Terminations for Default
A termination for default may have severe impacts for federal contractors. If a contractor is terminated for default, it most cases contractors may find it necessary to litigate in an attempt to reverse the wrongful termination. Our firm has been very successful in overturning terminations for defaults. We have over a 95% success rate in converting terminations for default into termination for convenience.
Potential Impact(s) of a Termination for Default on Contractors:
- Return progress, partial or advance payments.
- Liability for excess costs of reprocurement or completion of the contract.
- Liability for actual or liquidated damages.
- Government may appropriate the contractor’s material, inventory, construction plant and equipment at the site, under supply contracts, drawings and plans with the price for the items to be negotiated.
- Contractor is entitled only to receive payment only for work accepted by the government.
- Contractor may be subject to debarment.
The most important thing for a contractor to know about Terminations for Default is that it should be avoided at all costs.
Potential Causes of a Default:
Show Cause or Cure Notice:
- Late delivery or behind schedule.
- Lack of Contractor Performance.
- Failure to Perform or Deliver.
- Delivery of Defective Supplies.
- Progress Failures/ Failure to Proceed.
- Failure to Comply with Contract Quality.
- Contractor cause(s) Endangered Performance.
- Failure to Comply with contract Requirements or Provisions.
- Express Refusal to Perform.
- Failure to Give Adequate Assurances.
- Express Statement of Inability to Perform.
- Actions Indicating Inability to Perform.
When a contractor receives either a “Show Cause” letter or a “Cure Notice”, it may represent a statutory trigger that the Government must take prior to issuing a termination for default. The letter typically details all the contractor's specific contract terms that were violated and requests the contractor respond with how these problems are going to be corrected.
The contractor is usually given ten days to make their response. Before answering this letter, please seek legal counsel as your response is the start of your defense. If you are terminated, the manner in which you respond will play a critical role to avoid a default.