Terminations & REAs

An REA is a contractor’s formal request to modify a contract’s price, schedule, or both, based on changed circumstances that affect the cost or time required to perform. REAs arise when government actions or inactions alter the contractor’s contractual obligations without a corresponding adjustment to compensation. Common triggers include directed changes to scope, defective specifications, differing site conditions, schedule acceleration or delay, latent defects, and excessive or unreasonable inspection requirements. Under FAR Part 43, the government’s right to direct changes carries a corresponding obligation to equitably adjust the contract, making a well-constructed REA the contractor’s primary mechanism for recovering the full value of that impact.

Several standard FAR clauses provide the contractual basis for REA submissions, each tied to a specific category of government action. FAR 52.243-1 (Changes) is the primary vehicle for scope-related adjustments and applies across most contract types. FAR 52.242-14 (Suspension of Work) provides relief when the government suspends performance without justification, while FAR 52.242-15 (Stop-Work Order) addresses directed work stoppages and their cost consequences. Constructive changes, where the government informally alters scope without a written directive, are equally compensable but require the contractor to identify and document the change independently. Understanding which clause applies to a specific impact is the first step in building an entitlement position that survives government scrutiny. Failure to bring timely notice of changes within generally 20 days may limit cost recovery.

Every REA or termination settlement proposal rests on two distinct analytical pillars. Entitlement establishes that the contractor has a legal and contractual right to an adjustment, grounded in the applicable FAR clause and the specific government action or inaction that caused the impact. Quantum is the calculation of cost impacts or damages arising from the change in contract scope requirements experienced during performance of the contract or the termination of the contract itself. The quantum should be calculated on an as-detailed basis as possible, specific to discrete items that caused the change in contract scope, supported by accounting or project records and presented in a clear and logical manner. A strong entitlement position with a poorly supported quantum calculation routinely results in negotiated settlements well below recoverable value.

Yes. The government retains broad discretion to issue a T4C for reasons entirely outside the contractor’s control, including loss of funding, changes in program requirements, technology shifts, bid protest decisions, or shifting political priorities. Under FAR Part 49, a T4C does not reflect contractor fault and triggers a structured settlement process designed to make the contractor whole. Recoverable costs include all allowable costs incurred prior to termination, a reasonable profit on work performed, and settlement expenses such as accounting, legal, and clerical costs directly attributable to the settlement effort itself. Contractors who understand their Part 49 rights before a termination notice arrives are significantly better positioned to protect and maximize their recovery.

Generally, yes. The termination settlement process can be fairly extensive and is governed by FAR Part 49. A fundamental principle of the settlement process is to make the contractor whole because of the termination action and based on concepts of fairness and equity for completed work. Work in process may be subject to progress made including undefinitized change orders versus proposed price and remaining funded contract value.

Under FAR 49.206-1, a contractor must submit a termination settlement proposal (TSP) within one year of the effective date of the termination, unless the contracting officer grants an extension. Prime contractors frequently impose tighter timelines on subcontractors, often requiring submission within six months of the termination effective date, making early action critical at every tier. The TSP must be submitted on Standard Form 1435 or an equivalent format and supported by detailed cost documentation, including job cost records, purchase commitments, subcontractor claims, and evidence of cost mitigation efforts. Incomplete or undocumented proposals extend the settlement timeline, reduce negotiating leverage, and increase the risk of cost disallowance during government review.

Cost classification is among the most consequential and most frequently underutilized levers in a termination or REA settlement. Under FAR Part 31, costs must be allowable, allocable, and reasonable to be recoverable, but the classification of a cost as direct or indirect, and its assignment to the correct cost objective, directly affects how much of it is ultimately recovered. In a termination context, FAR Part 49 permits recovery of costs that would otherwise be treated as overhead when they are directly attributable to the terminated contract. Strategic cost reclassification, supported by documented accounting rationale, can materially increase settlement value without altering the underlying facts, making it a technical discipline with direct financial impact.

Resolution begins with negotiation between the contractor and the contracting officer, supported by the contractor’s quantum documentation and the government’s independent cost analysis, which may include a DCAA audit of the settlement proposal. When negotiation produces agreement, the settlement is formalized through a contract modification. When it does not, contractors have the right to convert an unresolved REA into a certified claim under the Contract Disputes Act (CDA), which triggers a contracting officer’s final decision (COFD) and opens the path to appeal before the Armed Services Board of Contract Appeals (ASBCA) or the U.S. Court of Federal Claims. Contractors with well-documented quantum and a coherent legal and technical strategy are better positioned at every stage of this continuum, from initial negotiation through litigation if necessary.