Contract Terminations Decision Checklist and Scenarios
Contract Termination Decision Checklist
1. What factors, circumstances or conditions indicate that termination may be necessary?
a. Funds are unavailable for continued performance – Convenience
b. Requirement is no longer needed – Convenience
c. Quantity of the requirement has been reduced – Convenience
d. Change in requirement beyond contractor’s capability/expertise – Convenience
e. Radical increase in the scope of requirement - Convenience
f. Impossibility of performance - Convenience
g. Material Breach of Contract – Cause/Default
i. Refusal to perform
ii. Prohibited activity
iii. Poor performance
iv. Failure to comply with material contract term/condition
v. Abandonment of work
2. What alternatives if any are there to termination?
a. Continue present contract w/safeguards to protect the government
i. Permit performance under revised delivery schedule
ii. Permit subcontracting/other 3rd party business arrangement
b. Change contract requirements to permit continued performance
w/consideration
c. Cancellation of purchase order prior to acceptance
d. No cost settlement cancellation
i. Supply/service can be obtained elsewhere
ii. No cost cancellation acceptable to contractor
ii. GFP not involved
iii. No outstanding payments, debts or other obligations due the government
3. What type of termination is required?
a. Complete or partial termination for convenience (T4C)
i. Commercial Items - FAR Part 12.403
ii. Noncommercial Requirements – FAR Part 49
iii. Contract performance is unacceptable, but the government is partially
responsible
iv. Conversion from improper termination for default
v. Cancellation of award pursuant to successful GAO protest
b. Complete or partial termination for cause: Commercial Requirements - FAR Part 12.403
c. Complete or partial termination for default – FAR Part 49 (T4D)
4. Who has the authority to terminate the contract?
a. FAR 1.602-1 – Authority
b. FAR 1.603-3 – Appointment
c. FAR 2.101 – Definitions
d. AFFARS, Appendix CC-102 – Definition of CCO
e. Applicable MAJCOM Supplement (e.g. PACAFFARS 5349.101)
5. What parties are stakeholders/have an interest in a contemplated termination?
a. Customer/Requiring Activity
b. Contractor
c. Subcontractors
d. Guarantor, Assignee, Surety
e. Legal
6. What potential/actual costs exist pursuant to the termination?
a. Compensation for actual performance
b. Profit on work performed (not anticipatory profits)
c. Inventory
d. Subcontractor settlement costs
e. Settlement proposal preparation costs
7. What actions are taken prior to/in conjunction with termination?
|Action |Type of Termination |Party |
|Issue cure notice cause/default (if sufficient | | |
|time remains to effect a cure) | | |
| |Cause/Default |Government (TCO) |
| | | |
|Issue show cause notice |Cause/Default |Government (TCO) |
| | | |
|Consult with stakeholders |Convenience/Cause/Default |Government (TCO) |
| | | |
|Document case for termination |Convenience/Cause/Default |Government (TCO) |
| | | |
|Notify congress as required |Convenience/Cause/Default |Government (TCO) |
|Issue termination notice to contractor | | |
| |Convenience/Cause/Default |Government (TCO) |
|Inform parties that may be impacted by | | |
|termination |Convenience/Cause/Default |Government (TCO) |
|Meet with contractor to discuss termination | | |
|process/plan |Convenience/Cause/Default |Government (TCO) |
|Amend/rescind termination notice | | |
| |Convenience/Cause/Default |Government (TCO) |
|Determine disposition of completed items produced| | |
|under contract | | |
| |Cause/Default | |
| | | |
|Develop negotiation position |Convenience |Government (TCO) |
|Negotiate settlement or issue Unilateral | | |
|settlement determination | | |
| |Convenience/Cause/Default | |
|Prepare termination settlement memorandum | | |
| |Convenience/Cause/Default | |
|Pay contractor or collect debt from contractor | | |
|pursuant to partial payment. | | |
| |Convenience/Cause/Default | |
| | | |
|Re-procure as appropriate |Convenience/Cause/Default | |
8. What form/instrument is used to execute the termination?
9. What specific authority must be cited as the reason for termination?
a. Convenience: FAR 212-4(l) – Contract Terms and Conditions - Commercial Items
b. Convenience: FAR 52.249- (1, 2, 3, 4, 5, 6, 7) Other than Commercial Items
c. Cause: FAR 212-4(m) – Contract Terms and Conditions - Commercial Items
d. Default: FAR 52.249- (6, 7, 8, 9, 10) Other than Commercial Items
Contract Termination Scenario 4
War Reserve Materiel (WRM) Maintenance
I. Requirement: Services non-personal to account for, maintain, repair, reconstitute, and retrofit/modify as directed war reserve materiel (WRM) pre-positioned at five Republic of Korea (ROK) air bases. WRM consists of supplies, systems, equipment, and other materiel including HARVEST EAGLE and HARVEST FALCON kits, aerospace generation equipment (AGE), aircraft racks adaptors and pylons (RAP), Services assets, power production equipment (PPE), rapid runway repair (RRR) assets and other Civil Engineering assets, etc. The contractor will become the custodian for all WRM assets covered under the contract by signing a custodian authorization/custody receipt listing. WRM assets are primarily for use by US military forces deploying to the ROK under OPLAN 5027. Accountability and serviceability of WRM assets is considered absolutely critical to the defense of the ROK.
