Limitations on the Government’s Right to Terminate a Contract for Default

The government’s right to terminate a contract for default carries the underlying principle that a default termination is a drastic sanction which should be imposed or sustained only for good grounds and solid evidence. When appealing the contracting officer’s decision, contractors should make sure that they have sound documentation of communications that could work in their favor on appeal.

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Also included in the government limitations to terminate a contract for default, is that case law requires that that the government bear the burden of proof as to whether a termination for default was justified. See Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987).

Solid record of communication can overturn an agency decision: Federal agencies sometimes piece together facts after the termination decision is made. However, experienced contractors can create a stronger position when all communication is looked at under the totality of the circumstances. Sometimes, a specific round of communications can show that the agency waived its rights to issue a default termination when it encourages your company to perform, despite several performance issues.

Burden shifting to contractor: If the government establishes a prima facie case in this regard, then the burden of production, going forward, shifts to the contractor. Contractors can make costly mistakes when they introduce new evidence on appeal. Having a termination for default lawyer at the cure notice stage can save thousands in litigation.

• Not meeting a schedule does not always justify the default termination if the government has consistently encouraged you to continue performance.
• You can also show that your ability to meet the contract terms were excusable.

Limitations on the Government’s Right to Terminate a Contract for Default Includes Waiver by the Agency

Sometimes there are required delivery dates, or set schedule performance dates as in the case of construction and engineering contracts. Oftentimes, the record might show slow progress from the contract. Yet, despite these faults, some agencies make the mistake of failing to reestablish firm delivery dates, wait a substantially long time, and then through its frustration, decide to terminate the contract for default. As stated earlier, limitations on the government’s right to terminate a contract for default is only as good as the same agency’s reasonable actions. Failure to act reasonably would be seen on appeal as the agency waiving its right to terminate the contract. Thus, causing detrimental reliance by the contractor. See DeVito v. United States, 413 F.2d 1147, 1154 (Ct. CL 1969) (failure to terminate within a reasonable time and reliance by the contractor results in waiver of default).

Read about the following:

• Difference between termination for convenience and default.
• Responding to cure notices
• Costs associated with default terminations
• Default termination appeals and being proactive
• Wrongful termination for default in government construction

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For help litigating or appealing the government’s decision to terminate your contract for default, contact our government contracts law firm at 1-866-601-5518. FREE CONSULTATION.