FAR 52.249-5—Termination for Convenience of the Government (Educational and Other Nonprofit Institutions).
Plain-English Summary
FAR 52.249-5 is the termination-for-convenience clause used for contracts with educational institutions and certain nonprofit organizations. It explains when the Government may end all or part of the work, how the Contracting Officer must issue the notice of termination, and what the contractor must do immediately after receiving that notice. It also covers stop-work obligations, subcontract and commitment termination, assignment of subcontract rights, settlement of subcontract terminations, transfer and protection of Government property and contract-related items, disposition of termination inventory, and the contractor’s duty to submit termination inventory schedules and a final settlement proposal within specified deadlines. The clause further addresses negotiated settlements, the special cost principles that govern allowable termination costs for educational institutions and nonprofits, the Government’s ability to make partial payments, and the contractor’s appeal rights under the Disputes clause. In practice, this clause is the roadmap for winding down a terminated effort, preserving records and property, and calculating the amount the contractor may recover after termination.
Key Rules
Government may terminate for convenience
The Government may terminate the contract in whole or in part whenever the Contracting Officer determines termination is in the Government’s interest. The termination must be issued by written Notice of Termination that states the scope of the termination and its effective date.
Immediate post-notice duties
After receiving the notice, the contractor must stop the terminated work, stop placing new subcontracts except as needed for the remaining work, and take all other actions required by the clause or directed by the Contracting Officer. These duties begin immediately unless the Contracting Officer directs otherwise.
Subcontract and commitment wind-down
The contractor must terminate applicable subcontracts, cancel or divert personal-services commitments that extend beyond the termination date, and settle subcontract termination claims with required approval or ratification. The Government may direct assignment of rights under terminated subcontracts so it can settle those claims itself.
Property, records, and deliverables
The contractor must transfer title if needed and deliver terminated-work materials, equipment, completed or partially completed plans, drawings, and information as directed. The contractor must also protect and preserve Government-related property in its possession and complete the non-terminated portion of the contract.
Disposition of termination inventory
The contractor must use best efforts to sell termination inventory as directed or authorized, but is not required to extend credit to buyers. The contractor may also acquire the property if the Contracting Officer approves the terms and price, and sale proceeds must be applied as directed to reduce Government payments or otherwise credited.
Inventory schedules deadline
The contractor must submit complete termination inventory schedules within 120 days after the effective termination date unless the Contracting Officer extends the deadline in writing based on a timely written request from the contractor. Missing this deadline can complicate or delay settlement.
Final 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 based on a timely request made within that year. If the contractor misses the deadline, the Contracting Officer may determine the amount due using available information.
Negotiated settlement and allowable costs
The contractor and Contracting Officer may agree on all or part of the termination amount, including reasonable cancellation charges and certain reasonable losses on personal-services commitments that could not be diverted despite reasonable diligence. The contract is then amended to reflect the agreed amount.
Applicable cost principles
Termination costs are governed by the FAR cost principles tied to the contractor type and the contract date. Educational institutions generally follow FAR subpart 31.3; nonprofits that are not educational institutions generally follow FAR subpart 31.7; and certain exempt nonprofit institutions use the commercial cost principles in FAR 31.2.
Partial payments and appeal rights
The Government may make partial payments against termination costs if it believes the total will not exceed the amount ultimately due. The contractor may appeal under the Disputes clause, but failure to submit the settlement proposal on time can limit or affect that right under the clause’s final sentence.
Responsibilities
Contracting Officer
Determine whether termination is in the Government’s interest; issue the written Notice of Termination stating the extent and effective date; direct stop-work, property transfer, subcontract assignment, and inventory disposition actions; approve or ratify subcontract settlements when required; extend deadlines in writing when justified; evaluate or negotiate the settlement amount; authorize partial payments; and determine the amount due if the contractor misses the settlement proposal deadline.
Contractor
Immediately stop terminated work and follow all notice directions; stop placing unnecessary new subcontracts; terminate affected subcontracts and commitments; protect Government-related property; complete the remaining work not terminated; submit termination inventory schedules within 120 days unless extended; submit a final termination settlement proposal within one year unless extended; support and document claimed costs under the applicable FAR cost principles; and use best efforts to dispose of termination inventory as directed.
