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
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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