52.241-10
Termination Liability
When a contractor installs utility facilities at its own expense, FAR 52.241-10 requires the Government to pay only the unrecovered, formula-based portion of that investment if service is terminated early.
Overview
- FAR 52.241-10, Termination Liability allocates financial risk when the Government stops utility service before a contractor has recovered the cost of a contractor-funded new utility facility.
- The clause ensures the contractor can recover agreed facility investment through a negotiated recovery period, while limiting the Government’s liability to the unrecovered portion of that investment.
Key Rules
- Early discontinuance of utility service
- If the Government discontinues utility service before the end of the negotiated facility cost recovery period, it must pay termination charges calculated under the clause.
- Facility cost recovery period
- The contract must state a negotiated recovery period, in months, that cannot exceed the contract term.
- Net facility cost and monthly recovery rate
- The contract must identify the net facility cost as the facility cost minus agreed salvage value, then divide that amount by the recovery period to establish the monthly facility cost recovery rate.
- Termination charge formula
- Termination liability equals the number of remaining recovery months multiplied by the monthly facility cost recovery rate.
- No charge after full capital recovery
- If the contractor has already recovered its capital costs when service ends, no termination liability is owed.
Responsibilities
- Contracting Officers: Negotiate and insert the recovery period, net facility cost, monthly recovery rate, and resulting termination charge figures in the clause.
- Contractors: Support the negotiated facility cost, salvage value, and recovery assumptions for any contractor-installed utility facility.
- Agencies: Pay termination charges only for unrecovered capital costs when service is discontinued early.
Practical Implications
- This clause protects contractors that finance and install utility infrastructure specifically for Government service.
- It also gives the Government a clear, formula-based method for determining liability if requirements end early.
- Common pitfalls include failing to document salvage value, miscalculating the monthly recovery rate, or setting a recovery period longer than the contract term.