Terminating Contracts for the Government's Convenience: Answers to Frequently Asked Questions [February 3, 2015] [open pdf - 331KB]
"'Termination for convenience' refers to the exercise of the government's right to bring to an end the performance of all or part of the work provided for under a contract prior to the expiration of the contract 'when it is in the Government's interest' to do so. […] Where termination for convenience is concerned, the 'Government's interest' is broadly construed. Federal courts and agency boards of contract appeals have recognized the government's interest in terminating a contract when (1) the government no longer needs the supplies or services covered by the contract; (2) the contractor refuses to accept a modification of the contract; (3) questions have arisen regarding the propriety of the award or continued performance of the contract; (4) the contractor ceases to be eligible for the contract awarded; (5) the business relationship between the agency and the contractor has deteriorated; or (6) the agency has decided to restructure its contractual arrangements or perform work in-house. Terminations in other circumstances could also be found to be in the 'Government's interest.' […] As a rule, the government cannot be held liable for breach when it exercises its right to terminate contracts for convenience because it has the contractual and/or inherent right to do so. This means that contractors generally cannot recover anticipatory profits or consequential damages when the government terminates a contract for convenience. The contractor is, however, entitled to a termination settlement, which, in part, represents the government's consideration for its right to terminate. The composition of any termination settlement can vary depending upon which of the 'standard' Termination for Convenience clauses is incorporated into the contract, among other factors."
CRS Report for Congress, R43055