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Default and Disputes Essay

In this paper I will discuss the reasoning and methodology behind government contract defaults and disputes. I will also give recommendation to acquisition and cost containment. The standard contract clause which gives a customer the right to unilaterally terminate the contractor if the contractor fails to perform according to the specified terms. The contractor is generally not entitled to any payment for the unfinished part of the contract and, instead, may be liable for (1) repayment of monies advanced, (2) liquidated and other damages, and (3) excess cost incurred by the customer in completing the contract under a new contractor.

Two primary types of terminations can arise under government contracts: “termination for default” and “termination for the government’s convenience”. Besides a criminal conviction or debarment or suspension for default is undoubtedly the most severe agency sanction that a termination can befall a government contactor. Terminations for default are much more common in supply contracts than in construction contracts.

The standard clause used in supply and service contracts recites that the government has the right terminate for default if the contractor fails to (1) deliver the contract supplies or perform the services on time, (2) make progress so as to endanger performance of the contract. The “Termination for Cause” term also names three bases for terminating a commercial item contract for default: (a) “any default” by the contractor, (b) failure by the contractor “to comply with any contact terms or conditions,” and (c) failure by the contractor to provide the government on request, with “adequate assurances of future performance. The government’s right to terminate is not limited by standard inspection clauses, because they permit the government to exercise any other rights and remedies allowed by the contract. “Default terminations are provided for in government contracts under standard clauses set forth in the FAR. 52. 249–8 Default (Fixed-Price Supply and Service).

As prescribed in 49. 04(a)(1), insert the following clause: DEFAULT (FIXED-PRICE SUPPLY AND SERVICE) (APR 1984) (a)(1) The Government may, subject to paragraphs (c) and (d) below, by written notice of default to the Contractor, terminate this contract in whole or in part if the Con- tractor fails to—(i) Deliver the supplies or to perform the services within the time specified in this contract or any extension; (ii) Make progress, so as to endanger performance of this contract (but see subparagraph (a)(2) below); or (iii) Perform any of the other provisions of this contract (but see subparagraph (a)(2) below). 2) The Government’s right to terminate this contract under subdivisions (1)(ii) and (1)(iii) above, may be exercised if the Con- tractor does not cure such failure within 10 days (or more if authorized in writing by the Contracting Officer) after receipt of the no- tice from the Contracting Officer specifying the failure. (b) If the Government terminates this contract in whole or in part, it may acquire, under the terms and in the manner the Contracting Officer considers appropriate, supplies or services similar to those terminated, and the Contractor will be liable to the Government for any excess costs for those sup- plies or services.

However, the Contractor shall continue the work not terminated. (c) Except for defaults of subcontractors at any tier, the Contractor shall not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the Contractor. Examples of such causes include (1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions (7) strikes, (8) freight embargoes, and (9) unusually severe weather.

In each instance the failure to perform must be beyond the control and without the fault or negligence of the Contractor. (d) If the failure to perform is caused by the default of a subcontractor at any tier, and if the cause of the default is beyond the control of both the Contractor and subcontractor, and without the fault or negligence of either, the Contractor shall not be liable for any excess costs for failure to perform, unless the subcontracted supplies or services were obtainable from other sources in sufficient time for the Contractor to meet the required delivery schedule. e) If this contract is terminated for de- fault, the Government may require the Con- tractor to transfer title and deliver to the Government, as directed by the Contracting Officer, any (1) completed supplies, and (2) partially completed supplies and materials, parts, tools, dies, jigs, fixtures, plans, drawings, information, and contract rights (collectively referred to as manufacturing materials in this clause) that the Contractor has specifically produced or acquired for the terminated portion of this contract.

Upon direction of the Contracting Officer, the Con- tractor shall also protect and preserve property in its possession in which the Government has an interest. (f) The Government shall pay contract price for completed supplies delivered and accepted. The Contractor and Contracting Officer shall agree on the amount of payment for manufacturing materials delivered and accepted and for the protection and preservation of the property. Failure to agree will be a dispute under the Disputes clause.

The Government may withhold from these amounts any sum the Contracting Officer determines to be necessary to protect the Government against loss because of outstanding liens or claims of former lien holders. (g) If, after termination, it is determined that the Contractor was not in default, or that the default was excusable, the rights and obligations of the parties shall be the same as if the termination had been issued for the convenience of the Government. (h) The rights and remedies of the Government in this clause are in addition to any other rights and remedies provided by law or nder this contract. FAR 52. 249-10 “Default (Fixed-Price Construction)” Clause (a) If the contractor refuses or fails to prosecute the work or any separable part, with the diligence what will insure it’s completion within the time specified in this contract including any extension, or fails to complete the work within this time, the government may, by written notice to the contractor, terminate the right to proceed with the work (or the separable part of the work) that has been delayed.

In this event, the government may take over the work and complete it by contract or otherwise, may take over the work and complete it by contract or otherwise, and may take possession of and use any material, appliances, and plant on the work site necessary for completing the work. Although the “Termination for Cause” term in commercial item contracts does not contain a “cure notice” requirement, the FAR termination procedures for commercial item contracts require the Contracting Officer to send a standard cure notice ‘prior to terminating a contract for a reason other than late delivery. Consequences And Remedies Of “Termination For Default” And “Termination For Convenience” If a board or court determines that the contractor was not actually in default or the default was excusable, the termination for default will be converted into a termination for convenience. Similarly, before the appeal is even decided, the Contracting Officer can convert the termination for default into one for the government’s convenience.

