FAR 52.249-2—Termination for Convenience of the Government (Fixed-Price).
Plain-English Summary
FAR 52.249-2 is the standard fixed-price termination-for-convenience clause for non-commercial contracts. It explains when the Government may end all or part of the work, how the Contracting Officer must issue the notice, and what the contractor must do immediately after receiving it. The clause also covers stop-work obligations, subcontract termination and settlement, assignment of subcontract rights, transfer and protection of Government property, disposition of termination inventory, plant clearance, submission of termination inventory schedules, and the timing and content of the final termination settlement proposal. It then describes how the parties may negotiate an agreed settlement, what happens if they cannot agree, and the limits on the amount payable, including the possibility of a reasonable profit on work performed. In practice, this clause is the roadmap for closing out a fixed-price contract after a convenience termination and is designed to protect the Government’s interest while ensuring the contractor is fairly compensated for work performed and reasonable termination costs.
Key Rules
Government may terminate
The Government may terminate the contract, in whole or in part, whenever the Contracting Officer determines that termination is in the Government’s interest. The Contracting Officer must issue a written Notice of Termination that states the extent of the termination and the effective date.
Immediate stop-work duties
After receiving the notice, the contractor must immediately stop the terminated work and follow the notice and any Contracting Officer directions, even if the amount due has not yet been determined or adjusted. The contractor must also avoid taking actions that would increase termination costs unless they are necessary for the remaining work.
Subcontract shutdown and settlement
The contractor must stop placing new subcontracts for the terminated work, terminate affected subcontracts, and settle subcontractor claims and liabilities as required. The Contracting Officer may require assignment of subcontract rights to the Government so the Government can settle those claims directly.
Transfer and protect property
At the Contracting Officer’s direction, the contractor must transfer title and deliver terminated work-in-process, completed work, supplies, materials, and related plans, drawings, and information. The contractor must also protect and preserve Government property or property in which the Government may acquire an interest.
Disposition of termination inventory
The contractor must use best efforts to sell termination inventory when directed or authorized, but is not required to extend credit to buyers. Sale proceeds must be applied as directed by the Contracting Officer, typically to reduce Government payments or contract cost.
Inventory schedules and plant clearance
The contractor must submit complete termination inventory schedules within 120 days after the effective termination date unless the Contracting Officer extends the time in writing. After the plant clearance period, the contractor may submit a certified list of remaining termination inventory for Government removal or storage, and the Government must act within the stated timeframes.
Settlement proposal deadline
The contractor must submit a final termination settlement proposal promptly, and no later than one year after the effective termination date unless the Contracting Officer extends the deadline in writing on timely request. If the contractor misses the deadline, the Contracting Officer may determine the amount due based on available information.
Negotiated or unilateral settlement
The contractor and Contracting Officer may agree on all or part of the amount due, including a reasonable profit on work performed, subject to the clause’s pricing limits. If they cannot agree, the Contracting Officer will determine the amount payable under the clause’s settlement rules, without duplicating amounts already agreed to.
Responsibilities
Contracting Officer
Determine whether termination is in the Government’s interest; issue the written Notice of Termination; direct stop-work, subcontract actions, property transfer, inventory disposition, and protection measures; approve or ratify subcontract settlements when required; extend deadlines when justified; review, verify, and correct inventory schedules and lists; negotiate or determine the final settlement amount; and ensure payment is limited to amounts allowed by the clause.
Contractor
Immediately stop terminated work; avoid new subcontracts for terminated work; terminate affected subcontracts; settle subcontractor liabilities and proposals as authorized; assign subcontract rights when directed; transfer title and deliver terminated property and related technical materials; protect and preserve property; use best efforts to sell directed inventory; submit termination inventory schedules within 120 days; submit a final settlement proposal within one year unless extended; and continue performance of the non-terminated work.
Subcontractors
Cease work on terminated portions when directed through the prime contractor or as otherwise required by the termination flowdown; submit termination settlement proposals to the prime contractor or Government as applicable; and cooperate in the closeout and disposition of terminated subcontract work and property.
Government
Accept title to termination inventory when required; remove inventory or arrange storage within the stated time; settle or pay termination claims when rights are assigned; and pay the contractor the amount agreed to or determined under the clause, subject to the clause’s limits.
Practical Implications
This clause is operational, not just legal: once a termination notice arrives, the contractor must move quickly to stop costs, secure property, and document everything. Delays can increase unrecoverable costs and complicate settlement.
The biggest contractor risk is missing deadlines, especially the 120-day inventory schedule deadline and the one-year settlement proposal deadline. If those dates are missed, the Contracting Officer can rely on available information and may reduce the amount paid.
Subcontract management is often the most complicated part of a convenience termination. Prime contractors need to control flowdowns, preserve rights, and document subcontract settlements carefully to avoid unsupported claims or duplicate recovery.
Property and inventory handling can materially affect the final settlement. Contractors should segregate terminated work, track materials and work-in-process, and follow Government directions on sale, transfer, storage, or disposal.
The clause allows negotiation, but the settlement amount is still constrained by the contract price and prior payments. Contractors should build a well-supported proposal showing allowable costs, reasonable profit on work performed, and offsets for salvage or other credits.
Official Regulatory Text
As prescribed in 49.502 (b)(1)(i), insert the following clause: Termination for Convenience of the Government (Fixed-Price) (Apr 2012) (a) The Government may terminate performance of work under this contract in whole or, from time to time, in part if the Contracting Officer determines that a termination is in the Government’s interest. The Contracting Officer shall terminate by delivering to the Contractor a Notice of Termination specifying the extent of termination and the effective date. (b) After receipt of a Notice of Termination, and except as directed by the Contracting Officer, the Contractor shall immediately proceed with the following obligations, regardless of any delay in determining or adjusting any amounts due under this clause: (1) Stop work as specified in the notice. (2) Place no further subcontracts or orders (referred to as subcontracts in this clause) for materials, services, or facilities, except as necessary to complete the continued portion of the contract. (3) Terminate all subcontracts to the extent they relate to the work terminated. (4) Assign to the Government, as directed by the Contracting Officer, all right, title, and interest of the Contractor under the subcontracts terminated, in which case the Government shall have the right to settle or to pay any termination settlement proposal arising out of those terminations. (5) With approval or ratification to the extent required by the Contracting Officer, settle all outstanding liabilities and termination settlement proposals arising from the termination of subcontracts; the approval or ratification will be final for purposes of this clause. (6) As directed by the Contracting Officer, transfer title and deliver to the Government- (i) The fabricated or unfabricated parts, work in process, completed work, supplies, and other material produced or acquired for the work terminated; and (ii) The completed or partially completed plans, drawings, information, and other property that, if the contract had been completed, would be required to be furnished to the Government. (7) Complete performance of the work not terminated. (8) Take any action that may be necessary, or that the Contracting Officer may direct, for the protection and preservation of the property related to this contract that is in the possession of the Contractor and in which the Government has or may acquire an interest. (9) Use its best efforts to sell, as directed or authorized by the Contracting Officer, any property of the types referred to in paragraph (b)(6) of this clause; provided , however, that the Contractor (i)is not required to extend credit to any purchaser and (ii) may acquire the property under the conditions prescribed by, and at prices approved by, the Contracting Officer. The proceeds of any transfer or disposition will be applied to reduce any payments to be made by the Government under this contract, credited to the price or cost of the work, or paid in any other manner directed by the Contracting Officer. (c) The Contractor shall submit complete termination inventory schedules no later than 120 days from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 120-day period. (d) After expiration of the plant clearance period as defined in Subpart 49.001 of the Federal Acquisition Regulation, the Contractor may submit to the Contracting Officer a list, certified as to quantity and quality, of termination inventory not previously disposed of, excluding items authorized for disposition by the Contracting Officer. The Contractor may request the Government to remove those items or enter into an agreement for their storage. Within 15 days, the Government will accept title to those items and remove them or enter into a storage agreement. The Contracting Officer may verify the list upon removal