72% of contractors terminated for default lose on appeal because their responses to show cause letters and cure notice letters were deficient. Thus giving the contracting officer ammunition to terminate.
Learn how to increase the effectiveness of your responses
When the contracting officer sends you a contract cure notice or a show cause letter, chances are that the government is about 60% ready to issue a termination for cause. Adopting best practices and more refined approach can increase your chances of continuing the contract performance.
Of those companies that received a cure notice, 65% of them still get show cause letter. Of the 65% that received a show cause notice, 89% of them end up with termination for default. These are staggering percentages that you do not want to be a part of.
Knowing the difference when responding to either a FAR cure notice or contractor show cause letter can help you build a sound record if the agency decides to terminate your contract for default. FAR 49.402-3 regulates the various actions by the contracting officer. You should grasp the potential for preserving your rights for any appeal or litigation early in the process. Most cases fail on appeal simply because responses to these two notices were inadequate.
What Are the Differences?
Federal notice of cure: An example that distinguishes a cure notice to from a show cause letter is where the time for performance has passed, and the government issues a show cause letter. Here a cure notice would not be appropriate because the performance period has already ended. Under FAR Part 52.212-4(m) does not require a contract cure notice for failures to deliver on time.
Show cause: When the government issues a show cause letter, on the other hand, comes into play when the government has made a preliminary decision to the terminate the contract for default. Your response would then have to convince the contracting officer why he or she should not issue a default.
When the government believes that your performance under the contract is at risk, it might issue you a notice of cure. On the other hand, if it believes that you have violated the terms and conditions of the contract it may issue a show cause notice.
In the case of a show cause notice for non-performance, the government could even pursue a termination for default. Courts will look at your plan of action versus who is at fault when it looks at your response.
Responding to a Federal Contract Cure Notice
When responding to the government’s cure notice, you want to show evidence of when you received the notice. This provides a record that your response was timely. Always request (in writing) any extension. Until the contracting officer approves the extension, you still must respond by the directed date.
Responding to a federal cure notice mainly focuses on a detailed approach to resolving the government’s concerns while addressing issues that are not your fault, and that you should receive some level of credit (compensation or otherwise.
Present legal defenses: A contract cure notice response should include defenses. This is true for two reasons. First, it may help the contracting officer to agree that a termination for default may not stand. Second, contractors should first include any legal wrongdoing by the government at the contracting officer level. This includes defenses as to why the notice to cure was improper.
You should not introduce these allegations or defenses for the first time on appeal.
In addition to the above, consider the following:
- Discuss any entitlement of extra time, any pending requests for compensable time and any extra time due to adverse weather conditions (or other reasons).
- Discuss the positive approaches that your company is taking to correct known problems
- There are other main points depending on your specific contract
How to Respond to a Show Cause Letter?
If you are tasked with how to respond to a show cause letter, government contractors should primarily focus on addressing the fact that any cure notice issues or failure to make progress disputes have been resolved. Each case is different. Therefore, unless you are an expert and doing this, you may want to seek professional help. You must also include details to support your conclusion.
- If the government has waived the delivery date, then state this in your show cause response.
- If you are represented by an attorney, he or she should articulate why a termination for default would not be in the government’s best interest, or unsupportable on appeal would also help in the response.
- You should respond by presenting a plan and schedule showing the contracting officer how and when you will accomplish the rest of the contract. The more detailed the better.
The government often issues a show cause letter as an initial step to a termination for default phase. Therefore, the contents of the show cause response are extremely important.
- Respond by showing why the contract should not be terminated.
- Address issues where the government has contributed to the problem.
- Provide extensive detail about your intentions to solve the alleged problem.
Although you want to state reasons why the show cause notice for non-performance may not have been appropriate, the bulk of the reply should be focused on a detailed plan of action.
- If you only discuss why the government’s show cause was a mistake, appellate courts will agree with a termination for default decision simply because your show cause response did not meet the technical or substantive legal requirements.
