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A Strategic Approach
Breakout Session #: F07
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Government’s Options to
Address Poor Quality
• Rejection of Delivery
• Deficiency Notice
• Non-Exercise of Options
• Termination for Convenience
• Cure Notice or Show Cause Notice
• Termination for Default
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What is a Cure Notice?
• Government anticipates Contractor will fail
to perform contractual obligations.
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What is Termination for Default?
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10-Day Cure Notice
• Fixed Price Contracts (52.249-8)
– Not Required for failure to deliver
supplies or perform services by required
deadline
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10-Day Cure Notice
• Cost Reimbursement Contracts
(52.249-6)
– Cure Notice Always Required
.“The Government may terminate performance of
work under this contract in whole or, from time
to time, in part, if—
(2) The Contractor defaults in performing this
contract and fails to cure the default within 10
days (unless extended by the Contracting
Officer) after receiving a notice specifying the
default.”
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10-Day Cure Notice
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Termination Notice
• After cure period expires, or if cure
notice not required, Contracting Officer
may determine that default termination
is proper
• Must issue a termination notice to
Contractor “The Contracting
Officer sent me.”
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Contractor Appeal
• Termination Notice is a CO’s “Final
Decision” under the Disputes Clause
• Appeal to BCA or COFC
• Remedy: Convert termination for
default to “convenience”
“The contractor’s
“The CO didn’t delays were not
follow FAR Pt. 49” excused!”
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Cure Notice Abuse
Theory Practice
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The Risk to the Contractor:
Present and Future
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Effect of Default Termination
• Present
• Loss of contract revenue
• Future
• 52.209-5 Representation: “Default”
• Adverse CPAR
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Understanding the Government’s
Perspective:
The Costs and Benefits of
Various Options
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Alternatives to Termination for
Default
• Government Not Required to Terminate for
Default
– The Government may:
• Permit contractor to continue
performance
• Permit contractor to subcontract the work
• Enter agreement with project surety
• Terminate for convenience
• Execute a no-cost termination if
requirement no longer exists and
contractor is not liable for liquidated
damages 19
Legal Standards for Default
Termination
• It is difficult for the Government to
terminate for default
• High legal bar:
– Default terminations are a “species of
forfeiture,” which “are not favored in law.”
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Legal Standards for Default
Termination
• It is difficult for the Government to
terminate for default
• High legal bar:
– Government “must comply strictly with all
contract requirements and conditions
authorizing the forfeiture, and be free
from blame for the other party’s default.”
– Government is “held to the very letter of
[its] authority.”
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Legal Standards for Default
Termination
• High legal bar:
– Government bears the burden of proof on
whether default termination was justified
– Government must establish that the
Contractor breached a material provision
of the contract
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Legal Standards for Default
Termination
• High legal bar:
– For a service contract, Government
must demonstrate “the accumulation of a
sufficient number of items of unperformed
or unsatisfactorily performed services to
establish such a ‘substantial failure of
performance.’”
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Legal Standards for Default
Termination
• High legal bar:
– Contracting Officer must first consider
factors, including:
• Terms of the contract and applicable law
• The contractor’s specific failure and excuses
• The availability of other sources
• The urgency of the need and time needed to obtain from
other sources
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Legal Standards for Default
Termination
• High legal bar:
– Contracting Officer must consider:
• Degree to which contractor is essential to the program
• Effect of default termination on contractor’s capability as a
supplier under other contracts
• Effect of default termination on contractor’s ability to liquidate
guaranteed loans, progress payments, or advance payments
• Any other pertinent facts and circumstances
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Key Contractor Defenses
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The Opportunity:
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Alternatives to Termination for
Default
• Government Not Required to Terminate for
Default
– The Government may:
• Permit contractor to continue
performance
• Permit contractor to subcontract the work
• Enter agreement with project surety
• Terminate for convenience
• Execute a no-cost termination if
requirement no longer exists and
contractor is not liable for liquidated
damages 28
Cure Notice Response Strategy
Termination Continued
• High Risk Performance
• Unjustified • Low Risk
• Costly • Low Cost
• Time- • Efficient
Consuming • In the Gov’ts
• Not in Best Interest
Gov’ts Best
Interest
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Cure Notice Response Strategy
Contractor needs:
• The right team
• Looking at the right issues
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Cure Notice Response Strategy
• Upon receipt of cure notice:
– Immediately Assemble the Response
Team
–Executive Management
–Contracting
–Program Management
–Legal
–SMEs
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Cure Notice Response Strategy
• Upon receipt of cure notice:
– Response Team Analyzes the Right
Issues
–The “Carrots”
–What can we do to assure the
Customer that Performance will
improve?
–The “Sticks”
–What defenses do we have to show
that a default termination cannot be
legally justified?
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Key Contractor Defenses
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Key Contractor Defenses
• Government waiver
– DODS, Inc., ASBCA No. 57667:
• Government waiver
– B.V. Construction, ASBCA No. 47766:
• NASA waived completion date -- let it pass
without concern as performance continued.
• NASA then unilaterally set new completion
date without considering contractor’s
availability at the time.
• Board: Given waiver, NASA had to consider
existing circumstances when setting new
schedule. Improper termination.
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Key Contractor Defenses
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Key Contractor Defenses
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Key Contractor Defenses
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Key Contractor Defenses
• Defective notice
– The Swanson Group, ASBCA No. 44664:
Govt demanded cure within 3 days.
ASBCA held failure to give 10 days is
fatal to default termination for failure to
make progress.
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Cure Notice Response Strategy
• Response Team gathers the Right
Information
• Contract Documents
• Correspondence
• Technical Info
• Historical Info
• Legal Info
• Supporting Docs 44
Cure Notice Response Strategy
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Cure Notice Response Strategy
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Cure Notices Response Strategy
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Cure Notice Response Strategy
• Response Team prepares the Right
Response Package
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Cure Notice Response Strategy
• Signals cooperation
• Convince CO that alleged or
anticipated failure to perform is cured
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Cure Notice Response Strategy
• Annex: Default Termination Legal
Analysis
• Attach legal analysis showing that
default termination is improper:
• Describe tough legal standards for default
• Demonstrate waiver or absence of default
• Identify every Government non-compliance
and other cause beyond Contractor’s control
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Contact Information
Holland & Knight LLP
Tysons Corner, VA
• David S. Black
(703) 720-8680
David.Black@hklaw.com
• Gregory R. Hallmark
(703) 720-8680
Gregory.Hallmark@hklaw.com
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