II. Awarded By: United States Army Contracting Command Korea (USACCK)
III. Administered By: USACCK
IV. Requiring Activity: USAF, 7th Air Force, 607th Materiel Maintenance Squadron
V. Kind/Type of Contract: Services/Firm Fixed-Price
VI. Performance Period: 1 October 2003 – 30 September 2004 with four 1-year options
VII. Dollar Value (Current Performance Period): $6M ($500,000/month)
VIII. Source/Type of Funds: ROK Government/Logistics Cost Sharing Agreement (LCSA) negotiated between the US Department of State and the Government of the ROK. Under the LCSA, the US is reimbursed for some of its expenses incurred in defense of the ROK via Korean funds specifically earmarked for DoD logistics requirements. All LCSA funds must be spent in the ROK with ROK entities solely for logistics requirements such as purchase of vehicles and other logistics assets and contract maintenance of logistics assets. The LCSA is scheduled for renewal on or about 1 April of each year. The LCSA requires the Government of the ROK to provide to the US the equivalent of $500M in Korean Won at the exchange rate effective on 1 April of each year.
IX. Payment Arrangement: The amount cited on the face of the contract is the entire amount of the contract award for the current performance period. The contract does not cite/obligate any US appropriated funds. Payment is to be made from LCSA funds provided by the Government of the ROK pursuant to acceptance of services by the contracting officer’s representative (COR) and certification of the contractor’s invoice by the administrative contracting officer (ACO). Section G of the contract stipulates that if the LCSA is not signed in a reasonable amount of time and funds are therefore not available to pay the contractor for performance IAW the terms and conditions of the contract, the US government will obligate appropriated funds and make payments there from. Such funds are to be reimbursed by the Government of the ROK.
X. Situation: Economic factors in the ROK have resulted in a severe devaluation of its currency. The exchange rate has jumped from an average of $1.00 = W1,000 over the past several years to $1.00 = W1,800 on 1 April 2004. This would require the Government of the ROK to provide to the US Government W9,000,000,000,000 vs. W500,000,000,000. As the actual cost of supplies and services in the ROK has not increased significantly, the buying power of the DoD would be nearly double that of previous years. The Government ROK sees this as an unintended and unfair windfall for the US Government. The Government of the ROK refuses to sign the LCSA and wants to renegotiate the exchange rate so the actual yield to the US is comparable to that of previous years. As of 15 July 2004 the Government the ROK has not signed the LCSA and is pressing its case for renegotiation of the exchange rate. The US Department of State’s advice is that the Government of the ROK is expected to sign the LCSA as is, but no specific date has been given for when it might be signed.
XI. Contractor’s Performance/Actions: Until 1 May 2004, the incumbent contractor has performed IAW the terms and conditions of the contract. Until this date, performance problems have all been minor and have been resolved satisfactorily. On 1 June 2004, the contractor submitted a letter to the ACO stating that due to non-payment for April and May, continued performance would be impossible and would cease effective 1 July 2004 if payment were not received by 30 June 2004. In response to the ACO’s cure notice, the contractor recanted and stated he would continue performance through the end of the contract performance period. The contractor stated that he would be forced to sell personnel assets, borrow funds or take other action in an attempt to meet his payroll obligations pursuant to the contract. On 15 July 2004, the contractor informed the ACO in writing that due to non-payment for the months of April, May, and June, continued performance was no longer possible and performance would end effective 31 July 2004. The letter stated that the contractor could not meet June’s payroll obligations despite sale of personal assets, securing loans, and other action taken to mitigate the circumstances. The contractor’s letter informed the ACO of poor employee morale, high absenteeism, threats of suicide and attempted suicides by unpaid employees, and a threat of a strike effective 1 August 2004.
Contract Termination Scenario 2
Construction Materials
I. Requirement: Deliver a monthly fixed quantity of a variety of raw construction materials including lumber, gravel, dry concrete, and masonry to the Public Works Compound at the Camp Covenant in Sulaymania, Iraq.
