TERMINATIONS FOR
CONVENIENCE (T4C) FOR
IMPLEMENTING PARTNERS
Regional Office of Acquisition and Assistance (ROAA)
March 2025
What is a Termination for Convenience?
(T4C)
It is the government’s right to completely or partially terminate a contractor's performance
of work under a contract when it is in the government's interest to do so.
General tenets:
1) The government possesses broad discretion, within the bounds of good faith to T4C
1) The government's termination is not considered a breach of contract, and
1) The contractor is generally entitled recovery of limited costs.
Reasons for Termination for Convenience (T4C)
Typical reasons to terminate for convenience:
A) Changes are needed after contract award (example supplies are no longer
needed);
B) Changes or advancements in technology;
C) Work is impossible to perform due to flaws in the scope or specifications;
D) Shifting government priorities;
E) Lack of funding;
F) Bid protest;
G) Expiration of a stop work period without government direction to resume work;
H) Domestic political agenda;
I) International geopolitical conflict.
TYPES OF TERMINATIONS
• PARTIAL TERMINATION: a section or portion of the scope is reduced but the rest of the
award keeps going. Partners can seek equitable adjustment.
• FULL TERMINATION: the award/scope is terminated in its entirety and the
contractor is not obligated to perform further work absent any specific
written instructions from the Contracting Officer.
TERMINATION TIMELINES
Timelines are unique to award type and clauses in the agreement in general:
Acquisition: 1 Year (Settlement proposal is due within 1 year of termination notification)
(FAR 49)
Assistance: US Organizations: in accordance with 2 CFR 200, 2CFR 700 and 2CFR 340. 120
Days - submit all reports and liquidate all financial obligations. Non-US Organizations (ADS
M.10 Award Suspension and Termination) ADS303mab 30 days - repay all unexpended
funds as of the effective date of termination. 90 days submit a written claim.
Interagency Agreement (IAA): (Check individual award) 9 months to request liquidation
(Annex C Standard Provisions)
PIO: (Check Clause in Specific Award) Require 90 days written notice and 120 days for
written claim [Example from M.9 Termination Procedures (Standard) (April 2011)
ACQUISITION THRESHOLD - Settlement Review Board
Washington Clearance is required when
(1) The amount of settlement, by agreement or determination, involves $100,000 or more;
(2) Level of review. Proposed settlements in excess of $5 million shall be reviewed and approved by a board consisting of the
M/OAA Director, the General Counsel, and the Controller, without power of redelegation.
BASIC STEPS IN TERMINATION FOR CONVENIENCE
(T4C)
3) Negotiate
1) Notification 2) Settlement 4) Pay Contractor / or
Settlement or Issue
of Proposal and Unilateral Settlement
collect debt pursuant
Termination Disposition to partial payment
Determination
5) Award moves to Closeout
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STEP 1: Notification of Termination
Formal written notice given to a contractor typically contains i) authority to terminate, ii) effective date, iii) extent of
termination (complete/partial), iv) special instructions.
Additional written notice will generally include specific directions leading to submission of a settlement proposal:
1. Stop work immediately on the terminated portion of the contract and stop placing subcontracts thereunder
2. Terminate all subcontracts related to the terminated portion of the prime contract
3. Immediately advise the CO of any special circumstances precluding the stoppage of work
4. If partial - perform unterminated portion and request for an equitable adjustment of price for the continued portion,
supported by evidence of any increase in the cost, if the termination is partial
5. Safeguard property
6. Notify the CO in writing of any legal proceedings growing out of any subcontract or other commitment related to the
termination
7. Settle outstanding liabilities and proposals arising out of termination of subcontracts, obtaining any approvals or
ratifications required by the CO
8. Promptly submit the contractor’s own settlement proposal, supported by appropriate schedules
9. Dispose of termination inventory, as directed or authorized by the CO
STEP 2: Settlement - What is Settlement?
OBJECTIVE: To ‘fairly’ compensate the contractor for the work performed and
related activities arising from the termination.
• When the CO terminates a contract for convenience, the government is liable to the contractor for the
contractor’s incurred costs and profit on all work performed.
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.”
TYPES OF SETTLEMENT
• INVENTORY BASIS: used when inventory is involved (ie. raw materials, parts etc) are
inventoried by contractor and presented to government for disposition. Performance
costs (labor, material, indirect rates) are incorporated into the inventory category.
• TOTAL COST BASIS (Most Common especially for services): summary actual and unpaid
costs by cost category (for example direct labor, materials, indirect labor etc.)
• NO COST: The CO is required to effect a no cost settlement in lieu of termination when:
1) it is known the contractor will accept a no cost settlement, 2) government property
was not furnished and 3) there are no outstanding payments, debts due the
government, or other contractor obligations.
TYPICAL ELEMENTS OF SETTLEMENT
Dependant on type of award and contractors cost accounting practices but typically
contain:
Allowable Costs (and for Acquisition - Profit)
• Performance Costs (direct labor, material and other direct costs etc. )
• Other Costs - non recurring costs because of termination (loss of equipment value,
unexpired leases, restoration of leased property, local labor law severance requirements
etc. )
• Settlements with Subcontractors: Prime is required to settle and then be reimbursed.
• G&A Expense: as applicable
• Settlement Expenses: accounting, legal and other costs related to preparation,
negotiation of settlement, and preservation of inventory.
• Profit/Fee: negotiated often considering (% completion, level of complexity, cost
mitigation initiatives, expected profit/fee earned if not terminated.)
SETTLEMENT BUDGETARY NOTES
Settlement goes easier when we have budget notes that define the following:
Explanation Brief explanation of T4C chronology for which additional financial liability or
increased costs were incurred. Establishes link between termination and corresponding
harm, be supported with explanation, reference relevant dates/key events and cite
authoritative basis (ie. clause) permitting request for relief.
Cost Monetary value assigned. Calculation of cost impacts being sought due to T4C.
Calculation should be: logical with clear ‘audit trail’ of inputs and data sources, consistent
with established accounting practices, and compliant with applicable regulatory or
contractual requirements.
STEP 3: Negotiate Settlement/ Unilateral
Determination
Negotiated: CO negotiates with contractor and parties reach agreement.
Unilateral: Issued when the government and contractor cannot reach a bilateral agreement
on all elements of outstanding cost; the contractor has not submitted a settlement proposal
within the period stipulated in the termination clause.
ROAA will be asking AOR/COR for
help on
❏ Outstanding Vouchers - any outstanding vouchers prior to February 13, 2025. If so, review,
if questions ask and copy ROAA, or approve.
❏ Past Performance - Complete CPARs or Assistance Performance Review
❏ Closeout plans - timely wind down of operations
❏ Disposition - make recommendations and assist CO/AO with property disposition.
STEP 4: Pay the Implementing Partner
● Modification incorporating settlement is provided to RFSC as grounds for
payment.
● Calculate and release excess funds.
● Award moves to closeout.
THANK YOU
