Has your federal contract recently been terminated for convenience? If so, proceed with an understanding of your rights; because if not, you may end up leaving money on the table.

When a contract issued by a federal agency is terminated for convenience, a contractor is entitled to receive compensation to fairly and equitably compensate it for this termination by submitting a settlement proposal within one year. While the principles underlying terminations for convenience unfortunately don’t permit contractors to realize disappointed expectations (i.e., you can’t recover the profit you expected to receive for the part of the contract you didn’t perform), the flexibility written into the applicable regulations (FAR Part 49) may allow you to receive costs you might not have considered.

Under a termination for convenience, a government contractor is entitled to recover its reasonable, allocable, and allowable costs, including costs related to suspensions of work. See Alfair Dev. Co., ASBCA Nos. 53119, 53120, 05-2 BCA P 32,990 at 163,511. The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement. See Codex Corp. v. United States, 226 Ct. Cl. 693 (1981).

Accordingly, when seeking costs due to a termination for convenience via a settlement proposal, a strong narrative with supporting documentation is key. Make sure you’re outlining your costs in detail (i.e., what these costs were, when they were incurred, to what they were attributed). For each cost, you’ll need to show the following:

Reasonableness – A cost is reasonable if, in its nature and amount, it does not exceed what a prudent person would incur in the conduct of a competitive business. 48 CFR 31.201-3(a). For example, labor costs would be reasonable if they were consistent with market rates.

Allocability – A cost is allocable to the contract if it was incurred for purposes of contract performance.

Allowable – The cost must not be something specifically disallowed by the FAR. For instance, a terminated government contractor may recover as settlement expenses accounting, legal, clerical, and similar costs reasonably necessary for preparation and negotiation of its termination settlement proposal. See FAR 31.205-42(g)(2). After all, these costs are a consequence of the termination.

Meet generally accepted accounting principles – This one is self-explanatory.

You’re also entitled to receive profit on the work performed before the termination, but that’s a whole other topic.

Every termination has its own set of facts, but a hypothetical example may help in showing the nuts and bolts of a solid termination for convenience settlement proposal.

Let’s say you have a firm-fixed-priced contract for grounds maintenance work. The contract was supposed to have one base year and several option years, but it was cancelled a few months in. You purchased equipment, hired and trained employees, and engaged in several weeks of mobilization before beginning billable performance.

As an initial matter, when a contract is terminated for convenience, the first step is to STOP performance. In writing, immediately notify your subcontractors and employees of the termination; and then begin doing what you can to mitigate ongoing costs.

In this instance, you’ll find that some costs necessarily continue on after termination. For instance, what if you have an office lease that doesn’t expire for some time? Have employees currently staying at an Airbnb with a strict cancellation policy? Have purchased equipment for the job? These are costs that bleed into post-termination; and if you carefully document these and why they are unavoidable, you should be able to recover them. For instance, in one termination settlement proposal I prepared, we received the full amount of the remaining monies to be paid under a lease because not only did the term not expire for several additional months; but it was unlikely and/or not feasible to sublet the space.

In our hypothetical example of the grounds maintenance contract, if you had equipment you cannot allocate elsewhere and is not returnable, you would claim the cost of that equipment. Keeping in mind that the exercise of a termination for convenience settlement is fairness, you might seek all the cost or a portion of the cost, depending on the circumstances. You simply need to set forth the facts to support your position. If your contracting officer disagrees or needs more information, you respond accordingly.

And what about mobilization costs that haven’t yet been absorbed? For instance, you may have allocated senior personnel to attend site meetings for planning purposes, or trained new employees. Mobilization can include a myriad of costs you had absorbed in your pricing that was consequently not realized by CLINS billed under your contract. If you can show that, substantiating these costs and explaining how they played into your pricing, you may be able to recover not only those costs, but also a reasonable profit on that work.

It’s worth mentioning that to a degree, the experience of negotiating a termination for convenience settlement proposal depends on your contracting officer, and your relationship with your contracting officer. They have some discretion in negotiating what is fair under the circumstances, which is why it’s so important that you prepare a proposal which shows that what you’re asking for is “fair.” Along with completing the necessary forms, include a solid narrative describing your costs (and how they meet the criteria cited above) and provide all substantiation.