of the items, or if stored, within 45 days from submission of the list, and shall correct the list, as necessary, before final settlement. (e) After termination, the Contractor shall submit a final termination settlement proposal to the Contracting Officer in the form and with the certification prescribed by the Contracting Officer. The Contractor shall submit the proposal promptly, but no later than 1 year from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 1-year period. However, if the Contracting Officer determines that the facts justify it, a termination settlement proposal may be received and acted on after 1 year or any extension. If the Contractor fails to submit the proposal within the time allowed, the Contracting Officer may determine, on the basis of information available, the amount, if any, due the Contractor because of the termination and shall pay the amount determined. (f) Subject to paragraph (e) of this clause, the Contractor and the Contracting Officer may agree upon the whole or any part of the amount to be paid or remaining to be paid because of the termination. The amount may include a reasonable allowance for profit on work done. However, the agreed amount, whether under this paragraph (f) or paragraph (g) of this clause, exclusive of costs shown in paragraph (g)(3) of this clause, may not exceed the total contract price as reduced by (1) the amount of payments previously made and (2) the contract price of work not terminated. The contract shall be modified, and the Contractor paid the agreed amount. Paragraph (g) of this clause shall not limit, restrict, or affect the amount that may be agreed upon to be paid under this paragraph. (g) If the Contractor and the Contracting Officer fail to agree on the whole amount to be paid because of the termination of work, the Contracting Officer shall pay the Contractor the amounts determined by the Contracting Officer as follows, but without duplication of any amounts agreed on under paragraph (f) of this clause: (1) The contract price for completed supplies or services accepted by the Government (or sold or acquired under paragraph (b)(9) of this clause) not previously paid for, adjusted for any saving of freight and other charges. (2) The total of- (i) The costs incurred in the performance of the work terminated, including initial costs and preparatory expense allocable thereto, but excluding any costs attributable to supplies or services paid or to be paid under paragraph (g)(1) of this clause; (ii) The cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract if not included in subdivision (g)(2)(i) of this clause; and (iii) A sum, as profit on subdivision (g)(2)(i) of this clause, determined by the Contracting Officer under 49.202 of the Federal Acquisition Regulation, in effect on the date of this contract, to be fair and reasonable; however, if it appears that the Contractor would have sustained a loss on the entire contract had it been completed, the Contracting Officer shall allow no profit under this subdivision (g)(2)(iii) and shall reduce the settlement to reflect the indicated rate of loss. (3) The reasonable costs of settlement of the work terminated, including- (i) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (ii) The termination and settlement of subcontracts (excluding the amounts of such settlements); and (iii) Storage, transportation, and other costs incurred, reasonably necessary for the preservation, protection, or disposition of the termination inventory. (h) Except for normal spoilage, and except to the extent that the Government expressly assumed the risk of loss, the Contracting Officer shall exclude from the amounts payable to the Contractor under paragraph (g) of this clause, the fair value as determined by the Contracting Officer, for the loss of the Government property. (i) The cost principles and procedures of part 31 of the Federal Acquisition Regulation, in effect on the date of this contract, shall govern all costs claimed, agreed to, or determined under this clause. (j) The Contractor shall have the right of appeal, under the Disputes clause, from any determination made by the Contracting Officer under paragraph (e), (g), or (l) of this clause, except that if the Contractor failed to submit the termination settlement proposal or request for equitable adjustment within the time provided in paragraph (e) or (l), respectively, and failed to request a time extension, there is no right of appeal. (k) In arriving at the amount due the Contractor under this clause, there shall be deducted- (1) All unliquidated advance or other payments to the Contractor under the terminated portion of this contract; (2) Any claim which the Government has against the Contractor under this contract; and (3) The agreed price for, or the proceeds of sale of, materials, supplies, or other things acquired by the Contractor or sold under the provisions of this clause and not recovered by or credited to the Government. (l) If the termination is partial, the Contractor may file a proposal with the Contracting Officer for an equitable adjustment of the price(s) of the continued portion of the contract. The Contracting Officer shall make any equitable adjustment agreed upon. Any proposal by the Contractor for an equitable adjustment under this clause shall be requested within 90 days from the effective date of termination