./Maryland Office
641 Indiana Avenue, N.W., Second Floor
Washington, DC 20004
(202) 386-7470
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This article is for your personal information only and is not intended as legal advice. This area of the law is very complex. Every case is different and the information contained herein is general. This information is not intended to be legal advice. Nor is this material intended to replace consultation with a professional. Always consult a licensed attorney for your particular case. Nothing herein shall create an attorney/client relationship.
Termination of Government Contracts
Q. Does the government have the right to terminate a contractor's government contract?
A. In some cases, yes. There are two general types of termination actions in government contracts: termination for convenience, and termination for default.
Q. What is a termination for convenience?
A. A termination for convenience allows the government to terminate all or part of a contract for its convenience and not for the fault of the contractor performing on the contract. Often, the government will terminate for convenience if the products or services covered by the contract are no longer needed or become obsolete.
If the federal government terminates a government contract for its convenience, the contractor or contractors working on the contract must stop work immediately after receiving written notice of the termination. If there are portions of the contract that were not terminated by the government, the contractor or contractors must continue to perform those parts of the contract. With respect to the portions of the contract that have been terminated, the contractor or contractors must close out its work and quickly begin to settle any and all termination claims, including any outstanding claims between the prime contractor and its subcontractors, if any.
After termination, the government is required to settle all claims related to the termination. The government must compensate the terminated contractor for the work already performed, and for any efforts expended in the preparation of future work under the contract. The government must also compensate the terminated contractor some reasonable amount for the contractor's anticipated profits lost as a result of the termination. In addition, contractors may recover some of their costs associated with the preparation and presentation of claims, costs associated with the termination of the contractor's subcontracts, if any, and costs associated with the disposal of materials procured by the contractor to be used in the performance of the contract.
Q. What is a termination for default?
A. A termination for default is the government's cancellation of part or all of a government contractor on grounds that the contractor has failed to perform its contractual obligations under the contract, or it is anticipated that the contractor will be unable to perform. A termination for default is serious, as it can very well prevent the contractor from being able to successfully compete for future government contracts, and can also result in the contractor being liable to the government for the cost of its replacement on the contract.
In the event of a potential termination for default, the contractor will receive a written notice from the contracting officer that its contract is in danger of being terminated, the reasons therefore, and the notice will often given the contractor a specific period of time to satisfy its performance obligations or risk being terminated. If the government terminates a contractor's contract for default, the contractor has the opportunity to appeal the decision to the contracting officer of the procuring agency. If the appeal is successful usually the termination for default will be converted into a termination for convenience, a much better outcome for the contractor.
If the contractor is unable to get the termination converted to a termination for convenience, the contractor may be responsible for the payment to the government for the government's costs, which can often be substantial. Costs can include re-procurement costs, and in some cases, where the termination was a result of intentional contractor wrongdoing, such as fraud, the contractor may be responsible for returning all profits made by the contractor under the government contractor.
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