If you’re a government contractor, you know the drill. In seeking costs due to a termination for convenience, be as clear and as detailed as possible. Make your proposal easy for them to review. Don’t settle for less than your work, or costs, were worth!

*Questions about termination for convenience settlement proposals? Sarah Reida, who works almost exclusively with veteran-owned small firms participating in the federal marketplace, may be contacted at scs@legalmeetspractical.com or (703) 552-3220.

In some scenarios, this doesn’t even matter. The veteran majority owner wants what is best for the firm–which is also best for him–and he includes his majority partners in the decisions towards that end. The business is a true partnership.

In these instances, this means the corporate paperwork is just paperwork. The bylaws or operating agreement might establish the veteran as king and tyrant, but that only matters if he wants to act like one.

The question for the minority owners becomes . . . are you comfortable with the risk that he one day might want to?

In the VSBC Appeal of Snowfensive, LLC, the minority owner of a small company out of Utah was uncomfortable with that risk when applying to VetCert. Their application was denied by the SBA due to the inclusion of the following language:

“Amendments to this Operating Agreement. . . that are of an inconsequential nature. . . and that do not affect the rights of the other Members in any material respect. . . may be made by that person through the exercise of his or her power of attorney. Any other amendment to this Operating Agreement requires the unanimous consent of the Members. . .”

Via other terms in the operating agreement, the veteran (and managing member) had the power of attorney. Accordingly, this provided that while the veteran owner could unilaterally amend the operating agreement with respect to “inconsequential” changes, both members were needed for all others. In denying Snowfensive’s application to VetCert, the SBA found that this provision interfered with the veteran’s right to “fully control” Snowfensive.

Snowfensive was unsuccessful in challenging this before SBA OHA, which hears appeals of such denials. SBA OHA held that the veteran not being able to unilaterally amend the operating agreement was a dealbreaker, as this prevented him from exercising control over the firm. VSBC-368-A (2024). SBA OHA further noted the provision (13 C.F.R. 128.203(j)) listing those “extraordinary circumstances” where it is permissible to require consent of all owners does not include the amendment of corporate documents.

As an attorney who has been in this game for years, I empathize with Snowfensive’s minority owner. If you’re putting your money and sweat equity into a business, you should have control when it comes to major decisions. What if the veteran wants to pivot the business to an entirely different field? Or make a major expenditure? If it affects you, you should have a say over it.

When it comes to the Veteran Small Business Certification Program, however, the reality is that you have to be willing to abdicate control. A set of rules apply to ensure that the firm is the veteran’s firm, and while you might be a team in practice, the corporate documents must be drafted in a certain way–and be enforceable as such–in order to qualify for the Program.

With this in mind, the question becomes whether the benefits of the program are worth the risk it presents to a minority owner. If the veteran owner is a qualified, responsible, trustworthy business partner whose status can be used to leverage opportunities in the federal sphere, it should be. If you chose to be in business with him in the first place, it would appear your risk is minimal.

As such, when your firm is considering applying to VetCert, do your homework. Understand the eligibility requirements and any calibration required to qualify. Assess your risk and your degree of comfort with taking it. Chances are, it’s worth it; but all owners to the firm should know exactly what they’re getting into (and giving up) when making changes for purposes of entering the federal sphere.

*Sarah Reida’s practice is focused on assisting veteran firms in the federal marketplace. This includes: pursuing certifications, pursuing and defending status and bid protests, assisting with teaming documents, dispute resolution, and filing claims and appeals.

For those of you who used to read my blog, you may have noticed just that: you used to read my blog. I haven’t posted anything in years. Since May of 2021, in fact.

I didn’t mean to stop posting. I liked doing it–covering topics I found interesting and/or helpful for small business owners, particularly veterans competing in federal space. But, as small business owners know, sometimes life takes over and certain items take a backseat. That’s the nature of having your own business–you calibrate and adjust, in order to make it work (and to facilitate how you work).

