Gov't Contracts Rulings Hold Termination Challenge Tips

• Jurisdiction: United States,Federal
• Law Firm: Arnold & Porter
• Subject Matter: Government, Public Sector, Energy and Natural Resources, Energy Law, Government Contracts, Procurement & PPP
• Author: Ms Kara Daniels and Amanda J. Sherwood
• Published date: 27 February 2023

Any default termination can be devastating for a contractor, especially an unwarranted one.

Challenging a default termination can seem like a daunting, David versus Goliath endeavor, but recent cases out of both the U.S. Court of Federal Claims and the U.S. Civilian Board of Contract Appeals highlight several ways such challenges can be successful.

We discuss two such cases and the lessons contractors facing performance difficulties can learn from them.

Schneider Electric

First, in Schneider Electric Buildings Americas Inc. v. U.S.,¹ the COFC considered the propriety of the government's "drastic decision of terminating Schneider for default after receiving 91.45% of the value of the contract" for implementation of certain energy conservation measures at a government facility.

The contract followed the structure of the National Energy Conservation Policy Act, whereby contractors incur the upfront costs of acquiring and installing energy savings measures, and in exchange receive a share of any resulting energy savings.²

The contract in question anticipated 23 years of performance, over which time the contractor would earn over $24 million in annual installments. One category of energy conservation measures the contractor installed were boilers; the government claimed the boilers never worked properly and, after several alleged boiler failures, refused to pay the contractor's invoice for its fifth year, later only remitting a partial payment.

The contractor claimed the government failed to adequately service the boilers ' the contract tasked the government with routine maintenance ' and noted that it nevertheless submitted a repair plan in response to the agency's request, but the government revoked its access to the facility.

For the sixth year, the government again belatedly ' eight months late ' paid only a portion of the invoice. Thereafter, the government sent a cure notice and show cause letter, which the contractor did not immediately respond to because the only recipient of the notice was out on maternity leave.

The government then noticed its intent to terminate the contract for default. The contractor again attempted to explain its nonresponse to the cure notice and show cause letter and to address the government's concerns, but the government finalized the termination on the basis that the boilers were hindering the U.S. Department of Agriculture's research efforts.

The COFC found the default termination improper; the government premised its...