Avoid Costly Legal Mistakes When the CO terminates your contract for default.
Under the FAR Termination for Default Clause in a contract, 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.
When the contracting officer issues a cure notice or show cause letter, this should be your clue to seek professional legal help. 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 FAR termination for default government contract 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, to terminate a contract with a contractor for default should be the last resort. Courts look at a contract default as a drastic measure. Therefore, the government has the burden of proof to show why the default was justified.
When the agency gives you a notice of termination for 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.
Companies faced with the wrath of the termination of contract for default clause in a 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 toll the timelines for filing an appeal.
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
- 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
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 a difficult path for a contract to try to take. See Federal Government Delays & Government Contract Delay Claims.
Conversion to T4C?
If you can prove, or the courts determine that your company was not at fault for the alleged failure to perform 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 reinstatement is advantageous to the Government.
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 business that we somehow depending 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
FAR 49.402-4 Procedure in lieu of termination for default.
There are other courses of action available to the contracting officer. Instead of taking the risk of a total termination, the contracting officer can elect to let your company, your surety, or any guarantor continue the work under a revised delivery schedule.
When it comes to contractor default cases. the government can also allow you to continue performance of the contract by through another subcontract, or another business arrangement with an acceptable third party, provided the rights of the Government are adequately preserved. See information about termination for default and reprocurement costs.
Defenses Under FAR Termination for Default Government Contracts Cases
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:
- 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-
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.
See more about the termination of contract process and appeals and Contract Termination Letter.
For immediate help with a termination of contract clause in a contract, or if the contracting officer gives you a notice of termination for default, call our government contracts FAR termination for default clause lawyers at 1-866-601-5518. FREE INITIAL CONSULTATION.