MISUSE OF DEFAULT TERMINATIONS REVISITED

On July 25, 2012, we warned of the misuse of terminations for default in connection with the government sequestration issue.  Lately, we've been concerned that the government may be misusing terminations for default in order to place the burden on the contractor to collect what it is owed when the government just wishes to abandon the contract for reasons other than a bona fide default by the contractor.  The government just wants to take the money off the contract for another use. 

Termination for default allows the government to move the funding off the contract. Conversely, funding must be left on the contract pending resolution of the termination for convenience settlement proposal.  Thus, the contracting officer has a funding motivation for turning the cancellation into a termination for default.

Termination for default is a drastic action which severely inhibits the contractor's ability to get new work with the government.  The law requires that it not be misused or abused. 

Termination for default shifts the burden of contract administration and all the contract risks to the contractor.  No termination contracting officer needs to be appointed and there is no administrative burden on the government.  There may be no reprocurement since the requirement is going away. The contractor must defend the termination for default action.

In defending the termination for default, it may take the contractor up to four (4) years of litigation to obtain a conversion of the termination to one for convenience which finally entitles the contractor to payment under the convenience termination clause.  We have seen many termination for default cases where the government has delayed the litigation for up to and sometimes longer than 4 years.

This is to say nothing of the expense of converting the default to a convenience termination and then going through the lengthy and expense process of collecting the convenience termination money.  We can think of no greater adverse action against increasing competition in government contracting than the misuse of terminations for default.

At the very least, the government should explore with the contractor, whether it may be possible to agree on a no cost termination for convenience settlement.  We suspect at least some of the drastic termination for default actions could be avoided by exploring this possibility.

bill@spriggsconsultingservices.com