One of the unique privileges enjoyed by the U.S. Government as a contracting party under a federal contract is its authority to terminate the contract at any time, regardless of the contractor’s fault. Known as termination for convenience, the contracting action allows the Government an exclusive and almost unlimited right to terminate a government contract unilaterally. When terminating a contract for convenience, the Government may terminate the contract entirely or choose to make partial terminations with practically no limitations on the extent, type, or profitability of the portion of the contract being terminated.

While contract termination is seldom a cause for celebration for the contractor, a convenience termination is still greatly preferred over termination for default. This is because of the simple reason that a convenience termination indicates that the Government terminated the contract in its own best interests rather than due to the contractor’s fault. This allows contractors to receive the costs they incurred in performing the contract up to the point of termination, along with any profits on the completed work, if applicable. Under convenience termination, contractors can also recover any costs expended in delivering the termination proposal.

The federal government may only enter into contracts through the authorized actions of its officials possessing actual authority, with the contractor bearing the burden of proving that the government official upon whose statements and actions it relied had the necessary authority to bind the government. In certain situations, however, unauthorized commitments by government officials may be subsequently ratified. In federal contracting parlance, an unauthorized commitment refers to an agreement that is not binding on the government solely because the government official who made the commitment lacked the authority to enter into that agreement on behalf of the government. Such unauthorized commitments may later be authorized by government officials with the authority to bind the government. Thus, even when a government official does not possess the express or implied actual authority to bind the government, the government may still be bound by the contract if the official’s unauthorized commitment is subsequently ratified by an official with the necessary authority. Notably, while contract disputes adjudicative forums may determine whether ratification has taken place, they do not have the authority to ratify unauthorized commitments. Ratification may be express or implicit and may occur at the individual or institutional level.

The federal government has the right to unilaterally terminate contracts when it is in the government’s interest to do so. In the event of a termination for convenience, the contractor may typically submit its termination settlement proposal within a year of the termination. Since the contractor submits the settlement proposal primarily for negotiation purposes, it is not considered a claim under the Contract Disputes Act (CDA) when it is first submitted to the contracting officer (CO). Stated another way, the termination settlement proposal is considered an instrument of negotiation rather than a non-routine request for payment or a request for the CO’s final decision. For this reason, the costs of preparing a termination settlement proposal are also generally considered allowable. However, if the termination settlement proposal otherwise meets the requirements of a claim, it can be converted into a CDA claim if the parties’ negotiations reach an “impasse” and the contractor demands that the CO issue a final decision. In this context, an impasse means a deadlock or a point where a resolution through continued negotiations is unlikely when viewed from the perspective of an objective, third-party observer. Notably, whether the parties’ negotiations have reached an impasse is a question of fact, to be determined on a case-by-case basis.

In government contracts, the doctrine of accord and satisfaction is an affirmative defense that discharges a claim because some performance different from that which was claimed to be due is rendered and the claimant accepts such performance as full satisfaction of his claim. Accord and satisfaction may be viewed as a type of settlement agreement that typically takes the form of a bilateral modification executed by the government and its contractor. Furthermore, the terms of the bilateral modification are considered to be the best evidence of the parties’ intent to enter into an accord and satisfaction. To invoke the doctrine of accord and satisfaction, the party asserting the affirmative defense must demonstrate that four elements are met. First, the subject matter must be proper. Second, both parties must be competent; that is, the individuals signing the bilateral modification on behalf of the parties must be duly authorized. Third, there must have been a meeting of the minds between the parties. A meeting of the minds exists when there are accompanying expressions sufficient to make a reasonable claimant understand that the performance offered is in full satisfaction of the claim. Fourth, and finally, there must exist some form of valid consideration, which is defined as a bargained-for exchange that consists of an act, forbearance, or a return promise. If these four elements are met, the doctrine of accord and satisfaction may be invoked to discharge the claimant’s claim.