Subpart 6-Termination for Default

8.600 Scope of Subpart. This Subpart sets forth policies and procedures for the utilization and application of the Default clause set forth in 8.707 for fixed-price supply contracts, and the "Termination for Default-Damages for Delay-Time Extensions" clause set forth in 8.709 for fixed-price construction contracts. (For cost-reimbursement type contracts, see 8.407.)

8.601 General.

(a) Termination for default is generally the exercise of a contractual right of the Government to terminate the contract in whole or in part by reason of the contractor's failure, actual or anticipatory, to perform his obligations under the contract.

(b) If the contractor can establish that his failure to perform arose out of causes beyond his control and without his fault or negligence, the contract clauses in 8.707 and 8.709 provide that a termination for default shall be deemed to have been a termination for the convenience of the Government, and the rights and obligations of the parties shall be governed accordingly.

(c) The Government may also in appropriate cases exercise termination or cancellation rights in addition to those set forth in the contract clauses (see for example, paragraph (f) of the Default clause in 8.707).

(d) When a fixed-price type contract is to be terminated for default, the contracting officer of the NASA installation responsible for issuing the contract normally shall accomplish the termination for default. However, another NASA installation or the Department of Defense may be requested to assist in the termination for default when it is considered to be economical and practicable.

(e) When it is proposed to utilize the services of another NASA installation, the contracting officer shall arrange with the contracting officer of that installation to perform those duties that are appropriate.

(f) When it is proposed to utilize the services of the Department of Defense, a request for such services shall be made by letter prepared in accordance with the agreement with the Department of Defense. (See Part 20, Subpart 6.)

8.602 Termination of Fixed-Price Supply Contracts for Default.

8.602-1 The Government's Right to Terminate for Default. Under contracts containing the Default clause in 8.707 the Government has the right, subject to the notice requirements of the clause, to terminate the whole or any part of the contract for default if the contractor (i) fails to make delivery of the supplies or to perform the services within the time specified in the contract (ii) fails to perform any other provision of the contract, or (iii) fails to make progress so as to endanger performance of the contract.

8.602-2 Effect of Termination for Default.

(a) Under a termination for default the Government is not liable for the contractor's costs on undelivered work, and is entitled to the repayment of advance payments and progress payments, if any, applicable to such work. The Government may elect, pursuant to paragraph (d) of the Default clause (see 8.707), to require the contractor to transfer title and deliver to the Government completed supplies and manufacturing materials, in the manner and to the extent directed by the contracting officer. The contracting officer shall not use the Default clause as authority to acquire any completed supplies or manufacturing materials unless he has made certain that the Government does not already have title thereto under some other provision of the contract. In the event manufacturing materials are to be acquired by the Government under the authority of the Default clause for the purpose of furnishing the materials to any other contractor, the contracting officer shall take such action only after giving due consideration to the difficulties that such contractor may encounter in making use of the materials.

(b) Subject to the provisions of (c) below, the Government shall pay to the contractor the contract price for any completed supplies, and the amount agreed upon by the contracting officer and the contractor for any manufacturing materials, acquired by the Government pursuant to the Default clause.

(c) To protect the Government from overpayment for any completed supplies or manufacturing materials, that might result from failure to make provision for the Government's potential liability to laborers and materialmen for lien rights outstanding against such supplies or materials

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after the Government has paid the contractor therefore, the contracting officer shall take one or more of the following measures before making the payment referred to in (b) above:

(i) ascertain whether the payment bonds, if any, furnished by the contractor are adequate to satisfy all lienors' claims; or whether it is feasible to obtain similar bonds to cover outstanding liens;

(ii) require the contractor to furnish appropriate statements from laborers and materialmen disclaiming any lien rights they may have to the supplies and materials;

(iii) obtain appropriate agreement by the Government, the contractor and lienors assuring release of the Government from any potential liability to the contractors or lienors;

(iv) withhold from the amount otherwise due for the supplies or materials such amount as the contracting officer determines to be necessary to protect the Government's interest, but only if the measures set forth in (i), (ii) and (iii) cannot be accomplished or are otherwise deemed inadequate;

(v) take any other action the contracting officer deems appropriate considering the particular circumstances and the degree of the contractor's solvency.

