The Department of Veterans Affairs (VA) is facing growing scrutiny from Congress after it abruptly canceled hundreds of contracts—many of which support critical services for veterans—based in part on recommendations from a hastily developed artificial intelligence (AI) tool. On June 13, 2025, Senators Richard Blumenthal (D-CT) and Angus King (I-ME), members of the Senate Committee on Veterans’ Affairs (Committee), sent a letter to Acting VA Inspector General David Case urging a formal investigation into the VA’s contract termination process. If your business was impacted by these terminations, it’s critical to understand your rights and next steps.
Hundreds of Contracts Cancelled, Determined by AI?
According to the Committee, the VA reported that more than 445 contracts were “terminated and closed” as of May 16, 2025. However, the Committee’s analysis identified at least 650 contracts terminated for convenience between January 20 and May 30, 2025—many of which provided direct services to veterans or supported essential VA operations. Preliminary findings show that the terminated contracts spanned a wide range of functions, including suicide prevention, mental health care, disability claims processing, cancer and tumor registries, and prosthetic devices.
The Committee also expressed concern regarding the VA’s use of AI to make and inform contract cancellation decisions. On June 6, 2025, ProPublica released the findings of its independent investigation into the use of AI in the VA. The creator of the VA’s AI program, Sahil Lavingia, admitted that “mistakes were made.” ProPublica found the AI code relied on outdated, general-purpose models not suited for the task; the model hallucinated contract amounts, deciding around 1,100 of the agreements were each worth $34 Million despite many being worth only thousands; and the AI did not analyze the entire text of contracts. The Committee stated that the use of AI “adds an entirely new level of unease connected to the decision-making, security, governance, and quality control of the entire process.”
Takeaways
The VA is not the only agency undertaking mass contract cancellations. Given the lack of transparency surrounding these contract reduction efforts, government contractors must remain vigilant, thoroughly document all developments, and respond strategically. In today’s environment, it is essential to take prompt steps to protect your rights—and, where appropriate, to challenge decisions that may have been driven by flawed processes or automated tools.
What if my contract is terminated for convenience? While the government has broad authority to terminate contracts for convenience, contractors are not without rights. If you received a notice of termination, take the following steps to protect your interests and ensure you receive the compensation to which you are entitled:
- Review the Termination Notice Carefully. Confirm whether the termination is partial or complete, and whether it’s truly for convenience (as opposed to default, which has different consequences). Understand what work is to cease and when.
- Reserve Your Rights in Writing. Consider issuing a reservation of rights letter to your Contracting Officer ( to reserve your right to challenge the underlying termination decision.
- Preserve Records and Immediately Cease Work. Stop all terminated work as instructed, and safeguard all records—including costs incurred, inventory, labor hours, subcontracts, and any correspondence.
- If Applicable, Notify Subcontractors Promptly. Flow down the termination notice and ensure that your subcontractors stop work and preserve documentation for potential settlement costs.
- Submit a Timely Termination for Convenience Settlement Proposal (TSP). You are entitled to seek the recovery of costs associated with the termination, including consulting and legal fees for the preparation of your TSP. The nature of the TSP and your entitlement to recover may vary depending on the type of contract and termination clause cited in your notice (i.e., for commercial item contracts, you may recover the percentage of completion plus reasonable costs related to the termination).
- Negotiate in Good Faith but Be Prepared to Dispute. If you reach an impasse in TSP negotiations, you may need to convert the settlement proposal to a claim under the Contract Disputes Act (CDA).
