Overview
This section outlines the Government’s authority and mandatory procedures for terminating fixed-price contracts when a contractor fails to meet delivery schedules, performance requirements, or progress milestones. It establishes the financial liabilities of the contractor, the administrative steps for the Contracting Officer, and the potential alternatives to a default termination.
Key Rules
- Basis for Termination: The Government can terminate if the contractor fails to deliver supplies/services on time, fails to perform any other contract provision, or fails to make progress that endangers performance.
- Notice Requirements:
- Late Delivery: No prior notice is required before termination unless the Government has waived the delivery date.
- Other Failures: A written "Cure Notice" providing at least 10 days to fix the issue is mandatory before terminating for progress or "other provision" failures.
- Show Cause: Before terminating, the Contracting Officer should, if practicable, issue a "Show Cause" notice to allow the contractor to explain why they should not be terminated.
- Financial Impact: The Government is not liable for costs on undelivered work and is entitled to the repayment of any advance or progress payments. The contractor is liable for "excess costs" incurred by the Government when repurchasing similar supplies or services.
- Mandatory Considerations: Before terminating, the Contracting Officer must consider factors such as the urgency of need, availability from other sources, and the impact on the contractor's capability as a supplier.
- Small Business & Surety Coordination: The Contracting Officer must notify the SBA for small business contractors and the surety for bonded contracts when termination is imminent.
- Repurchase Authority: The Government may repurchase terminated items against the contractor's account and must seek competition to the maximum extent practicable.
Practical Implications
- Administrative Record: Contracting Officers must document the specific "acts or omissions" constituting default and coordinate with legal counsel, as a wrongful default termination can be converted to a "Termination for Convenience," making the Government liable for the contractor's costs.
- Contractor Risk: A termination for default is a "contractual death penalty" that results in immediate financial debt for excess reprocurement costs and severely damages the contractor’s past performance record (CPARS), hindering their ability to win future government work.