Termination for Default

Facing a Cure Notice or Show Cause Notice? Don't navigate FAR 52.249-8 alone. GovSpring helps contractors:

Negotiate Settlements: Convert potential Defaults into Terminations for Convenience.

Draft Cure Notice Responses: Create viable recovery plans that satisfy Contracting Officers.

Document Excusable Delays: Build the paper trail needed to prove "no fault/no negligence."

Call GovSpring now for Immediate Help: (202) 609-7501. Our Managing Attorney will likely answer or call you back within thirty minutes. Or Email: info@govspringlegal.com

How and Why the Government Terminates for Default

Few acronyms inspire as much fear in federal contracting as T4D: Termination for Default. GovSpring Legal can help you prepare for and challenge a termination decision and protect against downstream effects of termination, should one occur.

A default termination doesn't just end a contract; it can result in financial liability and a black mark on your past performance record (CPARS) that haunts your ability to win future work. It can also be the basis for a suspension or debarment decision that could prevent you from competing for contracts altogether.

This guide breaks down the steps an agency might take toward its decision to terminate for default, how that decision might affect you, and how you can challenge or even avoid that decision. Several contract clauses contained under the umbrella of FAR 52.249 give the government this right to fire you for failing to perform. Depending on the type of contract that your company has with the federal government, one of four clauses that expressly grant the government to terminate for default will be included in your contract:

• Cost-reimbursement contracts use FAR 52.249-6;
• Fixed-price architect-engineer contracts use FAR 52.249-7
• Fixed-price contracts for supplies and services use FAR 52.249-8;
• Fixed-price research and development contracts use FAR 52.249-9; and
• Fixed-price construction contracts use FAR 52.249-10.

For contractors who provide commercial products and services, the general terms and conditions clause at 52.212-4 incorporates a "terminate for cause" provision that triggers many of the same procedures, risks, and remedies.

While the exact language and requirements of these terms will vary slightly, the triggers contained at 52.249-8, Default (Fixed-Price Supply and Service), provide a useful guide for how the FAR approaches T4Ds. That clause establishes three triggers that would allow the contracting officer to terminate for default:

1. Failure to Deliver on Time: You missed the delivery date for supplies or services.
   • Critical Note: The Government can terminate immediately for this without a warning letter.
2. Endangering Performance: You are falling so far behind that the CO anticipates that there is “no reasonable likelihood” that you will perform on time and have failed to cure this issue 10 days after receiving written notice.
3. Breach of Provisions: You fail to comply with other terms of the contract (e.g., failing to comply with safety regulations or Buy American Act requirements) and have failed to cure this issue 10 days after receiving written notice.

Contractors providing fixed-price supplies or services (that are not commercial products or services) must be keenly aware of the first trigger. Unlike most other triggers for default termination, this trigger allows the contracting officer to terminate without providing the contractor the opportunity to cure their breach. This trigger is largely unique to FAR 52.249-8, though, and contractors who are directly terminated without being given an opportunity to cure should seek help to verify that their agency possessed the authority to make that decision.

Nearly every other T4D clause incorporate triggers similarly to #2 and #3 above (Endangering Performance or Breach of Other Provisions). These triggers expressly state that the Government cannot terminate you immediately. They must first issue a written Cure Notice specifying your specific failure. At minimum, these notices will allow you 10 days (unless the CO authorizes more) to "cure" the defect or provide a plan to fix it.

Never ignore a Cure Notice. A prompt, detailed, and realistic recovery plan is your best defense against termination.

The Consequences of T4D: It’s Costly Now and In the Future

The first consequence of a termination for default after stopping work may be determining how to hand over or liquidate excess supplies in a way that minimizes losses while complying with the contract’s terms. In cost reimbursement contracts, for example, contractors are required to transfer title to many supplies and products, but they can also be required to sell certain of those supplies and credit the proceeds against what the government still owes the contractor.

Once the dust has cleared, the government may need to find another contractor to meet its outstanding needs. Like a private buyer who needs to “cover” after a seller fails to perform, the government can “reprocure” similar supplies or services from another vendor. If that happens and the new vendor charges more than your original contract price, you are liable for the difference.

Example:

• Remaining Contract Price: $100,000
• Repurchase Price (New Vendor): $120,000
• You Owe the Government: $20,000

Contractors must also be ready to seek payment that they are entitled to for the work that they have completed under their contracts. For fixed-price supply contractors, this is generally limited to completed supplies that are delivered. For cost-reimbursement contracts, this can also include some costs related to the termination, including the reasonable costs of storing and transporting excess inventory, as well as terminating and settling subcontracts.

As onerous as the financial fallout of default termination might see, the long-term effects can be even greater. Termination for default can be grounds for debarment. A contractor that is debarred is ineligible to receive contract awards during the period while they are debarred, which can last up to three years. And in many cases, debarment officials will also debar contractors’ affiliates, such as their employees. In fact, more debarment actions are initiated against individuals than against companies.

Regardless of whether a contractor is ultimately debarred, any contracting officer that makes the decision to terminate for default is required to report their T4D to the Federal Awardee Performance and Integrity Information System (FAPIIS), which is used to be responsibility determinations. The result is that a contractor that successfully persuades a debarment official not to debar may still not be able to win future contracts. As a result, some courts have referred to termination for default as a “death sentence” for contractors.

Challenging a Termination for Default

Contractors who are familiar with the claims process may be surprised to learn that the government’s decision to terminate for default is itself considered a “government claim” that the contractor has the right to immediately appeal to the relevant Board of Contract Appeals or to the Court of Federal Claims. It is also possible to appeal the underlying termination decision as part of a monetary claim once the financial fallout becomes clear enough to support a claim, but for contractors who wish to avoid debarment or to be deemed responsible when competing for future procurements, waiting may not be realistic. Contractors should then be sure not to waste time ahead of the deadlines to file an appeal: they must be ready to file an appeal to the agency board within 90 days or to the Court of Federal Claims within 12 months.

If you fight the termination in court and it is determined that you were not in default, or that the default was excusable, the termination converts to a Termination for Convenience (T4C).

Why this matters:

• In a T4C, you are not liable for excess costs.
• Instead, the Government pays you for the costs incurred up to the termination point, plus a reasonable profit.
• The contracting officer is required to disclose in FAPIIS that the termination was converted to a T4C, helping to correct the damage that could be done to future contracts.

If you are preparing to defend against a termination for default that is based on issues with a contract deadline, the FAR specifically provides the contractor's primary defense: excusable delay. A contractor is not in default if its failure to perform "arises from causes beyond the control and without the fault or negligence of the Contractor.” Valid Excuses Include:

• Acts of God (natural disasters) or the public enemy;
• Acts of the Government (e.g., they didn't provide GFE on time);
• Fires, floods, epidemics, and quarantine restrictions;
• Strikes and freight embargoes; and
• Unusually severe weather.

It is not enough to simply claim that a hurricane, newly imposed tariffs, or seasonal wildfires took place during your period of performance. You must prove that the hurricane caused your default and that you couldn't mitigate it.

What if your vendor causes the delay? Paragraph (d) is strict. You are generally liable for your subcontractors' and suppliers’ defaults. To escape liability, you must prove:

1. The cause was beyond the control/fault of both you AND the subcontractor.
2. The supplies were not obtainable from other sources in time to meet the schedule.

Summary: Your Rights vs. Government Rights

Contact us today to protect your past performance rating.