This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
In the event of the failure of the Contractor to substantially comply with the terms of this contract, or in the event that in the opinion of the Chief Signal Officer of the United States Army the public interests so require, this contract may be terminated by 30 days' notice in writing to the Contractor, without prejudice to any claim the Government may have against the Contractor, provided, that after receipt of said notice the Contractor shall not order any additional material, except by permission previously obtained from the accounting officer. The cancellation shall be deemed to be effective at the expiration of said thirty days' notice, except that cancellation in the case of default of the Contractor shall be immediately effective on receipt of notice. Thereupon, the Contracting Officer, with the approval of the Chief Signal Officer of the United States Army, may proceed to complete the making and delivery of the articles or any part thereof, as well as any additional articles, out of materials on hand, and may employ such agents and employes, including the Contractor, its agents and employes, as the Contracting Officer may deem necessary or desirable; and may take possession of the plant and property of the Contractor used in the performance of this contract, secure from the Contractor an assignment of all contracts and agreements relating to this contract (which the Contractor hereby agrees to assign, and upon failure to so assign, this agreement shall operate as such assignment), first repaying to the Contractor all sums which it shall have paid thereon and relieving the Contractor from further payments thereon, and may generally do and perform all acts and things necessary or advisable in order to obtain the articles which are the subject of this contract.
In the event and to the extent that the Government takes over the plant and property of the Contractor for the completion of this contract, the Contractor shall be paid a reasonable rental for the use of same, as may be mutually agreed upon between the Contracting Officer and the Contractor, or, if they fail to agree, as may be fixed by the Chief Signal Officer of the United States Army, as a reasonable rental, and the manufacture of the articles by the Government shall then be conducted without cost of any sort to the Contractor, the Government, however, reserving any claim which it may have against the Contractor. In case the Contractor is not satisfied with the rental fixed by the Chief Signal Officer the Contractor may appeal from his determination to the Board provided for in Article VII hereof.
In the event of the cancellation of this contract on account of the default of the Contractor, the Government shall pay to the Contractor all sums due at that date but for such default, less any damage sustained by the Government.
In the event of and upon the cancellation or termination of this contract, for any reason other than the default of the Contractor, the Government shall pay to the Contractor all expenditures incurred in connection with the performance of this contract not already paid to the Contractor and particularly including payment for all material purchased, all costs of production, including overhead, general administrative expense, etc., as itemized or scheduled in Article V hereof.
In addition thereto the Government shall make the following payments to the Contractor, namely:
(2) On unfinished articles and parts thereof a sum to be determined as follows:
An inventory shall be made of all materials and of all unfinished articles or parts thereof on hand at the cost of such materials and at the cost of manufacture of such unfinished articles and parts thereof, as hereinbefore defined. The Contractor shall be paid as a profit on the unfinished portion of this contract ten per cent. (10%) of the amount of this inventory in lieu of the fixed profit and proportion of saving in the cost of production of such partly completed articles.
(3) The Contractor shall, in event of such cancellation or termination, be relieved by the Government of all obligations incurred for the performance of this contract and not heretofore paid by the Government.
(4) The Government shall, if requested so to do by the Contractor, take over and pay the Contractor for all additional machinery required for and which the Contractor shall have provided in order to perform this contract, heretofore referred to as increased facilities, at the cost of such machinery to the Contractor, less depreciation thereon allowed by the Government to the Contractor.
The foregoing provisions with respect to payments to be made by the Government upon the termination or cancellation of this contract, for any cause except the default of the Contractor, shall also apply in the event that the continued performance by the Contractor of this contract is finally prevented by acts of war, riots, incendiarism, or other causes beyond the control and without the fault of the Contractor, which may be directly traceable to the United States being in a state of war, provided that the Government shall have the benefit of any insurance which the Contractor may carry upon material-provided for or articles manufactured under this contract, and upon such increased facilities as the Government shall have paid for or be obligated to pay for, its pro rata share of such insurance.
In the event of the termination of this contract as aforesaid, any and all obligations of the Government to make any payments to the Contractor hereunder, other than those specified in this contract, shall at once cease and determine.