The Government's Right to Terminate for Default. A Death Knell Far Cure h'otice Requirements in Service Contracts?
| Author | by Major Harry Lee Darsey |
| Pages | 05 |
I. INTRODUCTION
The federal government spent $168 billion in fiscal year 1983 in con.tracting for construction, supplies and services In many of its Contracts the government did not get what was called far by the contract; these are breaches of contract. Professor Carbin has said of contract breach "A breach of contract IS always a non.performance of duty; but it is not every nomperformance of duty that is a breach of cantract."'His words belie the complexity of the concept of breach of contract. The de. termination of whether or not a contract has been breached has chal. lenged the busmess and legal communities far years. There has been con. siderable litigation over whether one of the parties to a contract had failed to perform the duties which it undertook upon entering the contract and whether this failure will support a unilateral deciaian to end the contract.
Government contract law has Its mats firmly set m the common law principies of offer, acceptance, consideration, mutuality, performance, and requirements far formalization of the contract. There me differ. enees, however, between the common law theory of contract and government contract law and these differences have a significant impact on the rights and obligations of the government and the contractor.' One of these differences is the contractual term which creates B unilateral nght in the government to terminate contracts either for its convenience or for default.
'Telephone infarmahon from Federal Procurement Data Center (2 Apr. 1584)'4 A Carbm, CarbinanCantracts5 543 L195l)'G Cunea, Government Contracts Handbook (1962)
The typical government fixed-price supplylservice contract contains a default clause.' This clause allows the government to terminate the con-tract for default, without further notice. "if the contractor fails to make delivery of the supplies or to perform the SITYICI within the time speci-fied Additionally, it provides that B contractork failure to perform any other provmion of the contract in accordance wlth Its terms. or failure to make progress so a6 to endanger completion of the contract Inaccordance with its terms, will justify a termination for default It re. quires however, the government to w e the contractor notice of the perceived failure and a tenday period to cure the deficiencm before the contract map be terminated a
The application of these relatively simple rules have created situations where it 1s frequently perceived that termination for default is all but impossible. Beglnning in the mid 1960s, B loose series of declslons from the U.S. Court of Claims and the various boards of contract appeals seriously questioned the government procedures m defaulting contracts using the supplylservice default clause 'These cases were, over tlme, col.
af Defense and the rei! of the federal gawrnnent In this article parallel c~fafionn9 xdl be madetotheappropriate FARsndDAR se~tlons
,DAR 5 7-103 11 Ire1 28 Aug l980), FAR g 52 219-6'DAR~ i.108 litei 2 a ~ ~ g m o i FAR$ 52 249.8Xaca Co , Inc \ United Staten 610 F 2d 742 (Cr CI 19791 (a default termination WQ
overturned because the government ided to Bend B cure nonce) Franklin E Penny Co %'
United States. 624 F 2d 668 (Cf C1 1975) (extendmg the right ro a cure SlrYBtlnn where the conaactw had delnered defectire goods ununely manner) DaVli~o
Y Uamd
snrs; 111P?ii l l d i i m ?I 19691 RadmfmnTechnoloer Inr Y UnitedStates.396FZd ... ... .
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. . .1003 IC1 C1 19661 (a confrdcior had a nghf to a cure ;hod d subataanimlly confarmlng goods %ere dehvered m a timely fashion and rha defetfa I" the goodd were mlmr and bus. ceptable af e845 carrectmn). Wainvrighf Tmnsfer Ca, of Fayettabllle, Inc, ASECA Tan 23311 & 23661, 60-1 BCA 5 14313 LThe government ma) not choose ~ou~sesof actlon m
contract admmsfrstm uhrch are ~ C O ~ S L S I P ~ ~ with teiminauon and then terminate for
19861 DEFALKT TERMINATIONS
lectively read to stand for the proposition that the rules governing cure notices and the doctrines of substantial compliance and election of remedies allowed contractors to breach the contract and avoid termina. tian for default because it appeared from these case8 that B contractor had a right to a specific cure notice for every defect in performance upon which the government based the default, and It was believed that the record-keeping and inspection requirements necessary ta support an adequate cure notice were impossible to meet. These propositions were never expressly stated, but resulted from the willingness of boards of contract appeals and the U S
Court of Claims to overturn terminations for default for a wide variety of reanons related to defective cure notice procedure.
