FAR 52.249-6—Termination (Cost-Reimbursement).
Plain-English Summary
FAR 52.249-6, Termination (Cost-Reimbursement), tells the parties what happens when the Government ends a cost-reimbursement contract before completion. It covers the Government’s right to terminate for convenience or for contractor default, the notice the Contracting Officer must issue, and the effect of a default termination if the contractor later proves the failure was excusable. It also sets out the contractor’s immediate post-termination duties: stopping work, stopping new subcontracts, terminating affected subcontracts, assigning subcontract rights, settling subcontract liabilities, transferring title and delivering terminated property and data, completing the non-terminated work, protecting Government property, and using best efforts to dispose of termination inventory. The clause then addresses inventory schedules, plant clearance, Government removal or storage of leftover property, submission of the final termination settlement proposal, timing rules and extensions, and the Government’s ability to determine the amount due if the contractor misses the deadline. In practice, this clause is the roadmap for winding down a cost-reimbursement contract in an orderly way while preserving the Government’s rights and ensuring the contractor is paid the allowable termination costs and settlement amounts it is entitled to receive.
Key Rules
Government may terminate
The Government may end all or part of the work if the Contracting Officer decides termination is in the Government’s interest or if the contractor defaults and does not cure within 10 days after notice. Default includes failure to make progress when that failure endangers performance.
Notice must be specific
The Contracting Officer must issue a written Notice of Termination stating whether the termination is for default or convenience, the extent of the termination, and the effective date. The notice controls the contractor’s immediate obligations and the scope of the wind-down.
Excusable failure converts default
If a default termination is later found unjustified, or the contractor’s failure was caused by excusable delays beyond its control and without its fault or negligence, the parties’ rights and obligations are treated as if the termination had been for convenience.
Immediate stop-work duties
After notice, the contractor must stop the terminated work, stop placing new subcontracts except as needed for the remaining work, terminate affected subcontracts, and take all directed steps to protect Government interests. These duties apply even while settlement amounts are still being resolved.
Subcontract and property actions
The contractor must assign terminated subcontract rights if directed, settle subcontract termination liabilities with required approval, transfer title and deliver terminated work-in-process, completed items, plans, data, and reimbursed special tooling, and use best efforts to sell termination inventory as directed or authorized.
Inventory and settlement deadlines
The contractor must submit complete termination inventory schedules within 120 days of the effective termination date unless extended in writing, and must submit the final termination settlement proposal promptly, but no later than 1 year after termination unless extended in writing. The Contracting Officer may still accept and act on a late proposal if the facts justify it.
Government control of leftover property
After the plant clearance period, the contractor may list unsold termination inventory and request Government removal or storage. The Government must act within 15 days, and the Contracting Officer may verify and correct the list before final settlement.
Late or missing proposal consequences
If the contractor does not submit a timely settlement proposal, the Contracting Officer may determine the amount due based on available information and pay that amount. This protects the Government from indefinite delay and encourages prompt closeout.
Responsibilities
Contracting Officer
Decide whether termination is in the Government’s interest or whether a default termination is warranted; issue a written Notice of Termination with the required details; direct the contractor’s post-termination actions; approve or ratify subcontract settlements when required; direct assignment of subcontract rights; direct disposition of property and inventory; extend the 120-day and 1-year deadlines when justified; verify inventory lists; and determine the amount due if the contractor misses the settlement proposal deadline.
Contractor
Upon notice, immediately stop terminated work and comply with all directed wind-down actions; stop placing new subcontracts except as needed for the remaining work; terminate affected subcontracts; settle subcontract liabilities with required approval; transfer title and deliver terminated property, data, and special tooling; complete the non-terminated work; protect and preserve Government-related property; use best efforts to sell termination inventory when directed; submit termination inventory schedules within 120 days; and submit a final termination settlement proposal in the required form and certification within 1 year unless extended.
Subcontractors
Comply with termination actions passed through by the prime contractor, including stopping work and supporting settlement of terminated subcontracts, subject to the terms of their subcontracts and any Government-directed assignment or settlement actions.
Government
Accept or remove termination inventory or enter into a storage agreement after the plant clearance period; review and verify inventory lists; and apply proceeds from property disposition to reduce Government payments or otherwise credit the contract as directed.
Practical Implications
This clause is a closeout playbook, not just a legal remedy. Once a termination notice arrives, the contractor must move quickly to stop costs from accumulating on the terminated portion and to preserve records for settlement.
The biggest contractor risk is missing deadlines or failing to document costs and inventory properly. Late inventory schedules or a late settlement proposal can reduce leverage and may lead the Contracting Officer to set the amount due based only on available information.
