Preparing for a federal termination for convenience

We’re in a time of disruption and uncertainty in government contracts and grants. A flurry of executive orders, shifting policy priorities and directives to freeze and reevaluate federal funding are transitioning into a wave of federal award terminations.

When faced with the termination of a government contract or grant, it’s important to understand the process, your rights and each party’s responsibilities, including submitting a termination settlement proposal (TSP) to maximize the recovery of costs owed.

Upon receipt of a termination notice, you will be required to take immediate action. Here are the key steps in the process:

If you are unable to negotiate a settlement on your assistance award directly with the agreement officer or grants officer, discuss your options with legal counsel. It may be possible to pursue a monetary claim under the Tucker Act in the U.S. Court of Federal Claims.

TSPs may include the following:

• Costs of work performed up to the effective termination date. These costs may consist of preparation costs for work that was terminated.
• Protection and disposition of property, such as storage and transportation.
• Rental costs under unexpired leases if all reasonable efforts have been made to terminate or otherwise reduce the cost of the lease.
• Legal requirements for separating personnel, including salaries paid during required notice periods, required severance payments and the cost of legal counsel.
• Termination and settlement of subagreements and vendors.
• Costs that cannot be immediately discontinued after the termination date despite all reasonable efforts.
• Accounting, legal and professional fees to prepare TSPs and supporting data.
• Indirect costs allocable to allowable termination costs.
• Stop-work costs if the award was suspended prior to receiving a complete termination notice. These include the costs to pause activities responsibly, unavoidable costs incurred during the stop-work period and justifications for why those costs were necessary and reasonable. For partial terminations, submit a request for equitable adjustment under the remaining portion of the award.
• For contracts, profit on work done for the terminated portion of the contract. The contract type and terms will dictate the calculation methods. Profit is not allowed on termination expenses (except for subcontractor settlement costs).
• For assistance awards, administrative closeout costs may be incurred until the due date of the final report(s).

A TSP package should include the following:

• A cover letter with a well-supported cost narrative that explains how the settlement costs were calculated (e.g., inventory, total cost) and justifies why the proposed costs are allowable, allocable and reasonable.
• Supporting documentation as needed (e.g., budget file showing the buildup of termination costs).
• Contract TSP form(s). Include the appropriate TSP form prescribed at FAR 49.602-1 and a Schedule of Accounting Information (SF 1439).
• For contracts, provide accurate, complete and current cost or pricing data when the amount of a termination settlement agreement exceeds the threshold in FAR 15.403-4 (currently $2 million).