The Contractor’s recovery under a convenience termination may be significant. For example, under a convenience termination, the contractor is eligible to recover its costs of performance, some “continuing costs,” settlement expenses, and a reasonable profit on completed work. Should the contractor be unsuccessful in contesting the propriety of the default termination itself, it may still be able to challenge the excess costs assessment and achieve a reduction or elimination of those costs.

The Fulford doctrine permits contractors to challenge the government’s imposition of excess re-procurement costs even if the time has expired for appealing the underlying default termination, but does not trump the Contract Disputes Act election doctrine. Remedy of “Excess Cost of Re-procurement” and “Liquidated Damages” The standard measures of excess costs is the difference between the contract price of the terminated contract and the price the government is required to pay to the re-procurement contractor for quantity f supplies or services called for under the terminated contract or for completion of unfinished work remaining under the terminated contract. To assess excess costs against the defaulted contractor, the government must show that the re-procurement contract has been performed and that complete payment has been made. The government may not obtain re-procurement costs for work that the government prevented the contractor from performing.

If the default-terminated contract contains a “Liquidated Damages” clause, those damages may be assessed against the contractor until the government obtains completion of the contract work. Liquidated damages are in addition to the excess costs of re-procurement The Liquidated Damages” clause used in fixed-price supply and service contracts provides that, in the case of a termination for default, the contractor shall be liable for liquidated damages (as well as excess costs) “until the time the government may reasonably obtain delivery or performance of similar supplies or services. The “Liquidated Damages” clause requires the contractor to pay the government a specific amount for each calendar day of delay. The stipulated amount of the liquidated damages is set at the time the contract is entered into and is the parties’ estimate of the extent of loss that one party’s breach of the contract would cause to the other.

Government policy is to use a “Liquidated Damages” clause in a contract when both (1)the time of delivery or performance is such an important factor that the government may reasonably expect to suffer damages if the delivery or performance is delinquent, and (2) the extent or amount or actual damages would be difficult or impossible to ascertain or prove. Contract Disputes Act The Contract Disputes Act of 1978 (“CDA”), which became effective on March 1, 1979, establishes the procedures for handling “claims” relating to United States Federal Government contracts.

All claims by the contractor against the Federal Government must be submitted in writing to the Government’s Contracting Officer for a decision. All claims by the Federal Government against the contractor must be the subject of a decision by the Contracting Officer. Apart from claims by the Federal Government alleging fraud in connection with a claim by the contractor, all claims by either the Federal Government or the contractor must be submitted within six years after the accrual of the claim.

Claims by the contractor that exceed $100,000 must be accompanied by a certification that (i) the claim is made in good faith, (ii) the supporting data are accurate and complete to the best of the contractor’s knowledge and belief, (iii) the amount requested represents the contract adjustment for which the contractor believes the Federal Government is liable, and (iv) the certifier is authorized to submit the certification on behalf of the contractor.

There are procedures in the statute for remedying certifications that do not exactly mimic the required certification language. For claims of $100,000 or less, the Contracting Officer is required to issue a decision within 60 days of receipt of the claim provided the contractor requests a decision within that time period. For claims in excess of $100,000, the Contracting Officer is required, within 60 days, either to issue a decision or notify the contractor when a decision will be issued.

All decisions should be issued within a reasonable time, taking into account the nature of the claim, and, if they are not, the contractor may either request a tribunal to direct the Contracting Officer to issue a decision within a specified time or treat the failure to issue a decision as an appealable “deemed” denial of the claim.

If the contractor is dissatisfied with the Contracting Officer’s decision on a claim, the contractor may (i) appeal that decision to the cognizant agency board of contractor appeals within 90 days of receipt of the decision or (ii) bring suit on the claim in the United States Court of Federal Claims within 12 months. Decisions not appealed within one of these time periods become final and conclusive.

There are procedures in the statute authorizing the use of mutually agreeable alternative dispute resolution techniques for handling disputes and well as for the use of streamlined and accelerated litigation procedures for smaller claims at the boards of contract appeals. The losing party may appeal a decision by either a board of contract appeals or the United States Court of Federal Claims to the Court of Appeals for the Federal Circuit. A contractor is entitled to interest on the amount found due on its claim running from the date the Contracting Officer received the claim until the claim is paid.

Good acquisition planning is crucial to the overall project objective, government spending, tailored to objectives and constraints, and is flexible enough to allow innovation and modification as the project evolves. The strategy balances cost and effectiveness through development of technological options, exploration of design concepts, and planning and conduct of acquisition activities. These elements are directed toward either a planned Initial Operational Capability or retention for possible future use, while adhering to a program budget.

The strategy should be structured to achieve program stability by minimizing technical, schedule, and cost risks. Thus the criteria of realism, stability, balance, flexibility, and managed risk should be used to guide the development and execution of an acquisition strategy and to evaluate its effectiveness. The acquisition strategy must reflect the interrelationships and schedule of acquisition phases and events based on a logical sequence of demonstrated accomplishments, not on fiscal or calendar expediency.

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