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FAR and DFARS › FAR Part 49: Termination of Contracts › Subpart 49.1

FAR 49.108-2 Prime contractor's rights and obligations.

The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.

In plain English

This section explains that when a prime contract is terminated for convenience, the prime contractor must generally terminate its subcontracts related to the terminated work unless the TCO directs otherwise. It also warns that failing to include a termination clause in subcontracts does not protect the contractor or expand the Government's liability. The section matters because it affects how subcontractor settlements are reimbursed and encourages prime contractors to include proper termination clauses for their own protection.

Applies to: Prime contractors holding contracts terminated for convenience and their subcontracts

What it requires

  • After receipt of a termination notice, terminate all subcontracts to the extent they relate to the performance of prime work terminated, unless directed otherwise by the TCO

Key terms: termination for convenience · TCO · prime contractor · subcontract · termination clause

Written by AI from this section's text. A guide, not legal advice: the text below rules.

The text

(a) Termination for convenience clauses provide that after receipt of a termination notice the prime contractor shall, unless directed otherwise by the TCO, terminate all subcontracts to the extent that they relate to the performance of prime work terminated. Therefore, prime contractors should include a termination clause in their subcontracts for their own protection. Suggestions regarding use of subcontract termination clauses are in subpart 49.5.

(b) The failure of a prime contractor to include an appropriate termination clause in any subcontract, or to exercise the clause rights, shall not—

(1) Affect the Government's right to require the termination of the subcontract; or

(2) Increase the obligation of the Government beyond what it would have been if the subcontract had contained an appropriate clause.

(c) In any case, the reasonableness of the prime contractor's settlement with the subcontractor should normally be measured by the aggregate amount due under paragraph (f) of the subcontract termination clause suggested in 49.502(e). The TCO shall allow reimbursement in excess of that amount only in unusual cases and then only to the extent that the terms of the subcontract did not unreasonably increase the rights of the subcontractor.

Sections it refers to

  • 49.502 Termination for convenience of the Government.

← 49.108-1 Subcontractor's rights. · 49.108-3 Settlement procedure. →

Rule changes for FAR Part 49

Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.

FAR 49.108-2 Prime contractor's rights and obligations · SpendQuery