When the federal government awards a contract, the Termination for Default Clause acts to the agency’s advantage in the end.
When contractors attempt the appeal the agency’s default action, there are specific rules you must be aware of. One of them is paying damages to the government for Termination for Default reprocurement costs and cancellation charges.
What are Termination for Default Reprocurement Costs?
Virtually all contracts with a default termination clause provides for reprocurement costs and cancellation charges by stating that if the contractor is terminated for default, the government “may acquire, under the terms and in the manner the Contracting Officer considers appropriate, supplies or services similar to those terminated, and the [c]ontractor will be liable to the [g]overnment for any excess costs for those supplies or services” unless “the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the [c]ontractor,” such as “acts of the [g]overnment in either its sovereign or contractual capacity” or “acts of God.” FAR 52.249-8(b)-(c).
Termination for Default Reprocurement Costs (sometimes called “excess costs”) as referred to in FAR 52.249-8(b) are distinct from common law damages for breach of contract.
The Federal Circuit made this determination in the case of M.E.S., Inc. v. United States, 104 Fed. Cl. 620, 639 (2012) (explaining that “a claim for excess reprocurement costs under the ‘Termination for Default’ clause is different than one asserted under common law”). Read also Contractor Termination Tips.
Purpose of Termination Reprocurement Costs & Cancellation Charges
The purpose of the Termination for Default Reprocurement Costs clause is to reduce the burden of proving a market price for the re-procured services by instead looking to the government’s actual reprocurement costs and cancellation charges. This relaxed shortcut for the government, however, requires a showing of specific factual findings.
In the case of Cascade Pacific Int’l v. United States, 773 F.2d 287, 294 (Fed. Cir. 1985), the court decided that an agency should only pursue excess termination for default reprocurement costs when the government can prove that:
- The re-procured supplies or services are the same or similar to those involved in the termination,
- The government actually incurred excess costs, and
- The government acted reasonably to minimize the excess costs resulting from the default, i.e., the government used the most efficient method of reprocurement to obtain a reasonable price and mitigate its losses and cancellation charges.
Tip: Government contractors on appeal tend to bring up these issues only to find that the court will more than likely reject defenses when the initial record to the contracting officer has no such comments. In other words, you should always protect your rights to appeal at the lower level. See Limitations on the Government’s Right to Terminate a Contract for Default.
For help defending against termination for default reprocurement costs, call our government contract termination lawyers at 1-866-601-5518.