The Department of Government Efficiency’s (“DOGE”) scrutiny of federal contracts has resulted in a spike in notices of termination for convenience. Given DOGE’s broad mandate to reduce federal spending, we expect a sustained increase in the use of terminations for convenience to end contracts the administration considers “wasteful” or not aligned with its priorities.

But while termination notices make one thing clear—the contract is over—it can leave contractors with questions about their rights and obligations.

What Is a Termination for Convenience and Can I Challenge It?

The right to terminate for convenience is included expressly in almost all government contracts—and is generally considered to be a government right even when not expressly included.[1] Terminations for convenience allow the federal government to unilaterally end a contract (or a portion of a contract) immediately and without alleging contractor fault. The government typically invokes a termination for convenience after determining the contract is no longer in its best interests, and this can occur for a wide variety of reasons, such as budget cuts, or changes in government priorities or project requirements. Typically, the government does not explain why it is terminating a contract for convenience.

The government’s right to terminate for convenience is broad and, unlike a termination for default, there are very limited paths to challenge a convenience termination. In order to overturn a termination for convenience, the contractor must prove it was made in bad faith or that it constitutes an abuse of discretion. This typically requires the contractor to present clear and convincing evidence that the contract was terminated for the purpose of harming the contractor.[2] Some groups of contractors have begun to challenge termination notices the government has issued under the new administration. Because most contractors will struggle to demonstrate that mass terminations—or even any specific one—were made with the intention of causing harm to them specifically, contractors and grantees are testing novel arguments. For example, in Pacito v. Trump, No. 2:25-cv-00255 (W.D. Wash. 2025), the district court issued a preliminary injunction requiring the government to reinstate cooperative agreements with refugee resettlement agencies, finding that the mass terminations essentially nullified the statutory scheme obligating the government to provide refugee admission and resettlement services and were likely arbitrary and capricious under the Administrative Procedure Act.

While these novel challenges will be addressed by the courts and Boards of Contract Appeals, most contractors are best served by working on how to maximize the compensation they are entitled to in response to a termination.

What Is Required for a Termination Notice to Be Valid?

A notice of termination for convenience must be in writing. The contracting officer may deliver the notice by: (1) e-mail with confirmation of receipt; (2) certified mail, return receipt requested; or (3) hand delivery, with written acknowledgment of receipt. FAR 49.102(a). The notice must also be sent simultaneously to the contract administration office and any known assignee, guarantor, or surety of the contractor. FAR 49.102(b).

The notice of termination must include:

• A statement that the contract is being terminated for convenience under the applicable contract clause;”
• The effective date of termination;
• The extent of termination, whether complete or partial and, if partial, the scope of the work terminated;
• Any special instructions, such as to stop all work, terminate subcontractors and suppliers, and return property belonging to the government;
• Recommended steps to minimize the impact on the contractor’s workforce, such as giving affected employees advance notice of the reduction-in-force, advising employees to apply for unemployment insurance, and informing any local unions representing employees. FAR 49.102; FAR 49.601-2(g).

What If My Termination Notice Is Procedurally Deficient?

Given the speed at which the government is issuing terminations, and because, in some cases, typical contract points of contact have left the government, some termination notices issued have not taken the typical form, calling into question their validity. If the termination notice is missing any required information or is unclear or inaccurate, the contractor should document the issue in writing to the contracting officer. A contractor should identify the specific deficiencies in the notice and any impacts on its ability to comply with the termination, including resulting delays and additional costs incurred. If the contractor believes the termination notice is not valid, it should nonetheless treat the notice as a stop work order in order to avoid incurring additional costs that may not be recoverable.

A defective termination notice does not give the contractor a right to bring a claim for breach of contract.[3] And the government can amend the notice to correct non-substantive errors, add data or instructions, or rescind the notice if the items terminated had been completed or delivered before the contractor’s receipt of the notice. FAR 49.102(b). Even if a notice is deficient, a contractor should still make reasonable efforts to comply and reduce costs. But identifying validity issues, particularly those which may result in the termination notice being rescinded, can save the contractor from taking actions which may be difficult to undo in the case of recission, such as terminating staff.

