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Default Termination

Attorneys - Federal Government Contracts - Default Terminations

A default termination is a "drastic sanction" to be imposed only on "good grounds and on solid evidence." J.D. Hedin Construction Co. v. United States, 408 F.2d 424, 431, 187 Ct. Cl. 45 (Ct. Cl. 1969)  Our lawyers have successfully defended contractors against improper terminations for default.  Since a termination for default negatively impacts a contractor’s past performance record, and may result in liability to the Government for excess reprocurement costs, the terminated contractor must document all mitigating factors and excusable delays. 

Show Cause or Cure Notice Requirement

The Contracting Officer will issue a Show Cause Notice before terminating for default.  This is the contractor's opportunity to raise all the reasons why the Government cannot terminate for default.  Lawyers at our office can assist you in responding to a Show Cause Notice on why the Government should not terminate for default.  Put the Government to the test by asking whether the Contracting Officer considered all the FAR factors when terminating for default.

In Brent Packer and Myrna Palasi v. Social Security Administration, CBCA 5038, 5039 (February 22, 2016), the Civilian Board of Contract appeals held that the termination was improper because the Government failed to issue a cure notice first.

Default Termination - Factors to Consider Before Terminating

The Contracting Officer must consider the factors noted at FAR 49.402-3(f) before terminating a contract for default.  In particular, the Contracting Officer must fairly consider the following factors in determining whether to terminate for default:

  1. The terms of the contract and applicable laws and regulations;
  2. The specific failure of the contractor and the excuses for the failure;
  3. The availability of the supplies or services from other sources;
  4. The urgency of the need for the services and the time period to obtain them from other sources, as compared to the time the delinquent contractor can complete the work;
  5. The effect of a termination for default on the ability of the contractor to liquidate guaranteed loans, progress payments, or advance payments;
  6. The degree of essentiality of the contractor in the Government acquisition program; and
  7. Any other pertinent facts and circumstances.

     (FAR 49.402-3(f))

Consideration of the above factors may not be a “pro forma check off of [the FAR] factors,” but is instead “an active and reasoned consideration of available and sometimes contradictory information.”  Appeal of Fraya S.E., 02-2 BCA ¶52,222.  Courts and boards have ruled it an abuse of discretion where a contracting officer default terminates a contract without considering the above FAR factors.  Appeal of Walsky Construction Co., ASBCA No. 41,541, 94-2 BCA ¶ 26,698.  See also, e.g., Appeal of ABS Baumaschinenvertrieb, Gmbh, ASBCA No. 48,207, 00-2 BCA ¶31,090 (contracting officer’s default determination fatally flawed because there was no evidence that she consider all of the factors); Rowe Inc. v. GSA, GSBCA No. 14,211, 01-2 BCA ¶31,630 (contracting officer must actually consider all FAR factors prior to termination for default).

Contractor Excused from Performance due to Government Nonpayment

In order for the contractor to be excused for failure to perform as a result of the government's withholding of progress payments, the contractor must show that the government wrongfully refused to make progress payments. Local Contractors, Inc., ASBCA No. 37108, 92-1 BCA P 24,491, [**38] recon. denied, 92-1 BCA P 24,693, aff'd, 988 F.2d 131 (Fed. Cir. 1993) (table) (contractor's failure to provide first articles not excused by the government's failure to make progress payments); Meyer Labs, Inc., ASBCA No. 18989, 83-2 BCA P 16,598 (suspension of progress payments for failure to make progress did not constitute wrongful action). Pursuant to the Progress Payments clause of the contract, the contracting officer may reduce or suspend progress payments if the contractor fails to comply with any material requirement of the contract and if contract performance is endangered by the contractor's failure to make progress or unsatisfactory financial condition.

Government Right to Excess Reprocurement Costs

The government may generally recover excess reprocurement costs for the entire reprocurement period, including option years, of the follow-on contractor, as long as the original contractor had agreed to perform for that duration, as CDA has here. Lewis Management & Service Co., ASBCA 24802, et al., 85-3 BCA P 18,416, at 92,467. However, the Government is not entitled to assess excess procurement costs for an option year until performance for that year is complete and final payment has been made. National Medical Staffing, Inc., ASBCA 45046, et al., 96-2 BCA P 28,483, at 142,259

Contact Us

Please contact our office today if you are facing a termination for default.  A government contracts attorney will respond immediately to assist you through this difficult process.

 

 

 

 

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