FAR 49.601-2—Letter notice.
Plain-English Summary
FAR 49.601-2 provides the suggested standard letter notice the Government uses to notify a prime contractor that a contract for supplies is being terminated for convenience, and it explains how the notice may be adapted for other types of contracts and for subcontracts. The section covers the required method of delivery, the distinction between electronic notice and the alternate notice when electronic confirmation is unavailable, and the core instructions that follow a termination: stop-work obligations, limits on further shipments and orders, recordkeeping, notice to immediate subcontractors and suppliers, reporting of legal proceedings and liens, compliance with any additional contracting officer instructions, handling and transfer of termination inventory, settlement of subcontractor claims, treatment of completed end items, patent-related submissions, and workforce reduction guidance for affected employees. In practice, this section is important because it gives contractors a roadmap for immediate post-termination actions and helps contracting officers communicate the Government’s expectations in a consistent, defensible way. It also ties directly to other FAR parts, especially Part 45 on property and Part 49 on termination settlement procedures, so the notice is not just informational—it triggers concrete contractor duties and documentation requirements. The section is designed to reduce confusion, preserve Government and contractor rights, and support orderly closeout and settlement after a termination for convenience.
Key Rules
Use the suggested notice
The FAR provides a model letter notice for terminations for convenience of supply contracts. It may be modified for other contract types and subcontracts, but the core content should be preserved so the contractor receives clear, complete instructions.
Deliver notice properly
The notice must be sent by certified mail, return receipt requested, or electronically if the contracting officer receives evidence of receipt. If no prior electronic notice was issued, or if receipt of the electronic notice was not confirmed, the alternate notice should be used.
State the termination clearly
The notice must identify the effective date, whether the termination is complete or partial, the contract number, and the applicable termination clause. It should also reflect any special details such as the contractor name, address, and affected line items.
Stop work and limit new commitments
The contractor must stop all work, make no further shipments, and place no further orders except for the continued portion of the contract, retained work-in-process or materials, or work authorized by the contracting officer for safety, protection of equipment, spoilage prevention, or avoidance of undue loss to the Government.
Keep compliance records
The contractor must maintain adequate records showing when the notice was received, the effective termination date, and the extent of completion as of that date. These records support settlement and help establish what costs and inventory are properly attributable to the termination.
Notify subcontractors and suppliers
The contractor must promptly notify each immediate subcontractor and supplier affected by the termination, instruct them to stop work and orders, tell them to submit settlement proposals promptly, and ask them to pass the notice down to their own immediate subcontractors.
Report legal proceedings and liens
The contractor must notify the contracting officer of any pending or later-filed legal proceedings based on subcontracts or purchase orders, and of any lien or potential lien against termination inventory that must be reported to the Government.
Account for termination inventory
When instructed, the contractor must transfer title and deliver termination inventory to the Government, including subcontractor inventory the contractor has the right to take. Proper accounting for all prime and subcontractor termination inventory is required to settle the proposal, with detailed property guidance in FAR Part 45.
Settle subcontractor claims promptly
The contractor remains liable to subcontractors and suppliers for their termination proposals and is expected to settle them promptly. Government reimbursement of those settlements is governed by FAR Part 49.
Handle completed end items separately
The contractor must identify completed end items still on hand and arrange for their delivery or other disposal. Acceptable completed end items are invoiced in the normal way and are not included in the termination settlement proposal.
Forward patent information if required
If the contract requires it, the contractor must promptly submit disclosures of inventions, discoveries, and patent applications, along with any required instruments of license or assignment.
Address workforce impacts
If the termination and other outstanding terminations will cause a significant workforce reduction, the contractor is urged to notify state employment services, give employees advance notice, advise on unemployment insurance applications, and inform unions, chambers of commerce, and other local assistance organizations.
Responsibilities
Contracting Officer
Issue the termination notice using the prescribed or suitably modified letter; ensure the notice is properly delivered and receipt is evidenced; identify the effective date, scope, and applicable clause; direct the contractor on termination inventory, completed end items, and any other required actions; and receive reports of legal proceedings, liens, and other termination-related matters.