Identifying the proper point of contact for a termination has, in some recent instances, been a challenge. If none is identified in the notice, contractors should make all reasonable efforts to identify and contact a contracting authority within the relevant agency or department. This can involve searching public directories and identifying chief procurement officers or other senior contracting officials. If those efforts are unsuccessful, contractors should send a letter documenting the deficiencies to the last known address or e-mail address of the contracting officer and contracting agency.

Identifying Termination-Related Costs

The contractor is responsible for preparing and submitting a termination proposal to the contracting officer within one year of the termination notice. See FAR 52.249-2; FAR 52.249-6. There is little reason to wait anywhere near that long. We suggest termination proposals be submitted as soon as possible, particularly now as the federal workforce is in flux. And, regardless of the speed with which the proposal can be submitted, contractors who receive a notice of termination for convenience should immediately begin identifying and segregating recoverable costs to allow them to prove those costs with sufficient certainty and certify to their accuracy. The contractor should document costs incurred up to the termination, ongoing costs directly related to the contract that cannot be avoided, and costs incurred in settling the terminated contract. Detailed records, including invoices and relevant backup documentation, should be kept and contract-related costs should be segregated from other expenses.

The following cost categories can be recovered in a termination for convenience:

• Payment for work performed: Contractors are entitled to compensation for the value of work completed up to the termination date. Recovery of costs under a fixed-price contract is limited to the “total contract price.” FAR 52.249-2(f).
• Reasonable profit: Contractors are entitled to profit on work performed before the termination notice. Profit will depend, among other things, on the difficulty of the work, the contractor’s efficiency, and the profit rate the contractor would have earned had the contract been completed. FAR 49.202(b). If the government can prove the contract would have been completed at a loss, the contractor is not entitled to any profit and recovery is subject to a loss adjustment. FAR 49.203(a).
• Settlement costs: Expenses related to preparing the termination settlement proposal, including accounting, legal, and clerical costs.
• Post-termination costs: Costs directly associated with halting operations, such as demobilization expenses, severance for personnel, and subcontractor settlements.

The last category tends to cause the most confusion and it is often necessary to analyze the costs individually and collectively to determine whether the relevant case law supports their inclusion and whether, overall, the proposal will be viewed as “fair and reasonable.” FAR Part 31.205-42 outlines some of the types of costs “that would not have arisen had the contract not been terminated”:

• common items: the costs of items “reasonably usable on the contractor’s other work” but only 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;
• 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.

While these items stem from and take into account the FAR’s cost principles, the FAR directs agencies to use those principles as “guides, but [] not rigid measures, for ascertaining fair compensation.” FAR 49.201. Accordingly, “in appropriate cases, costs may be estimated, differences compromised, and doubtful questions settled by agreement.”

The ability of contractors to include accounting and legal costs in their settlement proposal should encourage them to seek advice from their attorneys, accountants, and cost consultants immediately after receiving a termination notice. This can ensure they maximize the recovery to which they are entitled.

What If the Government Rejects My Termination Settlement Proposal?

If the government rejects a termination settlement proposal, contractors have several options. They can negotiate with the contracting officer to reach a mutually acceptable settlement, which is the most common and most cost-efficient path. Notably, the FAR authorizes partial payment if there are areas of agreement but a final settlement has not been reached. These partial payments can ease cash flow problems for contractors and provide them sufficient time to finalize stickier areas of settlement.

If negotiations fail, a contractor can file a claim under the Contract Disputes Act (“CDA”), which involves submitting a written claim to the contracting officer who must issue a final decision within a specified time frame. If the claim is denied, the contractor can appeal the decision to the applicable agency board or the Court of Federal Claims. Contractors should keep in mind that a termination itself is not a contracting officer’s final decision, meaning contractors must first file a claim under the CDA before proceeding to a board or court.[4]

If contractors are unable to get a response to their termination settlement proposals, they can move forward with a CDA claim, which can be “deemed denied” after 60 days. While this path may be a less ideal process than negotiated settlement, it provides contractors with an appeal before the board or court even if their settlement proposal is rejected.

[1] See G.L. Christian & Assoc. v. United States, 312 F.2d 418 (Ct. Cl. 1963).

[2] See Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1239 (Fed. Cir. 2002).

[3] Fahey v. United States, 71 Fed. Cl. 522, 528 (2006).

[4] See, e.g., Blankson v. Agency for Int’l Dev., CBCA 8256 (Jan. 2, 2025) (notice of termination for convenience was not a final decision under CDA).