This guide explains FAR Part 49 of the Federal Acquisition Regulation (FAR): Termination of Contracts.

A termination notice is an instruction to act—not permission to stop everything. First, separate terminated work from continuing obligations and build a supported settlement record immediately.

Watch the FAR Part 49 lesson

A termination notice creates immediate operational and contractual decisions. FAR Part 49 addresses complete or partial termination for convenience or default and the processes used to settle covered contracts.

FAR Part 49: Identify the governing termination framework

Next, start with the notice, contract type, and actual termination clause. Under 49.002, commercial product and service contracts awarded using Part 12 follow 12.403 and 52.212-4; Part 49 can provide administrative guidance only when consistent with that framework. Convenience and default also present different questions. However, do not assume one standard deadline, settlement formula, or recovery measure applies to every termination. Then, preserve the effective date, scope, directions, and responsible contracting official.

Separate terminated work from continuing work

For convenience terminations, 49.104 generally requires stopping the terminated portion and related new subcontracts, preserving property, addressing affected subcontracts, and continuing the retained scope as directed. A partial termination is not permission to stop the entire program. Also, build a clear boundary around work in process, commitments, inventories, costs, and communications. Under 49.108-1, a subcontractor’s contractual rights normally run against its contracting counterparty, not directly against the Government merely because the prime was terminated.

Support the settlement without overstating recovery

Section 49.201 seeks fair compensation for covered work and preparations, including a reasonable allowance for profit where applicable. Section 49.202 excludes anticipatory profits and consequential damages and does not allow profit on settlement expenses. Cost-reimbursement and fixed-price treatment differ. The remaining contract ceiling is not automatically payable. In addition, reconcile costs, prior payments, credits, property, subcontract settlements, and required approvals before presenting a supported settlement proposal.

A hypothetical example

The Government terminates one production work package for convenience. The contractor stops the affected purchase orders as directed, protects work in process, and continues the retained package. Finance segregates supported termination costs and cancellation credits. Contracts tracks notice and proposal requirements and subcontract settlement approvals. Next, the team records continuing-work impacts separately instead of mixing every remaining project cost into one termination balance.

Avoid the shortcut

Create a response team with one controlled record. Operations identifies affected work and material, purchasing addresses supplier commitments, finance reconciles costs and credits, and contracts manages directions and deadlines. Next, preserve evidence from the effective date forward. Then, distinguish property preservation from continued production and settlement preparation from performance of retained work. Also, resolve uncertainty through the authorized contracting channel. These organizational steps are practical controls; the notice and operative clause determine the actual obligations and any available recovery.

Try this exercise

In addition, build a preparation worksheet using these fields. This is a GovSuccess practice, not a prescribed Government form.

1. Notice, type, and governing clause
2. Terminated scope and effective date
3. Stop and continue instructions
4. Property and inventory
5. Affected subcontract commitments
6. Supported costs, credits, and payments
7. Approvals and proposal requirements
8. Owner and actual deadlines

Turn the lesson into an operating decision

Next, use the worksheet with one current contract or proposed action. Then, keep the documents reviewed, assign an owner to each unresolved issue, and record the basis for the decision. Also, distinguish a regulatory obligation from a GovSuccess preparation practice. The worksheet organizes evidence; it does not grant authority, change contract terms, or establish a Government determination.

Official sources

Source check: November 3, 2026 (Central). Codified Acquisition.gov pages retrieved for this package display FAC 2026-01, effective March 13, 2026. Check applicable agency deviations and the actual solicitation or contract. Model overhaul text and an implemented agency deviation are not interchangeable.

• FAR Part 49 — codified text
• FAR 49.000
• FAR 49.002
• FAR 49.104
• FAR 49.108-1
• FAR 49.201
• FAR 49.202
• FAR 12.403
• FAR overhaul and agency deviation guide — contract-specific verification

Build your readiness baseline

Explore GovAssessment for a structured business-readiness baseline based on your answers. However, it does not approve a contract action, certify compliance, or guarantee an award.

General education, not legal or tax advice. Browse all FAR summaries.