Termination for Default
Understanding Your Rights Under the FAR Default Clauses
The right of the federal government to terminate a federal government contract for default lies within the Federal Acquisition Regulations (the “F.A.R.”) which mandates that nearly all federal government contracts include a Default clause. See Adrian L. Bastianelli III et al., Federal Government Construction Contracts 337 (2003). Default clauses can be traced as far back as the Civil War, and as government contracting has evolved over time so has the language typically found in a Default clause. Id.
While the precise contractual language found in a Default clause is dependent on the type of government contract, more often than not, the federal government’s right to terminate a federal government contract for default is exercised due to a contractor’s failure to complete the contract by the mandated contract completion date or failure to make satisfactory progress gauged by percentage of contract completion. Id. at 344-46. For example, F.A.R. 52.249-9, which governs Default clauses for fixed-price research and development contracts, states that the federal government may terminate the contract for defaultif the contractor fails to “(i) [p]erform the work under the contract within the time specified in [the] contract or any extension; (ii) [p]rosecutethe work so as to endanger performance of [the] contract…; or (iii) [p]erform any of the other provisions of [the] contract….” F.A.R. 52.249-9(a)(1). Federal government contract attorneys, Theodore P. Watson & Associates, LLC, advise clients to pay very close attention to the language of a Default clause. Failure to reach contract milestones can lead to the government contract being terminated for default and the government contractor liable for damages such as excess reprocurement costs and even liquidated damages.
Three important notes on default terminations and government contracts
First, the federal government’s right to terminate a contract for default is discretionary, meaning that upon a finding of default a contracting officer is not required to automatically terminate the contract. Bastianelli III at 339. In fact, the F.A.R. enumerates seven factors to be used by a contracting officer as a guide in determining whether to terminate a contract for default. Id. at 340. See F.A.R. 49.402-3(f). Second, as with all contractual agreements, upon notice of default, the contractor may assert defenses in an attempt to justify a failure to timely perform or a failure to make satisfactory progress. Bastianelli III at 344-50. A contractor charged with failure to timely perform the contract may argue substantial performance, excusable delay or government waiver of completion date as defenses to a termination for default. Id. at 344. Likewise, a contractor charged with failure to make satisfactory progress may argue similar defenses. Third, where a contracting officer terminates a government contract for defaultbased on the contractor’s failure to make satisfactory progress gauged by percentage of completion, the federal government must justify its termination by proving with “clear and convincing evidence” the inadaquecy of the contractor’s progress and the high improbaility that the contract will be completed by the completion date. Bastianelli III at 351. The federal government contract attorneys at Theodore P. Watson & Associates, LLC emphasize to clients the importance of knowing your rights and available defenses upon the termination of a federal government contract for default.
Legal Decisions
In a recent decision, the Armed Services Board of Contract Appeals (hereinafter “Armed Services”) upheld the termination for default of a federal government contractor awarded a contract by the Army Corps of Engineers, Europe District. Appeals of FFR-Bauelemente + Bausanierung GmbH, ASBCA Nos. 52152, 54563, 54808, 54809, 55017 (July 6, 2007). Appellant was originally awarded a fixed-price construction contract for the restoration of building 8246, Smith Barracks, Baumholder Germany. Id.at 1. The completiton date was 290 days, approximately nine months, following the date of the contract award. Id. at 20. After 113 days, approximately four months after the date of the contract award, the contracting officer concluded that appellant could not reasonably complete the contract by the contract completion date since virtually no work had been accomplished. Id. The contracting officer issued requests for proposals and awarded the remainder of the contract to another federal government contractor 60 days after appellant’s termination for default. Id. at 36.
Armed Services began its analysis by stating that a termination for default is a drastic sanction. Id. at 32. They stated further that a termination for default requires the existence of a reasonable belief on the part of the contracting officer that the contractor could not perform the the entire contract effort within the remaining time for contract performance. Id. Armed Services held that the contracting officer had acted reasonably in determining that appellant could not complete the remainder of the contract by the contract completion date. They held further that the contracting officer had acted reasonably to minimize excess costs, obtain a reasonable price and mitigate its losses. Id.For that reason, appellant was held liable for the excess costs of reprocurement. Id. at 37. In addition, because the contracting officer was justified in terminating appellant’s contract for default, Armed Services held that the Army Corps of Engineers was also entitled to liquidated damages. Id. at 38. At Theodore P. Watson & Associates, LLC our federal government contract attorneysand consultants understand that a termination for default is not something to be taken lightly by a federalgovernment contractor. Fighting the federal government and avoiding excess repocurment costs and liquidated damages may not be an easy task, but it can be done, so long as you know your rights and have the proper legal guidance.
For further information regarding this legal topic or any other aspect of federal government contract law, please feel free to call Theodore Watson Esq. (720) 941.7200 at Theodore P. Watson & Associates, LLC. Or contact us online.
Watson and Associates, Serving government contractors facing termination for default in Colorado, Wyoming, New Mexico, Kansas and Nebraska, New York, Los Angeles, San Francisco, Chicago, Illinois, Michigan, Pennsylvania, Virginia, North Carolina, South Carolina, Arkansas, Denver, Colorado Springs, Utah, California, Oklahoma, Ohio, Maine, Florida, Texas, Nevada, Las Vegas, Georgia, Hawaii, Alaska, Washington D.C., West Virginia, Florida, Indiana, Washington, Mississippi, Tennessee, Miami, Virgin Islands, Rhode Island, Vermont, Wisconsin, Minnesota, Missouri, Virgina, Delaware, Connecticut, Arizona, New Hampshire, Massachusetts, Montana.
Tags: construction terminations, default clause, default termination, FAR, federal construction terminations, government contract, liquidated damages, terminate a federal contract for default, termination for default
