A termination for convenience letter ends a contract without either side being in breach, and a workable example contains six things: the contract identification, a citation to the specific termination for convenience clause, the scope of the termination, the effective date, stop-work instructions, and a direction to submit a settlement proposal. Below is a template you can adapt, followed by what each piece does and where federal and commercial contracts differ.
Sample Termination for Convenience Letter
This format follows the structure the Federal Acquisition Regulation prescribes at Section 49.601-2 for federal supply contracts and works, with minor adjustments, for commercial contracts as well.1Acquisition.GOV. FAR 49.601-2 Letter Notice
[Your Name / Organization]
[Address]
[Date]
[Contractor / Other Party Name]
[Address]
Re: Notice of Termination for Convenience — Contract No. [XXXX-XXXX], dated [Month Day, Year]
Dear [Name],
This letter serves as formal notice that [Contract No. XXXX-XXXX] between [Party A] and [Party B] is terminated for convenience, [completely / in part], under Section [X.X] of the contract, entitled “[Termination for Convenience].”
[If partial: This termination applies to the following line items / scope of work: (describe the terminated portion). All other work under the contract continues as specified.]
The effective date of this termination is [Date], which is [30/60/etc.] days from your receipt of this notice, consistent with Section [X.X] of the contract.
Upon receipt of this notice, you are directed to:
1. Stop all work on the terminated portion of the contract.
2. Place no further orders or subcontracts related to the terminated work.
3. Terminate any existing subcontracts related to the terminated work and notify affected subcontractors.
4. Preserve all work-in-process, materials, and project documentation for transfer or disposition.
5. Submit a termination settlement proposal in accordance with the contract terms no later than [deadline].
Please direct any questions regarding this termination or the settlement process to [Contact Name] at [phone/email].
Sincerely,
[Name and Title]
What Each Section Does
Each element in the letter answers a specific question the recipient (and any court reviewing the termination later) needs answered.
Contract identification. The letter should include the full contract number, the names of both parties, and enough detail (line items, project numbers, task orders) that there is no ambiguity about which agreement is being ended.2Acquisition.GOV. FAR Subpart 49.6 – Contract Termination Forms and Formats Where a party holds multiple active contracts with the same counterparty, vague identification creates immediate disputes about what work must stop.
Citation of the termination clause. Reference the specific clause by title or section number. The FAR-prescribed notice format includes a blank for the exact clause name, and the same practice applies in commercial contracts.2Acquisition.GOV. FAR Subpart 49.6 – Contract Termination Forms and Formats Without a clause citation, the notice reads as a repudiation rather than an exercise of a contractual right.
Scope of termination. State whether the termination is complete or partial. A partial termination must identify which line items, task orders, or portions of work are being ended and which continue.3Acquisition.GOV. FAR 52.249-2 Termination for Convenience of the Government (Fixed-Price) The boundary between terminated and continuing work has to be clear enough that the other party can act on it the day the notice arrives.
A partial termination in a federal contract triggers an extra right on the contractor’s side: the contractor can request an equitable adjustment to the price of the continuing work within 90 days of the effective date, recognizing that overhead once spread across the full contract now sits on a smaller base.3Acquisition.GOV. FAR 52.249-2 Termination for Convenience of the Government (Fixed-Price) Missing that 90-day window forfeits the right unless the contracting officer grants a written extension.
Effective date. This is the date performance stops. It can be immediate or calculated from a notice period set by the contract. When a notice period applies, the effective date runs from documented receipt of the letter, not the date it was sent, and every downstream deadline (cost cutoffs, inventory schedules, settlement timelines) runs from that effective date.
