FAR 8.406-4—Termination for cause.
Plain-English Summary
FAR 8.406-4 explains how a Federal Supply Schedule (FSS) ordering activity may terminate an individual order for cause, and how that action interacts with the underlying schedule contract. It covers the ordering activity contracting officer’s authority to terminate an order, the requirement to follow FAR 12.403 procedures, the possibility of assessing excess repurchase costs, and the duty to notify the schedule contracting office when an order is terminated for cause or when fraud is suspected. It also addresses what happens when the contractor claims the failure was excusable, how repurchase must be handled if excess costs are charged, when the ordering activity may withhold funds or set off amounts owed, and what notice must be sent if excess costs cannot be collected. In addition, it distinguishes between terminating an individual order and modifying the schedule contract itself, reserving contract-level termination authority to the schedule contracting officer and barring new orders for items removed from the schedule contract. Finally, it requires reporting of termination-for-cause actions, conversions to termination for convenience, and withdrawals in accordance with FAR 42.1503(h). In practice, this section is important because it defines who has authority to act, how to document and recover costs, and how to avoid overstepping between ordering activity and schedule contracting office roles.
Key Rules
Order-level termination authority
An ordering activity contracting officer may terminate individual orders for cause. This authority applies to the specific order, not to the entire schedule contract, and the termination must comply with FAR 12.403.
Follow commercial-item procedures
Termination for cause under the schedule program must be handled under FAR 12.403, which means the contracting officer should use the commercial-item termination framework rather than traditional default-termination procedures unless the cited rules direct otherwise.
Notify schedule contracting office
The schedule contracting office must be notified whenever an ordering activity terminates an individual order for cause, and also whenever fraud is suspected. This ensures the schedule contract holder’s broader performance record and contract administration issues are tracked centrally.
Excusable failure review
If the contractor claims the failure was excusable, the ordering activity contracting officer must follow FAR 8.406-6 as appropriate. The officer must evaluate the contractor’s explanation before finalizing the termination consequences.
Excess costs may be charged
If the contractor is charged excess costs, the Government may recover the difference between the terminated order and the replacement purchase, including repurchase costs. The repurchase must be made at the lowest reasonable price considering quality, delivery needs, and administrative expense.
Repurchase documentation required
Repurchase orders must be marked to show they are made against the contractor, the terminated order number, and the schedule contract number, except for copies furnished to the contractor or another commercial concern. This creates a clear audit trail for cost recovery.
Withholding and setoff allowed
When excess costs are anticipated, the ordering activity may withhold funds due to the contractor as offset security. The activity must minimize excess costs and collect or set off any amounts owed.
Escalate uncollected excess costs
If the ordering activity cannot collect excess repurchase costs, it must notify the schedule contracting office after final payment to the contractor. The notice must include detailed information about both the terminated order and the repurchase action.
Only schedule CO can terminate contract items
Only the schedule contracting officer may modify the schedule contract to terminate for cause any or all supplies or services covered by the contract. Once items are terminated at the contract level, no further orders may be placed for those items.
Existing orders still must be performed
Orders placed before the schedule contract termination for cause must still be fulfilled by the contractor unless the ordering activity contracting officer separately terminates those orders for convenience of the Government.
Reporting is mandatory
The ordering activity contracting officer must ensure termination-for-cause information and any amendments are reported under agency procedures and FAR 42.1503(h). If a termination is converted to a termination for convenience or withdrawn, that change must also be reported.
Responsibilities
Ordering Activity Contracting Officer
May terminate individual orders for cause; must follow FAR 12.403; must evaluate claims of excusable failure under FAR 8.406-6 as appropriate; may withhold funds as offset security when excess costs are anticipated; must minimize excess costs and collect or set off amounts owed; must notify the schedule contracting office when an order is terminated for cause or when fraud is suspected; must ensure required reporting of terminations, conversions, withdrawals, and amendments under FAR 42.1503(h).