unless extended in writing by the Contracting Officer. (m) (1) The Government may, under the terms and conditions it prescribes, make partial payments and payments against costs incurred by the Contractor for the terminated portion of the contract, if the Contracting Officer believes the total of these payments will not exceed the amount to which the Contractor will be entitled. (2) If the total payments exceed the amount finally determined to be due, the Contractor shall repay the excess to the Government upon demand, together with interest computed at the rate established by the Secretary of the Treasury under 50 U.S.C. App.1215(b)(2). Interest shall be computed for the period from the date the excess payment is received by the Contractor to the date the excess is repaid. Interest shall not be charged on any excess payment due to a reduction in the Contractor’s termination settlement proposal because of retention or other disposition of termination inventory until 10 days after the date of the retention or disposition, or a later date determined by the Contracting Officer because of the circumstances. (n) Unless otherwise provided in this contract or by statute, the Contractor shall maintain all records and documents relating to the terminated portion of this contract for 3 years after final settlement. This includes all books and other evidence bearing on the Contractor’s costs and expenses under this contract. The Contractor shall make these records and documents available to the Government, at the Contractor’s office, at all reasonable times, without any direct charge. If approved by the Contracting Officer, photographs, microphotographs, or other authentic reproductions may be maintained instead of original records and documents. (End of clause) Alternate I (Sept 1996) . If the contract is for construction, substitute the following paragraph (g) for paragraph (g) of the basic clause: (g) If the Contractor and Contracting Officer fail to agree on the whole amount to be paid the Contractor because of the termination of work, the Contracting Officer shall pay the Contractor the amounts determined as follows, but without duplication of any amounts agreed upon under paragraph (f) of this clause: (1) For contract work performed before the effective date of termination, the total (without duplication of any items) of- (i) The cost of this work; (ii) The cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract if not included in subdivision (g)(1)(i) of this clause; and (iii) A sum, as profit on subdivision (g)(1)(i) of this clause, determined by the Contracting Officer under 49.202 of the Federal Acquisition Regulation, in effect on the date of this contract, to be fair and reasonable; however, if it appears that the Contractor would have sustained a loss on the entire contract had it been completed, the Contracting Officer shall allow no profit under this subdivision (g)(1)(iii) and shall reduce the settlement to reflect the indicated rate of loss. (2) The reasonable costs of settlement of the work terminated, including- (i) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (ii) The termination and settlement of subcontracts (excluding the amounts of such settlements); and (iii) Storage, transportation, and other costs incurred, reasonably necessary for the preservation, protection, or disposition of the termination inventory. Alternate II (Sept 1996) . 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, delete paragraph (m)(2) of the basic clause. Alternate III (Sept 1996) . If the contract is for construction and with an agency of the U.S. Government or with State, local, or foreign governments or their agencies, substitute the following paragraph (g) for paragraph (g) of the basic clause. Paragraph (m)(2) may be deleted from the basic clause if the Contracting Officer determines that the requirement to pay interest on excess partial payments is inappropriate. (g) If the Contractor and Contracting Officer fail to agree on the whole amount to be paid the Contractor because of the termination of work, the Contracting Officer shall pay the Contractor the amounts determined as follows, but without duplication of any amounts agreed upon under paragraph (f) of this clause: (1) For contract work performed before the effective date of termination, the total (without duplication of any items) of- (i) The cost of this work; (ii) The cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract if not included in subdivision (g)(1)(i) of this clause; and (iii) A sum, as profit on subdivision (g)(1)(i) of this clause, determined by the Contracting Officer under 49.202 of the Federal Acquisition Regulation, in effect on the date of this contract, to be fair and reasonable; however, if it appears that the Contractor would have sustained a loss on the entire contract had it been completed, the Contracting Officer shall allow no profit under this subdivision(iii) and shall reduce the settlement to reflect the indicated rate of loss. (2) The reasonable costs of settlement of the work terminated, including- (i) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (ii) The termination and settlement of subcontracts (excluding the amounts of such settlements); and (iii) Storage, transportation, and other costs incurred, reasonably necessary for the preservation, protection, or disposition of the termination inventory.