T ermination for convenience refers to the exercise of the government's right to bring to an end the performance of all or part of the work provided for under a contract prior to the expiration of the contract "when it is in the Government's interest" to do so. Federal agencies typically incorporate clauses in their procurement contracts which grant them the right to terminate for convenience. However, the right to terminate procurement and other contracts for convenience has also been "read into" contracts which do not expressly provide for it on the grounds that the government has an inherent right to terminate for convenience, or on other related grounds. Some contracts were reportedly terminated, or considered for termination, for convenience in FY2013 as a result of sequestration. However, they would not necessarily do so. What Is the Basis for the Government's Right to Terminate for Convenience? When Can the Government Terminate a Contract for Convenience? The standard Termination for Convenience clauses prescribed by the Federal Acquisition Regulation (FAR) all provide that a termination for convenience is based on the "Government's interest," as opposed to the contractor's actual or anticipated failure to perform. For example, federal courts and agency boards of contract appeals have recognized the government's interest in terminating a contract when
the government no longer needs the supplies or services covered by the contract; the contractor refuses to accept a modification of the contract; questions have arisen regarding the propriety of the award, or about continued performance of the contract; the contractor ceases to be eligible for the contract awarded; the business relationship between the agency and the contractor has deteriorated; the agency has decided to restructure its contractual arrangements or perform work in-house; the agency seeks to avoid a conflict with the Comptroller General, or a dispute with Congress; or the work contemplated by the contract is proving impossible or too costly. Terminations in almost any other circumstances could also be found to be in the government's interest. How Does a Termination for Default Differ from a Termination for Convenience? In other words, if the government exercises its right to terminate for default, and is later found to have exercised this right improperly, the default termination will be treated as a constructive termination for convenience, as previously discussed (see " What Is a Constructive Termination? How Does Cancellation Differ from Termination for Convenience? The Federal Acquisition Regulation (FAR), however, distinguishes between termination and cancellation. Partial terminations for convenience, in particular, can resemble "de-scoping" pursuant to any Changes clause incorporated in the contract. Part 31 specifically contemplates the following costs as potentially allowable (i.e., included in settlements under the government contract to which it is allocable) when a contract is wholly or partially terminated: 
common items : the costs of items "reasonably usable on the contractor's other work" if these items could not be retained at cost without the contractor sustaining a loss; costs continuing after termination : costs which cannot be discontinued immediately after the termination "[d]espite all reasonable efforts by the contractor"; initial costs : nonrecurring labor, material, and related overhead costs incurred in the early part of production as a result of factors such as training, lack of familiarity with the product, or excess spoilage due to inexperienced labor; and preparatory costs incurred in preparing to perform the terminated work, such as initial plant rearrangement and alterations and production planning; loss of useful value of special tooling, machinery, and equipment, provided that the items are not "reasonably capable of use" in the contractor's other work, and the government's interest is protected; rental under unexpired leases , minus the residual value of such leases, provided that the amount of rent claimed does not exceed the reasonable use value of the property, and the contractor makes "all reasonable efforts" to terminate or otherwise reduce the cost of the lease; alterations of leased property : alterations and reasonable restorations required by the lease, when the alterations were necessary for performing the contract; settlement expenses : accounting, legal, clerical, and similar costs reasonably necessary for preparing settlement claims and for termination and settlement of subcontracts; reasonable costs for the storage, transportation, protection, and disposition of property acquired or produced for the contract; and indirect costs related to salary and wages incurred as settlement expenses in relation to the foregoing; and subcontractor claims , including the allocable portion of the claims common to the contract and the contractor's other work, as well as an "appropriate share" of the contractor's indirect expenses, provided that the amount allocated is "reasonably proportionate" to the relative benefits received and is otherwise consistent with Part 31 of the FAR. In certain cases, though, courts and boards of contract appeals have found breach when the government exercises its right to terminate for convenience. Congress has also specifically appropriated or designated additional funds to cover potential termination liability.
"Termination for convenience" refers to the exercise of the government's right to bring to an end the performance of all or part of the work provided for under a contract prior to the expiration of the contract "when it is in the Government's interest" to do so. Federal agencies typically incorporate clauses in their procurement contracts granting them the right to terminate for convenience. However, the right to terminate procurement and other contracts for convenience has also been "read into" contracts which do not expressly provide for it on the grounds that the government has an inherent right to terminate for convenience, or on other related grounds.
Where termination for convenience is concerned, the "Government's interest" is broadly construed. Federal courts and agency boards of contract appeals have recognized the government's interest in terminating a contract when (1) the government no longer needs the supplies or services covered by the contract; (2) the contractor refuses to accept a modification of the contract; (3) questions have arisen regarding the propriety of the award or continued performance of the contract; (4) the contractor ceases to be eligible for the contract awarded; (5) the business relationship between the agency and the contractor has deteriorated; or (6) the agency has decided to restructure its contractual arrangements or perform work in-house. Terminations in other circumstances could also be found to be in the "Government's interest."
In contrast, terminations based on the contractor's actual or anticipated failure to perform substantially as required in the contract are known as "terminations for default." Such terminations are distinct from terminations for convenience in both their contractual basis and the amount of any recovery by the contractor in the event of termination. However, an improper termination for default will typically be treated as a constructive termination for convenience. Terminations for convenience are similarly distinguishable from "de-scoping" pursuant to any Changes clause incorporated in the contract. The Federal Acquisition Regulation (FAR) also distinguishes between termination for convenience and cancellation of multiyear contracts.
As a rule, the government cannot be held liable for breach when it exercises its right to terminate contracts for convenience because it has the contractual and/or inherent right to do so. This means that contractors generally cannot recover anticipatory profits or consequential damages when the government terminates a contract for convenience. The contractor is, however, entitled to a termination settlement, which, in part, represents the government's consideration for its right to terminate. The composition of any termination settlement can vary depending upon which of the "standard" Termination for Convenience clauses is incorporated into the contract, among other factors. Such settlements typically include any costs incurred in anticipation of performing the terminated work and profit thereon. Some settlements are "no cost"; others are sizable.
In certain cases, however, exercise of the right to terminate for convenience could result in breach of contract (e.g., the agency entered the contract with the intent to terminate).
Congress is perennially interested in termination for convenience because it is part of the overall framework of federal procurement. However, congressional interest has been particularly high in recent Congresses due to sequestration and other efforts to constrain federal spending. Some contracts were reportedly terminated, or considered for termination, for convenience in FY2013 as a result of sequestration. There has also been interest in ways to reduce the amount of funds that must be obligated or otherwise "reserved" to cover potential termination liability.