My Government Contract Just Got Terminated for Convenience. What Are My Rights?

I'm hiding in Honduras, I'm a desperate man
Send lawyers, guns, and money
The shit has hit the fan.

— Warren Zevon, “Lawyers, Guns and Money”

You just got a notice from the US Government that your US Government contract is being terminated for convenience. So, what happens next?

As I said in a blog a few weeks ago, the folks at DOGE are not just taking aim at federal employee jobs. See https://www.awrcounsel.com/blog/2025/2/3/are-we-there-yet-usaid-is-shut-down-by-decree-what-is-next. They are also targeting government contractors performing contracts they either deem wasteful or at odds with the MAGA agenda. This obviously includes US Agency for International Development (“AID”) contracts (i.e., foreign aid) but it extends across all the federal agencies, even the Department of Defense. Like civil servants, there are no clear ports in this storm for contractors. Federal employees are subject to a reduction in force (“RIF”), but contractors are subject to termination for the convenience (“T for C”) of their government contracts. All bets are off.

A T for C clause allows the US Government to bring the contract to an end without the need to establish that the contractor is in default. It has been said that the government may terminate for no reason or almost any reason, but not for a bad reason. Examples of the former include when the Government’s needs have changed, or when funding is not available, or the technology is developing in a different path. Under the famous case of Torncello v. United States, 681 F.2d 586 (Fed. Cir. 1982), however, the Government is prohibited from terminating the contract in bad faith. But that determination will be case specific and is hard to prove.

Part 49 of the Federal Acquisition Regulation (“FAR”) establishes policies and procedures relating to the complete or partial termination of contracts for the convenience of the Government, while also making provision for termination due to the default of the contractor. When it is in the government's interest, the FAR allows for contracts to be terminated largely in the federal government’s discretion. Where there is no contractor default, the grounds for termination can still be done for "the convenience of the government.” It is not a breach of contract because the contract provides for the termination right. It is part of the contractual bargain.  

The convenience termination does not necessarily mean the Government is completely off the hook and need not pay the contractor for its work. FAR 49.104 includes an opportunity for a terminated contractor to submit a termination settlement cost proposal. The contractor is supposed to be paid the costs incurred to the date of the termination, including preparations to perform the terminated portion of the work, possibly any necessary wind down costs, and potentially other costs such as the cost to prepare a termination proposal and negotiate its cost adjustment.

Pursuant to FAR 49.201(a): “A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit. Fair compensation is a matter of judgment and cannot be measured exactly. In a given case, various methods may be equally appropriate for arriving at fair compensation. The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement.” 

Whatever the termination costs are, the FAR requires the contractor to give notice and submit the costs promptly. The exact recovery depends on which T for C clause is in your contract. But the real impact is that the contractor cannot recover its full profit expectancy which it would have realized over the life of the contract work. As noted, termination rights can vary by contract terms. For example, in acquisitions of commercial items, a different clause is used. Commercial contract terminations are covered separately in FAR 12.403. And the commercial contractor tends to have even lesser rights.

Even if there is no T for C clause in your contract, it could be read into the contract anyway by operation of law. See G.L. Christian and Associates v. United States (312 F.2d 418 (Ct. Cl. 1963), cert. denied, 375 U.S. 954, 84 S.Ct. 444) (which gave rise to the so-called Christian Doctrine). Even though the Government has failed to include this termination for convenience clause in the contract, the contractor is deemed on notice, due to the mandatory regulation and clauses, that the Government has a right to terminate for convenience.

If you are a US AID contractor, one of the landlord’s whose leases are being terminated, or just worried about doing business with the Government, it is important for you to know and understand your risks and rights. If you have been terminated  and you think the action is in bad faith, or you think it violates some term of your contract, or the Government is refusing to pay you the “fair” termination costs, it may be time to lawyer up and assert your rights. Something tells me we are about to get an explosion of termination disputes in our field of government contracts, and that the Boards of Contract Appeals and the Courts are going to have to sort out what is fair in the way of termination costs. So don’t believe the DOGE figures on cost savings. They haven’t any idea how much the termination of government contracts for convenience is going to cost them.