What is the effect of the ‘termination for convenience’ clause?

The Termination for Convenience clause grants the Government contracting officer an extremely broad right to terminate the contractor's performance without the Government being liable for breach-of-contract damages. The clause generally limits the contractor's recovery to cost incurred plus profit on work completed, and the costs of preparing the termination settlement proposal. The clause thereby precludes the contractor from recovering anticipatory profit.

If the contract is deemed a "loss" contract, the contracting officer will reduce any recovery by a loss adjustment formula. If the parties fail to agree to a settlement amount, the contractor may normally take action to convert the settlement proposal into a claim which triggers the accrual of interest under the Contract Disputes Act.