succeeding fiscal year will be in the interests of the Government, as evidenced by competitive bids for the same service secured within a reasonable time prior thereto." (Emphasis added)

An exception to this rule is permitted when it is obvious that the advertising will serve no useful purpose, and where unusual direct and indirect costs to the Government are involved in a new solicitation of bids and prospects seem remote for a more advantageous offer than available under the present contract.70

(2) Waiver of vested rights. Supplemental agreements may not be used as vehicles for waiving or releasing a right vested in or acquired by the Government under a contract.

Illustrative case." The District of Columbia Alley Dwelling Authority leased a lot to Triangle Parking Center, Inc., for use as a parking lot. The lease ran for two years at a fixed annual rental. Subsequent to the lease, the gas rationing program went into effect and the lessee discovered that it was doing 50 to 60 percent of the business it did before rationing. An amendment of the lease to provide for reduction of the rental of 50 percent was submitted to the Comptroller General for decision. Held: "In the absence of a statute so providing, no officer of the Government has authority to give away or surrender a right vested in or acquired by the Government under a contract. Simpson v. United States, 172 U.S. 372 (1899); 14 Comp. Gen. 897, 900. This rule is applicable to the accounting as well as the administrative officers of the Government, and considerations of sympathy for the possible misfortune of a contractor do not authorize any exception to the rule. 20 Comp. Gen. 709." The proposed amendment was disapproved.

However, where the agreement emanates from the valid exercise of the contracting officer's contractual authority, the agreement is binding on the Government as well as the contractor, in the absence of a showing of fraud, collusion or mutual mistake.

Illustrative case.72 In a contract for the manufacture of overcoats, the contractor requested permission to deviate from the specifications in certain specified operations. The contracting officer granted the request pursuant to the au

70 33 Comp. Gen. 90 (1953), digested in par. 1, p. 8, DA Pam 715-50-1 (1957). 22 Comp. Gen. 260 (1942). The Comptroller General also observed that the existence of the gas rationing program afforded no basis for relief, because the program represented a sovereign act. See note 63, supra.

72 Circle Clothing Co., Inc., ASBCA No. 4491 (17 Mar 1958), 58-1 BCA 1663, and authorities therein cited.

thority contained in the Changes clause providing that there would be no additional cost to the Government and that any savings therefrom would revert to the Government. Thereafter, by correspondence, an agreement was reached as to the amount of the savings due the Government which was later reflected in a modification to the contract. Five years later, a successor contracting officer issued "Findings of Fact and Decision" further adjusting the contract price downward on the basis that the modification previously issued was inadequate. On appeal to the ASBCA, Held: The Government may, under some circumstances, avoid contract modifications entered into by its contracting officers effecting equitable adjustments in contract price. But the basis for avoidance is not that the contracting officer "exceeded his authority" in agreeing to a sum later determined "inequitable," but facts which bring the case within recognized rules of law and equity for the avoidance of contracts. In the absence of any showing of fraud, collusion or mutual mistake, the agreement reflected in the modification to the contract is as binding on the Government as on the contractor.

(3) Sureties. If the principal contract is materially altered, changed or departed from without the surety's knowledge or consent, he is ordinarily discharged from liability." Therefore, contracting officers are required to obtain the written consent of surety to any amendment, modification or supplemental agreement which would otherwise affect the release of the surety, although this requirement is not applicable if there is an increased or additional bond supported by the surety.74

78 72 C.J.S. "Principal & Surety", sec. 124a. 74 ASPR 10-203.

CHAPTER 16

TERMINATION OF CONTRACTS UPON DEFAULT OF THE CONTRACTOR

1. Introduction. There are two principal methods by which the Government may terminate the right of a contractor to continue performance of his contract:

a. Termination for convenience of the Government, and

b. Termination for default of the contractor.

When a contractor is in default of its obligations under a contract, the Government may terminate that contract for the default. Termination for default of the contractor is considered in this chapter. The Government also reserves to itself, by appropriate contract clause in each contract, the right to direct the contractor at any time to cease work on the contract. When the Government exercises this right, the contractor becomes entitled to compensation, generally, for all costs incurred in performance up to the date of the termination, plus a reasonable profit. Termination for convenience of the Government is considered in chapter 17, infra.

2. Termination for default. a. Introduction. The standard default provisions currently in general use are: the "Default" clause for fixed-price supply contracts, together with the optional liquidated damages paragraph; the "Termination for Default-Damages for Delay-Time Extensions" clause for fixed-price construction contracts; and the "Termination" and "Excusable Delays" clauses for cost-reimbursement type supply contracts. Some contracts still outstanding have earlier and slightly different versions of these standard clauses, and there are certain specialized contracts currently in use which have default provisions deviating from the standard ones. E.g., the "Damages-Default" clause in DD Form 674 (Negotiated Contract for Stevedoring Services), ASPR 16-502; the "Default" clause in DD Form 731 (Master Contract for Repair and Alteration of Vessels), ASPR 16-503. A number of other standard clauses provide for certain consequences for their violation,1 Although the de

