Wrongful Termination of Contract for Default -- ConstructionGovernment contractors may find themselves dealing with a wrongful termination of construction contract for default on a federal construction project.

Although it is clear that something is wrong with the government’s termination action, many construction companies are not familiar enough with the underlying regulations that govern terminations for default. Therefore, the decision of whether or not to appeal the contracting officer’s termination decision can be difficult.

As a general rule, the contracting officer has discretion on whether or not to terminate the contract for the contractor failing to perform. However, the contracting officer must not make a termination for cause decision in an “arbitrary and capricious manner.” See Darwin Constr. Co. v. United States, 811 F.2d 593, 596 (Fed. Cir. 1987).

Legal Requirements for Appealing Wrongful Termination for Default in Federal Government Construction Contracts

Unlike most government contract litigation cases, when you assert an unlawful termination of contract that stems from termination for default, the agency bears the legal burden of proof to show that the termination was justified. After that, you then have to provide evidence of excuse or a valid reason why the termination was unreasonable. DCX, Inc. v. Perry, 79 F.3d 132, 135 (Fed. Cir. 1996).

  • When you respond to a cure notice or show cause letter, you have to provide adequate assurances that you could timely perform according to the contract terms.  When responding to a cure notice from the CO, you also want to show that would be no delays in the performance of the contract. Read more about delays in construction contracts and FAR Changes Clause.

Different Termination Types

Default

The termination of construction contract by the government is the contractual right of termination for specified and articulated breach of the contract. If you give the government reason to terminate for default, you will normally receive a cure notice. You will normally have 10 days to respond per the FAR regulation or an opportunity to cure. If your response does not meet the government’s satisfaction, then you may receive a show-cause notice. Here, when challenging the government’s ground for terminating the contract, you have to make the case of why your construction contract should not be terminated for default. See Construction Contract Claims Appeal for Government Contracts and SBA Affiliation Rules – Important New Government Contract Small Business Guidance.

 Convenience

In federal government construction contracts,  the terms of the contract provide for the government’s right to terminate the contract for convenience. This type of termination is through no fault of the contract. When the contract is terminated (unilaterally) you may be entitled to statutory damages. Note that under federal procurement law, the contracting officer is not allowed to issue a termination for convenience of a construction contract simply to take advantage of a better price.

What happens when a delay in performance slows down your schedule? 

The agency should not terminate your right to proceed under the default clause when such delay in completing the work results from unforeseeable circumstances beyond your control or without your fault or negligence. See FAR 52.249-10(b)(1). This includes:

  • Unusually severe weather conditions
  • Weather conditions that substantially impact site conditions

Government contractors have an obligation to notify the contracting officer about any delays

 The contracting officer should make a determination as to whether additional time is warranted. Failure to consider all of the important facts could result in an unlawful termination of contract,  Courts look to the reasonableness of the CO’s decision to terminate the construction contract for default. Therefore, when retaining an attorney, you must provide every detail that shows why the agency termination actions were unreasonable. See Termination for Default Government Contracts & Reprocurement Costs and REA vs Contract Disputes Act Claims Request – Appealing Contracting Officer’s Final Decision.

The government must justify the final decision to terminate for default

 The contracting agency must reasonably believe that there is a likelihood that you can perform the entire contract effort within the time remaining for contract performance. See Limitations on the Government’s Right to Terminate a Contract for Default.

When courts decide a wrongful termination of construction contract for default in government cases it is a question of law

  The facts and circumstances surrounding termination for cause appeal are critical to the court’s legal decision. Therefore, you should keep track of all communications that show you acted reasonably, and that the wrongful termination for default actually occurred through no fault of your own.

Damages for Wrongful Termination of Construction Contract?

When the contracting officer terminates your construction contract for default, the damages that you are entitled to can be someone tricky. First, the court usually has the ability to convert the default into a termination for convenience. So long as both parties reach the conclusion that it is a paid termination, it would seem plausible that you would be entitled to profits earned and any statutory damages under the convenience termination clause. Each case would be looked at on a case by case basis.

Does Force Majeure Clauses Apply to Federal Government Contracts COVID 19?

 Contractor Termination Tips 

For help with wrongful termination construction contract appeals for potential unlawful termination of contract for default on a government project, call our federal government contracts lawyers at 1-866-601-5518.

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