Interrelationship of Changes and Terminations

Posted on 8/6/2011 6:35 AM

The interrelationship of the changes and terminations clauses in government contracts and subcontracts is so important I feel the need to reiterate what I said in CIB No. 5 below.

If you face termination for default or you have been terminated for convenience, you must also consider the implications of the changes clause.  Every compensable change is an excusable cause of delay or failure to perform.  Thus, if you are given a cure notice or show cause notice, look to whether you have compensable changes.  They are defenses to the threatened T for D.  And, if you are terminated for default, your appeal should include your changes claim.  It also is important to file immediately a pro forma termination for convenience settlement proposal including changes claims to set the stage for negotiation of a settlement of the T for D.

If you are terminated for convenience, part 49 of FAR requires the contracting officer to consider all changes claims.  You will need the changes clause to justify a price increase if your total T for C proposal exceeds the original contract price.  You also will need changes as a vehicle to argue against the application of the adjustment for loss formula, should the government choose to assert the contract was in a loss position. 

How do you identify changes?  A good starting point is in our blog on the big five implied obligations in every contract.

All of these principles apply with equal force and effect to subcontracts under government prime contracts if the subcontracts contain flowdown changes and termination clauses.


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