FAR 12.403—Termination.
Plain-English Summary
FAR 12.403 explains how to terminate contracts for commercial products and commercial services under the commercial-item clause at 52.212-4. It covers the key distinction between termination for cause and termination for the Government’s convenience, and it makes clear that the detailed termination procedures in FAR part 49 generally do not apply to commercial-item terminations. Instead, contracting officers must follow the procedures in this section, using part 49 only as nonconflicting guidance. The section also sets the policy that terminations should be used only when in the Government’s best interest and that counsel should be consulted before a termination for cause. For termination for cause, it addresses excusable delay notice, cure notices, the Government’s available remedies, required written notice content, and reporting requirements under 42.1503(h). For termination for convenience, it explains how the contractor is to be paid, including prorated contract price or direct labor hours plus directly resulting charges, and it emphasizes simplified settlement, use of standard records, and no audit right solely because of the termination. In practice, this section is the roadmap for handling commercial-item terminations without importing the more formal and often more burdensome rules used for noncommercial contracts.
Key Rules
Part 49 generally does not apply
Commercial-item terminations are governed by 52.212-4 and this section, not the termination procedures in FAR part 49. Contracting officers may use part 49 only as guidance when it does not conflict with the commercial-item termination language.
Terminate only in Government’s best interest
The contracting officer should use the Government’s termination rights for convenience or cause only when doing so serves the Government’s best interests. Before terminating for cause, the contracting officer should consult with counsel.
Excusable delay notice matters
The contractor must notify the contracting officer as soon as possible after an excusable delay begins. In most cases, that notice removes the need for a show cause notice before termination, but it does not eliminate the need for a cure notice when termination is for a reason other than late delivery.
Cure notice before most cause terminations
If the Government is terminating for cause for a reason other than late delivery, the contracting officer must send a cure notice first. This is a required procedural step before taking the more serious action of termination.
Government remedies are marketplace remedies
After a termination for cause, the Government may use all remedies available to a buyer in the marketplace. The preferred remedy is to buy similar items from another contractor and recover excess reprocurement costs, plus incidental or consequential damages caused by the termination.
Written final decision required
A termination for cause must be communicated in writing and must state that the contract is terminated for cause, explain the reasons, identify the remedies the Government intends to seek or when it will decide, and advise that the notice is a final decision with appeal rights under the Disputes clause.
Report terminations and changes
The contracting officer must ensure termination-for-cause notices and amendments are reported under agency procedures and 42.1503(h). If a termination for cause is converted to convenience or withdrawn, that conversion or withdrawal must also be reported.
Convenience termination payment formula
For a convenience termination, the contractor is paid the percentage of the contract price reflecting work performed before notice for fixed-price contracts, or direct labor hours multiplied by the scheduled hourly rates for labor-hour pricing, plus charges directly resulting from the termination.
Simplified settlement and records
The contractor may support termination charges using its standard recordkeeping system and does not have to follow cost accounting standards or part 31 cost principles. The Government also has no audit right solely because the contract was terminated for convenience, and the parties should try to agree on a simple, practical settlement proposal.
Responsibilities
Contracting Officer
Decide whether termination is in the Government’s best interest, consult counsel before terminating for cause, issue cure notices when required, provide the written termination notice with all required elements, determine and pursue appropriate remedies, and ensure required reporting of terminations, conversions, withdrawals, and amendments.
Contractor
Notify the contracting officer as soon as possible after any excusable delay begins, respond to cure or termination notices, support any convenience-termination charges with standard records, and pursue any appeal rights if the termination for cause is treated as a final decision.
Agency
Follow agency procedures for reporting termination actions and ensure reporting complies with 42.1503(h). The agency also should support contracting officers with legal and administrative review as needed.
Counsel
Advise the contracting officer before a termination for cause, especially on procedural sufficiency, risk, and the Government’s available remedies.
Government as buyer
After a termination for cause, act like a marketplace buyer by obtaining replacement items when appropriate and seeking recovery of excess reprocurement costs and other allowable damages.