Subcontractors
Comply with termination actions flowing down from the prime contract as applicable, including winding down work and supporting termination settlement proposals. Their claims are generally handled through the prime contractor unless the Government directs assignment of rights under terminated subcontracts.
Government
Receive transferred title, property, and deliverables as directed; settle or pay termination claims when rights are assigned; apply proceeds from inventory disposition as directed; and make partial payments only when the Contracting Officer believes the total will not exceed the final entitlement.
Practical Implications
This clause is operationally heavy: once a termination notice arrives, the contractor must move quickly to stop work, preserve records, and control costs. Delays in shutdown actions can create unallowable costs or disputes over what was reasonably incurred.
The 120-day inventory schedule deadline and 1-year settlement proposal deadline are critical. Contractors should calendar both immediately, request extensions in writing before the deadlines expire, and keep detailed support for inventory, subcontract settlements, and cancellation charges.
Cost allowability depends on the contractor’s status, so educational institutions and nonprofits must use the correct FAR cost principles for the contract date and entity type. Using the wrong cost basis is a common source of rejected claims.
Subcontract management is a major risk area. Contractors should document termination notices to subs, obtain required approvals for settlements, and track any Government assignment of rights so they do not settle claims without authority.
The Government can make partial payments, but those payments are not the final settlement. Contractors should treat them as interim funding only and continue building a complete, auditable final proposal supported by schedules, invoices, and explanations of mitigation efforts.
Official Regulatory Text
As prescribed in 49.502 (d) , insert the following clause: Termination for Convenience of the Government (Educational and Other Nonprofit Institutions) (Aug 2016) (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: (1) Stop work as specified in the notice. (2) Place no further subcontracts or orders (referred to as subcontracts in this clause), except as necessary to complete the continued portion of the contract. (3) Terminate all applicable subcontracts and cancel or divert applicable commitments covering personal services that extend beyond the effective date of termination. (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 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; approval or ratification will be final for purposes of this clause. (6) Transfer title (if not already transferred) and, as directed by the Contracting Officer, deliver to the Government any information and items that, if the contract had been completed, would have been required to be furnished, including- (i) Materials or equipment produced, in process, or acquired for the work terminated; and (ii) Completed or partially completed plans, drawings, and information. (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, termination inventory other than that retained by the Government under 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 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. If the Contractor fails to submit the termination settlement 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. (e) Subject to paragraph (d) of this clause, the Contractor and the Contracting Officer may agree upon the whole or any part of the amount to be paid because of the termination. This amount may include reasonable cancellation charges incurred by the Contractor and any reasonable loss on outstanding commitments for personal services that the Contractor is unable to cancel; provided , that the Contractor exercised reasonable diligence in diverting such commitments to other operations. The contract shall be amended and the Contractor paid the agreed amount. (f) The cost principles and procedures in subpart 31.3 of the Federal Acquisition Regulation (FAR), Contracts with Educational Institutions (defined as institutions of higher education in the OMB Uniform Guidance in 2 CFR part 200 , subpart A, and 20 U.S.C. 1001 ), as in effect on the date of the contract, shall govern all costs claimed, agreed to, or determined under this clause; however, if the Contractor is not an educational institution and is a nonprofit organization (as defined in the OMB Uniform Guidance at 2 CFR part 200 ), the cost principles and procedures in subpart 31.7 of the FAR, Contracts with Nonprofit Organizations, shall apply; unless the Contractor is a nonprofit institution listed in the OMB Uniform Guidance at 2 CFR part 200 , appendix VIII, as exempted from the cost principles in subpart E, in which case the cost principles at FAR 31.2 for commercial organizations shall apply to such contractor. (g) The Government may, under the terms and conditions it prescribes, make partial payments against costs incurred by the Contractor for the terminated portion of this contract, if the Contracting Officer believes the total of these payments will not exceed the amount to which the Contractor will be entitled. (h) The Contractor has the right of appeal as provided under the Disputes clause, except that if the Contractor failed to submit the termination settlement proposal within the time provided in paragraph (d) of this clause and failed to request a time extension, there is no right of appeal. (End of clause)