T ermination for convenience refers to the exercise of the government's right to bring to an end the performance of all or part of the work provided for under a contract prior to the expiration of the contract "when it is in the Government's interest" to do so. Federal agencies typically incorporate clauses in their procurement contracts which grant them the right to terminate for convenience. However, the right to terminate procurement and other contracts for convenience has also been "read into" contracts which do not expressly provide for it on the grounds that the government has an inherent right to terminate for convenience, or on other related grounds. The right to terminate for convenience has historically been viewed as protecting the public interest by ensuring that the government does not have to pay for something that it may no longer need or want. However, the exercise of this right generally also entails some compensation for the contractor because there arguably would not be a binding contract if one party were unilaterally able to end the contract with no liability to the other. Failure to pay the contractor for the government's exercise of its right to terminate for convenience would also generally be viewed as unfair to agencies' contracting partners, and could diminish the willingness of vendors to deal with the government. This, in turn, could potentially result in the government having to pay higher prices for lower quality supplies and services, as the pool of potential vendors decreases. Termination for convenience is a topic of perennial congressional and public interest since any government contract could potentially be so terminated. However, interest in termination for convenience has recently been heightened by the implementation of sequestration under the Budget Control Act (BCA) of 2011. Some contracts were reportedly terminated, or considered for termination, for convenience in FY2013 as a result of sequestration. In addition, because of agencies' diminished budget authority, questions have arisen as to how agencies might be able to reduce the amount that they must generally obligate or otherwise "reserve" to cover potential termination liability so that they can allot additional funds to performance of the contract, particularly early in the course of the contract's performance. This report provides answers to 12 questions regarding termination for convenience frequently asked by congressional committees and staff. These questions and their answers address everything from the contractual and other bases for the government's right to terminate to post-termination settlements between the government and the contractor. They also address differences between termination for convenience and termination for default, cancellation, and certain other actions that the government may take (e.g., "de-scoping" pursuant to a Changes clause). The questions and answers are organized into three sections, one of which provides background information. The other two address (1) differences between the various types of terminations and other reductions that agencies could make in the work performed under a contract; and (2) potential government liability in the event of a termination for convenience. The report does not address the termination of agency programs or budget elements. Such terminations could potentially result in the termination of contracts. However, they would not necessarily do so. Similarly, language prohibiting an agency from terminating a "program, project or activity" (PPA) would generally not be construed to bar the agency from terminating contracts for that PPA. The questions and answers in this section provide background information on termination for convenience, including (1) the legal basis for the government's right to terminate contracts for convenience; and (2) the circumstances in which the government may so terminate. The government's right to terminate contracts for convenience generally arises from the terms of its contracts. The Federal Acquisition Regulation (FAR)—which governs many (although not all) acquisitions by executive branch agencies —requires agencies to incorporate in their procurement contracts standard clauses granting the government the right to terminate the contract for its convenience. The exact language of this clause varies depending upon the type and value of the contract, among other things. However, such clauses typically provide that [t]he Government may terminate performance of work under [the] contract in whole or, from time to time, in part if the Contracting Officer determines that a termination is in the Government's interest. These clauses typically also specify the form and content of the government's notice to the contractor when it exercises its right to terminate; the contractor's obligations upon receipt of this notice; disposal of the "termination inventory"; procedures for arriving at a termination settlement; items to be included in a termination settlement if the contractor and the agency fail to agree upon the amount to be paid; and the contractor's retention of records pertaining to the terminated portion of a contract. However, even when the contract does not expressly provide for the government's right to terminate for convenience, the government is generally still able to exercise this right, although the rationale for construing the right to terminate for convenience as an implied term of government contracts has varied over time. The Supreme Court first articulated the theory that the government could terminate contracts for its convenience in upholding the Secretary of the Navy's determination to "suspend" certain contracts for equipment which was no longer needed because the Civil War had ended. The Navy proposed to pay the contractor a reduced amount as "compensation for partial performance." The contractor objected to both the suspension of its contract and the reduced payment, arguing that the government had breached the contract since the contract did not grant the government the right to take such action. However, the Court found that the government had not breached and, thus, was not liable for anticipatory profits or consequential damages because the right to terminate is a necessary adjunct of the government's authority to contract and an inherent right of the government. The Court based this conclusion, in part, on its view that it would be of serious detriment to the public service if the power of the head[s] of [federal agencies] did not extend to providing for all … possible contingencies by modification or suspension of the contracts and settlement with the contractors. Subsequent cases similarly emphasized the "public interest" when affirming the government's right to terminate for convenience contracts that do not expressly provide for this right, but upheld this right for differing reasons. For example, immediately after World War I, when a statute authorized the President to "cancel" contracts, the Supreme Court found that the government's right to terminate was, "by implication, one of the terms" of any government contract, since the statute was "binding," and the contractor "impliedly agree[d]" to the government's right to terminate by contracting with the government. Subsequently, when federal regulations called for termination clauses to be incorporated into federal procurement contracts, the U.S. Court of Claims (acting as the predecessor of today's Court of Appeals for the Federal Circuit) found that such clauses were "incorporated, as a matter of law ... [since] the Regulations can fairly be read as permitting that interpretation." Key to the court's decision was that it viewed termination for convenience as a "deeply ingrained strand of public procurement policy." The court also noted that the contractor is entitled to some recovery when the government terminates contracts for convenience, although "[t]he termination clause limits profit to work actually done, and prohibits the recovery of anticipated but unearned profits [on work not yet performed]." The standard Termination for Convenience clauses prescribed by the Federal Acquisition Regulation (FAR) all provide that a termination for convenience is based on the "Government's interest," as opposed to the contractor's actual or anticipated failure to perform. The FAR does not define what constitutes the "Government's interest." However, the term has been broadly construed to encompass many—although not all—interests that the government might assert. For example, federal courts and agency boards of contract appeals have recognized the government's interest in terminating a contract when the government no longer needs the supplies or services covered by the contract; the contractor refuses to accept a modification of the contract; questions have arisen regarding the propriety of the award, or about continued performance of the contract; the contractor ceases to be eligible for the contract awarded; the business relationship between the agency and the contractor has deteriorated; the agency has decided to restructure its contractual arrangements or perform work in-house; the agency seeks to avoid a conflict with the Comptroller General, or a dispute with Congress; or the work contemplated by the contract is proving impossible or too costly. Terminations in almost any other circumstances could also be found to be in the government's interest. It is only in unusual circumstances—such as when the government entered the contract with no intention of fulfilling its promises, or purports to terminate the contract for convenience after the contract has expired —that a termination for convenience could be found to be improper. In such situations, the government could be liable for breach, as discussed below (" Could the Government Ever Face Liability for Breach by Terminating for Convenience? "). On the other hand, because the government has a duty to consider only its own best interests in terminating contracts for convenience, it generally would not be found to have behaved improperly if it declined to terminate a contract for convenience in order to assist the contractor. The questions and answers in this section discuss the differences between the various types of terminations, and between termination for convenience and other actions that the government could take. It covers total and partial terminations for convenience, constructive terminations, terminations for default, cancellation, and other reductions that agencies could make in the work performed under a contract, such as "de-scoping." A "total termination" encompasses all the work remaining to be performed under a contract, while a "partial termination" encompasses only some of the work remaining to be performed (e.g., deleting 50% of the work from a contract for cleaning, inspecting, and coating the roofs of family housing units). When the termination is total, the contractor could be entitled to a "termination settlement" covering the costs of work already performed, but not yet paid for; certain costs incurred in anticipation of performance; and the costs of settling the terminated work, among other things. (See " What Could a Termination Settlement Include? ")