Avoid Costly Legal Mistakes When the CO terminates your contract for default. There are certain things to look for when you receive the notice of termination. The below information helps government contractors to make an informed decision on whether or not to appeal the decision. Both FAR terminations for default and termination for cause have the same deadly impact on the company’s future. With a default on your record, it can severely impact your past performance evaluation score (CPARS) on future bids.
What is a Termination Default in Government Contracting?
Under the FAR Termination for Default Clause, the government can exercise its right to completely or partially terminate a contract because of the contractor’s actual or anticipated failure to perform its contractual obligations or even failure to properly respond to a cure notice. The reality is that the government does make mistakes. Appellate courts have reversed default decisions and converted them to terminations for convenience.
Tip: When the contracting officer issues a cure notice or show cause letter, this should be your clue to seek professional legal help simply because in most situations the government has tentatively made its mind up to default the contractor. Issuing the cure notice or show cause is just a fail safe mechanism. Many federal contractors do not respond to cure notices properly. As a result, the facts often lead to a termination for cause that is hard to defeat on appeal.
- Getting the important facts before the contracting officer is critical
- A cure notice response should state a valid legal defense or problem as to why delivery or performance was virtually impossible.
- Understand that most termination for default appeal cases fail because the contractor somehow failed to preserve its rights at the agency level
- Bringing up new issues on appeal will not be allowed and may weaken your case.
However, terminating a contract for default with a federal contractor should be the last resort. Courts look at a termination for default as a drastic measure. Therefore, on appeal, the government has the burden of proof to show why the default was justified.
You must show that the termination was not your fault. When the agency gives you a notice of termination by default, if you can establish that the relevant facts show that the contractor was not in default or that the failure to perform is excusable; i.e., arose out of causes beyond the control and without the fault or negligence of the contractor, the clauses provide guidance where the termination for cause (T4D) will be considered to have been a termination for the convenience of the Government, and the rights and obligations of the parties are governed accordingly.
Any claims you have against the agency must be presented to the contracting officer. Companies faced with the wrath of the termination of contract for default clause in a federal contract have to aggressively recap the relevant facts to support any defense to the agency’s adverse action. There are certain timelines to file an appeal and provide notice to the agency. Sometimes a creative lawyer can request the agency to consider the default action. Yet, this will not toll the timelines for filing an appeal.
Can a contractor terminate government contracts? Generally no. However, there may be certain limited circumstances where a court may conclude that there were grounds to terminate. This would be a difficult path for a contract to try to take. See Federal Government Delays & Government Contract Delay Claims.
General Reasons for Government Contract Termination for Default Clause
When there is a contract termination clause in a contract under FAR 52.249-8, the Government has the right, subject to the notice requirements of the clause, to terminate the contract completely or partially for default if you fail to:
- Make delivery of the supplies or perform the services within the time specified in the contract,
- Failure to adequately respond to a cure notice
- Anticipatory repudiation. (when you indicate by word or your action that your company will not or cannot meet agreed-upon contract requirements)
- Perform any other provision of the contract, or
- Make progress and that failure endangers performance of the contract
The Federal government will usually implement the FAR Termination for Default Clause in a contract to either partially or completely terminate your contract. The reasons can be for either an actual or anticipate failure to complete your contract according to the terms and conditions.
- The CO cannot simply exercise the contract termination clause for any reason
Consequences of Default Terminations
When the contracting officer terminates a contract for default, you may have to pay the government damages. Repayment can include unliquidated progress payments, the additional cost of reprocuring the contracted services, and any other allowable damages resulting from your failure to perform. If you are successful in getting the court to overturn the termination for default and converting the default to a termination for convenience, the cost of litigation and appeal could be expensive.
Another consequence of a default termination of a government contract is the impact of negative past performance evaluation in future bids (CPARS). Therefore, it can be worth fighting to get the default converted to a termination for convenience.
Conversion to Termination for Convenience T4C?
If you can prove on appeal, or the courts determine that your company was not at fault for the alleged failure to perform, and any delay was legally excusable, the termination for cause T4D) can be converted into a termination for convenience. The key to successfully reversing the contracting officer’s decision is to first see if the supplies or services are still required and if reinstatement is advantageous to the Government. It is important to know that converting the termination for default to one of convenience is the only remedy that the court can usually impose.
FAR 49.402-2 Effect of FAR termination for Default Government Contracts
When the agency issues a termination for cause clause in a government contract, it is not liable for the cost of your undelivered work. The agency is also entitled to repayment of advance and progress payments under the contract termination clause This can be problematic for companies performing high-dollar contracts or small businesses that somehow depend on progress payments. Therefore, how you move through the contract termination process is critical. See Difference Between FAR Termination for Convenience Vs Termination for Default of Federal Government Contracts
Termination for Default Appeals – Legal Defenses and Tips for Contractors
Contractor Defenses to Termination for Default of Government Contracts : The FAR termination for default clause has various nuances. However, if your facts support a proper legal defense, a court such as ASBCA, U.S. Court of Federal Claims, or CBCA can overturn your default termination. The general remedy is to convert it into a termination for convenience. See also information about suspension and debarment. As a federal government contractor, there are certain legal defenses to the agency’s decision when using the FAR contract termination clause. For example, the agency should not issue a termination for cause if:
- Excusable Delay– Under the FAR default clauses, a delay is excusable and does not provide a valid basis to terminate the contract for default if it is “beyond the control and without the fault or negligence” of the contractor. If you decide to appeal the T4D under this legal defense, you must also show that the delay was unforeseeable. The delay in completing the work arises from unforeseeable causes beyond the control and without the fault or negligence of the Contractor.
- Examples of such causes include-
- Acts of God or of the public enemy,
- Acts of the Government in either its sovereign or contractual capacity,
- Acts of another Contractor in the performance of contract with the Government,
- Quarantine restrictions,
- Freight embargoes,
- Unusually severe weather, or
- Delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers
- See also accord and satisfaction
- Examples of such causes include-
- Defective Specifications and Impossibility– If the government provides you with defective specifications, your failure to perform the contract could be legally excused. Defective specifications could be caused by legibility problems, and ambiguities that could cause you to spend additional time or money. You would have to possibly show that the required performance was commercially impracticable or impossible. These are all areas where an experienced termination for default attorney can help.
- CO’s failure to follow FAR default clause requirements – The FAR 49.402-3(f) mandates that the CO shall consider certain things when making her decision to terminate your contract for default. These factors include:
- The terms of the contract and applicable laws and regulations.
- The specific failure of the contractor and the excuses for the failure.
- The availability of supplies or services from other sources.
- The urgency of the need for the supplies or services and the period of time required to obtain them from other sources, as compared with the time delivery could be obtained from the delinquent contractor.
- The degree of essentiality of the contractor in the Government acquisition program and the effect of a termination for default upon the contractor’s capability as a supplier under other contracts.
- The effect of a termination for default on the ability of the contractor to liquidate guaranteed loans, progress payments, or advance payments.
- Any other pertinent facts and circumstances.
See more about the termination for default process and appeals and Contract Termination Letter.
For immediate help appealing a termination for default, or help with a termination clause in a government contract, or if the contracting officer gives you a notice of termination, call our government contracts default termination lawyers at 1-866-601-5518. FREE INITIAL CONSULTATION.