When a government contract is terminated for convenience, contractors may find themselves navigating the complex process of preparing a termination settlement proposal. One critical consideration that often arises is whether the costs associated with hiring legal counsel to assist with the preparation of these proposals are recoverable from the government. The good news for contractors is that, in many cases, attorneys’ fees related to the preparation of a termination settlement proposal are indeed recoverable.

The Legal Basis for Recoverability

The Federal Acquisition Regulation (FAR) provides guidance on cost allowability when it comes to termination settlements. FAR 31.205-42 specifically addresses termination settlement costs, providing that settlement expenses, including the following, are generally allowable:

1. Accounting, legal, clerical, and similar costs reasonably necessary for –

(A) The preparation and presentation, including supporting data, of settlement claims to the contracting officer; and

(B) The termination and settlement of subcontracts.

Additionally, FAR 31.205-33 addresses the allowability of professional and consultant service costs, including legal fees, and generally allows for the recovery of such fees when they are reasonable and allocable.

The Armed Services Board of Contract Appeals (ASBCA) and the Civilian Board of Contract Appeals (CBCA) have consistently upheld that legal fees incurred in the preparation and negotiation of termination settlement proposals are recoverable, provided they meet the standards of reasonableness and allocability. Courts have recognized that contractors often require the assistance of legal professionals to navigate the intricate requirements associated with settlement proposals, especially when large sums or complex contract terms are involved.

Demonstrating Reasonableness and Allocability

To ensure recovery, contractors generally should demonstrate that attorneys’ fees were both reasonable and necessary for the preparation of the termination settlement proposal. Factors considered in determining reasonableness include the complexity of the proposal, the qualifications of the attorney, and the time spent on the preparation. Allocability requires showing that the costs are directly linked to the contract termination and not for unrelated purposes.

Practical Tips for Contractors

1. Consult Early – Involve legal counsel early in the process to ensure compliance with FAR requirements and to maximize the likelihood of recovery.
2. Document Legal Involvement – Maintain detailed records of the attorney’s contributions to the termination settlement proposal to demonstrate their necessity.
3. Justify the Reasonableness – Be prepared to show that the rates charged, and the hours billed, are customary and appropriate for the services rendered.

Conclusion

Recovering attorneys’ fees related to the preparation of termination settlement proposals is a crucial consideration for contractors facing contract termination. By carefully documenting expenses and demonstrating reasonableness and allocability, contractors can enhance their chances of obtaining reimbursement from the government.