Contractor
Immediately stop work and new ordering except as allowed; document receipt, effective date, and completion status; notify immediate subcontractors and suppliers; report legal proceedings and liens; comply with additional contracting officer instructions; account for and transfer termination inventory; settle subcontractor and supplier claims; handle completed end items separately from the settlement proposal; forward required patent materials; and take workforce reduction outreach steps when appropriate.
Immediate Subcontractors and Suppliers
Upon receiving notice from the prime contractor, stop affected work and shipments, cease new orders, and prepare and submit settlement proposals promptly. They should also pass similar instructions to their own immediate subcontractors where applicable.
Government
Provide the termination notice and, through the contracting officer, direct disposition of inventory and other post-termination actions. The Government also evaluates settlement proposals and reimbursement under the applicable FAR termination and property rules.
Local Employment and Assistance Organizations
These entities do not have mandatory duties under this section, but they are identified as resources the contractor should contact to help displaced workers find employment and access unemployment-related services.
Practical Implications
Contractors must move fast after a termination notice; delays in stopping work, notifying subs, or preserving records can increase unreimbursable costs and complicate settlement.
The notice is only a starting point. Contractors still need to follow the termination clause, Part 45 property rules, and Part 49 settlement procedures, which often drive the real administrative workload.
A common pitfall is mixing completed end items into the termination settlement proposal. Acceptable completed items are invoiced normally, while only terminated work and related costs belong in the settlement proposal.
Another frequent issue is incomplete subcontractor flowdown. The prime must notify immediate subs and suppliers and should expect them to continue the notice chain, but the prime remains responsible for managing the termination impact.
Inventory and lien issues can become major disputes if not documented early. Contractors should track all termination inventory, subcontractor inventory rights, and any legal proceedings or liens affecting the property to avoid settlement delays.
Official Regulatory Text
The following letter notice of termination is suggested for use if a contract for supplies is being terminated for convenience. With appropriate modifications, it may be used in terminating contracts for other than supplies and in terminating subcontracts. This notice shall be sent by certified mail, return receipt requested, or electronically, provided evidence of receipt is received by the contracting officer. If no prior electronic notice was issued, or if no confirmation of an electronic notice was received, use the alternate notice that follows this notice. Notice of Termination to Prime Contractors [ At the top of the notice, set out all special details relating to the particular termination; e.g.,name and address of company, contract number of terminated contract, line items, etc. ] (a) Effective date of termination. This confirms the Government’s electronic notice to you dated , 20, terminating _____________ [ insert "completely" or "in part"] Contract No._ (referred to as "the contract") for the Government’s convenience under the clause entitled ___________ [ insert title of appropriate termination clause ]. The termination is effective on the date and in the manner stated in the electronic notice. (b) Cessation of work and notification to immediate subcontractors. You shall take the following steps: (1) Stop all work, make no further shipments, and place no further orders relating to the contract, except for- (i) The continued portion of the contract, if any; (ii) Work-in-process or other materials that you may wish to retain for your own account; or (iii) Work-in-process that the Contracting Officer authorizes you to continue (A) for safety precautions, (B)to clear or avoid damage to equipment, (C)to avoid immediate complete spoilage of work-in-process having a definite commercial value, or (D)to prevent any other undue loss to the Government. (If you believe this authorization is necessary or advisable, immediately notify the Contracting Officer by telephone or personal conference and obtain instructions.) (2) Keep adequate records of your compliance with paragraph (b)(1) of this section showing the- (i) Date you received the Notice of Termination; (ii) Effective date of the termination; and (iii) Extent of completion of performance on the effective date. (3) Furnish notice of termination to each immediate subcontractor and supplier that will be affected by this termination. In the notice- (i) Specify your Government contract number; (ii) State whether the contract has been terminated completely or partially; (iii) Provide instructions to stop all work, make no further shipments, place no further orders, and terminate all subcontracts under the contract, subject to the