Several recent decisions' have senously questioned whether or not the language in the supplylservice default clause requires the government to give contractors notice of deficiencies in performing service contrats.s The current state of the case law concerning cure notices in Bermce con. tram runs from a mechanical and absolute requirement ta give cure to the position that there is na prejudice from a failure to issue a cure notice." These conflicting decisions create uncertainty for can-tractors who are forced "to vainly grasp for [their] ever receding rights"" and for contracting officers who do not know how to terminate a contract for default so that it will be sustained on appeal. Tnis confusion and uncertainty concerning the procedural requirements far termina. tion for default has existed for at least a decadels and is becoming increasingly were with new decisions every month interpreting this de. fault clause.
The following problem illustrates Some of the perceived difficulty in determining whether the government has a basis to terminate the con-tract for default. A guard m w c e contractor is requmd to provide twenty-four-hour-per-day guard serv~ces at five geographically distinct
tmet before the end of the enre period The termination *a8 overturned because the Armed Senices Board of C~nfract Aooeala 1ASBCAI behewd that the enre notice mnmtuted anreement not to terminate d&g the cure period )
ASBCANo 29008.64-2 BCA 3 17426, Gosietfe Canrract Eumsherl. GSBCASo 6756.83-2
RCA Y 16590 '26TheGavernmentCantraetorSa 1,j 10n3'oSri,eg , Ebctroma$nenc Refmiahers. Inc, GSBC
"GosbelteContract Furnishers GSBCAXa 6758 83.2 BCA3 16590 "OhnstadConst .Inc .AGBCAKa 81-160-1.83-1BCAj 16144.
"Sir McGiarh &Shearer Teiminafmg the Bmching Canlinefor The Prablrm and o Passiblr Saluiian, 7 Natl Conr Ngmt J ,Spring 1973. at 1. rrpnntrd kn 10 Yearbook of Praurient Articles 669 (1973)
locations. The services required at each location mvolve multiple. repetitive, discrete tasks Initially. perfomance under the contract 16 accept. able, although there are a number of identified defiaenmes that the government inspector or cantractmg officer's representaove discusses with the contractor. Performance deteriorates until the contracting officer ~ S S U ~ S
a cure notice for a large number of failures to perform required serv~ces, at each of the locations. The contractor's response is to cure the stated defects by moving personnel from one locanon to an.other and in the process fails to perform a different set of the required tasks." This anomalous situation, where the contractor has technically complied with the contractually.reqmred cure notice but continues to fail to perform the services required by the contract. was frequently perceived by contracting officers 86 a situation where the government could not terminate for default because there were no uncured defects at the end of each cure period. There were defects, but they were ne-' and the government had not yet issued a cure notice for them This situation creates great frustration for the command and in some cases exposes government personnel and property to unncessary nsk Much of the rationale for these conclusions is without merit. More significantly, the government is not getting what It bargained for, i.e., S ~ T V ~ C ~ S
performed
m accordance with the specifications. There 1s authority far the propasi. tmn that the government 1s entitled to obtain the benefit of its bargain
"This s~ensrio
13 basad on B contract for guard services in Bad Krevinsch Weir Ger-many After a denel of cure notreei. the coniracrm became unable to shift B J ~ U qwrkl)
enough and nuffieienr deficiencies were uncured BI rhe and of the lo-dai cure period to sup-port a terminalion for default The period of time during uhreh the gaiernment recened subslannaliy less than was required by the cmtr~ei
UBI wb~tdnf~al
During 1982.1953 there war B risk of rerronai actrviy m the area and government personnel and msrer~ai -ere put in B p m t m of unnetesiar) risk due to the government'& perconed inability to termmsfe B contract that UBJ cleaili in default This approach to contrsct ierminatmn was liikenneedleeslybecauaeafsmisundarrhndingof curenmceiand the doctrineof subitan-Lis1 completion This misunderstanding hsa B rational baris In Genersl Optical Lid ASBCANoa 25387and25593.85-1 ECA 9 liBI4,th~ASBChlamenreothatafreri~ienmonths of nanperfarmance. the "procurement picfure'was not pretty and rhat j/ nhlemsre had been brought to 8" end But the boarfli Isnmage m Its decmon *as couched m terms that indicatethat the contiscCngof8cor'ndeeisi~nta ierminateu,asvpheldmpartbacause the default K B ~ not issued until after the deliver) dare and m pari because the appellant had failed ta demonetisle that ita fsilure to perfarm was beyond its control and without ~tafault or "eghgence Thls case clearly illustrates B problem The eontraetmg offmr felt con. atrarned to IIIY~ B cure nouee after five months of nonperformance .\Iter nw months, the government was considered panlied m concluding that the m...
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