An example of when a show cause notice comes about is if the time remaining in the contract delivery schedule is not sufficient to permit a reasonable “cure” period of 10 days or more. Here, the agency may issue a show cause letter.
Construction contract show cause letters are common in federal contracting. In addition to the required detailed response, an example of a good response could be the contractor showing how construction delays were beyond its control and showing that the delays were caused by the government or some other reason beyond the contractor’s control.
- On appeal to the various courts, issues related to an issued cure notice and show cause letter can be tricky and fact-based.
Avoid Costly Mistakes Made IAW FAR 49.402-3
Government contractors often make the mistake of arguing with the agency in their response with nothing else. Although a response to either a cure notice or show cause letter should have a substantive and legal basis for the agency’s error, the bulk of the response should be focused on telling the agency how you will resolve the allegations (although this should not be looked at as an admission).
Then the rest of the response should address how the agency action violates the contract terms or why its directive goes against the scope of work requirements.
There are often facts to support your belief that either a contract cure notice or show cause notice is not justified. Include as many of those supportable facts as possible.
Although there may be grounds for contesting each notice, it is important not to base your entire response solely on making the argument as to why you should not have to comply. This can prove costly if you have to appeal the contracting officer’s final decision.
Other common mistakes include:
- Not addressing the agency’s points line by line.
- Not providing sufficient factual evidence related to causation.
- Not providing the government with a detailed plan of how and when the allegations will be resolved.
- Not supporting allegations with documentation of credible evidence.
How Cure Notice Response Can Impact Termination for Default Decisions
FAR cure notices should focus on a plan of action to comply with the contract terms. They set the stage and record if the contracting officer later decides to terminate the contract for default.
Alternatively, perfection for how to respond to a show cause letter deals with convincing the agency why the contract should not be terminated for default.
When responding to a cure notice, keep in mind that the government has a right to demand assurances that you will comply with the terms and conditions of the contract.
Consider, at a minimum, the following:
- Show a detailed plan of action to complete the work or issues of concern.
- Avoid asking the CO to issue a new performance date since this can be tricky and lead to a default termination.
- Avoid a plan that changes the actual terms and conditions of the contract.
- Provide too much detail instead of too little.
The government does not always have to issue a cure notice before issuing a termination for default, also referred to as a termination for cause.
Under FAR Part 52.249-8(a)(l)(i), the government is not mandated to issue a cure notice before termination. However, if performance is endangering the progress of the contract according to the terms and conditions, except for a delivery schedule deadline, the government contracting agency must issue a cure notice. See FAR part 49.402.
However, if performance is endangering the progress of the contract according to the terms and conditions, except for a delivery schedule deadline, the government contracting agency must issue a cure notice. See FAR part 49.402. Get information about converting a termination for default into one for convenience.
It is generally improper to terminate a contract for default before the cure period ends. This rule applies when the contracting gratuitously allows the contractor a cure period. The reason behind the cure notice rule is for the contracting officer to consider a contractor’s steps taken to remedy delinquent performance during the entire cure period.
The reason behind the cure notice rule is for the contracting officer to consider a contractor’s steps taken to remedy delinquent performance during the entire cure period.
- If the gratuitous (not mandatory) cure notice is offered, then the CO must wait until the cure period ends.
- Responding to cure notice should not be based on proposed changes to the contract.
- A cure notice response should articulate how and when you intend to perform the contract terms.
Termination for default cases on appeal often fail because your response to a show cause notice or cure notice letter were inadequate. You want to avoid this costly mistake at all costs. As a result, the court often sides with the agency.
- Courts not only looks at the appeal complaint to make its decision, it primarily looks at the record leading up to the contracting officer’s decision.
- How you respond to a cure notice or show cause letter is the most important part of any appeals court decision.
How you respond to each situation can make the difference in keeping the contract, or avoiding a termination for default.
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