Sunday, April 9, 2017

T FOR D DEFENSE: ABUSE OF DISCRETION

There are, of course, many defenses to a termination for default.  Acts or omissions of the government in its contractual capacity is among them. 

One of the more esoteric defenses is known as abuse of discretion and involves failure to respond to requests for equitable adjustment (REA's).

In a case known as Ryste & Ricas, Inc., the Armed Services Board of Contract Appeals (ASBCA) reiterated the rule that a termination for default could not be based on materially erroneous information as to the contractor's responsibility for delay or materially erroneous information as to the effort and time required to finish the work.  The government owes the contractor an assessment of all of the relevant circumstances when it exercises its discretion to terminate for default.

In Ryste, the contracting officer did not adequately consider whether time extensions were appropriate.  The contractor had requested time extensions as part of REA's.  These requests were not adequately addressed by the contracting officer.  The contracting officer did not analyze the contractor's problems and did not consider whether the contract could have been substantially completed if the time extensions had been granted.  In the end, the ASBCA determined the contracting officer abused his discretion by terminating the contract for default.

The ASBCA concluded the government had not met its burden of proof.

The lesson to be learned is that REA's must be fully considered.  FAR 49.402-3(f) requires contracting officers to consider, among other things, the terms of the contract and applicable law and regulations in determining whether to terminate for default.  The terms of the contract usually include the changes clause.  The changes clause permits the contractor to submit an REA for equitable adjustment in price and schedule.  FAR 43.204(b) states that contracting officers shall negotiate equitable adjustments resulting from change orders in the shortest practicable time.

If a contractor believes the contract has been changed, constructively or otherwise, and submits its REA, the contracting officer is obliged to consider it.  It would seem, from a fair reading of Ryste, and the regulations, that the contracting officer also is obliged to adequately respond to the contractors REA before terminating for default.  The contracting officer owes the contractor an assessment of the REA.  Failure to respond altogether could well be argued as a breach of contract.

The defense to a termination for default which can be characterized as an abuse of discretion is hardly in the mainstream of defenses.  However, one of the main defenses to a termination for default is acts of the government in its contractual capacity (constructive changes, breaches, etc.).  Therefore, many of the defenses involve an abuse of discretion to one degree or another.

bill@spriggsconsultingservices.com



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