Overview
This section outlines the procedures for the Government to recover damages following a contract termination for default by applying withheld or unpaid funds against the contractor’s and surety’s financial liabilities.
Key Rules
- Liability: Both the contractor and the surety are held legally responsible for any damages resulting from the default.
- Priority of Funds: The Contracting Officer (CO) is required to use all retained percentages from previous progress payments to offset the liability.
- Unpaid Earnings: Any progress payments due for work completed prior to the termination must also be applied to liquidate the debt.
- Deficiency Recovery: If the combined retained percentages and unpaid earnings do not cover the total damages, the CO must initiate formal steps to recover the remaining balance from the contractor, the surety, or both.
Practical Implications
- Contractors terminated for cause should expect that any earned but unpaid revenue will be seized by the Government to cover excess reprocurement costs or other damages.
- This provision underscores the financial risk to sureties, as they are not only responsible for completing the work but are also explicitly liable for monetary damages exceeding the funds held by the Government.