FCME uploads new episodes every Friday morning at 6:00 a.m. MST. Topics include proposal writing, bonds, types of contracts, why do business with the federal government, 8(a), business services for veterans and women, where federal opportunities are listed, and more. You can listen to the podcast here or with your favorite podcast provider (iTunes, Google Play, Spotify, or Stitcher). FCME is also active on social media and launched the Federal Contracting Made Easy YouTube channel on January 1, 2019.

 

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Friday September 27, 2019 Episode #097

Termination for Default (T4D) - Contractor Edition

Government Will Protect Itself

Remember, that the Government is going to protect itself first and foremost. So, they will insert clauses that provide them with an option if the contractor does not perform the work or provide the services within the time frame specified. Also, if the contractor does not use the correct materials or refuses or fails to perform the work as required. No matter what you do not want to face a Termination for Default on a government contract.

If you were hiring a contractor to perform work for yourself, you would want to protect your interests also. This is good business sense.

Below I have listed the FAR references for termination of default for your reference.

FAR References for Terminations for Default

You will find the FAR reference for Termination for Default below:

• • 52.249.8 – Supply and Service, Fixed Price
• • 52.249.9 – Research and Development, Fixed Price
• • 52.249.10 – Fixed Price Construction

 

Up to this point we have been providing you an overview of contract terminations. Now let's go more in depth. Starting with the termination for convenience.

Termination for Default

Earlier, we mentioned that a termination for default means that the government believes that the contractor may have not performed on the contract in accordance with the contract terms. Now, let's look at the steps involved if the government wishes to terminate a contract for default.

Memorandum for Record

The first step the government will take is to deliberate and decide the most appropriate action to take. The government will not take this action lightly. To do this the government will prepare and review a Memorandum for Record which addresses the factors contain in FAR 52.249-3. Once the factors have been determined and review the government will make a termination decision. What factors will the government review? Well, the government will review and evaluate the following factors:

1. The terms of the contract along with applicable laws and regulations;

2. The specific failure by the contractor on the contract and the excuses for the failure;

3. The availability of the supplies or services from other sources;

4. The urgency of the need for the supplies and/or services. To include the time period required to obtain them from other sources as compared with the time in which delivery could be obtained from the delinquent contractor.

5. 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;

6. The effect of a termination for default on the ability of the contractor to liquidate guaranteed loans, progress payments, or advance payments; and/or

7. And any other pertinent facts and circumstances.

 

As you can imagine a termination for default has serious implications not only for the contractor but the government also. Next we will look at those implications.

Impacts Both Government and Contractor

As you can tell there is a ton of information that the contracting officer will have to gather and deliberate with their legal department. Basically, a termination for default hurts both parties. The government does not get the goods or services that it needs, and the contractor has a blemished record.

As you can imagine a termination for default is overwhelming to the contractor. A termination for default results in suspension and debarment or criminal conviction. If you are a construction contractor your surety company will use your bond to find another contractor to perform the contract. That is if the government elects this route. All of this should not take lightly. If you are headed down this road it is imperative that you have a great legal team on your side.

In addition, if your contract was terminated for default and you received a termination letter, you may still be entitled to payment for work that was properly performed in agreement with the contract before termination. FCME uploads new episodes every Friday morning at 6:00 a.m. MST. Topics include proposal writing, bonds, types of contracts, why do business with the federal government, 8(a), business services for veterans and women, where federal opportunities are listed, and more. You can listen to the podcast here or with your favorite podcast provider (iTunes, Google Play, Spotify, or Stitcher). FCME is also active on social media and launched the Federal Contracting Made Easy YouTube channel on January 1, 2019.

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Now let's talk about the Other Factors and circumstances that the government reviews.

Terminations - Other Factors

Remember in the beginning of this blog we stated that the government may terminate a contract if it feels it is in its best interest to do so. As a result, the government has the right to termination all or only part of a contract to include:

• • Attempted fraud by contractor.
• • Contractor failure to meet quality requirements.
• • The Contractor failure to deliver the supplies or perform the services within the time frame specified in the contract.
• • Failure by the contractor to perform any other provisions contained in the contract.

 

Will the government just start termination proceedings without my knowledge? No, the government will notify you. Up next, we will talk about the Delinquency Notices.

Terminations - Delinquency Notices

There are two delinquency notices available for use by the government. The first notice is called a “Cure Notice” and the second notice is called a “Show Cause Notice”. Basically, the FAR states that the government must notify the contractor that they are responsible for a condition that is threatening performance of the contract. See FAR 49.607 for more information on delinquency notices.

Next, we will discuss the “Cure Notice”.

Terminations - Cure Notice

A cure notice is a written document sent to the contractor by the government, notifying the contractor that there is a contract issue that must be resolved. Cure Notices are issued when a contract is in jeopardy of

being terminated prior to the delivery date. Before the government can use this notice, they must ensure that there is enough time left on the contract delivery schedule or any extension. Why? The government must provide the contractor with enough time to resolve the issues affecting the contract. This time period is generally 10 days. If the timing is not enough to permit a realistic “cure” period of 10 days or more, the “Cure Notice” cannot be issued.