(d) The contractor is liable to the Government for any excess costs incurred in procuring supplies and services similar to those terminated for default (see 8.602-6), and for any other damages, whether or not repurchase is effected (see 8.602-7).

8.602-3 Procedure for Default.

(a) Where a default termination is being considered, a decision as to the type of termination action to be taken (ie., for default, for convenience or a no-cost cancellation) shall be made only after review by procurement and technical personnel, and by counsel to assure the propriety of the proposed action. A Show Cause Notice or Cure Notice shall not be issued without the prior approval of the contracting officer. Approval should be obtained by the most expeditious means including telephone or other electronic communications media. The contracting officer shall consider the following factors in determining whether to terminate a contract for default: (i) the provisions of the contract, and applicable laws and regulations;

(ii) the specific failure of the contractor and, unless time does not permit, the excuses, if any, for such failure;

(iii) the availability of the supplies or services from other sources;

(iv) the urgency of the need for the supplies or services and the period of time which would be required to obtain the supplies or services from other sources as compared with the time in which delivery could be obtained from the delinquent contractor;

(v) the degree of essentiality of the contractor in the Government procurement program and the effect of a termination for default upon the contractor's capability as a supplier under other contracts;

(vi) the effect of a termination for default on the ability of the contractor to liquidate quaranteed loans, progress payments, or advance payments; and

(vii) any other pertinent facts and circumstances.

(b)(1) If the foregoing consideration indicates that termination for default is appropriate, the contracting officer should, if practicable, notify the contractor by letter of the possibility of such termination. This letter shall call the contractor's attention to his contractual liabilities in the event the contract is terminated for default and request an explanation of the contractor's failure to perform the contract. The letter may further state that failure of the contractor to present such explanation may be taken as an admission that no valid explanation exists. When appropriate, the letter may invite the contractor to discuss the matter at a conference.

(2) When a termination for default appears imminent, a written notification of that fact (not an actual notice of default) may be given by the contracting officer to the surety at both its home and local offices.

(3) If it is requested by the surety, and agreed to by the contractor and his assignees, if any, arrangements may be made to have future checks mailed to the contractor in care of the surety. In such a case, the contractor must forward a written request to the designated disbursing officer specifically directing a change in address for mailing of checks.

(c) If, after compliance with the foregoing procedures, the contracting officer determines that termination for default is proper, he shall, where the termination is predicated upon the contractor's failure to make timely deliveries, issue a notice of termination at once. If the termination is

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predicated upon any other failure of the contractor, the contracting officer shall give the contractor written notice specifying such failure and providing a period of 10 days (or such longer period as the contracting officer may authorize) in which to cure such failure. Where appropriate, this notice may be made a part of the letter described in paragraph (b) above. Upon expiration of the 10 days (or longer period), the contracting officer may issue a notice of termination for default unless he determines that the failure to perform has been cured. Formats of letters that may be used by the contracting officer with respect to (b) above and this paragraph (c) are set forth in 8.811.

(d) The notice of termination for default shall:

(i) set forth the contract number and date;

(ii) describe the acts or omissions constituting the default;

(iii) state that the contractor's right to proceed further with performance of the contract (or a specified portion of the contract) is terminated;

(iv) state that the supplies or services terminated may be procured against the contractor's account, and that the contractor will be held liable for any excess costs;

(v) state that the Government reserves all rights and remedies provided by law or under the contract, in addition to charging excess costs; and

(vi) state that the notice constitutes a decision that the contractor is in default, as specified, and that the contractor has the right to appeal as specified in the "Disputes" clause.

If the contracting officer has investigated the contractor's excuses for the failure to perform, the notice of termination shall also state that it constitutes a decision that the failure to perform was not due to causes beyond the control and without the fault or negligence of the contractor, and that the contractor has the right to appeal as specified in the "Disputes" clause.

(e) The same distribution shall be made of the termination notice as was made of the contract. A copy thereof shall also be furnished to the contractor's surety at the same time that the notice is furnished to the contractor. The surety at the same time should be requested to advise if he desires to enter into any arrangement for completion of the work. In addition, the disbursing officer involved shall be notified to withhold further payments under the terminated contract pending further advice which should be furnished at the earliest practicable time.

