Despite acknowledging that an “objective inquiry” and not “subject beliefs” is appropriate to determine the validity of a default termination, the Court of Federal Claims ruled that the government’s default termination was invalid based in part on the Contracting Officer Representative’s (COR) “hostility” towards the contractor and “history of dishonesty” during the Project. Such a decision may open the door for contractors who—in addition to other factors—ask Courts to consider the government’s subjective actions or motives in determining whether the project owner had a basis to terminate.
In Alutiiq Manufacturing Contractors, LLC v. U.S., 143 Fed. Cl. 689 (Fed Cir. 2019), the U.S. Department of Defense (Government) awarded a Small Business Set Aside contract to a contractor for the repair of access roads at Buckley Air Force Base. The Contractor experienced issues during the initial stages of performance, including requirements to provide key personnel, submission of a quality control plan, and inability to procure a subcontractor meeting the Government’s requirements. These issues caused the Government to send an initial “Letter of Concern” and Notice to Cure. In response, the Contractor hired additional personnel and provided a revised baseline schedule, which the Government approved. Ultimately, however, the Government found that the Contractor had still not addressed all of the issues and issued a revised Notice to Cure. The Contractor responded with a plan to hire new personnel and provided another recovery schedule. Important to the Court’s decision was the COR’s assessment of the recovery schedule – specifically, that the response was a one-page, 13-point list. The Government did not perform an analysis beyond what the Court called the COR’s “quick glance” and ultimately default-terminated the Contractor.
The Contractor filed suit, alleging the Government did not possess adequate grounds for issuing a default termination. The Court reiterated the Lisbon Contractors standard for assessing the Government’s decision to terminate a contractor for default: that the Government must demonstrate a “reasonable belief on the part of the contracting officer that there was no reasonable likelihood” that the contractor could perform the contract within the time remaining for contract performance. 828 F.2d 759 (Fed. Cir. 1997). The Court further expanded on the Lisbon standard by discussing its progeny, McDonnel Douglas Corp., stating that the Court’s review “does not turn on the contracting officer’s subjective beliefs, but rather requires an objective inquiry.” 323 F.3d 1006 (Fed. Cir. 2003). A comparison of the percentage of work completed to the amount of time remaining in the contract and the contractor’s failure to meet project milestones were factors the Court cited it expected the COR to consider in order to make a determination that the Contractor likely could not have finished the contract in the time allotted.
The Court concluded that that the COR did not have a reasonable belief in this regard, explaining that the COR failed to consider:
- Periods of excusable delay, such as rain delays or the “urgency” of the delayed work;
- Whether the Contractor would have completed the Project at least as soon as a successor contractor could have performed the unfinished work;
- That some delays were caused by insufficient specifications; and
- Improvement in performance after Contractor-implemented personnel changes.
Despite the Court making an “objective inquiry” under Lisbon, its analysis did not stop there. Despite recognizing that the COR’s subjective motivations should not impact the Court’s inquiry, it cited the COR’s “hostility” towards the Contractor and his “history of dishonesty” during the Project as further evidence that the COR did not form a “reasonable belief regarding the plaintiff’s ability to complete the contract on time.” The Court found that the Government’s justifications for default termination were largely “red herrings” and that the COR’s “cursory assessment” of the recovery schedule was deficient. Given this, the Government granted judgment in favor of the Contractor and terminated the default termination to a termination for convenience.
In addition to a project owner’s review of information furnished by the Contractor and the failure to give the Contractor an opportunity to cure, contractors may consider whether there are other, more subjective factors, that a Court or Board might find persuasive in analyzing a default termination. Beyond just the time spent reviewing information or the reasons cited for the default termination, owners and their representatives may now have to be prepared to defend their subjective motivations expressed during the Project.