Practical Implications
Commercial-item terminations are simpler than FAR part 49 terminations, but that does not mean they are informal; the required notice content and reporting rules still matter.
A missing cure notice, weak documentation of the reason for termination, or failure to state appeal rights can create avoidable disputes and weaken the Government’s position.
For convenience terminations, settlement should be practical and fast, but contracting officers still need enough documentation to justify payment and avoid overpaying.
Contractors should keep records in their normal accounting system and should not assume they must prepare a full part 31-style termination settlement proposal.
Because the Government may seek excess reprocurement costs and consequential or incidental damages after a termination for cause, both sides should pay close attention to mitigation, replacement procurement, and the factual basis for the default action.
Official Regulatory Text
(a) General . The clause at 52.212-4 permits the Government to terminate a contract for commercial products or commercial services either for the convenience of the Government or for cause. However, the paragraphs in 52.212-4 entitled "Termination for the Government’s Convenience" and "Termination for Cause" contain concepts which differ from those contained in the termination clauses prescribed in part 49 . Consequently, the requirements of part 49 do not apply when terminating contracts for commercial products or commercial services and contracting officers shall follow the procedures in this section. Contracting officers may continue to use part 49 as guidance to the extent that part 49 does not conflict with this section and the language of the termination paragraphs in 52.212-4 . (b) Policy . The contracting officer should exercise the Government’s right to terminate a contract for commercial products or commercial services either for convenience or for cause only when such a termination would be in the best interests of the Government. The contracting officer should consult with counsel prior to terminating for cause. (c) Termination for cause. (1) The paragraph in 52.212-4 entitled "Excusable Delay" requires contractors notify the contracting officer as soon as possible after commencement of any excusable delay. In most situations, this requirement should eliminate the need for a show cause notice prior to terminating a contract. The contracting officer shall send a cure notice prior to terminating a contract for a reason other than late delivery. (2) The Government’s rights after a termination for cause shall include all the remedies available to any buyer in the marketplace. The Government’s preferred remedy will be to acquire similar items from another contractor and to charge the defaulted contractor with any excess reprocurement costs together with any incidental or consequential damages incurred because of the termination. (3) When a termination for cause is appropriate, the contracting officer shall send the contractor a written notification regarding the termination. At a minimum, this notification shall- (i) Indicate the contract is terminated for cause; (ii) Specify the reasons for the termination; (iii) Indicate which remedies the Government intends to seek or provide a date by which the Government will inform the contractor of the remedy; and (iv) State that the notice constitutes a final decision of the contracting officer and that the contractor has the right to appeal under the Disputes clause (see 33.211 ). (4) The contracting officer, in accordance with agency procedures, shall ensure that information related to termination for cause notices and any amendments are reported. In the event the termination for cause is subsequently converted to a termination for convenience, or is otherwise withdrawn, the contracting officer shall ensure that a notice of the conversion or withdrawal is reported. All reporting shall be in accordance with 42.1503 (h). (d) Termination for the Government’s convenience. (1) When the contracting officer terminates a contract for commercial products or commercial services for the Government’s convenience, the contractor shall be paid- (i) (A) The percentage of the contract price reflecting the percentage of the work performed prior to the notice of the termination for fixed-price or fixed-price with economic price adjustment contracts; or (B) An amount for direct labor hours (as defined in the Schedule of the contract) determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rate(s) in the Schedule; and (ii) Any charges the contractor can demonstrate directly resulted from the termination. The contractor may demonstrate such charges using its standard record keeping system and is not required to comply with the cost accounting standards or the contract cost principles in part 31 . The Government does not have any right to audit the contractor’s records solely because of the termination for convenience. (2) Generally, the parties should mutually agree upon the requirements of the termination proposal. The parties must balance the Government’s need to obtain sufficient documentation to support payment to the contractor against the goal of having a simple and expeditious settlement.