When I first started my business, a lot of my activity focused on pounding the pavement, looking for clients and building my practice. A big part of that was my blog, and also my newsletter–the idea was that by providing value to businesses and enhancing my visibility, this would bring in new clients. As my practice grew, I was able to keep up the blog (fairly) regularly, by virtue of there always being something to blog about. I also enjoyed doing it, and I enjoyed connecting with people via the comments made.

It is now twelve years later. In that time, I’ve built a solid book of clients, and I don’t need the blog, but that isn’t why I’ve stopped writing it. I have two kiddos, who are now five and seven, and I’ve been incredibly fortunate in being able to work a non-traditional schedule so I can spend more time with them. (That’s not to say that there aren’t the moments when I’m glued to my computer and feeling guilty for neglecting them). My practice has grown to the point where most of my time is spent on client matters versus marketing or administrative work, and one result is having more time with the monsters (which is how I’ll refer to them until they’re about forty). But, balancing an active practice with being a mother has resulted in me scaling back certain things, and the blog is one of them.

The other reason I don’t post is because of other things I write. Since . . . ever. . . I have wanted to be a writer. Over a period of ten years, I had three literary agents and we shopped a total of five projects. Getting a literary agent is hard–you have to pitch a finished novel to them, and they only represent you if they think the book will sell. Only about one percent of writers will get an agent, so you would think that my having been able to secure three would have resulted in publishing success.

You would be wrong. Of those books shopped, only one sold to a small publisher, and that impact was extremely underwhelming.

I stopped writing for the most part after I had my children. There was never any time, and I was always exhausted by the balancing act between work life and home life. (For example, this particular blog post may be coming to you from a Waffle House en route to Georgia from Illinois, as my children hit each other). I also switched up my reading materials, getting more of an interest in campy thrillers as an escape from reality.

Writers, however, simply can’t stop. It’s in us, regardless of whether success is achieved. (That’s what makes being a writer such a frustrating, mean enterprise). After a significant hiatus and once our family moved to the Atlanta area, I had an idea for a dark comedy thriller about a serial killer stalking the morally bankrupt residents of an upscale neighborhood. One of my favorite books is The Stand, and I wanted to try out King’s mode of writing a book in linear format via multiple narrators.

The problem was everything else. Where would I find time to write?

For the next two months, while the children were away at school, I wrote Neighborhood Watch, an entire chapter at a time because starting and stopping a chapter was a no-go. I did my legal work early in the morning, and after the children went to bed. A total of seven months after starting the book, I had a traditional publishing deal. And this April–eighteen months after this offer, as the publishing world moves like molasses–my book was released. There’s an audio book! With eleven different voice actors! Again, this is after over a decade of trying. It feels surreal that this happened, is happening. Present tense, since, after Neighborhood Watch, I’ve been writing again.

Having this book released made me think of this blog, and how I don’t write it anymore. I miss it. And I wanted to say–to those who have followed me over the years–that I have enjoyed writing for you. I would not have stopped if I had the bandwidth.

But it’s same situation with the other type of writing I do. I didn’t have the bandwidth, but I had the inspiration, and I made it work. I will try to make my blog work again. It simply might not be as frequent as it used to be.

We don’t stop doing some things because we don’t care. We stop because life has a way of distracting us. I know I’m not alone in this notion.

In a unicorn of a decision before the Small Business Administration Office of Hearings and Appeals (SBA OHA), Judge Chris Holleman overturned his own finding that a service-disabled veteran-owned small business (“SDVOSB”) did not meet the requirements of the Small Business Administration’s SDVOSB Program.

In this request for reconsideration decision, the protestor, Blue Cord DevGroup LLC, had originally successfully argued in its SDVOSB status protest that Purple Heart Heroes, LLC (Purple Heart), the awardee of a lease issued by the U.S. Department of Veterans Affairs, did not qualify as an SDVOSB. One reason alleged was that Purple Heart was not actually controlled by Zachariah Gore, the service-disabled veteran owner. In sustaining this protest ground, Judge Holleman found: “He (Gore) does not have managerial experience of the extent and complexity needed to run the concern, [and] Catalyst is so crucial to PHH’s business operations that Mr. Gore cannot exercise independent business judgment without great economic risk, and … he lives too far from PHH’s headquarters to adequately supervise the company.” In other words, the SBA OHA found three reasons that Purple Heart did not meet the control requirement.

