Procurement Lawyer

The Rhetoric and Reality of Termination for Default

by Steven W. Feldman

Steven W. Feldman is an attorney advisor with the U.S. Army Engineering and Support Center in Huntsville, Alabama. This article represents only the opinions of the author and not that of any federal agency.

Termination for default (or termination for cause as it is known in commercial contracts)1 has been a fundamental government right in public procurement since the nineteenth century.2 Despite the government’s unquestioned need for this remedy, courts and boards frequently make negative observations about the procedure. Some cases declare that termination for default is a “harsh”3 remedy and “disfavored” in the law.4 A refrain with roots going back to 1875 is that “default terminations [are] a species of forfeiture.”5 Along similar lines, courts and boards frequently state that the government has a “heavy burden”6 in proving the grounds for a termination for default (which is a government claim under the Contract Disputes Act).7 Still other tribunals observe that the remedy is “strictly construed”8 against the government and that it is a “drastic sanction”9 and an avenue of “last resort.”10 Accordingly, courts and boards have asserted that “every reasonable presumption against the party seeking to invoke [termination for default] will be drawn.”11

Generally, these adverse observations are more rhetoric than reality. For this article, no cases were found where a court or board drew every reasonable presumption against the government, or explicitly relied on the government’s supposed “heavy” or “strict burden” in deciding a termination for default appeal in favor of the contractor. The closest the cases have come to these observations is the comment that “[c]ourts are averse to default terminations, but nonetheless the court must ‘strike a balance between [this aversion] and the fact that “the [g]overnment, just as any other party, is entitled to receive that for which it contracted.”’”12

As I will show, the actual (and much less onerous) standard of review is whether contracting officials used this recourse upon “good grounds and solid evidence.”13 The reality of termination for default is that attorneys and their clients in both industry and government should pay less attention to what courts and boards say in passing and concentrate more on their holdings in light of the facts of the case — and that is strong general approval of termination for default.14

This article will proceed as follows. After summarizing the elements of termination for default, the article will challenge the dictum that termination for default is a “species of forfeiture.” Then, it will disapprove dicta that the government has a “heavy burden” in proving this claim or that the remedy is “strictly construed” against the government. Next, it will consider several common law doctrines that facilitate the government’s ability to default the contractor. The first such common law doctrine is that even when physically missing from the contract, the default clause is included by operation of law. The second common law principle is that the agency may assert post hoc reasons for the default termination, even if the agency was unaware of those reasons at the time of the original contracting officer’s decision, provided that those reasons existed at the time of the default action. Finally, I will explain how courts and boards in refusing to enforce the plain meaning of FAR 49.402-3(f) — a regulation requiring the contracting officer to consider specific factors pertaining to a pending default — have tilted too far in favoring the government when imposing a termination for default.

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