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Government Contract Termination Process


Government contract refers to the process through which the it acquires some items via an agreement with business entities (Feldman, 2013). When an agreement is not fulfilled, it might be canceled in a process called contract termination (Feldman, 2013). A person who is responsible for performing or providing certain goods is known as a contractor and cannot be paid in case a contract is terminated in the right process. Therefore, a supplier would be expected to return all the advanced monies he had received as advance payment in case a contract is terminated due to one reason or another (Feldman, 2013). This paper analyzes the process through which government contracts can be terminated and the impacts of termination on both the government and the contractor. It also analyzes some acts that govern the process of termination, a process called termination for default, and whether it has cost savings or additional costs. Powers of contracting officers are also discussed in the paper, considering all the other powers involved in contracts and procurement (Pateman & Mills, 2013).

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Termination for Default: Cost savings and creator of additional costs

Termination is the process through which a contract is canceled due to failure by one party, especially failure by a contractor to abide by it (Feldman, 2013). The process of termination can only take place after the parties involved have come to an agreement. The process through which the government has the right either to complete a contract or to partially terminate it due to a contractor’s failure to keep up with the terms and conditions of the pact is known as termination for default (Termination for Default, n.d.). As mentioned before, when a contract is terminated for any reason, a supplier does not receive any form of payment. In fact, a supplier would be expected to return all the payment done in advance.

Termination for default can be both cost-saving or lead to additional costs, depending on the situation of the occurrence of termination. Cost saving means that the government would have to gain from the termination in such a way that the cost is going to be higher than it was initially. The opposite is also true whereby the government would have to incur some expenses to fill in some gaps that the termination might have caused. The contractor, on the other hand, stands to lose as it is about not only money, but also employment and reputation (Feldman, 2013).

If the government terminates a contract following the right procedure, then it stands to gain from the process, and this would be cost effective because it would have all its refunds (Termination for Default, n.d.). For example, if the government terminates a contract due to failure by an individual, it would not have to compensate the individual, but the individual would have to return all the advanced monies (Feldman, 2013). The things that have already been supplied would add up to the government assets, resulting in cost savings. Termination can also bring additional costs if the process is on the side of an individual, and the government has to incur all the expenses caused by that process.

Termination for Default Impacts

The benefits that can be achieved by terminating a contract by default are not as much as the consequences. The consequences can be as a result of sudden loss of work. Thus, profit-making would not be possible, especially by a contractor. A contractor would also have to refund all the monies paid in advance, and maybe the money could have been put to some other activities that could have created some money for the contractor. The public reputation of the individual would also have been ruined, and the possibility of getting a contract or even government jobs in the future would be limited. Apart from all these, the contractor would also have lost time in the whole process.

The government has the right to terminate a contract for default for several reasons, such as failure by a contractor to abide by the agreement in the contract or dissatisfaction of service by the government (Pateman & Mills, 2013). The government has literary been permitted to terminate contract based on failure to adhere to the pact that might be unfair to an individual. The right by the government to terminate contracts has been limited to some extent to avoid unnecessary terminations that can happen out of malice. The limitation, to some degree, protects contractors from making so many losses (Feldman, 2013).

The government uses a contracting officer to carry out its contracting business and in case of any issue, the contractor would be directed to refund all the payment done to him (Taylor, 2013). The contractor would be responsible for doing all what is expected from the contract act that defines all what is to be done, and the contracting officer is supposed to follow every step to the letter. Failure to do what is expected would lead to other complications during the process (Feldman, 2013). The only good the officer is supposed to receive from the contractor are those that have approved by the government.

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The process of contract termination by default by the government puts the government on the upper hand, and a contractor would make a loss from the process. The reason behind this is that the government is protected by an act that seems to favor it, giving it the right to get all the money paid to a contractor in advance. The government would only be responsible for the excess cost of procurement and the price differences between the goods delivered and goods deferred (Pateman & Mills, 2013).

Litigation is the process through which individuals can overturn the decision by the government to terminate their contracts. The process is very expensive and, if a person can convince the government against termination, he or she might reduce the loss incurred, but not entirely. A contractor should be extra careful when taking up a government contract, but the process of termination does not favor suppliers (Feldman, 2013).

Contract Disputes Act and the Standard Dispute Clause

The process of litigation needs to be uniform to avoid fights between two parties. The uniform procedures for dealing with the processes of litigating and negotiations are under the Contract Disputes Act of 1978 (CDA), which encourages people to have peaceful negotiations and resolve their disputes in the easiest possible way (Disputes, 2002). The procedure for termination that is proposed by the act starts with a contracting officer, passing on a claim after which a contractor appeals. The final decision is appealed to the US Court of Appeals for the Federal Circuit, and the decision is by the Supreme Court of the United States (Callahan, Chiow, Kramer & Zamaray, 2014).

The standard dispute clause by FAR, to some extent, overlaps with the CDA because, apart from having uniform procedures for solving conflicts, the processes goes through other systems, making the CDA more liable (Disputes, 2002). Therefore, the CDA is more people friendly since there are more negotiations, and the CDA does not make the final decision. The two acts should be merged to enhance the process as each one of them has a different role to play in the procedure. When the two join, time management would be improved because FAR would only be involved when negotiations would have failed at the lower levels. Therefore, decisions would be easier to make (Callahan et al., 2014).