Default terminations are especially sensitive because they can later be converted to convenience if the contractor shows excusable delay. Contractors should preserve evidence of causes beyond their control, schedule impacts, and communications with the Government.
Subcontract management is critical. The prime must control downstream terminations, approvals, and settlements, or it may end up with unreimbursed liabilities or disputes over whether subcontract costs are allowable under the prime contract.
Property disposition can materially affect the final settlement. Contractors should track title, segregate terminated inventory, and follow Government directions on sale, transfer, removal, or storage to avoid disputes over credits and allowable costs.
Official Regulatory Text
As prescribed in 49.503 (a)(1) , insert the following clause: Termination (Cost-Reimbursement) (May 2004) (a) The Government may terminate performance of work under this contract in whole or, from time to time, in part, if- (1) The Contracting Officer determines that a termination is in the Government’s interest; or (2) The Contractor defaults in performing this contract and fails to cure the default within 10 days (unless extended by the Contracting Officer) after receiving a notice specifying the default. "Default" includes failure to make progress in the work so as to endanger performance. (b) The Contracting Officer shall terminate by delivering to the Contractor a Notice of Termination specifying whether termination is for default of the Contractor or for convenience of the Government, the extent of termination, and the effective date. If, after termination for default, it is determined that the Contractor was not in default or that the Contractor’s failure to perform or to make progress in performance is due to causes beyond the control and without the fault or negligence of the Contractor as set forth in the Excusable Delays clause, the rights and obligations of the parties will be the same as if the termination was for the convenience of the Government. (c) 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), 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 cost of which would be reimbursable in whole or in part, under this contract; 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- (i) The fabricated or unfabricated parts, work in process, completed work, supplies, and other material produced or acquired for the work terminated; (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; and (iii) The jigs, dies, fixtures, and other special tools and tooling acquired or manufactured for this contract, the cost of which the Contractor has been or will be reimbursed under this contract. (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 (c)(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. (d) 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. (e) 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 the 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. (f) 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. (g) Subject to paragraph (f) of this clause, the Contractor and the Contracting Officer may agree on the whole or any part of the amount to be paid (including an allowance for fee) because of the termination. The contract shall be amended, and the Contractor paid the agreed amount. (h) If the Contractor and the Contracting Officer fail to agree in whole or in part on the amount of costs and/or fee to be paid because of the termination of work, the Contracting Officer shall determine, on the basis of information available, the amount, if any, due the Contractor, and shall pay that amount, which shall include the following: (1) All costs reimbursable under this contract, not previously paid, for the performance of this contract before the effective date of the termination, and those costs that may continue for a reasonable time with the approval of or as directed by the Contracting Officer; however, the Contractor shall discontinue those costs as rapidly as practicable. (2) 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 paragraph (h)(1) of this clause. (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. If the termination is for default, no amounts for the preparation of the Contractor’s termination settlement proposal may be included. (4) A portion of the fee payable under the contract, determined as follows: (i) If the contract is terminated for the convenience of the Government, the settlement shall include a percentage of the fee equal to the percentage of completion of work contemplated under the contract, but excluding subcontract effort included in subcontractors’ termination proposals, less previous payments for fee. (ii) If the contract is terminated for default, the total fee payable shall be such proportionate part of the fee as the total number of articles (or amount of services) delivered to and accepted by the Government is to the total number of articles (or amount of services) of a like kind required by the contract. (5) If the settlement includes only fee, it will be determined under paragraph (h)(4) of this clause. (i) The cost principles and procedures in 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 (f), (h), or (l) of this clause, except that if the Contractor failed to submit the termination settlement proposal within the time provided in paragraph (f) and failed to request a time extension, there is no right of appeal. If the Contracting Officer has made a determination of the amount due under paragraph (f), (h) or (l) of this clause, the Government shall pay the Contractor- (1) The amount determined by the Contracting Officer if there is no right of appeal or if no timely appeal has been taken; or (2) The amount finally determined on an 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 this clause and not recovered by or credited to the Government. (l) The Contractor and Contracting Officer must agree to any equitable adjustment in fee for the continued portion of the contract when there is a partial termination. The Contracting Officer shall amend the contract to reflect the agreement. (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) The provisions of this clause relating to fee are inapplicable if this contract does not include a fee. (End of clause) Alternate I (Sept1996). If the contract is for construction, substitute the following paragraph (h)(4) for paragraph (h)(4) of the basic clause: (4) A portion of the fee payable under the contract determined as follows: (i) If the contract is terminated for the convenience of the Government, the settlement shall include a percentage of the fee equal to the percentage of completion of work contemplated under the contract, but excluding subcontract effort included in subcontractors’ termination settlement proposals, less previous payments for fee. (ii) If the contract is terminated for default, the total fee payable shall be such proportionate part of the fee as the actual work in place is to the total work in place required by the contract. Alternate II (Sept1996). 