In a post published in 2013, we addressed the use of termination for default as a weapon. Unfortunately, construction contractors who fall behind schedule are automatically on the defensive and they rarely find that contracting officers are willing to concede government responsibility. The government, of course, is in a difficult position when it must explain to its customer – the end-user – that the scheduled completion date will not be met. All too often, instead of admitting that the contractor is not responsible, the threat of a termination for default is held over the contractor’s head because it is easier to blame the contractor than to admit that the government made a mistake.
The standard FAR “Default” clause (FAR 52.249-14) provides that a delay is excusable and does not provide a valid basis to terminate the contract for default if it is “beyond the control and without the fault or negligence” of the contractor. For a delay to be excusable under a construction contract, it must also be “unforeseeable.” A contractor may be excused if the delay is caused by defective government specifications, differing site conditions, constructive changes, a waiver of the contract completion date, or a failure of the government to comply with the procedural requirements that must be followed to support a termination for default. It is important for a contractor to document government-caused delays as they occur, rather than waiting to build a case after the fact.
The cases have held that a default termination is a drastic action that must not be undertaken without good cause. The FAR (49.402-3(f)) lists the factors that a CO “shall consider” in determining whether to terminate a contract for default:
- The terms of the contract and applicable laws and regulations.
- The specific failure of the contractor and the excuses for the failure.
- The availability of the supplies or services from other sources.
- The urgency of the need for the supplies or services and the period of time required to obtain them from other sources, as compared with the time delivery could be obtained from the delinquent contractor.
- 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.
- The effect of a termination for default on the ability of the contractor to liquidate guaranteed loans, progress payments, or advance payments.
- Any other pertinent facts and circumstances.
If a contractor has abandoned performance, or has clearly demonstrated an inability to complete the project in a timely manner, the decision to terminate is easy and difficult to oppose. In many cases, however, there are excusable causes of delay and it is not uncommon for defective specifications to be the culprit. Although FAR 52–233–1(i), requires a contractor to “proceed diligently with performance” while a dispute awaits resolution, there may be extenuating circumstances. For example, the Court of Federal Claims has stated that a contractor may be excused when the Government fails to provide reasonable clarification of a contract’s scope of work upon request. It has also been held that a contractor is not always obligated to continue performance if the decision to stop work is warranted by the particular facts.
We are not suggesting that a contractor should feel free to stop performance because it believes there is an excusable cause of delay. That is a dangerous strategy and should always be discussed with legal counsel. Let’s face it, it is difficult for a contractor to defend its position after it has been terminated. The interim financial hardship and impact to its performance rating is too severe. It is important, however, for a contractor to thoroughly document what has occurred and to continuously inform the government about why the delays are not its fault. A delay analysis that shows the impact of events to the critical path, with an emphasis on government-caused impacts, can be very useful. In the end, be courteous, vocal, persuasive, engaged, and never be silent.
Michael H. Payne is the Chairman of the firm’s Federal Contracting Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution.