Lessons on Contractor Termination for Default.

AuthorSarria, Alex

* The U.S. Court of Federal Claims recently overturned an agency's decision to terminate a government contractor for default. The case serves as an important reminder that, when reviewing such a termination, the court gives little credence to the government's subjective beliefs regarding the contractor's ability to perform.

In 2014 the National Guard Bureau awarded a firm-fixed price construction contract to Alutiiq Manufacturing Contractors LLC to repair asphalt roads at an Air Force base. From the outset, AMC experienced performance issues on the project: its key personnel were not staffed on the project; it had difficulty finding a qualified subcontractor; and it failed to timely submit required contract documentation.

While these deficiencies would not have prevented the contractor from timely completing the contract, they apparently did not endear the company to the government's contract management personnel. The bureau issued a letter of concern and multiple cure notices to the contractor. In response, AMC adopted corrective measures to help move the project forward, including developing a recovery schedule that would allow it to complete work two days ahead of the original contract deadline.

At the same time the company was working to get the project back on schedule, however, bureau personnel were holding discussions on when and how to terminate AMC's contract for default. Ultimately, an onsite agency representative looked at the contractor's proposed recovery schedule and determined it was not viable. The agency did not conduct a critical path analysis of the recovery schedule, but nevertheless terminated the contract. AMC then challenged the government's grounds for termination at the Court of Federal Claims.

In reviewing the termination decision, the court applied the standard set forth in Lisbon Contractors, Inc. v. United States, 828 F.2d 759, under which the government must demonstrate "a reasonable belief on the part of the contracting officer that there was no reasonable likelihood that the [contractor] could perform the entire contract effort within the time remaining for contract performance."

It also relied on McDonnell Douglas Corp. v. United States, 323 F.3d 1006, which clarified that the inquiry is an objective one "focus[ing] on the events, actions, and communications leading to the default decision."

Finally, the court looked to the factors in Federal Acquisition Regulation 49.402-3(f) that must be considered by a...

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