How Small Businesses Can Terminate A Government Contract

Contract Administration Issues

Federal contracts are different from the average commercial contracts. They have general contract provisions that are unique to the government.

These contract provisions include statutory or regulatory requirements that only apply to the federal government. They include the following:

  • Termination for default 
  • Termination for convenience
  • Contract changes
  • Payments
  • Specifications
  • Inspection 
  • Testing. 

These matters are described in the Federal Acquisition Regulations. We covered termination for default and termination for convenience in the first part of our series. Now, we will continue to explain how you can protect your company from unnecessary risk and liability when contracting with the federal government.

The United States Government Wants to Encourage the Success of Small Businesses

As we mentioned in the first part of this series, the federal government is required to set aside at least 23 percent of its total spending specifically for small businesses.

This includes contracts specifically for women-owned small businesses, small disadvantaged businesses, companies within historically underutilized business zones (HUBZone), and service-disabled, veteran-owned small organizations. This allows underserved groups to have a real chance to get awarded lucrative government contracts.

It is smart to utilize this group of highly specialized government personnel as they are an invaluable resource for small businesses to succeed in obtaining government contracts.

However, businesses need to understand the various ways that contracts can be terminated. We want to make sure that you protect your business from unneeded risk and liability.

Contract Changes

It is not uncommon for the needs of the government to change periodically. This means that government contracts contain a clause that authorizes the contracting officer to order change in the specifications and other terms of the contract. You will be required to perform the contract as it is unilaterally changed by the contracting authority. This type of change usually occurs in the scope of the contract itself. However, the government can not use this type of change to disrupt the general nature of the contract. You will be entitled to an equitable adjustment in price and delivery schedule if changes are ordered.


The government is obligated to make prompt payments for any products delivered or services rendered by the contractor on any type of procurement contract. Prompt payment is essential to the lifeblood of any small business. The contract that you sign will have very specific instructions for invoicing the office or agency that is administrating your contract. You must make sure that your payment process is accurate so that you can be paid as quickly as possible. This type of efficient payment benefits both the government and the contractor. If the government does not provide prompt payment under certain circumstances, then you submit a request for interest payments under Public Law 97-177, Prompt Payment Act.

Fixed Price Contracts

These government contracts are used when the scope of work is clear from the beginning and therefore a price is determined by the agency in advance. There are many different types of this particular contract. The method of payment can vary depending on the dollar value of the contract. Lump sums are usually paid out for relatively small contracts with a single item of work. Payment is usually made when the government accepts delivery. Progress payments based on the cost incurred may be available on larger contracts where the first delivery may be several months after the contract is signed. 

However, since progress payments are given when the work is not completed, you must repay them if you fail to complete the work. The government protects its interest by taking title to your work-in-process for which progress payments have been made. To qualify for progress payments, you must have an accounting system that can accurately identify and segregate contract costs.


The invitation for bids or requests for proposals will contain exact specifications for most of the products and services needed by the government. This precise language will also be included in your contract.

Being A Government Contractor Is A Great Way To Make Your Business Stand Out In An Overcrowded Field

Business can be very competitive. Working on government projects is a great way to make a mark in an oversaturated market. The government has a great deal of work specifically set aside for small businesses.

Also, many small businesses often do not want to deal with the hassle of working with the government, and sometimes there can be surprisingly little competition for a government project. That is why utilizing Sam Directory to handle all the confusing registration requirements is a very smart investment. 

The United States Government Is A Very Powerful Client With Deep Pockets

The Federal government usually spends around 500 billion dollars a year on goods and services. This makes the U.S. government an extremely attractive client. There are few other organizations with this type of spending power and clout.

The government also tends to buy goods and services in bulk. If your business has the infrastructure to handle large orders, then the government can help you grow substantially at an accelerated pace.

Government agencies also buy goods and services in large quantities. Large orders can be a double-edged sword for small businesses. However, if managed correctly, they can help you grow substantially and rapidly.

Do Your Research

Once you have selected some agencies that require your goods and services, it is very important to research your customers. Luckily, nowadays you can find out a lot about an organization online.

Register For SAM

SAM stands for System Award Management.

To do any business with the federal government, you must register your business in the System for Award Management. The government will not hire any type of business that has not registered in the SAM directory.

We have an article on our site, Everything You Need to Know About SAM for Small Businesses, that gives you important information about this process.

As a smart entrepreneur, you have already used our site to register in the SAM directory. Congratulations on taking this important first step to become a government contractor.

Make Sure You Have Your CAGE Code (Commercial and Government Entity)

This code is five characters and unique to your business. It’s basically your ID code, and government agencies will identify your business using this code. It is a bit like a social security number for your business. If your business includes more than one facility, then you will need multiple CAGE codes. Each location must have its own unique code, and each location must be registered separately with SAM.

Remember SAM

SAM stands for System Award Management.

To do any business with the federal government, you must register your business in the System for Award Management directory. The government will not hire any type of business (large or small) that has not registered in the SAM directory.

Please read one of the helpful blog articles on our site like Everything You Need to Know About SAM for Small Businesses.  These blogs will help give you all the information you need to understand how we can help make the process very easy for you. Sam Directory will happily guide you through this often confusing process. With our help, you will be able to be on the path to government subcontracting quickly and efficiently.