The government can cancel contracts without much warning. How your team responds early, whether a full stop or a scope shift can make or break the outcome. On The Optimize Podcast, federal contracting strategist Marsha Lindquist joined Jeff Shapiro. They unpack how to navigate terminations and stop-work orders without losing your footing or cash flow.
Step 1: Understand What Termination Really Means
A termination for convenience (T4C) doesn’t mean you did something wrong. It’s a legal option in the Federal Acquisition Regulation (FAR) that lets the government cancel contracts when the work is no longer needed. It’s about changing priorities, not performance.
"Contractors should not panic. A termination for convenience is a government tool for its own needs and doesn’t imply any wrongdoing on your part. Your focus should be on protecting your interests and minimizing your exposure."
Start by reviewing the contract. Yes, all of it. Pay close attention to the clauses that explain termination. As soon as you receive the notice, take action:
- Stop performance immediately
- Notify vendors and subcontractors
- Secure any government-furnished property
Timing and clarity are everything here.
Step 2: Prepare Your Termination Settlement Proposal
This proposal is your chance to recoup costs tied to the terminated contract. Think of it as closing the books thoroughly and on your terms. You’ll need to document all direct and indirect costs, from project setup to shut down.
“I’ve seen contractors lose hundreds of thousands of dollars simply because they didn’t track start-up costs or forgot to include pre-contract labor. You can’t afford to make assumptions. Document everything.”
Commonly recoverable costs include:
- Start-up and mobilization costs
- Pre-contract labor and planning
- Admin overhead and office expenses
- Restocking fees or cancelled leases
- Proposal preparation and negotiation time
- Subcontractor closeouts
You typically have 60 days to submit your proposal, don’t delay. Get it detailed, organized, and ready for questions.
Step 3: Manage Subcontractor Settlements the Right Way
If the government cancels your contract as the prime, it won’t automatically direct your subs—you remain responsible for them. That means ensuring they understand what’s happening, and helping them close out their part properly.
"You need to manage your subs like you're managing a mirror image of your own process. Get their data, verify their costs, and don’t submit anything you wouldn’t defend in an audit."
It’s important to:
- Go back to the original subcontract pricing and deliverables
- Confirm what work you completed and billed.
- Review and validate all cost claims
- Document everything clearly
This keeps your audit risk low and your subcontractor relationships solid, especially important if you plan to work together again.
Step 4: Stay Audit-Ready, Even If No Audit Happens
Even if you don’t face a guaranteed audit, you still need to prepare. Audits can still happen and small businesses aren’t exempt.
“Audit readiness isn’t about software, it’s about structure. If you have the documents, the backup, and the rationale for your costs, you’re 90% there.”
Here’s what helps:
- Separate direct and indirect costs
- Keep clear records for labor, materials, and services
- Build consistent documentation practices across your team
Staying audit-ready, even without DCAA calls, gives you an edge with the Termination Contracting Officer (TCO) who must approve your proposal.
Listen to the Full Conversation
Are you dealing with a cancelled contract or preparing in advance? This Optimize Podcast episode is full of practical tips. With decades of experience guiding contractors through FAR Part 49, Marsha Lindquist outlines how to handle termination with confidence. She also discusses how to protect your margins and keep your pipeline moving.
Listen now on your preferred platform:
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Whether you’re a federal contractor, proposal lead, or compliance manager, this is a conversation worth your time. Learn how to reduce risk, recover costs, and move forward without losing steam.
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