TL;DR. A convenience termination pays you for work done plus reasonable profit on it, a default pays far less, and the clock to ask for your money may be getting much shorter (so dust off those cost records before the stop-work notice, not after).
- Terminated for convenience? You can recover costs incurred, settlement expenses and reasonable profit on work performed. Progress payments already received come off the top.
- Terminated for default? The government has to prove it was justified. If it can't, or your failure was excusable, the result is treated like a convenience termination.
- Worried about deadlines? The current rule gives you one year to submit a settlement proposal. A proposed rule would cut that to 90 days, but I could not confirm it is final.
Same stop, very different paychecks
When the government ends your contract, the paperwork says one of two things: it was for convenience (the government changed its mind, no fault of yours) or for default (the government says you failed to perform). Same stopped work, same idle crew, wildly different financial outcomes.
| Convenience | Default | |
|---|---|---|
| Why it happens | Government decides it no longer wants the work | Government says you failed to perform |
| What you can recover | Costs incurred, settlement expenses, reasonable profit on work performed | Generally payment for work the government accepted, with exposure to excess reprocurement costs (a general rule, so check your clause) |
| Who carries the burden | You document your costs | The government must prove the default was justified |
| If challenged | Settlement negotiated with the termination contracting officer | An unjustified or excused default is treated like a convenience termination |
So what: From the moment you get a termination notice, read which kind it is. Everything downstream depends on it.
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What a convenience settlement actually pays
The idea is fairness. You get compensated for the work you did and the preparations you made, plus a reasonable profit on work performed. Notice the wording: profit on work performed. Don't expect to be paid the profit you would have earned on the rest of the contract.
Two things reduce the number. If the contract was heading for a loss, an adjustment applies. And any progress payments you haven't already liquidated, plus credits, get deducted. So a clean, well-organized cost ledger is not a nice-to-have. It is your settlement.
Small jobs get a shortcut. A short-form proposal (SF 1438) is available for settlements under $10,000, and that threshold stays the same in the proposed rule.
So what: Keep job-cost records that can separate work done from work remaining. Subcontractor costs matter too, since you will be rolling their claims into yours.
The 90-day clock that may be coming
Here is the part to watch. On June 23, 2026, the FAR Council proposed changes to termination rules as part of the Revolutionary FAR Overhaul (FAR Case 2026-007). Comments closed July 23, 2026. As far as my research could confirm, this is a proposal, not the law. I could not verify whether a final rule has issued since.
- Settlement proposal deadline: one year today, 90 days proposed.
- Inventory disposal schedules: 120 days today, 60 days proposed.
- Requests for more time: one year today, 60 days proposed.
- Audits of settlement proposals: mandatory above certain thresholds today, but at the contracting officer's discretion under the proposal, using a risk-based approach.
Key insight: The proposed deadline lets the contracting officer allow more time, but your request for extra time would also have to come within 60 days. If you have deep supply chains, 90 days is tight when every subcontractor has to submit its own numbers first.
It is also murky which text governs you. Agencies adopted the overhaul's Part 49 model text through class deviations effective November 3, 2025 (DOE, VA, NASA and others), yet the codified FAR pages I retrieved still showed the one-year deadline. For DoD, class deviation 2026-O0010 has had contracting officers use the RFO Part 49 text and a revised DFARS Part 249 since February 1, 2026. Your contract clauses and your agency's deviation are what count.
So what: Plan as though 90 days is coming, even if the legacy year still applies to you.
Default: the fight is over the label
A default termination puts the burden on the government. In an appeal, it has to show the default was justified. If it can't, or if your failure was excusable, the parties land in the same place as a convenience termination. That is why many contractors challenge a default instead of just absorbing it.
Deadlines here are unforgiving. After a contracting officer's final decision, you have 90 days to appeal to a board or 12 months to go to the Court of Federal Claims.
Recent litigation shows the procedural traps. In one 2026 Army Corps of Engineers case, a contractor challenged a default and sought conversion to convenience, asking for $28.7 million in costs and a 1,714-day time extension. The government moved to dismiss most of the claims because there was no contracting officer's final decision on the certified claims. I did not see the ruling, but the lesson holds: get the claim certified and in front of the contracting officer first.
Also worth knowing: when agencies terminate contracts in clusters, one recent commentary suggests checking whether yours got an individualized rationale, because bad-faith claims can turn on that.
So what: If you disagree with a default, calendar the appeal windows on day one and build the record that supports converting it.
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Start This Module Free →What to do before the notice shows up
- Check which termination clause is in your contract and whether your agency issued a Part 49 deviation.
- If you are a DoD contractor, read DoD class deviation 2026-O0010 and the revised DFARS Part 249 it adopts.
- Build a termination playbook: who gathers costs, who talks to subs, who sets the inventory list.
- Check the comment record and status of FAR Case 2026-007 on regulations.gov.
Termination is rarely welcome news, but a prepared contractor gets paid faster and argues less. Be that contractor.
Two Ways a Contract Ends Early
| Termination for Convenience | Termination for Default | |
|---|---|---|
| Why it happens | Government no longer needs the work | You failed to perform |
| What you recover | Costs incurred, profit on work done, settlement expenses | Only work the government accepted, and you may owe reprocurement costs |
| What you file | Settlement proposal | An appeal, if you dispute it |
| First move | Stop work, protect the costs, start the settlement file | Get counsel, and check whether the cure notice was proper |