Kingsfield · Research · Government Contracts

What does a contractor recover when the government terminates a fixed-price contract for convenience?

Published 2026-06-23 · U.S. federal law

When the government ends a fixed-price contract for its convenience, the settlement aims at fair compensation for the work performed and the preparations made, not the profit the contractor expected to earn on the unperformed balance.

The answer

The settlement objective

48 CFR 49.201 states that a settlement on termination for convenience should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit, and that fair compensation is a matter of judgment that cannot be measured exactly.

No anticipatory profit

The provision is explicit that cost and accounting data may guide the result but are not rigid measures, and the objective is fairness to both parties. Recovery does not extend to the profit the contractor would have earned on the work it never performed.

The judged input

What the AI drafted

Submitted to the judge

This is an excerpt from a draft FAR compliance advisory memo — the kind of work product a lawyer generates with a legal-AI drafting tool, then has to stand behind. Kingsfield does not write it; it rules on the citations the model put in it. This draft cites two authorities; one of them is wrong.

AI draft excerpt — FAR compliance advisory memo

The Company's contract was ended by the contracting officer under the standard termination-for-convenience clause, and our settlement proposal should be framed around recoverable costs, not lost profit on the canceled scope. Under 48 CFR 49.201, the settlement objective is fair compensation for work done and preparations made, with a reasonable allowance for profit, treated as a matter of judgment rather than exact measurement. We advise against claiming anticipatory profit on the unperformed balance. The contracting officer's authority to settle on this basis is set out in 48 CFR 49.502.

The judge ruled on every citation as the draft used it — it accepted 48 CFR 49.201 and rejected 48 CFR 49.502. Here is why.

The verdict

How Kingsfield ruled

Ruled 2026-06-23

Each citation in the draft above was submitted to the Kingsfield judge and ruled against the primary-law corpus — Accept, Reject, or Inconclusive, per citation. These are live verdicts, not editorial. Each card shows the claim the draft made and the verbatim authority the verdict was rendered against.

Accept48 CFR 49.201

The draft claimed: A settlement on termination for convenience should compensate the contractor fairly for work done and preparations made for the terminated portion of the contract, including a reasonable allowance for profit; fair compensation is a matter of judgment and cannot be measured exactly.

“A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit. Fair compensation is a matter of judgment and cannot be measured exactly. In a given case, various methods may be equally appropriate for arriving at fair compensation. The…”

Cite found; proposition supported by the cited text.

Reject48 CFR 49.502

The draft claimed: Section 49.502 establishes the fair-compensation settlement standard governing what a contractor recovers when its contract is terminated for convenience.

Cite found, but the cited text does not support the claim. 48 CFR 49.502 prescribes which termination clauses to insert in various contract types; the fair-compensation settlement standard is stated at 48 CFR 49.201. Regenerate with the correct authority.

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This page is legal information, not legal advice, and does not create an attorney-client relationship. The draft shown is an illustration of a typical AI answer; verdicts reflect the cited authority in the Kingsfield corpus as of the ruling date shown above.