FAR Termination for Default Process and Appeals

When the government terminates your company for default (otherwise known as termination for cause), understanding your rights and the contract termination process when you challenge a default notice can be crucial to your company’s future. Waiting until the government uses the contract termination clause to then react can put you at a serious disadvantage. The key to success is to realize the seriousness of the problem very early during the performance stage.

For example, a disastrous mistake many contractors make is not realizing that they must preserve their right to appeal as early as the cure notice or show cause stages. Appellate courts consistently dismiss cases because the basic Contract Disputes Act requirements have not been met and companies did not present enough evidence and legal assertions at the contracting officer level.

Can the government use the contract termination clause for any reason under FAR Subpart 49.4? The FAR termination for default appeal process begins when the contracting agency issues you a cure notice. If there is some type of letter of concern, you should get ample notice about what you have done wrong.  Instead of using the termination clause for any reason, the government has to document its decisions. As a general rule, the cure notice must specify progress failures in sufficient detail to allow you to effectively cure any defaults unless you have already been made aware of the failures.

Contracting Officer’s Decision to Issue Termination for Default

The termination for default process under the FAR requires the contracting officer to consider various factors to support his or her decision. This includes:

• Providing an explanation for the contractor’s failure;
• Whether supplies or services are available from other sources;
• The need for supplies or services balanced against the time it would take to obtain them from another source, and
• The effect a termination would have on your other contracts.

This list is not exhaustive. Failure to consider any of the above factors does not make the termination for cause invalid.

Avoid Costly Mistakes With the Contract Termination Process for Appealing or Challenge a Default Notice.

Oftentimes, government contractors have reason to believe that the default termination was unlawful and unjustified. The contract termination process for T4D appeals allows you to challenge a default notice and the agency’s decision to the various boards of contract appeals or Court of Federal Claims. When the government issues you a show cause letter, this is the point where contractors should be extremely careful not to make deadly legal mistakes.

• The termination appeal letter is subject to the Contract Disputes Act (CDA).
• If you decide to appeal the default, then you must provide notice to a Board or court within ninety (90) days from the date you receive the contracting officer’s final decision.
• The Board lacks jurisdiction over any appeal filed outside of this 90-day period, which is statutory and cannot be waived.

Tip: Appellate Courts have previously held that sending multiple copies of a contracting officer’s final decision, without indicating which of them is intended to begin the running of the appeal period, confuses a contractor as to the required timelines. 

Tip: Both large business and small business termination processes require you to first address your claims to the Contracting Officer before you can raise them in the termination appeal letter.

• The appellate court does not have jurisdiction to hear new allegations on appeal.

Contract Termination for Default Process and Notifications

If the government’s contract termination for default process appears appropriate, the contracting officer should if practicable, notify the contractor in writing of the possibility of the termination.

This contract termination letter shall put the contractor on notice and the contractor should pay special attention to the contractual liabilities if the contract is terminated for default.  

The notice should also ask the contractor to show cause why the contract should not be terminated for default. This is a critical part of the contract termination process because it allows you to state your position to the agency before the final termination decision is made. At this stage, companies should respond with detail and supporting evidence.

The notice may further state that failure by the contractor to present an explanation may be taken as an admission that no valid explanation exists. When appropriate, the notice may invite the contractor to discuss the matter at a conference. See also Grounds Supporting Termination for Default Letter of Government Contracts.

Small Business  Contract Termination for Default  Process: The termination of the contract for default process requires that when the contractor fails, and if your company is a small business, the contracting officer shall immediately provide a copy of any cure notice or show cause notice to the contracting office’s small business specialist and the Small Business Administration Regional Office nearest to you. This is another important protection of the contract termination process.

• The contracting officer should, whenever practicable, consult with the small business termination specialist before proceeding with a default termination.
• When a contract is terminated for default or a procedure authorized by FAR 402-4 is followed, the contracting officer shall prepare a memorandum for the contract file explaining the reasons for the action taken.

Appealing Contracting Officer Termination for Default Decisions

Federal contractors can challenge the contracting officer’s decision to terminate the contract for default by appealing the decision to either the respective agency board of contract appeals or filing an appeal at the U.S. Court of Appeals for the Federal Circuit. Courts look at the default decision as a contracting officer’s final decision. This means that you would not normally have to file a claim to the CO.

When you file an appeal, the litigation process requires the government to first prove, by a preponderance of the evidence, that the FAR termination for default (T4D)was proper under whichever default termination clause applies to the contract. See Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987). Courts consider a T4D action as a drastic sanction that should only be imposed upon government contractors only for good cause and in the presence of solid evidence.

Relief If You Prevail on Appeal

FAR default clauses provide that courts can convert an erroneous default termination to a termination for convenience. See. FAR 52.249-8(g); FAR 52.249-10(c); FAR 52.249-6(b); ALKAI Consultants, LLC, ASBCA 56792, 10-2 BCA ¶ 34,493 (converted T4D to T4C based on unanticipated conditions and government failure to cooperate).

Note: If the contractor can show that the government acted in bad faith while terminating a contract for default, the court award common law breach damages rather than the usual termination for convenience costs. See Apex Int’l Mgmt. Servs., Inc., ASBCA No. 38087, 94-2 BCA ¶ 26,842 (finding 20 breaches ASBCA holds Navy liable for breach damages); Sigal Constr. Corp., CBCA No. 508, 10-1 BCA ¶ 34,442 (finding T4C to be in bad faith where GSA deleted work from a construction contract to have that work performed by another contractor at a lower price).

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For additional help with how to challenge a default notice on a government contract, and your termination appeal letter, call a government contracts lawyer at 1-866-601-5518. FREE INITIAL CONSULTATION.