Can a Contractor Terminate a Government Contract?

Contractors can usually terminate government contracts only after exhausting other alternatives. While a contractor may sometimes terminate a government contract where the government continually fails to fulfills its duties under the contract, contractors should seek termination only under extreme circumstances.

Law

• Generally speaking, any party to a contract may terminate the agreement if the other party acts egregiously and violates the contract. However, contract laws favor resolutions that allow contracts to reach completion. With federal contracts, the Office of Management and Budget favors conflict resolution over lawsuits that arise from termination.

Reporting

• If a contractor finds that a government body violated their agreement, it may be wise to report the violation before seeking termination. Under the American Recovery and Reinvestment Act, the Offices of Inspectors General insist on "unprecedented transparency and accountability."

Non-Performance

• A contractor can terminate their government contract by simply refusing to carry out the remainder of the contract. In this case, it's important to give written notice of the termination and state the reasons for termination in the notice.