Contract Termination and Excusable Delay

Contract Termination and Excusable Delay

• Definition: An action taken pursuant to a contract clause in which the contracting officer unilaterally ends all of part of the work.

• Types of terminations:– Termination for convenience- in the best interest of the

government– Termination for Cause/Default- Contractor has not

performed– Cancellation- There is no longer a need for the work

Contract Termination and Excusable Delay

• Termination for Cause/Default can be for:– Failure to perform– Failure to adhere to schedule– Failure to comply with specific terms and

conditions– Failure to comply with other terms and conditions

in contract– Repudiation- “just ain’t gonna do it”

Contract Termination and Excusable Delay

• Commercial Contract Termination:– UCC Section 2-309– Requires good faith of all parties• Notice given in reasonable time• Insures other party received unless:–Contract states that in breach or specific

cause no notice agreement will be provided– Termination by mutual consent– Bilateral Agreement required

Contract Termination and Excusable Delay

• Government Contract Termination– FAR 49- identifies government terminations except

commercial items subject to FAR 12– Basically 2 types:

• Convenience: – Contract no longer serves the best interest of the government due to

priorities, end of program, downsizing, other significant events not anticipated

• Default:– Contractor failed to perform one or more actions required in the

contract– General rule: No prior notice entitlement unless contract provision

requires it.

Contract Termination and Excusable Delay

• Notices if required:– Cure Notice: states that contractor will be subject to default

termination unless it corrects a specific contract noncompliance or makes necessary progress to meet the delivery schedule

– Show Cause Notice: asks for explanation of why the contractor should not be terminated for default and affords the contractor an opportunity to “show cause” as to why a termination for default should not be assessed.

– No Cost Termination: issued if the requirement no longer exists and the contractor is not liable to the government for damages the contracting officer may execute a “no-cost termination settlement” FAR 49.402-4

Contract Termination and Excusable Delay

• Government:– Excusable Delay :Protects the contractor from penalty for

• Acts of God or public enemy• Acts of the Government in either its sovereign or contractual capacity• Fire• Flood• Quarantine• Strikes• Epidemics• Unusual Severe Weather• Freight Embargos

• Commercial– Force Majeure (Superior Force) protects the contractor from

unexpected or uncontrollable event that upsets the plan.

Contract Termination and Excusable Delay

• Contract Cancellation– Usually occurs shortly after contract execution– Seller realizes they cannot perform– No cost to either party– Buyer can find other source