II. Awarded By: Sulaymania Contracting Office USAF CCO
III. Administered By: Sulaymania Contracting Office USAF CCO
IV. Requiring Activities: US Army Corps of Engineers, US Naval Mobile Construction Battalion Seabees, and USAF RED HORSE
V. Kind/Type of Contract: Supply/Firm Fixed-Price
VI. Performance Period: 1 October 2004 – 30 September 2005
VII. Dollar Value (Current Performance Period): $600K
|CLIN |Description |Value |Delivery Date |
|0001 |Lumber |$12,500 |Last day of each month |
|0002 |Gravel |$12,500 |Last day of each month |
|0003 |Bagged Concrete |$12,500 |Last day of each month |
|0004 |Bricks |$12,500 |Last day of each month |
|Monthly Total |$50,000 | |
VIII. Source/Type of Funds: Cash, US Currency, USAF Operation and Maintenance (O&M), 3400
IX. Payment Arrangement: 1% 10 Net 30 Days
X. Situation: On 15 April 2005, insurgents attacked the contractor’s storage and distribution facility destroying or rendering unserviceable all materials on hand. The attack also destroyed the contractor’s vehicles and killed two of his employees.
XI. Contractor’s Performance/Actions: The contractor delivered all supplies including those to be delivered on 31 March IAW the terms and conditions of the contract. On 1 March 2005, the contractor ordered from its suppliers all materials called for by the contract for delivery on 30 April, 31 May, 30 June, 31 July, 31 August, and 30 September of 2005. By 10 April, the contractor accepted delivery of all supplies ordered on 1 March 2005 and by 13 April 2005 paid all of its suppliers. On 20 April 2005, the contractor informed the CCO in writing about his losses and stated that pursuant thereto he could not perform IAW the terms and conditions of the contract.
Contract Termination Scenario 1
Food Service Attendant Contract
I. Requirement: Services non-personal to perform food service attendant services at the US Military Compound in Sulaymania.
II. Awarded By: Sulaymania Contracting Office USAF CCO
III. Administered By: Sulaymania Contracting Office USAF CCO
IV. Requiring Activities: US Army Quartermaster
V. Kind/Type of Contract: Services/Firm Fixed-Price
VI. Performance Period: 1 October 2004 – 30 September 2005
VII. Dollar Value (Current Performance Period): $273,600
VIII. Source/Type of Funds: Cash, US Currency, USAF Operation and Maintenance (O&M), 3400
IX. Payment Arrangement: 0.5% 10 Net 30 Days
X. Situation: On 15 March 2005, CENTAF issued an order that the US Military Compound in Sulaymania is to close effective 1 June 2005. Approximately 2000 US military personnel are assigned to the compound. Drawdown will be about 1,000 in April and 1,000 in May. The dining facility serves approximately 180,000 meals monthly.
XI. Contractor’s Performance/Actions: To date the contractor has performed IAW the terms and conditions of the contract. Any performance problems have been minor and have been resolved satisfactorily.
Contract Termination Scenario 3
Security Fence Construction
I. Requirement: Services non-personal to construct a security fence with guard towers to enclose the Sulaymania US Military Compound. Construction of the fence is critical for the security of US military and Iraqi personnel working at the compound. Use of Hesco barriers was considered, but the decision was made to construct the fence due to excessively long lead times then projected to procure Hesco barriers.
II. Awarded By: Sulaymania Contracting Office USAF CCO
III. Administered By: Sulaymania Contracting Office USAF CCO
IV. Requiring Activities: Directorate of Public Works
V. Kind/Type of Contract: Construction/Firm Fixed-Price
VI. Performance Period: 120 Days (1 November 2004 – 28 February 2005)
VII. Contract Award Amount: $748K
VIII. Source/Type of Funds: Cash, US Currency, USAF Operation and Maintenance (O&M), 3400
IX. Payment Arrangement: Progress payments base on % of completion on the construction progress schedule
X. Situation: The deployed commander has called a meeting with the CCO to discuss progress on the security fence. The security situation at the compound in general and the status of the fence in particular is a high interest item that the commander must up-channel monthly.
XI. Contractor’s Performance/Actions: The contractor performed IAW with the contract and made progress IAW the schedule for the first 30 days of performance. Payment was made without withholding per the 1st invoice submitted by the contractor for 25% completion. During the next 30 days inspectors credit the contractor with completion of only 35% of the project vs. the 50% specified on the progress schedule. Thereafter, inspectors advise the CCO that the contractor has substituted inferior materials for those called for in the contract specifications and on approved material submittals. Between the 60th and 90th days of the performance period, construction is no longer IAW the specifications and drawings and the overall quality of the contractors work has deteriorated significantly. As of the 90th day of the performance period, completion is just at 50% vs. the 75% called for in the progress schedule.
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