The GSA Multiple Award Schedule (MAS) program creates many new avenues of business for commercial companies, and opens the door to work with a wide variety of government buyers. Whether you are a large or small business, the ultimate goal for contractors is to receive orders and/or win contracts from eligible entities through your GSA Schedule.
While the GSA Multiple Award Schedule presents lucrative opportunities for its buyers and sellers, there are few possible hiccups that can happen throughout the life of your contract that contractors should be aware of. One such possibility is for the government to terminate a specific task or delivery order. Why does this happen and when could it happen to you? It’s important to plan for all different types of scenarios with your GSA contract so you aren’t caught off guard and know how to handle each situation. Here’s what you need to know about GSA Schedule order terminations and settlements.
What is a GSA Schedule Order Termination?
The government can terminate a contract task or delivery order for commercial items either for the government’s convenience or for a specific cause. The official legal jargon is outlined in Federal Acquisition Regulation (FAR) 8.406-5 Termination for the Government’s Convenience. While this sounds like the government can just terminate an order whenever they feel like it, it’s not necessarily a regular occurrence and doesn’t usually benefit an agency to end a contract order. However, there are some cases where it’s in the best interest for the government to terminate an order. Here’s what the FAR says about it:
(a) An ordering activity Contracting Officer may terminate individual orders for the government’s convenience. Terminations for the government’s convenience shall comply with FAR 12.403.
(b) Before terminating orders for the government’s convenience, the ordering activity Contracting Officer shall endeavor to enter into a “no cost” settlement agreement with the contractor.
(c) Only the Schedule Contracting Officer may modify the Schedule contract to terminate any, or all, supplies or services covered by the Schedule contract for the government’s convenience.
Costs are important for contractors especially in cases of termination. If a contractor has already started work or production for a project prior to termination and can provide proof confirming this, the government will be required to settle and pay for at least a portion of the work. Federal Acquisition Regulation (FAR) 31.205-42 lays out specifically what is required of the government when a contract or order is terminated, and how costs are handled on both ends, which we’ll cover below.
What Should You Do If Your Task or Delivery Order is Terminated?
If your task or delivery order was terminated by a government buyer, the first step should be to reach out to the Contracting Officer associated with the order. If you have already started or finished work for the project prior to termination, you will be eligible to receive compensation for those costs. Whether or not the full amount is paid will vary from order to order. In most cases, there will be negotiations between the government buyer, Contracting Officer, and the contractor as to what the specific costs paid will be.
Determining Allowable Costs and Settlements After a GSA Contract Termination
Contract terminations bring up incurrence of costs or the need for special treatment of costs that wouldn’t have come up if the contract hadn’t been terminated. FAR 31.205-42 addresses specifically the allowable costs associated with termination. The following termination situations are used in conjunction with the other cost principles in FAR subpart 31.2:
- Common Items—the costs of items reasonably usable on the contractor's other work shall not be allowable unless the contractor submits evidence that the items could not be retained at cost without sustaining a loss. The Contracting Officer should consider the contractor's plans and orders for current and planned production when determining if items can reasonably be used on other work of the contractor.
- Costs continuing after termination—despite all reasonable efforts by the contractor, costs which cannot be discontinued immediately after the effective date of termination are generally allowable. However, any costs continuing after the effective date of the termination due to the negligent or willful failure of the contractor to discontinue the costs shall be unallowable.
- Initial costs—including starting load and preparatory costs, are allowable in certain situations.
- Loss of useful value—loss of useful value of special and special machinery and equipment is generally allowable. Reference FAR 31.205-42 for more specific allowances.
- Rental under expired leases—rental costs under unexpired leases, less the residual value of such leases, are generally allowable when shown to have been reasonably necessary for the performance of the terminated contract. Reference FAR 31.205-42 for more specific allowances.
- Alterations of leased property—the cost of alterations and reasonable restorations required by the lease may be allowed when the alterations were necessary for performing the contract.
- Settlement expenses—settlement expenses, including the following, are generally allowable: accounting, legal, clerical, preparation, and presentation of settlement claims to the contracting officer, termination, and settlement of subcontracts.
- Subcontractor claims—subcontractor claims, including the allocable portion of the claims common to the contract and to other work of the contractor, are generally allowable. An appropriate share of the contractor's indirect expense may be allocated to the amount of settlements with subcontractors, provided, that the amount allocated is reasonably proportionate to the relative benefits received.
Preparing for Your GSA Schedule
You may never have to worry about a specific task or delivery order being terminated by a government buyer with your GSA Schedule, but you should know what to expect and what actions to follow-up on if you ever encounter a contract termination. While terminations are not necessarily a regular occurrence for most GSA contract holders, they do happen from time to time.
If you want to learn more about other ways you can successfully manage and keep track of your GSA Schedule, check out our blog or subscribe to our monthly newsletter. If you have questions about a contract order termination or other things related to your GSA Schedule, feel free to reach out to one of our consultants.