(f) If the contracting officer determines that the contractor's failure to perform arose from causes beyond his control and without his fault or negligence, the contract shall not be terminated for default. If it is in the best interest of the Government to do so, the contract may be terminated for the convenience of the Government.

(g) If the contracting officer has not been able to determine, prior to issuance of the notice of termination, whether the contractor's failure to perform arose from causes beyond his control and without his fault or negligence, he shall make a written decision on that point as soon as practicable after issuance of the notice of termination. Such decision shall be delivered promptly to the contractor with a notification that he has the right to appeal as specified in the Disputes clause.

8.602-4 Procedure in Lieu of Termination for Default. The following courses of action, among others, are available to the contracting officer in lieu of termination for default, when in the best interest of the Government:

(i) permit the contractor, his surety, or his guarantor, to continue performance of the contract under a revised delivery schedule (see 10.111-2 for requirements for notification of surety); (ii) permit the contractor to continue performance of the contract by means of a subcontract, or other business arrangement with an acceptable third party; provided the rights of the Government are adequately preserved; or

(iii) if the requirement for the supplies and services specified in the contract no longer exists, and the contractor is not liable to the Government for damages as provided in 8.602-7, execute a no-cost termination settlement agreement utilizing the form set forth in 8.805-6 and 8.805-7 as a guide.

8.602-5 Memorandum by the Contracting Officer. In all cases where a contract is terminated for default or where a procedure authorized by 8.602-4 is followed, the contracting officer shall prepare a memorandum for the contract file explaining fully the reasons for the action taken. 8.602-6 Repurchase Against Contractor's Account.

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(a) Where the supplies or services are still required after termination, repurchase of supplies or services which are the same as or similar to those called for in the contract, shall be made against the contractor's account as soon as practicable after termination. Such repurchase shall be at as reasonable a price as practicable considering the quality required by the Government and the time within which the supplies or services are required. The contract of repurchase may be made for a quantity in excess of the undelivered quantity terminated for default, when such excess quantity is needed, but excess cost may be charged against the defaulting contractor for no more than the undelivered quantity terminated for default (including variations in quantity permitted by the terminated contract). Generally, the contracting officer's decision to repurchase will be made prior to issuance of the termination notice.

(b) If the repurchase is for a quantity not in excess of the undelivered quantity terminated for default, the requirements of 10 U.S.C. 2304 (a), with respect to formal advertising, are inapplicable. However, the contracting officer may use formal advertising procedures. If the contracting officer decides to negotiate the repurchase contract, he may either (i) use any authority listed in 3.201 through 3.217 (10 U.S.C. 2304(a) (1)–(17)), as appropriate, or (ii) if none of those authorities to negotiate is used, the contract shall identify the procurement as a repurchase in accordance with the provisions of the Default clause in the defaulted contract. If the repurchase is for a quantity in excess of the undelivered quantity terminated for default, the entire quantity shall be treated as a new procurement.

(c) If repurchase is effected at a price in excess of the supplies terminated, the contracting officer shall make a written demand on the contractor for the total amount of such excess giving due consideration to any increases or decreases in other ascertainable costs such as transportation, discounts, etc., and shall take such other action as is required by NMI 9640.1, "Collection of Civil Claims of the United States Arising Out of the Activities of NASA."

8.602-7 Other Damages.

(a) If a contract is terminated for default or if a course of action in lieu of termination for default is followed (see 8.602-4), the contracting officer shall take appropriate action for ascertainment and collection of any liquidated damages to which the Government may be entitled under the contract. Pursuant to the contract provisions for liquidated damages in 7.105-5 such damages are in addition to any excess cost of reprocurement.

(b) If the Government has suffered any other ascertainable damages as a result of the contractor's default, the contracting officer, on the basis of legal advice, shall take appropriate action to assert the Government's claim for such damage.

8.650 Termination of Fixed-Price Construction Contracts for Default.

8.650-1 Termination of the Contractor's Right to Proceed. Under contracts containing the “Termination for Default-Damages for Delay-Time Extensions” clause set forth in 8.709, the Government has the right, to the extent provided in such clause, to terminate the contractor's right to proceed with the work, or any separable part thereof, if the contractor does not prosecute the work required by the contract with such diligence as will insure its completion, or fails to complete it, within the time specified in the contract or any extension thereof.

