Government Contracting Database
Termination for Default
In order for the government to prevail in defending a termination for default, it must establish that its termination of the contract for default prior to the contract completion date was proper and correct. Baistar Mech., Inc. v. United States, 128 Fed. Cl. 504, 525 (2016) (citing Lisbon Contractors, Inc. v. U.S., 828 F.2d 759 (Fed. Cir. 1987)). Since a default termination is such a drastic action, the government also must show that its determination was well-grounded and supported by solid evidence. Id. (quoting J.D. Hedin Construction Co. v. U.S., 408 F.2d 424 (Ct. Cl. 1969)). Moreover, the agency must demonstrate by convincing evidence that there was no reasonable likelihood that the contractor could complete the work on time. Appeal of Tmi, Inc., ENGBCA No. 5524, 89-3 BCA ¶ 22029 (citing Southwest Marine, Inc. San Pedro Division, ASBCA No. 28196, 86-2 BCA ¶ 19,005); Lisbon, 828 F.2d 759. The untimely performance of work which does not affect the critical path does not provide a basis for a default termination. Mega Const. Co. v. United States, 29 Fed. Cl. 396, 425 (1993) (citing G.M. Shupe Inc. v. U.S., 5 Cl.Ct. 662 (1984)). It is improper for the government to terminate a contractor for failure to make progress where the contractor reasonably can be expected to complete the project on time. See Shipco General, Inc., ASBCA No. 29206, 86-2 BCA 18973; Western Contracting Corporation, ENGBCA Nos. 3835 et al., 82-1 BCA ¶ 15486; Lisbon, 828 F.2d 759. The government must consider all relevant factors in determining whether to terminate a contract for default. Gulf Grp. Gen. Enterprises Co. W.L.L. v. United States, 114 Fed. Cl. 258, 363 (2013) (citing Darwin Construction Company, Inc. v. U.S., 811 F.2d 593 (1987)). If the totality of the circumstances indicates the unsupported and arbitrary nature of the decision to terminate for default the law requires conversion of the action to a termination for convenience. Executive Elevator Service, Inc., VABCA No. 2152, 87-2 BCA ¶ 19,849; Hewitt Contracting Co, ENGBCA Nos. 3790 et al., 79-2 BCA ¶ 14,016.
The FAR requires the contracting officer to consider a number of factors in order to justify a termination for default. See FAR 49.402-3(f).
Where the evidence establishes that an Appellant could have indeed completed performance by the extended date, then a termination for default for failure to complete is not proper. See Preston-Brady Co., VABCA No. 1849, 86-2 BCA ¶ 18,860; Appeal of M.E.S., Inc., PSBCA No. 4462, 06-1 BCA ¶ 33184; see also Hewitt Contracting Co., ENGBCA Nos. 3790 et al., 79-2 BCA ¶ 14,016 (where the Board noted that the termination for default did not rest on a sound basis, because the CO acted on the postulate that the contractor was in default of a schedule to complete, when the time given the contractor for excusable delays was inadequate to cover the time actually due). In D. W. Sandau Dredging, ENG BCA No. 5812, 96-1 BCA ¶ 28,064, the Board overturned a default, determining that the CO had incorrectly failed to recognize additional time due to a contractor as a result of a differing site condition. There the Board noted that the completion date that had to be used in analyzing whether there was a reasonable likelihood of the contractor completing performance in a timely manner was the original completion date plus the appropriate extension of time. Harry and Keith Mertz Construction, Inc. AGBCA No. 94-165-1, 97-1 BCA ¶ 28802.
Updated: July 9, 2018