Schedule Contracting Officer
Must be notified of order-level terminations for cause and suspected fraud; is the only official who may modify the schedule contract to terminate for cause any or all supplies or services covered by the contract; must receive notice if excess repurchase costs cannot be collected after final payment; oversees contract-level consequences and schedule-wide administration.
Contractor
Must perform the order unless properly terminated; may assert that the failure was excusable and provide supporting facts; may be charged excess repurchase costs if the Government must repurchase replacement supplies or services; remains responsible for amounts owed and for responding to notices and recovery actions.
Ordering Activity
Must conduct repurchase at a reasonable low price considering quality, delivery, and administrative cost; must document repurchase orders with the required notation; must support withholding or setoff actions when appropriate; must maintain records and reporting for termination actions and related amendments.
Agency Reporting/Administrative Officials
Must ensure termination-for-cause actions and any later conversion or withdrawal are reported in accordance with agency procedures and FAR 42.1503(h).
Practical Implications
This section draws a hard line between terminating a single order and terminating the schedule contract itself; using the wrong authority can create a defective termination action.
Contracting officers should document the contractor’s failure, any excusable-failure claim, the repurchase decision, and the cost comparison carefully, because excess-cost recovery depends on a defensible record.
Repurchase actions should be handled quickly but reasonably; overpaying for replacement items can undermine the Government’s ability to recover excess costs from the contractor.
If fraud is suspected, the schedule contracting office must be notified immediately, so ordering activities should not treat the matter as a routine performance issue.
Reporting is not optional: even if a termination is later converted to convenience or withdrawn, the record must be updated to reflect the final disposition.
Official Regulatory Text
(a) (1) An ordering activity contracting officer may terminate individual orders for cause. Termination for cause shall comply with FAR 12.403 , and may include charging the contractor with excess costs resulting from repurchase. (2) The schedule contracting office shall be notified of all instances where an ordering activity contracting officer has terminated for cause an individual order to a Federal Supply Schedule contractor, or if fraud is suspected. (b) If the contractor asserts that the failure was excusable, the ordering activity contracting officer shall follow the procedures at 8.406-6 , as appropriate. (c) If the contractor is charged excess costs, the following apply: (1) Any repurchase shall be made at as low a price as reasonable, considering the quality required by the Government, delivery requirement, and administrative expenses. Copies of all repurchase orders, except the copy furnished to the contractor or any other commercial concern, shall include the notation: Repurchase against the account of __________ [ insert contractor’s name ] under Order __________ [ insert number ] under Contract __________ [ insert number ]. (2) When excess costs are anticipated, the ordering activity may withhold funds due the contractor as offset security. Ordering activities shall minimize excess costs to be charged against the contractor and collect or set-off any excess costs owed. (3) If an ordering activity is unable to collect excess repurchase costs, it shall notify the schedule contracting office after final payment to the contractor. (i) The notice shall include the following information about the terminated order: (A) Name and address of the contractor. (B) Schedule, contract, and order number. (C) Line item number(s) and a brief description of the item(s). (D) Cost of schedule items involved. (E) Excess costs to be collected. (F) Other pertinent data. (ii) The notice shall also include the following information about the purchase contract: (A) Name and address of the contractor. (B) Item repurchase cost. (C) Repurchase order number and date of payment. (D) Contract number, if any. (E) Other pertinent data. (d) Only the schedule contracting officer may modify the contract to terminate for cause any, or all, supplies or services covered by the schedule contract. If the schedule contracting officer has terminated any supplies or services covered by the schedule contract, no further orders may be placed for those items. Orders placed prior to termination for cause shall be fulfilled by the contractor, unless terminated for the convenience of the Government by the ordering activity contracting officer. (e) Reporting . An ordering activity contracting officer, in accordance with agency procedures, shall ensure that information related to termination for cause notices and any amendments are reported. In the event the termination for cause is subsequently converted to a termination for convenience, or is otherwise withdrawn, the contracting officer shall ensure that a notice of the conversion or withdrawal is reported. All reporting shall be in accordance with 42.1503 (h).