Government contract terminations are governed by FAR 31.205-42, known as the Termination Cost Principle. For grants, termination provisions are typically detailed within the grant agreement itself and are specifically outlined in 2 CFR 200.340(b).

In light of the new federal administration's executive orders, if you are potentially facing termination, we recommend reviewing the specific terms and conditions of your contract/grant to determine if clear instructions are provided. These instructions will guide your next steps. 

If no clear instructions are provided, we recommend adhering to FAR best practices for settling the termination claim. This includes setting up cost capture codes and following the cost principles.

For FAR-covered contracts, and where permitted on a grant, wind-down costs will follow the same general cost principles. Wind-down costs will not be permitted until you receive a stop-work order, suspension, or termination; prior to that, entities must continue working on the project.

Examples of common activities related to stop-work orders that are allowable are: 

• Communicating with subs and suppliers regarding stop work/termination
• Costs immediately continuing after the notice that can’t be immediately stopped (e.g., shipments in transit)
• Costs for early termination of contracts (if terminated), or costs incurred from delays
• Outside consultant and accounting costs to help accumulate and prepare a termination claim

Examples of unallowable activities include: 

• Losses and cost overruns on the program, pre-termination
• Idle time of employees where no genuine attempts to redeploy those employees have been made
• Scope activities incurred after the notice to terminate/suspend has been received (e.g., continuing to incur new commitments post-notice to terminate without prior approval)

Some considerations to mitigate unallowable costs in the case of a stop-work or termination scenario:

• Deploy staff to alternative work where possible.  
• If staff are to be held when all work opportunities have been exhausted, an analysis should be done to support the business case for maintaining the employee rather than eliminating their position.