8.650-2 Effect of Termination for Default. If a contractor's right to proceed is terminated for default, the Government may take over and complete the work or cause it to be completed, and the contractor and his sureties shall be liable to the Government for any increased costs caused thereby. The contractor and his sureties shall, in addition to increased costs in completing the work, be liable for liquidated damages, if liquidated damages are provided in the contract, or for actual damages, if liquidated damages are not so provided.

8.650-3 Preliminary Notice to Surety.

(a) Whenever a termination for default appears imminent, a written notification of that fact (not an actual notice of default) may be given by the contracting officer to the surety at both its home and local offices.

(b) If it is requested by the surety, and agreed to by the contractor and his assignees, if any, arrangement may be made to have future checks mailed to the contractor in care of the surety. In such a case, the contractor must forward a written request to the designated disbursing officer specifically directing a change in address for mailing of checks. 8.650-4 Procedure in Case of Default.

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(a) The contracting officer shall consider the following factors in determining whether to terminate a contract for default:

(i) the provisions of the contract and applicable laws and regulations,

(1) the specific failure of the contractor and excuses, if any, made by the contractor for such failure;

(n) the period of time which would be required for the Government or another contractor to complete the work as compared to the time required for completion by the delinquent contractor, (iv) the effect of a termination for default on the ability of the contractor to liquidate guaranteed loans, progress payments, or advance payments; and

(v) any other pertinent facts and circumstances.

b) If the contracting officer determines that the contractor's failure to perform arises from causes which are excusable under the terms of the contract, the contracting officer shall not terminate the contractor's right to proceed, nor shall he charge the contractor with liquidated damages (or if no liquidated damages, then actual damages) because of any delays occasioned by such causes

(c) If the contracting officer determines that termination for default is in the best interest of the Government, he shall promptly send a written notice to the contractor terminating his right to proceed. The notice shall:

(1) set forth the contract number and date,

(1) describe the act or omissions, and the extent of the resultant delay, constituting the default; (m) state that the contractor's right to proceed further with performance of the contract (or of a specified portion of the contract) is terminated;

(iv) state that the Government may cause the contract to be completed and that the contractor will be held liable for any increased costs;

(v) state that the Government reserves all rights and remedies provided by law or under the contract, in addition to charging increased costs;

(vi) state that the notice constitutes a decision (see 1.314), pursuant to the "Disputes" clause, that the contractor is in default as specified and that the contracting officer has determined that the delay is not excusable; and

(vii) state that the contractor has the right to appeal as specified in the "Disputes" clause. (d) The same distribution shall be made of the termination notice as was made of the contract. A copy thereof shall also be furnished to the contractor's surety at the same time that the notice is furnished to the contractor. The surety at the same time should be requested to advise if he desires to enter into any arrangement for completion of the work. In addition, the disbursing officer involved shall be notified to withhold further payments under the terminated contract pending further advice which should be furnished at the earliest practicable time.

(e) Promptly after issuance of the termination notice, the contracting officer shall determine the manner in which the work is to be completed and whether the materials, appliances, and plant which are on the site will be needed.

8.650-5 Dealings with Surety-Take Over Agreements.

(a) By reason of the surety's liability for damages resulting from the contractor's default, the surety has certain rights and interests in connection with the completion of the contract work and the application of the undisbursed funds available therefor. Because of such interests of the surety, proposals by the surety concerning the completion of the work should be given due consideration, and the decision as to the action to be taken shall be made on the basis of the best interest of the Government, including the possible effect of such action upon the Government's rights against the surety.

(b) Where the surety desires to complete the contract work, completion by the surety should normally be permitted unless the contracting officer has reason to believe that the persons, firms, or corporation by whom the surety proposes to have the work done are incompetent or unqualified so that the interests of the Government would be substantially prejudiced by their efforts.

(c) Because of the possibility of conflicting claims to unpaid prior earnings (retained percentages or amounts representing unpaid progress estimates) of the defaulting contractor, the surety may condition its offer of completion upon the execution by the Government of a "take over" agreement fixing the surety's rights to payment from such funds. In that event the contracting

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