exceptions in paragraph (b)(1) of this section; (iv) Provide instructions to submit any settlement proposal promptly; and (v) Request that similar notices and instructions be given to its immediate subcontractors. (4) Notify the Contracting Officer of all pending legal proceedings that are based on subcontracts or purchase orders under the contract, or in which a lien has been or may be placed against termination inventory to be reported to the Government. Also, promptly notify the Contracting Officer of any such proceedings that are filed after receipt of this Notice. (5) Take any other action required by the Contracting Officer or under the Termination clause in the contract. (c) Termination inventory. (1)As instructed by the Contracting Officer, transfer title and deliver to the Government all termination inventory of the following types or classes, including subcontractor termination inventory that you have the right to take: [ Contracting Officer insert proper identification or "None"]. (2) To settle your proposal, it will be necessary to establish that all prime and subcontractor termination inventory has been properly accounted for. For detailed information, see part 45 . (d) Settlements with subcontractors. You remain liable to your subcontractors and suppliers for proposals arising because of the termination of their subcontracts or orders. You are requested to settle these settlement proposals as promptly as possible. For purposes of reimbursement by the Government, settlements will be governed by the provisions of part 49 . (e) Completed end items. (1) Notify the Contracting Officer of the number of items completed under the contract and still on hand and arrange for their delivery or other disposal (see 49.205 ). (2) Invoice acceptable completed end items under the contract in the usual way and do not include them in the settlement proposal. (f) Patents. If required by the contract, promptly forward the following to the Contracting Officer: (1) Disclosure of all inventions, discoveries, and patent applications made in the performance of the contract. (2) Instruments of license or assignment on all inventions, discoveries, and patent applications made in the performance of the contract. (g) Employees affected. (1)If this termination, together with other outstanding terminations, will necessitate a significant reduction in your work force, you are urged to- (i) Promptly inform the local State Employment Service of your reduction-in-force schedule in numbers and occupations, so that the Service can take timely action in assisting displaced workers; (ii) Give affected employees maximum practical advance notice of the employment reduction and inform them of the facilities and services available to them through the local State Employment Service offices; (iii) Advise affected employees to file applications with the State Employment Service to qualify for unemployment insurance, if necessary; (iv) Inform officials of local unions having agreements with you of the impending reduction-in-force; and (v) Inform the local Chamber of Commerce and other appropriate organizations which are prepared to offer practical assistance in finding employment for displaced workers of the impending reduction-in-force. (2) If practicable, urge subcontractors to take similar actions to those described in paragraph (1) of this section. (h) Administrative. The contract administration office named in the contract will identify the Contracting Officer who will be in charge of the settlement of this termination and who will, upon request, provide the necessary settlement forms. Matters not covered by this notice should be brought to the attention of the undersigned. (i) Please acknowledge receipt of this notice as provided below. __________________________________________________ (Contracting Officer) __________________________________________________ __________________________________________________ (Name of Office) __________________________________________________ (Address) Acknowledgment of Notice The undersigned acknowledges receipt of a signed copy of this notice on ________, 20. Two signed copies of this notice are returned. __________________________________________________ (Name of Contractor) By _______________________________________________ (Name) __________________________________________________ (Title) (End of notice) Alternate notice. Substitute the following paragraph (a) for paragraph (a) of 49.601-2 , Notice of Termination to Prime Contractors, if no prior electronic notice was issued, or if no confirmation of an electronic notice was received: (a) Effective date of termination . You are notified that Contract No. ______________ (referred to as "the contract") is terminated __________ [ insert "completely" or "in part"] for the Government’s convenience under the clause entitled _____________[ insert title of appropriate termination clause ]. The termination is effective __________________ [ insert either "immediately upon receipt of this Notice" or "on ________, 20," or "as soon as you have delivered, including prior deliveries, the following items:" ( list )]. Reduce items to be delivered as follows: [ insert instructions ].