Costs Associated With Termination for Default Clause
Under what authority can the contracting officer terminate a contract for default or cause?
When assessing costs associated with the Termination for Default Clause, you must first understand the government’s rights. Under government contracts law, if your contract contains the Default clause at 52.249-8, the Government has the right, subject to the notice requirements of the clause, to terminate your contract wholly or partially for default if you fail to:
- Make delivery of the supplies or do the services within the time specified in the contract,
- Perform any other provision of the contract, or
- Make progress and that failure endangers performance of the contract.
Under the Termination for Default Clause, the Government is not liable for your associated costs of undelivered work and is entitled to the repayment of advance and progress payments, if any, applicable to that work. The Government may also choose, under the Contract Termination Clause, to require you to transfer title and deliver to the Government completed supplies and manufacturing materials, as directed by the contracting officer.
Improper Termination for Default Clause Associated Costs
Sometimes the government may issue a termination for default letter due to issues not included in the underlying contract. This can be a way to appeal the decision simply because if the task at hand is not in the contract, and then the agency cannot terminate you. A dispute arises when you have tried to get a request for equitable adjustment approved, but the contracting officer denies it because he or she believes that the application is included.
- You want to make sure that the request is adequately documented, and you give detail to show the new requirements.
- In other situations, the cure notice may not allow you sufficient time to complete the task.
- In other situations, another contractor, controlled by the government has caused the delays in question.
- You want to make sure that your communication with the government is explicit and credible.
Other Costs Associated With the Default Termination of Contract Clause
Under FAR 49.402-7 –Other damages:
(a) If the contracting officer terminates a contract for default or follows a course of action instead of termination for default (see 49.402-4), the contracting officer promptly must assess and demand any liquidated damages to which the Government is entitled under the contract. Under the Termination for Default Clause at 52.211-11, these damages are in addition to any excess repurchase costs.
(b) If the Government has suffered any other ascertainable damages, including administrative costs, as a result of your default, the contracting officer must, by legal advice, take appropriate action as prescribed in FAR Subpart 32.6 to assert the Government’s demand for the damages.
Termination for Cause & Cost-reimbursement
The right to terminate a cost-reimbursement contract for cause / default is provided for in the Termination for Default Clause or Convenience of the Government clause at 52.249-6. A 10-day notice to the contractor before termination for default is required in every case by the clause.
Settlement of a cost-reimbursement contract terminated for default is subject to the principles in FAR Subparts 49.1 and 49.3 the same as when a contract is terminated for convenience, except that—
(1) The costs of preparing the contractor’s settlement proposal are not allowable (see paragraph (h)(3) of the clause); and
(2) The contractor has reimbursed the eligible costs, and an appropriate reduction is made in the total fee, if any, (see paragraph (h)(4) of the clause).
(c) The contracting officer shall use the procedures in 49.402 to the extent appropriate in considering the termination for default of a cost-reimbursement contract. However, a cost-reimbursement contract does not contain any provision for recovery of excess repurchase costs after termination for default (but see paragraph (g) of the clause at 52.246-3 for failure of the contractor to replace or correct defective supplies).
Associated T4D Costs if Your Contract is Completed By Another Contractor: In construction termination for default situation, or service contracts if your surety does not arrange for completion of the contract, the contracting officer generally will arrange for completion of the work by awarding a new contract based on the same plans and specifications. The new contract may be the result of sealed bidding or any other appropriate contracting method or procedure.
When assessing associated costs, the contracting officer must exercise reasonable diligence to get the lowest price available for completion. However, if costs related to the termination for cause happens to be more than your agreed-upon price, you may be liable to the government for more costs.
Liquidation of Liability in Termination for Default Clause
Your contract provided that you and your surety are liable to the Government for resultant damages and other expenses associated with the termination for default clause. After receiving your contract termination notice, the contracting officer shall use all retained percentages of progress payments previously made to you and any progress payments due for work completed before the termination to liquidate yours and the surety’s liability to the Government.
If the retained and unpaid amounts are insufficient, the contracting officer shall take steps to recover the additional sum of associated costs from you and the surety.
If the federal government terminates your contract for cause, and you receive a contract termination notice, whether construction or service contracts, you should immediately take the necessary steps to protect your rights early. You may want to retain help from an experienced termination for default attorney.
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