## Facts

- The Department of Energy contracted for development and construction of a gasification improvement facility under an agreement later assumed by Jacobs Engineering Group, Inc.
- The contract provided no fee and required an 80/20 allocation of the project’s total estimated cost between the government (80%) and the contractor (20%), including language keeping the contractor’s share at 20% if a cost overrun was approved.
- Jacobs’s expected compensation for bearing its share and working without a fee included the opportunity to obtain valuable patent rights arising from the work.
- The contract incorporated the FAR termination-for-convenience clause (FAR 52.249-6), which required the government upon termination to pay “all costs reimbursable under this contract” incurred before the effective termination date, plus certain allowable continuing costs approved or directed by the contracting officer.
- The government terminated the contract for convenience due to insufficient funding.
- Jacobs submitted a termination settlement proposal seeking 100% of its incurred reimbursable costs under the termination clause.
- The contracting officer limited Jacobs’s recovery to 80% of its costs based on the cost-sharing provision and issued a final decision to that effect.
- The Court of Federal Claims granted summary judgment for the government, holding the cost-sharing clause limited termination recovery to 80%.
- Jacobs appealed.

## Issues

1. Whether, after a termination for convenience, the termination clause requiring payment of “all costs reimbursable under this contract” obligates the government to reimburse 100% of allowable reimbursable costs or only 80% consistent with a separate 80/20 cost-sharing provision.

## Decision

- The Federal Circuit reversed the Court of Federal Claims.
- The court held Jacobs may recover 100% of its allowable reimbursable costs under the termination-for-convenience clause, not merely 80%.
- The court rejected reading an unstated percentage cap into the termination clause based on the cost-sharing provision.
- The case was remanded for further proceedings consistent with full recovery of reimbursable costs (including allowable post-termination costs contemplated by the clause).

## Legal Principles

- A termination-for-convenience clause requiring payment of “all costs reimbursable under this contract” is read to require payment of all allowable cost items that the contract defines as reimbursable, absent an explicit contractual limitation applying cost-sharing percentages to termination settlement.
- Separate provisions allocating cost responsibility during performance (including overrun-sharing terms) do not, without clear language, limit the government’s payment obligation upon termination for convenience.
- Where the contract text is, at most, ambiguous about whether cost sharing applies to termination recovery, ambiguity is construed against the government as drafter.
- Contract interpretation gives effect to the agreement’s structure: detailed, express cost-sharing terms in some contexts support an inference that the omission of an express termination limitation was intentional.

## Conclusion

The Federal Circuit held that a standard termination-for-convenience clause requiring payment of “all costs reimbursable under this contract” entitled the contractor to 100% of allowable reimbursable costs upon termination, despite an 80/20 cost-sharing provision that governed cost allocation during performance.


Jacobs Eng'g Grp., Inc. v. United States, 434 F.3d 1378 (Fed. Cir. 2006)