Terminations - Ten Days to Respond

So, what happens if there is not 10 days or more available on the contract? The government has the option of issuing another delinquency notice called a “Show Cause Notice”. But first, let’s discuss what a contractor should include in their written response to the government regarding the cure notice.

Contractor’s Response to Cure Notice

It is imperative that you, the contractor, respond to the cure notice within the time frame specified on the letter. You will want to include the following information in your response to the government.

• • Discussion of alleged problem to be a condition affecting contract performance.
• • Any Corrective plan to cure the alleged condition.
• • Who will bear the cost of the corrective work?
• • Schedule of performance of corrective work
• • Impact of corrective work on completion of the contract.
• • Actions that contractor has taken and will take to reduce the effect of the condition upon completion.
• • Government’s role in causing the condition.
• • Any other relevant factors bearing on timely completion of contract.

 

Terminations - Address All Allegations

Remember that you only have 10 days to respond to the cure notice. It is important that you address all the allegations contained in the notice and present your side as best as possible.

Now, let’s move on to the other delinquency notice, the “Show Cause Notice”.

Terminations - Show Cause Notice

As stated earlier a “Show Cause Notice” may be issued when the contract delivery schedule is not sufficient to permit a realistic cure period of 10 days or more. This notice will advise the contractor that the government is considering terminating the contract for default. Also, the government has not made a final decision on this matter. The government needs to determine if the contractor failed to perform was from causes beyond its control and without fault or negligence on the contractor’s part. FCME uploads new episodes every Friday morning at 6:00 a.m. MST. Topics include proposal writing, bonds, types of contracts, why do business with the federal government, 8(a), business services for veterans and women, where federal opportunities are listed, and more. You can listen to the podcast here or with your favorite podcast provider (iTunes, Google Play, Spotify, or Stitcher). FCME is also active on social media and launched the Federal Contracting Made Easy YouTube channel on January 1, 2019.

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Gather Facts

The contractor is given an opportunity to present any facts to the contracting officer (in writing) within the 10 days after receipt of this notice. If the contractor fails to present any facts within the 10-day period, the government may consider this an admission that none exist.

Do not under any circumstance fail to submit your response in writing to the contracting officer. The government will consider this is an admission of fault. Besides the government may not have all the facts or may have left out important facts in your favor.

What should a contractor include in their written response to a “Show Cause Notice”? That is what we will discuss next.

Contractor’s Response to Show Cause Notice

It is suggested that a contractor address the following when responding to a “Show Cause Notice”:

• • Discuss your contract performance over the term of the contract.
• • Make sure you address your control over the work performed on the contract.
• • State your reasons why you are not at fault or negligent regarding the alleged deficiency.
• • Present the percentage of cost completion on the contract.
• • Make sure to address the fact that the project completion will be delayed because of this wrongful termination.
• • Include the delay to project completion caused by this wrongful termination
• • Address a possible conversion of Default Termination to a Convenience Termination.

 

Things to Consider

When writing your response to either a cure notice or show cause notice it is important to remove the personal feelings from the letter and state the facts as you see them. Now is not the time to let your emotions get the better of you. Make sure that you have someone review the letter being as objective as possible.

Remember a Termination for Default has serious consequences not only for you but the government also. A contractor that received a Termination for Default must disclose this fact when bidding any new work. This will impact your past performance rating as well. In addition, the government may hold the contractor responsible for costs if the default is converted to a Convenience Termination, because the contractor may pursue recovery of allowable costs associated with the termination.

Is there an Excusable Behavior?

If you can show that your failure to perform the contract was excusable, your contract cannot be terminated for default. In order to be excusable, the failure must be beyond your control and not your fault or neglect.

Examples of Excusable Behavior

The following are examples of excusable failures:

• • Acts of God
• • Acts of public enemy
• • Actos of government
• • Fires
• • Floods
• • Epidemics
• • Quarantine restrictions
• • Strikes
• • Freight embargoes
• • Unusually severe weather.

 

What Happens if the Default is Excusable?

If after the termination you are found not to be at default or the default is excusable, the termination will be treated as one for the convenience of the government. As a result, the government will remove the bad image that the termination for default gave you and you will recoup some of your money back as well.

This is great news for you and your business. However, what happens if the buying agency or contracting officer does not agree with you? Or worse, you believe their decision is not correct?

Well, the contracting regulations provide contractors with several remedies, all the way from filing a simple protest or dispute to taking the government to court.

Summary

While no contractor wants to face a termination for default there are things that you can do to protect yourself. One of the biggest things to do is to document EVERYTHING and HIRE the BEST Attorney! For more articles from our author click here. Or you can listen to our podcast or YouTube channel call Federal Contracting Made Easy.