When is profit not allowed under a fixed-price contract terminated for convenience?

Profit is not allowed under a fixed-price contract terminated for convenience primarily because the termination for convenience clause does not allow for the inclusion of profit on costs related to unworkable material and service costs. When a contract is terminated for convenience, the government does not bear the obligation to pay for any profit on portions of the contract that are deemed unworkable or unusable. This is in line with the principle that profit is typically calculated as a percentage of costs that are both incurred and reasonable. If the costs are associated with unworkable material or services, those costs are not justifiable for profit consideration.

In a situation where a contract is terminated for convenience, the contractor is generally compensated for allowable costs incurred up to the point of termination, but this does not extend to profits on costs that cannot reasonably fulfill the contract requirements. This emphasizes the distinction between allowable costs, which can be reimbursed, and unproductive expenditures, for which there is no allowance for profit.