1 "Inspection" (May 1958) ASPR 7-103.5; "Covenant Against Contingent Fees" (Jan 1958) ASPR 7-103.20; and "Eight-Hour Law of 1912" (Jan 1958) ASPR 12-303.1. Some of these clauses expressly provide for alternative application of the general default provision of the contract; others do not. It has been argued that unless such a clause does refer to the default provision, the remedy provided in the particular clause is exclusive. See Risik, Defaults in Federal Government Contracts, 14 Fed. B.J. 339, 344 (1954). Unless the contrary is indicated, all citations to ASPR in this chapter are to the 1 July 1960 edition. If a citation is followed by a date subsequent to 1 July 1960, the citation is to an ASPR revision of the indicated date.

fault clauses prescribed by the Armed Services Procurement Regulation for fixed-price supply and construction contracts are the same as those found in Standard Forms 32 and 23A prescribed by the General Services Administration for Government-wide use, the clauses will be considered particularly as they apply to contracts of the Department of Defense. In the case of fixed-price supply contracts, this makes a substantial difference inasmuch as paragraph (e) of the "Default" clause-which entitles a contractor to have a default termination treated as one for the convenience of the Government if his default was excusable-applies only if the contract contains a Termination for Convenience clause, a clause which is not consistently used by agencies not subject to the Armed Services Procurement Regulations. Since the "Default" clause 2 for fixed-price supply contracts is the one in the widest use, it is the clause discussed in this Chapter. Other "Default" clauses mentioned above are substantially similar in operation.

b. Fixed-price supply contracts.

3

(1) General. The standard "Default" clause set forth in ASPR 8-707, and in Article II of Standard Form 32 (Oct. 1957), is currently prescribed for use in all fixed-price supply contracts and, with few exceptions, the clause is found in all such contracts. In general, this clause gives the Government the right, upon a failure by the contractor to satisfy his contractual obligations, to terminate the contractor's right to proceed with the contract without incurring any obligation to the contractor for work already done but not delivered. In addition, the Government may procure the items elsewhere and hold the contractor liable for any excess costs. If the optional liquidated damages paragraph is used, the Government may collect liquidated damages for a delay in performance. These consequences do not follow, however, if the contractor's delinquency is due to "excusable" causes. The consequences of a finding that a default is excusable will be considered separately (see subparagraph (4), infra), and it will otherwise be assumed that the default was not excusable.

(2) The right to terminate. The circumstances under which, and the means by which, the Government may terminate for default are defined in paragraph (a) of the clause, which provides:

(a) The Government may, subject to the provisions of paragraph (c) below, [] by written notice of default to the

The clause currently in use is dated June 1958 and is set forth in ASPR 8-707. As defined in ASPR 7-102.

Par. (c) relates to excusable causes and is discussed at subparagraph (4), infra.

Contractor, terminate the whole or any part of this contract in any one of the following circumstances:

(1) if the Contractor fails to make delivery of the supplies or to perform the services within the time specified herein or any extension thereof; or

(ii) if the Contractor fails to perform any of the other provisions of this contract, or so fails to make progress as to endanger performance of this contract in accordance with its terms, and in either of these two circumstances does not cure such failure within a period of 10 days (or such longer period as the Contracting Officer may authorize in writing) after receipt of notice from the Contracting Officer specifying such failure.

(a) Procedure. There are three distinct failures for which a contract may be terminated: to make deliveries, to perform other provisions, or to make adequate progress. For a failure to make deliveries by the time specified, the contract may be terminated immediately, without prior notice to the contractor and regardless of how slight the delay may be. The clause requires a written notice of termination, and a notice not in writing has been held to be ineffective. The clause itself does not specify any particular form of notice, but the Armed Services Procurement Regulation prescribes in some detail what it should contain and to whom copies should be sent." If the default consists of a failure to make adequate progress or to perform some other provision of the contract—that is, one of the circumstances described in paragraph (a) (ii) of the clause the contract may not be terminated immediately. The contractor must first be given notice of the failure and an opportunity (not less than 10 days) to cure the failure. The clause does not specifically require that this notice be in writing, but the Armed Services Procurement Regulation does. Relying on a similar provision, in the Army Procurement Procedure, the Armed Services Board of Contract Appeals held ineffective a notice of termination that had been issued after the contractor had been given only an oral notice of the default. A 10-day notice

"It has been argued, however, that the right to terminate is limited to "material and substantial" breaches. Risik, Defaults in Federal Government Contracts, 14 Fed. B.J. 339, 345-49 (1954). The bases for this argument are: (1) that since the contract is silent on this point, the common law requirement of a substantial breach to justify rescission is applicable; (2) that the contract would be construed so as to provide for "fair dealing" between the parties; and (3) that a right to terminate for a minor breach causing no damage would be an invalid "penalty" provision under Priebe & Sons, Inc. v. United States, 332 U.S. 407 (1947).

29 Comp. Gen. 57 (1949).

ASPR 8-602.3(d) & (e).

ASPR 8-602.3(c).

Snap-Tite, Inc., ASBCA Nos. 1198 & 1501 (12 Mar 1954) (DA Pam 715-50-1, p. 216, par. 1).