Purple Heart moved for reconsideration on March 15, arguing that it had shown that Gore had the necessary managerial experience, pointing to his work both before and after his time in the military and his work with Purple Heart itself. Judge Holleman agreed on reconsideration that he had erroneously assessed Gore’s work record. While the information in Gore’s resume about his work experience prior to Purple Heart was “vague and unclear” and included several conflicting examples of jobs he had purportedly held at the same time, Gore’s work with Purple Heart itself was enough to show sufficient managerial experience by the time the company actually bid for the VA lease in March 2020. SBA OHA also found that Purple Heart had not been provided the opportunity to rebut the presumption that the veteran did not control the firm despite not being within close proximity. In its request for reconsideration, Purple Heart had provided ample evidence to overcome the presumption. Also, SBA OHA found that analogous case law supported Purple Heart’s arguments regarding its ability to exercise independent business judgment (and that the case relied on previously was not as similar to the facts of Purple Heart’s situation). Accordingly, the SBA OHA reversed its own decision and found Purple Heart eligible for the award.

As an attorney, I find this case fascinating. In general, while a party can request reconsideration of an SBA OHA decision, to actually prevail is extremely rare. One must file the request within 20 calendar days of having received the initial decision, and then convince the judge at SBA OHA that rendered the decision that s/he made “a clear error of fact or law.” As in, convince the judge to overrule himself or herself. That’s an extremely high hurtle, evidenced by the fact that almost all requests for reconsiderations at SBA OHA are denied. And in this case, Purple Heart had to show errors with respect to three separate eligibility findings. And it did!

Congratulations, Purple Heart. You are a legal unicorn.

This bid protest decision challenging the VA’s decision to route a procurement for imprinted gunlocks and wallet cards for veterans originated at the Government Accountability Office (“GAO”). The VA had invoked the “printing mandate” of 44 U.S.C. 501 in arguing it had no choice but to hand over the procurement. The mandate states: “[a]ll printing, binding, and blank-book work for Congress, the Executive Office, the Judiciary, other than the Supreme Court of the United States, and every executive department, independent office and establishment of the Government, shall be done at the Government Publishing Office [“GPO”][.]” Because the supplies sought contained elements of printing, the VA argued, the printing mandate applied to require the acquisition to be conducted via the GPO. Then, because it became a GPO procurement, the requirements of the Veterans Benefits Act (“VBA”) at 38 U.S.C. 8127-8128 to set aside the opportunity for veteran firms did not apply. (These only apply to the VA). Veterans4You challenged this as violating the VBA and the Supreme Court Kingdomware mandate that when the VA acquires supplies or services for its use, it must apply the “Rule of Two” to determine if the opportunity should be set aside for veterans.

In a sustained decision, the GAO found that the VA had violated the VBA by routing the opportunity to the GPO with no consideration to its requirements. Because the GAO found in Veterans4You’s favor on the Kingdomware issue, it did not examine the interplay with the printing mandate. Immediately thereafter, the VA turned around to issue another seemingly-identical procurement via the GPO, which Veterans4You again protested, this time to the U.S. Court of Federal Claims (“CoFC”)(19-931c).

Ruling from the bench, Judge Lydia K. Griggsby found against Veterans4You. First, she held that the printing mandate had been properly invoked, as the printing mandate is “broad” and the sources sought fell within the definition of “printing.” Second, although conducting the acquisition via the GPO would result in the Kingdomware mandate not being followed at all (the GPO has no set aside procedures or means to providing veteran credit or preference), she held that the VA had met the requirements of the Veterans Benefits Act. Under one particular section that applies to contracts with other agencies (38 U.S.C. 8127(i)), the VA must request the agency to comply to “the maximum extent feasible.” In the form submitted to the GPO requesting it to conduct the procurement, the VA did include this language.

