THE CONTRACTOR'S RIGHT TO STOP WORK

When does the contractor have the right to stop work?

The Court of Appeals for the Federal Circuit has held that “[u]pon material breach of

a contract, the non-breaching party has the right to discontinue the performance of the contract

Stone Forest, 973 F.2d at 1550; Malone v. United States, 849 F.2d 1441, 1446 (Fed.

Cir. 1988) (holding that material breach by the Government “provides Malone with a legal right

to avoid the contract [and] discharges Malone’s duty to perform”); Kap-Sum Properties, 13

BCA at 173,833 (citing Malone). The Court further explained, “The choice of remedy

is generally with the non-breaching party, and only in exceptional circumstances will equity

require the non-breaching party to continue to perform the remainder of the contract.” Stone

Forest, 973 F.2d at 1552. “[I]f a contract is not clearly divisible, by the

intention of the parties, the breaching party can not require the non-breaching party to

continue to perform what is left of the contract.” Id.

What is a material breach by the government?

In determining whether a failure to render or to offer performance is material,

the following circumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit

which he reasonably expected;

(b) the time to which the injured party can be adequately compensated for

the part of that benefit of which he will be deprived;

(c) the time to which the party fails to perform or to offer to perform

will suffer forfeiture;

(d) the likelihood that the party failing to perform or to contribute to perform

will cure his failure, taking account of all the circumstances, including any

reasonable assurances;

(e) the extent to which the behavior of the party failing to perform or to

offer to perform comports with standards of good faith and fair dealing.

Practical solution

If the breach goes to the essence of the contractor's expectation, the breach most likely will be determined to be material. At that point, the contractor is well advised to seek declaratory relief from the board or court.

Failure to do so could be a waiver of the breach. Stopping work without judicial relief could result in termination for default. The pendency of litigation is not a legal defense to a T for D.

Many factors contribute to the decision to stop work before the judicial determination of declaratory relief. Most are not strictly related to the merits of the legal arguments.

bill@spriggslawgroup.com