Navigating a Termination for Convenience as a Government Contractor

What to Do When You Receive a Termination for Convenience (T4C) Notice 

If you’re a government contractor, few things are as disruptive as receiving a Termination for Convenience (T4C) notice from the Government. Unlike a Termination for Default, a T4C isn’t necessarily a reflection of your performance—it simply means that the Government no longer requires the services or supplies under the contract. 

While this can be unsettling, it’s important to take immediate, structured steps to protect your company financially and operationally. 

Step 1: Understand What Termination for Convenience Means 

The Federal Government has the unilateral right to terminate a contract for convenience, as outlined in: 

• FAR 52.249-1 (Fixed-Price Small Contracts) 

• FAR 52.249-2 (Fixed-Price Supply and Service Contracts) 

• FAR 52.249-3 (Dismantling, Demolition, or Removal of Improvements) 

• FAR 52.249-6 (Cost-Reimbursement Contracts) 

• FAR 52.212-4(l) & (m) – Commercial Item Contracts (Note: T4C under FAR 12.403 differs slightly from the 52.249 series, including how settlement is determined.) 

The reason for termination could be: 

•  A change in mission or funding availability 

•  Shifts in policy or strategic priorities 

• A reallocation of resources to other programs 

• An alternative to Termination for Default (T4D) – Sometimes used when the Government is dissatisfied with performance but prefers to avoid the legal and administrative burdens of a default termination. 

The Government must compensate the contractor for costs incurred before termination and reasonable settlement expenses. However, understanding the specific FAR clause in your contract is key to determining what costs may be recoverable. 

Step 2: Review the Termination Notice Carefully 

Your first action should be to review the notice in detail. It should include: 

• The effective date of termination 

• Instructions on stopping work and transitioning deliverables 

• Requirements for a termination settlement proposal 

• Points of contact for government representatives handling the termination 

Verify the Termination Clause: 

• Confirm that the correct FAR clause is cited—it should match the one in your contract. While Termination for Convenience clauses fall under the Christian Doctrine, errors in referencing could impact negotiations. 

• Determine if the termination is full or partial. Partial T4C allows portions of the contract to continue, requiring careful reallocation of resources and cost tracking. 

• Keep in mind that your company has a right to request clarification on any ambiguous terms. 

Step 3: Stop Work and Secure Records 

Once notified, immediately: 

• Cease all work, except as directed by the contracting officer (CO). 

• Notify your subcontractors and vendors—stop all outstanding orders. 

• Secure records related to performance, costs, and expenses. 

• Immediately establish a charge code or tracking system to account for all time and costs incurred as a direct result of the termination (e.g., administrative work, legal expenses, and settlement preparation). 

If you fail to stop work properly, you may not be reimbursed for extra costs incurred beyond the termination date. 

Step 4: Complete the Required Government Forms 

To formally process a Termination for Convenience, the Government and contractor must use Standard Forms (SFs) as prescribed in FAR 49.602. 

The key forms include: 

• SF 1435 – Settlement Proposal (Inventory Basis) – Used for fixed-price contracts if the proposals are computed on an inventory basis. 

• SF 1436 – Settlement Proposal (Total Cost Basis) – Used for fixed-price contracts if the proposals are computed on a total cost basis 

• SF 1437 – Settlement Proposal (Cost- Reimbursement Type Contracts) – For Cost Type contracts, itemizing labor, materials, and other direct costs. 

• SF 1438 – Settlement Proposal (Short Form) – For small-dollar contracts (under $10,000), streamlining the settlement process. 

For Partial Payments: 

• SF 1440 – Application for Partial Payment – Allows contractors to request interim payments while awaiting full settlement, ensuring financial liquidity during prolonged settlement negotiations. 

These forms must be filled out with detailed cost breakdowns and submitted within one year of receiving the termination notice. In addition to the above forms, SF 1439 Schedule of Accounting Information, shall also be filed in support of a settlement proposal unless SF 1438 is being used.  

The settlement process can take months to over a year, especially when thousands of contracts are terminated simultaneously due to budget shifts or policy changes. The Government will assess factors like contract performance, incurred costs, and potential reuse of materials when determining final payment amounts. Contractors should negotiate fair compensation while ensuring compliance with FAR 49.113 (Contractor’s Request for Equitable Adjustment). 

Step 5: Prepare and Submit Your Termination Settlement Proposal 

Your termination settlement proposal should include: 

•  Direct costs incurred before termination (labor, materials, overhead). 

•  Indirect costs such as lease agreements, facilities, or sunk costs. 

•  Settlement expenses, including attorney fees, accounting costs, and administrative efforts. 

•  Anticipated profit on work completed before termination (subject to negotiation). 

The relevant FAR parts for settlement proposals include: 

• FAR 49.206-1 (Fixed-Price Termination Proposals) 

• FAR 49.302 (Cost-Reimbursement Termination Settlements) 

• FAR 49.502 (General Principles for Settlement) 

 Maintain clear and auditable documentation of costs incurred. The Termination Contracting Officer (TCO) — who is specifically designated to handle contract terminations—will scrutinize all claims. While a Contracting Officer (CO) manages the overall contract, a TCO is assigned when a termination occurs to oversee settlement negotiations and ensure compliance with FAR Part 49. They can either be the same person or a newly assigned individual.  

Step 6: Negotiate the Settlement 

Once your proposal is submitted: 

• The Government’s Termination Contracting Officer (TCO) will review it. 

• They may request additional documentation or adjustments. 

• Expect negotiation, especially regarding indirect costs and profit calculations. 

• If the settlement can’t be resolved amicably, it may proceed to the Board of Contract Appeals or the Court of Federal Claims. 

Again, documentation is your best defense in these negotiations—ensure you have detailed cost records, subcontractor invoices, labor reports, material receipts, indirect cost justifications, termination notices, correspondence with the Government, and any prior contract modifications. 

Step 7: Mitigate Damages & Pursue New Opportunities 

After settling, focus on recouping losses and moving forward: 

• Reallocate your resources to other contracts or commercial work. 

• Seek bridge contracts or task orders from agencies with similar needs. 

• Pursue legal remedies if necessary, but weigh the cost-benefit of litigation. 

• Learn from the experience—review how contract structures, risk assessments, and diversification strategies can protect your business in the future. 

Final Thoughts 

While a Termination for Convenience can be a setback, handling it correctly can minimize financial loss and even position your company for future opportunities. Understanding the FAR clauses governing settlement claims, submitting the correct Standard Forms (SFs), and acting promptly can help you recover and keep your business moving forward. 

The BOOST team has the expertise to guide you through the T4C process, helping you navigate complexities, minimize financial loss, and position your business for future success. If you need guidance, please don’t hesitate to reach out.

About The Author, Nick D’Abbraccio Sr. Contracts Consultant 

Nick D’Abbraccio is a seasoned Contracts Manager with over 15 years of experience in federal and commercial contract management, backed by a Certified Professional Contract Manager (CPCM) credential. He has extensive expertise in contract administration, compliance with Federal Acquisition Regulations (FAR), and negotiation, coupled with hands-on knowledge of complex government contracts. Nick has managed large, high-stakes government-funded contracts, driving compliance, strategic oversight, and effective risk mitigation. Currently pursuing an M.S. in Cybersecurity, he brings a unique perspective to Government Contracts, making him a valuable asset in any contract and procurement environment.