Opting for Partial Termination

The process of termination can either be complete or partial. Partial termination involves ending just a portion of a contract. The government might opt for a partial termination, depending on its reasons for termination. If termination is not based on the poor service by a contractor, but on the quality of some goods, then the government might consider cancelling some goods in the contract, and this is what would make up the partial termination (Taylor, 2013). Partial termination would not be as costly as the full termination since not all monies would be lost, and a contractor would be able to work on the quality of the canceled goods. Partial termination is better if suppliers have the capability of improving their services, and this would also help to reduce losses made (Feldman, 2013). Contractors, through the process of litigation, may opt for partial termination, depending on why the government opts for termination. The government may opt for partial termination if it likes a particular product by contractors that it might not want to lose. Consequently, partial termination can be beneficial to both parties, and it reduces losses incurred.

A Contracting Officer’s Power

Reputation of contracting officers is negative if some of them have taken over the state’s affair, carrying on their duties with impunity so long as it is of the country’s interests. According to public opinion, when the government chooses these people, they stop to think, but do anything the government tells them to do. In other words, they become ‘eyes’ and ‘ears’ of the government (Abhishek, Hajek & Wouldiams, 2013). The Supreme Court has, however, stated out clearly that a contracting officer should not be involved in settling disputes. The move by the Supreme Court might appear favorable to suppliers, but contracting officers still have more powers, especially in awarding government contracts.

They can give contracts to whomever they want since the process is not vetted by anyone, making the whole process not so transparent. Complaints by vendors have made the government come up with a system that limits the powers of contracting officers regarding awarding of contracts. The system is known as checks and balances, whereby all the three arms of the government have influences on each other (Value Engineering, 2000). The judiciary, for example, would be able to stop a particular procedure by the legislature if the process seems inappropriate for the nation. The system is approved by the Constitution and is recognized by the citizens, making their influence very dominant (Abhishek et al., 2013; Friedman, 2011).

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The issue of contracting officers being viewed as government people, who have been given the duty of overseeing what the government gets from contractors, makes people consider them as corrupt and selfish citizens. It is true that contracting officers have the capacity to award contracts to people if the standard acquisition procedure does not materialize. People forget that these people have a difficult task of resolving a dispute between a contractor and another business entity, something they cannot avoid because the law requires them to do so. The duty is not as easy as it may appear, but it is also hard for people to understand how the officers work. People cannot understand that the process is subject to legislation and regulation that are beyond contracting officers. The regulations are under Code of Federal Regulations, (CFR) and Federal Acquisition Regulation (FAR), which are both provided in the Constitution. FAR takes into consideration public’s opinion ensuring that the public is well presented in the decision that would be made on procurement. Therefore, FAR has more powers than contracting officers because, given the power it has, officers cannot do anything that contradicts it.

Contracting officers do not have so many powers as the public sees them because they are bonded to FAR, which is the ultimate decision maker. The checks and balances system, together with FAR, ensure that vendor selection by contracting officers is done in the right procedure and no corrupt acts are involved in the whole process. It is true that contracting officers are very influential theoretically. However, from a practical perspective, the power belongs to other people. Individuals may not understand this for the reasons that it is not easy. As a result, they tend to blame contracting officers for being corrupt and favoring other people concerning awarding of government contracts (Feldman, 2013; Friedman, 2011). When people apply for contracts, contracting officers would have a role to play, but this does not mean they are going to pick the people who would get tenders for they would have to be vetted by FAR. It is worth to note that, if contracting officers fail to adhere to the set processes, then the government would not recognize contracts awarded.


Terminating government contracts is not as simple as one may want to think because of the long procedures that should be followed. The government has the right to terminate contracts if it is not satisfied, implying that it is a risky idea to do business with it, not unless a business entity is sure it can succeed in case there is a disagreement along the way. People should understand the procedures that should be followed before taking a contract from the government to avoid termination, which would the result in losses, especially where one would have to return all the monies paid in advance by the government. Contracts by government attract a lot of money and people just rush to apply for them without considering what would happen in case the government is dissatisfied and terminates pacts. Termination by the government leaves many people frustrated, and some even end up closing up their businesses, but this is not to blame the government directly, but suppliers. The government should try to be considerate when terminating a contract, especially if the problem is not that serious. It could also opt for partial termination that would give both of them (the government and a supplier) better chances of benefiting.


Abhishek, V., Hajek, B., & Wouldiams, S. R. (2013). Auctions with a profit sharing contract. Games and Economic Behavior, 77(1), 247-270.

Callahan, D. J., Chiow, J. M., Kramer, L. B., & Zamaray, O. S. (2014). A Review of Recent Decisions of the United States Court Of Appeals for The Federal Circuit: Area Summary: 2013 Government Contract Law Decisions of The Federal Circuit. Am. UL Rev., 63(2), 1307-1661.

Disputes. (2002). Web.

Feldman, S. W. (2013). Government contract guidebook (4th ed.). Eagan, MN: Thomson Reuters.

Friedman, L. M. (2011). Contract Law in America: A Social and Economic Case Study. Boston, MA: Quid Pro Books.

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Pateman, C., & Mills, C. (2013). The contract and domination. Hoboken, NJ: John Wiley & Sons.

Taylor, J. (2013). An Inquiry into the Principles and Policy of the Government of the United States. New York, NY: The Lawbook Exchange, Ltd.

Termination for Default. (n.d.). Web.

Value Engineering. (2000). Web.

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