Terminations for default

Army Lawyer, Jan, 2006 by Michael L. Norris

Contracting Officer Representative's Casual Comment Did Not Extend Performance Period

In NECCO, Inc. v. General Services Administration, (80) the GSA competitively issued a task order to a contractor to replace the roof of a federal building, under a multiple award term contract for construction work. Under the task order, the contractor was to complete the work by the end of the calendar year 2003. While discussing the project with the contractor prior to the preconstruction conference, the Contracting Officer's Representative (COR) noted the possibility of construction difficulties in winter months and speculated that the GSA might choose to delay the project until the spring. (81) At the subsequent preconstruction meeting, the parties, including Palmieri Roofing, the subcontractor who would actually perform the roofing work, settled on a start date of mid-October 2003 with completion anticipated four to six weeks later. (82)

At some later date, Palmieri informed the contractor that he had won a larger roofing job and would not be able to perform the GSA's project before winter after all. (83) Through a series of e-mail messages, the GSA insisted that the project completion date would not be extended, (84) while the contractor attempted to rely on the oral "offer" of a spring start date allegedly made by the COR prior to the preconstruction conference. (85) The contractor made similar arguments in response to the subsequent cure notice, (86) and also offered to immediately fix the leaks in the roof at no charge in exchange for being allowed to perform the roof replacement in the spring, (87) but was unable to locate any roofers who were available to perform the work before spring. (88) The contracting officer terminated the task order for default on 3 November 2003. (89)

The General Services Administration Board of Contract Appeals (GSBCA) agreed that the contractor clearly failed to give reasonable assurances in response to the cure notice, and that the contracting officer justifiably determined that there was no reasonable likelihood that the contractor would perform the work in the time required. (90) The contractor argued that he was not in default because he accepted the COR's "offer" to complete the project in the spring. To prevail on that theory, the board explained, the contractor would need to show that the COR had the authority to postpone the project until the spring, that the COR actually made that offer, and that the offer was binding. (91) The board was not convinced that the COR's letter of authority granted such that authority, but did not have to resolve that issue because the evidence did not demonstrate that any such "offer" had been made or accepted. (92) The board further found that the contracting officer properly exercised her discretion in terminating the order. (93) Among the factors that the contracting officer considered in making her decision to terminate was her concern for the integrity of the procurement process, in that materially altering the terms to allow for a spring completion date would be unfair to the unsuccessful offerors who had not been given an opportunity to compete for a later completion date. (94) The GSBCA denied the appeal.

Terminating for Cause without a Cure Notice--Same Rules as for T4D

The GSBCA recently looked at whether a cure notice was required before a contracting officer could properly terminate a commercial item task order for cause. In Geo-Marine, Inc. v. General Services Administration, (95) the GSA, on behalf of the Air Force, placed an order under an indefinite quantity, multiple award Federal Supply Schedule contract for commercial services to operate and expand the Avian Hazard Advisory System (AHAS), an advisory system that processes radar and weather data to alert pilots to potentially hazardous bird activity. (96) In June 2003, several members of Geo-Marine's technical staff assigned to the ALIAS project suddenly left the company, resulting in significant problems in the operation of the system. (97) Almost immediately, the system suffered various failures, including the complete shutdown of the system. (98) One of the former employees returned to the company one evening and restored the system as a courtesy to the Air Force, but system failures and several other problems persisted over the next couple of weeks, resulting in pilots not being able to access required current data. (99) In July, the contracting officer sent the COR to visit the contractor's facility to assess the operation of the system and determine whether the system tasks were being completed. When the COR determined that the contractor was not operating the system in accordance with the task order, the contracting officer terminated the task order for "default" without a cure notice. (100)

In its motion for summary judgment, Geo-Marine argued that the termination for cause should be converted to a termination for convenience because the contracting officer had failed to issue a cure notice before terminating the task order. (101) Acknowledging the similarity between terminations for cause and terminations for default, the GSBCA analyzed the issue using termination for default precedent. For both terminations for default and terminations for cause, cure notices are not required when the contractor fails to deliver on time. (102) Looking at prior decisions in which contracts were terminated for default for failure to perform on time, the board observed that "whether a contractor had achieved substantial completion was held to depend not only upon the quantity and nature of the defaults, but also upon the nature of the services to be provided." (103) The board examined decisions that had upheld terminations for default without cure notices where, the services were of critical nature, such as railroad services in a terminal in which explosives were shipped and received, (104) guard services at a military range where the government stored explosives and classified materials, (105) ambulance services, (106) and lifeguard services. (107) Reviewing the facts in the instant case, the board held that Geo-Marine had failed to establish as a matter of law, as required for purpose of summary judgment, that it substantially complied with the contract and that a cure notice was required "taking into account the nature of the defaults and the nature of the services required." (108)