On appeal to the Court, Veterans4You raised the constitutional issue with the “printing mandate.” It argued this was exacerbated by the “broad-sweeping” ruling of the CoFC, which would enable virtually any supply containing an element of printing to be labeled as “printing” and routed through the GPO. Veterans4You and Kingdomware (which submitted an amicus brief) urged that the Court’s interpretation of the printing mandate must be guided by the doctrine of constitutional avoidance because “invocation of the printing mandate . . . violates constitutional provisions of separation of powers.”

The Court exercised its discretion in hearing the constitutional issue, noting that “executive branch actors have long maintained the position that the printing mandate in 44 U.S.C. § 501 violates the separation of powers between the legislative and executive branches mandated by the Constitution.” After describing this history, the Court found that acquiescence by the executive agency had not occurred, while acknowledging that the FAR Council had been aware of positions of unconstitutionality regarding the printing mandate yet had not revised FAR 8.8 accordingly (FAR 8.8 encompasses the printing mandate).

The Court concluded that the canon of constitutional avoidance counseled it to construe the printing mandate narrowly and to avoid its application to the procurement at issue. In so doing, the Court noted that both Veterans4You and Kingdomware (which submitted a brief as amicus) argued that a narrower reading of the term “printing,” limited to a particular category of printed matter, was both appropriate and supported by the historical context in which the term has been used in the statute. Here, the gunlocks (including the components that involve some element of “printing” in a broad sense, such as the wallet card and the imprinted information on the body of the padlocks) are not “written or graphic published material,” and therefore, the printing mandate was not invoked to require the VA to conduct the acquisition via the GPO.

The Court then provided a detailed analysis based on dictionary definitions, statutory analysis, and the historical functions and activities of the GPO in order to narrowly define “printing” as “written or graphic published material.” It also noted that “in view of our determination that the canon of constitutional avoidance compels a nar-row interpretation of the printing mandate, we need not conclude that our construction is the only possible construction. These dictionary definitions support our view that our construction of the statutory term “printing” is reasonable.”

Accordingly, the Court reversed and remanded the CoFC decision, holding that the VA had improperly concluded that the printing mandate was triggered. Based on the administrative record, the Court noted that it “underst[oo]d VA’s decision to route this solicitation through the GPO to have been premised on an understanding on the part of VA, confirmed by GPO, that VA was obligated by the printing mandate to route this solicitation through GPO.” Because the Court reversed the CoFC’s determination that the goods sought under the solicitation fell within the printing mandate, it did not reach the question of whether VA was in compliance with its obligations under § 8127(i). Nor did it analyze any constraints imposed by the VBA if the VA had exercised discretion in procuring through the GPO (versus arguing that the mandate applied).

In this case, what the court didn’t say is almost as interesting as what it did. The Court clearly found issue with a broad interpretation of the “printing mandate,” adopting a more targeted definition in its holding that this particular procurement didn’t fall within it. Executive agencies aren’t required to use the GPO unless the solicitation calls for “written or graphic published materials.” At the same time, the Court didn’t analyze how the constitutional separation of powers issue would be impacted if an executive agency chose to procure a “non-printing” procurement via the GPO because it had some elements of printing. The judges’ questioning of the Government during the oral argument was skeptical that the encroached agency consenting to the violation would fix the separation of powers issue. Also, the Government’s own prior questioning of the printing mandate’s constitutionality hinged not just on the executive agencies being required to hand over the printing work, but that a legislative agency was actually performing it. Regardless of whether the hand-off is consented to or not, the effect is the same with respect to a legislative branch agency conducting a procurement for an executive branch agency.

The Court also didn’t touch on Kingdomware and the limits it imposes on the VA’s ability to route procurements through other agencies. Had the VA said it was exercising its discretion in procuring the gunlocks via the GPO, would it have been permitted to do so considering the impact would be that the GPO has no means to complying with the VBA? That seems contrary to the intent of Congress.

This case may need a sequel. If another “non-printing” procurement comes along where an executive agency chooses to route through the GPO due to minor printing components, a constitutional challenge to that decision may provide further scope and clarification to this decision.

*Did you find this article informative? If so, sign up for Sarah Reida’s legal blog on veteran procurement issues.

**Note – Sarah Reida represented Veterans4You at all stages of this issue/appeal.