FAR 49.402—Termination of fixed-price contracts for default.

The Government’s right.

FAR 49.402-1 explains the Government’s basic right to terminate a contract for default when the contract includes the Default clause at FAR 52.249-8. It identifies the three core default triggers: failure to make delivery of supplies or perform services on time, failure to perform any other contract provision, and failure to make progress when that failure endangers contract performance. The section also makes clear that this right is not automatic; it is subject to the notice requirements in the Default clause, which means the contracting officer must follow the procedural steps in the clause before exercising termination. In practice, this provision is the Government’s primary contractual remedy for serious contractor nonperformance under standard fixed-price supply and service contracts. It matters because a default termination can have major consequences for the contractor, including liability for excess reprocurement costs and negative past performance impacts, while also giving the Government a tool to protect mission needs when performance is at risk.

Effect of termination for default.

FAR 49.402-2 explains the legal and financial consequences of a termination for default. It covers the Government’s lack of liability for costs on undelivered work, the Government’s right to recover advance and progress payments tied to that work, and the Government’s option under the Default clause to require transfer of title and delivery of completed supplies and manufacturing materials. It also limits when the contracting officer may use the Default clause to acquire completed supplies or materials, including the need to confirm whether the Government already has title under another contract provision and to consider whether materials can reasonably be used by another contractor. The section then addresses payment for completed supplies and manufacturing materials acquired after default, while requiring the Government to protect itself from overpayment caused by possible lien claims from laborers and material suppliers. Finally, it states that the contractor remains liable for excess reprocurement costs and for other damages, whether or not the Government actually repurchases the supplies or services. In practice, this section is about balancing the Government’s right to recover and mitigate losses after default with the need to pay fairly for usable completed items while avoiding double payment or exposure to lien-related liability.

Procedure for default.

FAR 49.402-3 lays out the procedure the Government must follow before terminating a contract for default. It covers the decision-making process for choosing among default termination, termination for convenience, or no-cost cancellation; the approval required before issuing a show cause or cure notice; when notice is or is not required before termination; how to handle waiver of delivery or performance dates; the use of cure notices and show cause notices; notice to sureties; special handling for small business contractors; the factors the contracting officer must weigh before deciding to terminate; and the required contents of the final termination notice. In practice, this section is designed to ensure default terminations are legally supportable, procedurally fair, and well documented before the Government takes the serious step of ending the contractor’s right to proceed. It also protects the Government’s rights to recover excess costs and preserves the contractor’s appeal rights. For contracting officers, this section is a checklist for due process and decision discipline; for contractors, it signals when they may receive cure or show cause notices and what information a termination notice must contain. For sureties and small business support offices, it establishes mandatory notification and coordination points.

Procedure in lieu of termination for default.

FAR 49.402-4 explains what a contracting officer may do instead of terminating a contract for default when that is in the Government’s interest. It covers three main alternatives: allowing the contractor, surety, or guarantor to keep performing under a revised delivery schedule; allowing performance to continue through a subcontract or other business arrangement with an acceptable third party while preserving the Government’s rights; and, when the Government no longer needs the supplies or services and the contractor is not liable for damages, using a no-cost termination settlement agreement. In practice, this section gives the Government flexibility to avoid the disruption, delay, and administrative burden of a default termination when a less drastic solution will protect the Government’s interests. It also ties directly to the contracting officer’s judgment about whether continued performance is feasible, whether the Government’s rights remain protected, and whether the contract should instead be closed out without cost because the requirement has disappeared. The section is important because it helps agencies recover performance or exit a contract efficiently without unnecessarily escalating to default termination.

Memorandum by the contracting officer.

FAR 49.402-5 is a documentation requirement tied to default terminations and to any alternative action taken under FAR 49.402-4. It requires the contracting officer to prepare a memorandum for the contract file explaining the reasons for the action taken whenever a contract is terminated for default or when the contracting officer uses a procedure authorized by 49.402-4 instead of immediate default termination. In practice, this section is about creating a clear administrative record that shows why the Government chose the course it did, which supports accountability, review, and later dispute resolution. The memorandum helps preserve the factual and legal basis for the decision, especially because default termination is a serious contractual remedy and often becomes the subject of claims, appeals, or litigation. It also ensures that any deviation from a straightforward default termination under 49.402-4 is documented in the file so the decision can be understood and defended later. For contractors, this means the Government’s decision should be traceable to documented reasons; for contracting officers, it means the file must tell the story of the decision, not just record the outcome.

Repurchase against contractor’s account.

FAR 49.402-6 explains how the Government may repurchase supplies or services after a default termination and charge the extra cost back to the defaulting contractor. It covers when repurchase is required, the timing of the repurchase decision, how to set the repurchase quantity, the need to buy the same or similar items at a reasonable price, and the requirement to obtain competition to the maximum extent practicable. It also distinguishes between repurchases that stay within the undelivered terminated quantity and those that exceed it, because the latter must be treated as a new acquisition. Finally, it addresses how to recover excess repurchase costs from the contractor, including written demand and debt collection procedures under FAR subpart 32.6. In practice, this section protects the Government’s mission by allowing prompt replacement of needed items while preserving the ability to recover avoidable extra costs caused by the contractor’s default.

Other damages.

FAR 49.402-7 addresses what the Government may recover after a contractor default or after the contracting officer chooses an alternative course of action instead of terminating for default under FAR 49.402-4. It covers two separate damage concepts: liquidated damages that are already provided for in the contract, and other ascertainable damages the Government can prove, including administrative costs caused by the default. The section requires the contracting officer to promptly assess and demand liquidated damages when they are due, and it makes clear that those damages are in addition to any excess repurchase costs recovered under the default framework. It also directs the contracting officer to consult legal advice and use the procedures in FAR subpart 32.6 to assert a claim for any other recoverable damages. In practice, this section ensures the Government does not stop at termination or repurchase recovery alone, but also pursues contractually agreed liquidated damages and any additional measurable losses caused by the contractor’s failure to perform.

Reporting Information.

FAR 49.402-8 is a narrow but important reporting requirement tied to terminations for default. It covers the contracting officer’s duty, under agency procedures, to ensure that information about a termination for default notice is reported, and that any later withdrawal of that notice or conversion of the action to a termination for convenience is also reported. The section points to FAR 42.1503(h), which governs the contract performance information system entry for termination-related actions. In practice, this means the official record must accurately reflect not only the original default action, but also any later correction, reversal, or change in the termination basis. The purpose is to preserve an accurate government-wide procurement record, support future source selection and responsibility determinations, and avoid misleading performance history. For contractors, this section matters because a default notice can affect past performance records and future business opportunities unless the record is updated when the action is withdrawn or converted.