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Board Upholds Termination for Default

Posted on March 27th, 2015 by

In RAK Contractors v. Department of Agriculture, CBCA No. 4011 (March 19, 2015), the Civilian Board of Contract Appeals upheld the Government’s termination for default.  The contractor argued that the termination for default was improper because: (1) it could not obtain necessary financing for reasons beyond its control, and (2) it made a mistake in its bid.

The Civilian Board of Contract Appeals held that to prevail in a mistake in bid claim after award the contractor must prove that:

  1. a mistake occurred;
  2. the mistake was a clear-cut clerical or mathematical error or misreading of the specifications and not a judgment error;
  3. prior to award the agency knew or should have known that a mistake had been made;
  4. an agency request for bid verification was inadequate; and
  5. proof of the intended proposal was established.

The contractor could not prove each of the above elements, which led the Board to conclude that the contractor made an error in judgment and underestimated its costs of performance.

As to financial stress, the Board held that this is not an excuse for performance, stating that.

A contractor is expected to have the financial resources to perform a contract.
Nothing in the contract promised or suggested that the agency would pay for equipment
before it was ordered or delivered. Case law makes clear that insufficient finances do not
constitute a basis beyond the contractor’s control. A lack of working capital is not an excuse
for non-performance of a contract when the Government does not contribute to the financial
problem of the contractor. A contractor is expected to have the financial ability to perform
the contract. A default is not excused by a contractor’s inability to secure financing

The contractor could not prove that the Government caused its financial downfall.  As such, the Board held that the termination for default was proper.

 

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