Stop-work instructions. Direct the other party to cease work, stop placing new orders, terminate related subcontracts, and preserve work-in-process and materials.1Acquisition.GOV. FAR 49.601-2 Letter Notice This matters for cost allowability later: in federal contracts, costs that continued after the effective date because the contractor was negligent or willfully failed to shut them down are unallowable, so the notice has to put the other side clearly on notice to begin cutting expenses.4Acquisition.GOV. FAR 31.205-42 Termination Costs
Settlement instructions. Direct the terminated party to prepare and submit a settlement proposal, with a deadline. For federal contracts, the regulatory deadline is one year from the effective date, and missing it without a timely written extension lets the contracting officer unilaterally determine the settlement with no appeal rights for the contractor.5Acquisition.GOV. FAR 49.206-1 Submission of Settlement Proposals6Acquisition.GOV. FAR 49.109-7 Settlement by Determination For commercial contracts, use whatever the contract specifies.
Delivering the Letter
A correctly drafted letter is worthless if it isn’t delivered the way the contract requires. Most contracts specify acceptable delivery methods, and using the wrong one can invalidate the notice.
For federal contracts, FAR 49.601-2 directs that the termination notice be sent by certified mail with return receipt requested, or electronically with evidence of receipt.1Acquisition.GOV. FAR 49.601-2 Letter Notice Commercial contracts vary. Certified mail, overnight courier with tracking, and email with read-receipt confirmation are common requirements. Follow the contract’s notice provision exactly and keep proof of delivery, because the effective date and every deadline that follows it depend on documented receipt.
Federal vs. Commercial Contracts
The template above works for both, but the legal backdrop differs enough to change some of the language you plug in.
In federal procurement, termination for convenience clauses are standard. The Federal Acquisition Regulation prescribes specific clause language (such as FAR 52.249-2 for fixed-price contracts) that gives the contracting officer authority to end performance “in whole or, from time to time, in part” whenever termination serves the government’s interest.3Acquisition.GOV. FAR 52.249-2 Termination for Convenience of the Government (Fixed-Price) The government’s power is broad and does not require justification beyond that determination. Cite the FAR clause by number in the letter, and reference the FAR settlement framework when directing the contractor to prepare the settlement proposal.5Acquisition.GOV. FAR 49.206-1 Submission of Settlement Proposals
Private commercial contracts work differently. Courts have declined to give private parties the same sweeping termination power the government has. Most courts require that a private party exercising a termination for convenience clause act consistently with the implied duty of good faith and fair dealing. For contracts involving the sale of goods, UCC Section 2-309 allows either party to terminate a contract of indefinite duration at will, but only with reasonable advance notice. In commercial letters, cite the contract’s own termination clause by section number, use the notice period the contract requires, and tie settlement to the contract’s compensation formula rather than to FAR cost principles, which do not apply.
Confirm the Clause Exists Before Sending
Termination for convenience is not a default legal right. It exists only when the contract expressly grants it. A party that ends an agreement without a termination for convenience clause risks a breach of contract claim and exposure to full expectation damages, including the other side’s lost profits on the uncompleted work. Before adapting the sample letter, read the contract and confirm that the clause is actually in it, and that the facts of your situation fall within what the clause allows.
What the Letter Sets in Motion
Sending the letter is the first step; it starts a settlement process that the terminated party drives. In a federal contract, the terminated contractor submits a settlement proposal covering all cost elements, including settlements with subcontractors and any proposed profit.5Acquisition.GOV. FAR 49.206-1 Submission of Settlement Proposals4Acquisition.GOV. FAR 31.205-42 Termination Costs7Acquisition.GOV. FAR 49.202 Profit
Anticipatory profits (profit on the uncompleted work) are expressly excluded, and if the contract would have been a loss had it been completed, the settlement is reduced to reflect that projected loss rate.7Acquisition.GOV. FAR 49.202 Profit3Acquisition.GOV. FAR 52.249-2 Termination for Convenience of the Government (Fixed-Price) In a commercial contract, the contract itself governs what the terminated party can recover; well-drafted clauses typically allow reimbursement for work completed, materials purchased, and reasonable wind-down costs. The settlement figure the letter asks the other side to prepare should match whichever framework applies.