DFARS Part 249: Termination of Contracts

In plain English

DFARS Part 249 implements FAR Part 49 for DoD contracts, covering termination procedures, settlement, and special requirements. It matters to contractors because it sets rules for termination for convenience, cost recovery, and notification obligations that affect payments and compliance.

Key rules

• Termination contracting officers must follow PGI 249.105-1 for termination status reports. (249.105-1)
• Guidance on releasing excess funds after termination is in PGI 249.105-2. (249.105-2)
• Settlement by determination for convenience terminations must follow PGI 249.109-7. (249.109-7)
• When a termination for convenience or change reduces scope, pricing of the terminated or reduced effort is limited per PGI 249.109-70. (249.109-70)
• A settlement negotiation memorandum must be prepared following PGI 249.110. (249.110)
• The Special Termination Costs clause (252.249-7000) may be used in incrementally funded contracts if approved by the agency head and certain conditions are met, including contract term of 2 years or more and estimated RDT&E financing over $25 million or production investment over $100 million. (249.501-70)
• Terminations of contracts with the Canadian Commercial Corporation must follow the Canadian Agreement, FAR part 249, and the Canadian Supply Manual, with specific settlement proposal and certification requirements. (249.7000)
• Congressional notification is required for any termination involving a reduction in employment of 100 or more contractor employees, and proposed terminations must be cleared through liaison offices before release to the contractor. (249.7001)

Who does what

In practice

• If your DoD contract is terminated for convenience, expect the termination contracting officer to follow specific PGI procedures for status reporting, fund release, and settlement, which may affect the timing and amount of your recovery.
• For large incrementally funded contracts, the Special Termination Costs clause may provide a contingent reserve for termination costs, but only if the contract meets the criteria and the agency head approves its use.
• If you are a prime contractor on a major defense program, you must flow down notification requirements to subcontractors at certain dollar thresholds when termination or substantial reduction is anticipated.
• Terminations involving 100 or more employees trigger congressional notification, which may delay the release of termination notices to contractors.

Common pitfalls

• Assuming that standard FAR termination procedures apply without considering DFARS-specific PGI requirements, such as for status reports or settlement by determination.
• Overlooking the need for agency head approval to use the Special Termination Costs clause, which could lead to unallowable costs if not properly authorized.
• Failing to provide required notifications to subcontractors when a major defense program is terminated or reduced, which could result in noncompliance and potential liability.
• Releasing information about a proposed termination to the contractor before congressional clearance when 100 or more employees are affected, which violates DFARS 249.7001.

Written by AI from this part's codified text (2026-10-04); cited sections are checked against the part. A guide, not legal advice: the regulation text, the solicitation and your contract rule.