Default Dispute Termination of Contract Default and Essay

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Default Dispute Termination of Contract

Default and Dispute (contract law)

In government contracting, the government through a contracting officer who is the government agent enters into a legally binding agreement with a contractor. This contractor is a seller who is to deliver services and the government as the buyer pays for these services as agreed upon in the contract. However, situations arise where the agreements may be terminated in order to settle disputes that arise between the contracting agents and the contractor. Normally, the government may terminate the contract for default of the contractor or by convenience (Kathuria, 2009). Federal Acquisition Regulations define termination for convenience as the exercise of the government's right to terminate a contract when it is in the government's interest

Termination for default

The government has a right to terminate a contract on a situation where the contractor does not meet the set contractual obligations (Rumbaugh, 2010). For the government to terminate on default, there should be failures and an explanation provided for the failures. It is evident that there should be an actual failure of performance of the contract to be terminated for default (Loulakis, 2003). The default clause dictates the contractor to transfer title of the delivered goods to the government after termination of the contract. On the other hand, the government pays for all delivered goods and services.

Government contracts provide the following bases for termination for default of a contract. Firstly, a contract may be ended for default if the contractor refuses to perform the delivery within the specified time in the contract. Secondly, it may also be terminated if the contractor fails to make progress in the contract thus endangering its performance and lastly, the government may end a contract for default in case the contractor refuses to perform any provisions stated in the contract (Rumbaugh, 2010).

The government, after a cause notice, directed the contractor to stop further work on the project performance. The government terminated for default after the contractor failed to perform the contractual obligations by the termination date ( Robert, 2004). The outstanding work was 43% of the contractor's required performance.

Consequences and remedies of termination of contract

Termination of a contract, whether for default or for the convenience of the government does come with consequences and thus remedies must be rendered to either party in the contract. On termination for default by the government, consequences befall the contractor and thus must pay remedies to the government. That is the contractor is liable to pay the government any excess costs incurred in acquiring its services. Therefore, the remedies in this include, payment of liquidated damages, which is payment for actual loss, payment of unliquidated damages and additional re-procurement costs. On the other hand, in case the government terminated the contract for convenience, it must bear the consequences of paying the contractor any costs and profits related to the order to stop work and also to termination (Loulakis, 2003). Also, the government may offer a no-cost settlement in place of termination of the contract. This requires the contract to be allowed to run to completion instead of termination. This is mainly common in cases where the undelivered balance is less than $5,000. Also, the government bears the burden of issuing a written notice to the contractor on the event of termination. Note that, under termination for convenience, the government does not pay damages to the contractor.

A clear distinction of the government's remedy of excess re-procurement costs and liquidated damages should be made. These are the remedies offered on the occasion that the government terminates a contract for default by the contractor. Excess re-procurement costs are additional costs incurred by the government following a contract termination for default whereas, liquidated damages are damages in a situation where there is knowledge of actual loss. However, the disputing parties must agree upon the amount payable.

Dispute process

The aim of the dispute process is to: Provide guidance to parties involved in contract disputes; Outline appropriate disputes resolution practices; and provide measures to minimize litigation risk. If followed appropriately, it will minimize risk and facilitate effective dispute resolution. There is a clear provision of this process in the Contract Disputes Act of 1978. This Act is in the disputes clause of federal contracts of construction, in the Federal Acquisition Regulation clauses. This process requires the Contracting Officer to play the role of the contract's administrator for the government while being a decision maker to review disputes between his staff and the contractor. Most importantly, he has the authority to settle, pay, or adjust all claims by either party in the contract. All claims should be submitted for consideration to the Contracting Officer. It is crucial to remember that claims over $100,000 must be certified for them to be valid.

After the submission of a certified claim, Section 6 (a) of the Contract Dispute Act requires an issue of a decision within 60 days if the claim is less than $100,000, or within a reasonable time if it is over $100,000. The decision must be in writing. Also, the Contracting Officer advises the contractor, when he will issue the decision on the claim. The decision should consist of: A description of both the claim and dispute, a reference to contract provisions, a statement of the areas of agreement and disagreement, a statement about the officer's decision with supporting explanation and a notice of the rights to appeal available to the contractor (FAR 33.211 (a) (4)). However, the contractor should know that the opportunity to negotiate and resolve the dispute do not end with the submission of the claim. He should keep open negotiations with the government agents with the aim of reaching a settlement.

After the submission of the claim, the contracting officer issues a decision. This decision may deny the claim either totally or partially. However, if the contracting officer fails to issue a decision within a reasonable time if the claim is over $100,000 or within 60 days of receipt of the claim if it is below $100,000, then the contractor may treat the failure as if there is a defiance of the claim by the contracting officer. Therefore, the contractor proceeds to appeal to the Board of Contract Appeals which must be within ninety days, or to the Court of Federal Claims within twelve months (FAR 33.211 (a) (4) (v)). Note that, while appealing, the contractor must file within the required statutes or else risk losing the rights to appeal. Once the contractor files a Notice of Appeal, the government then prepares an administrative report that contains all documents for a clear understanding of the case. These documents mainly include a claim, the contracting officer's decision and the contract provisions.

After the contractor makes an appeal, the court proceeds to set a trial. In order for the contractor to prepare adequately for the trial, it is necessary to engage in discovery of the defendant's case. Discovery refers to the process of sourcing evidence from the defendant which gives information about the opponent's case and thus support one's case. It may take the forms of interrogatories, production of documents, depositions and request for admissions. During the trial, it is essential to use expert testimony as a form of a witness (FAR 33.212). This assists the judge in deciding technical matters. The expert should articulate as well as possessing good persuasion skills. Note that, a well prepared and qualified expert will make a favorable impression upon the judge and will thus support the case.

Acquisition planning and cost containment

Acquisition planning is a process for coordination of the efforts of everyone responsible for an acquisition by the use of a comprehensive plan for fulfilling the government's needs (Rumbaugh, 2010). FAR part 7 states the requirements for acquisition planning and provides guidelines for developing acquisition plans. It aims to satisfy the government's needs economically, and on time.on the other hand, cost containment is a strategy applied while making government contracts ensure saving of the costs involved. These measures aid in containing the costs.

The acquisition planning is more prominent in government contracting than cost containment in that, there is involvement in the development of the plan by all the personnel participating in the acquisition (Nemet, 2010). These participants include technical personnel who suggest areas for market research and also identify potential risks, finance personnel concerned with budgeting and financing and lastly contracting personnel who deal with acquisition consideration and source selection. Also, planning starts when a need for services arises. Therefore, with the involvement of all parties, there is the collection of credible information that is beneficial during source selection and contract administration. Therefore, an acquisition plan describes the requirements and how procurement will meet them. This makes acquisition planning to be more successful than cost containment since it is unlikely that cost containment measures exert downward pressure on the costs indefinitely.


As part of my recommendations, I would recommend the following. Firstly, ensure that the cost containment procedures adopted are…

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