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) from the basic clause. Alternate III (Sept1996). If the contract is for construction with an agency of the U.S. Government or with State, local, or foreign governments or their agencies, the following paragraph (h)(4) shall be substituted for paragraph (h)(4) 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. (4) A portion of the fee payable under the contract determined as follows: (i) If the contract is terminated for the convenience of the Government, the settlement shall include a percentage of the fee equal to the percentage of completion of work contemplated under the contract, but excluding subcontract effort included in subcontractors’ termination settlement proposals, less previous payments for fee. (ii) If the contract is terminated for default, the total fee payable shall be such proportionate part of the fee as the actual work in place is to the total work in place required by the contract. Alternate IV (Sept1996). If the contract is a time-and-material or labor-hour contract, substitute the following paragraphs (h) and (l) for paragraphs (h) and (l) of the basic clause: (h) If the Contractor and the Contracting Officer fail to agree in whole or in part on the amount to be paid because of the termination of work, the Contracting Officer shall determine, on the basis of information available, the amount, if any, due the Contractor and shall pay the amount determined as follows: (1) If the termination is for the convenience of the Government, include- (i) An amount for direct labor hours (as defined in the Schedule of the contract) determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rate(s) in the Schedule, less any hourly rate payments already made to the Contractor; (ii) An amount (computed under the provisions for payment of materials) for material expenses incurred before the effective date of termination, not previously paid to the Contractor; (iii) An amount for labor and material expenses computed as if the expenses were incurred before the effective date of termination, if they are reasonably incurred after the effective date, with the approval of or as directed by the Contracting Officer; however, the Contractor shall discontinue these expenses as rapidly as practicable; (iv) If not included in subdivision (h)(1)(i), (ii), or (iii) of this clause, the cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract; and (v) The reasonable costs of settlement of the work terminated, including- (A) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (B) The termination and settlement of subcontracts (excluding the amounts of such settlements); and (C) Storage, transportation, and other costs incurred, reasonably necessary for the protection or disposition of the termination inventory. (2) If the termination is for default of the Contractor, include the amounts computed under paragraph (h)(1) of this clause but omit- (i) Any amount for preparation of the Contractor’s termination settlement proposal; and (ii) The portion of the hourly rate allocable to profit for any direct labor hours expended in furnishing materials and services not delivered to and accepted by the Government. (l) If the termination is partial, the Contractor may file with the Contracting Officer a proposal for an equitable adjustment of price(s) for 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. Alternate V (Sept1996). If the contract is a time-and-material or labor-hour contract with an agency of the U.S. Government or with State, local or foreign governments or their agencies, substitute the following paragraphs (h) and (l) for paragraphs (h) and (l) 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. (h) If the Contractor and the Contracting Officer fail to agree in whole or in part on the amount to be paid because of the termination of work, the Contracting Officer shall determine, on the basis of information available, the amount, if any, due the Contractor and shall pay the amount determined as follows: (1) If the termination is for the convenience of the Government, include- (i) An amount for direct labor hours (as defined in the Schedule of the contract) determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rate(s) in the Schedule, less any hourly rate payments already made to the contractor; (ii) An amount (computed under the provisions for payment of materials) for material expenses incurred before the effective date of termination, not previously paid to the Contractor; (iii) An amount for labor and material expenses computed as if the expenses were incurred before the effective date of termination if they are reasonably incurred after the effective date, with the approval of or as directed by the Contracting Officer; however, the Contractor shall discontinue these expenses as rapidly as practicable; (iv) If not included in subdivision (h)(1)(i), (ii), or (iii) of this clause, the cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract; and (v) The reasonable costs of settlement of the work terminated, including- (A) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (B) The termination and settlement of subcontracts (excluding the amounts of such settlements); and (C) Storage, transportation, and other costs incurred, reasonably necessary for the protection or disposition of the termination inventory. (2) If the termination is for default of the Contractor, include the amounts computed under paragraph (h)(1) of this clause but omit- (i) Any amount for preparation of the Contractor’s termination settlement proposal; and (ii) The portion of the hourly rate allocable to profit for any direct labor hours expended in furnishing materials and services not delivered to and accepted by the Government. (l) If the termination is partial, the Contractor may file with the Contracting Officer a proposal for an equitable adjustment of the price(s) for 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.