Here is my take on the request from the local agency.
There is no obligation from Cisco to provide 10% cancellation charge to the local agency on the fund to be returned to Cisco. The funding has to be returned due to cancelled scope of work, and as a result there is no services required from the local agency.
Having said that, Cisco should pay for any bank charges incurred by the local agency due to the return of the fund to Cisco.