FAR 49.503—Termination for convenience of the Government and default.
Plain-English Summary
FAR 49.503 tells contracting officers which termination clauses to insert when a contract may be ended for convenience or default, and it explains which clause alternates apply in special situations. It covers cost-reimbursement contracts, including the general rule for using FAR 52.249-6 and the exceptions for research and development contracts with educational or nonprofit institutions on a no-fee basis, construction contracts, contracts involving partial payments, and time-and-material or labor-hour contracts. It also covers fixed-price architect-engineer services by directing use of FAR 52.249-7, and it addresses how prime contractors may flow down a suitable termination clause to cost-reimbursement subcontracts. In practice, this section is about clause selection and tailoring: the wrong clause or wrong alternate can create settlement, interest, and administration problems later if the Government terminates the contract. It also signals that subcontract termination provisions should be adapted to the subcontract relationship rather than copied verbatim. Although the section is short, it is operationally important because termination rights and settlement procedures depend heavily on the exact clause included in the contract.
Key Rules
Use cost-reimbursement clause
When a cost-reimbursement contract is contemplated, the contracting officer must insert FAR 52.249-6, Termination (Cost-Reimbursement), in the solicitation and contract. The only stated exception is for research and development contracts with an educational or nonprofit institution on a no-fee basis.
Apply construction alternates
If the cost-reimbursement contract is for construction, the contracting officer must use FAR 52.249-6 with Alternate I. If the contract also involves partial payments and the contracting officer decides the interest requirement is inappropriate, Alternate III applies for construction contracts.
Handle partial payment interest
For cost-reimbursement contracts with U.S. Government agencies or State, local, or foreign governments or their agencies, the contracting officer may determine that the requirement to pay interest on excess partial payments is inappropriate. In that case, Alternate II applies for non-construction contracts, and Alternate III applies for construction contracts.
Use T&M and labor-hour alternates
If the contract is time-and-material or labor-hour, the contracting officer must use FAR 52.249-6 with Alternate IV. If the contract is with a government agency described in the rule and interest on excess partial payments is inappropriate, Alternate V must be used.
Use A-E fixed-price clause
For architect-engineer services when a fixed-price contract is contemplated, the contracting officer must insert FAR 52.249-7, Termination (Fixed-Price Architect-Engineer), in the solicitation and contract.
Tailor subcontract clauses
A prime contractor may use FAR 52.249-6 in cost-reimbursement subcontracts if the relationship between the prime and subcontractor is clearly identified. Inapplicable provisions, such as paragraphs (e), (j), and (n), should be deleted, and the subcontractor’s time to submit a termination settlement proposal should be shortened, for example to six months.
Responsibilities
Contracting Officer
Select and insert the correct termination clause and alternate based on contract type, construction status, partial payment treatment, and whether the contract is with a government agency. The contracting officer must also decide whether the interest requirement on excess partial payments is inappropriate and tailor the clause accordingly.
Prime Contractor
When using termination clauses in cost-reimbursement subcontracts, ensure the clause fits the subcontract relationship, delete inapplicable provisions, and set a reasonable, shortened deadline for the subcontractor’s termination settlement proposal.
Agency
For contracts with U.S. Government, State, local, or foreign government agencies or their agencies, the agency relationship may affect whether interest on excess partial payments is required or waived, which in turn determines the proper clause alternate.
Subcontractor
Understand the termination clause incorporated into the subcontract and comply with the shortened deadline and any tailored settlement procedures if the prime contractor has adapted FAR 52.249-6 for subcontract use.
Practical Implications
Clause selection matters immediately at award: if the wrong termination clause or alternate is inserted, later termination settlement rights and obligations may not match the contract type.
Construction and non-construction cost-reimbursement contracts are treated differently, especially when partial payments and interest on excess partial payments are involved.
Prime contractors should not copy FAR 52.249-6 into subcontracts without editing it; provisions that do not fit the subcontract relationship should be removed to avoid confusion and disputes.
The settlement proposal deadline for subcontractors should be shortened, so subcontract administration should track that deadline carefully and communicate it clearly.
For architect-engineer services, the fixed-price A-E termination clause is the required clause, so using a generic fixed-price or cost-reimbursement termination clause would be a compliance error.
Official Regulatory Text
(a) Cost-reimbursement contracts- (1) General use. Insert the clause at 52.249-6 , Termination (Cost-Reimbursement), in solicitations and contracts when a cost-reimbursement contract is contemplated, except contracts for research and development with an educational or nonprofit institution on a no-fee basis. (2) Construction. If the contract is for construction, the contracting officer shall use the clause with its AlternateI. (3) Partial payments. If the contract is with an agency of the U.S. Government or with State, local, or foreign governments or their agencies, and if the contracting officer determines that the requirement to pay interest on excess partial payments is inappropriate, the contracting officer shall use the clause with its AlternateII. In such contracts for construction, the contracting officer shall use the clause with its AlternateIII. (4) Time-and-material and labor-hour contracts. If the contract is a time-and-material or labor-hour contract, the contracting officer shall use the clause with its AlternateIV. If the contract is with an agency of the U.S. Government or with State, local, or foreign governments or their agencies, and if the contracting officer determines that the requirement to pay interest on excess partial payments is inappropriate, the contracting officer shall use the clause with its Alternate V. (b) Insert the clause at 52.249-7 , Termination (Fixed-Price Architect-Engineer), in solicitations and contracts for architect-engineer services, when a fixed-price contract is contemplated. (c) Subcontracts. The prime contractor may find the clause at 52.249-6 , Termination (Cost-Reimbursement), suitable for use in cost-reimbursement subcontracts; provided, that the relationship between the contractor and subcontractor is clearly indicated. Inapplicable conditions ( e.g., paragraphs (e), (j) and (n)) should be deleted and the period for submitting the subcontractor’s termination settlement proposal should be reduced ( e.g., 6 months).