Government Contracts Administration Resources

• Government’s Rights: The Government has the right to issue written change orders, typically using Standard Form 30. These changes can include modifications to:
  • Drawings, designs, or specifications when supplies are specially manufactured for the Government.
  • The description of services to be performed.
  • The method of shipment or packing.
  • The place of delivery or place of performance of services.
  • The time of performance (e.g., hours of the day, days of the week) or overall performance schedule.
  • The method or manner of performance.
  • The amount of Government-furnished property.
• Contractor’s Duties: The contractor must proceed with the changed work. This is a significant difference from commercial contracts, where changes typically require bilateral agreement.

• Written Order: Changes must be directed by a written order from the Contracting Officer (CO), who is the only individual authorized to direct formal contract changes.
• Notification: Contractors must assert their right to an adjustment under the changes clause within a specified time frame, often 30 days from the date of receipt of the written order. Timely notification gives the Government the opportunity to reconsider the change before the contractor incurs significant costs. Failure to provide timely notice may result in the contractor losing the right to an equitable adjustment.
• Formal Change Process: The formal process for implementing changes involves discussions between the government and the contractor, the contractor submitting a “change proposal,” government review and potential negotiation, and finally, a bilateral modification if agreement is reached. If no agreement is reached, the Government may issue a unilateral change order, and the contractor has a duty to proceed while reserving its right to an equitable adjustment. The change order and the supplemental agreement reflecting the equitable adjustment are the two key documents in change order administration.
• Constructive Changes: In situations where the Government’s actions or inactions have the effect of a change (e.g., misinterpreting specifications, failure to cooperate, overzealous inspection, delays) without a formal change order being issued by the CO, these are treated as “constructive changes”. Contractors should monitor their performance and costs to identify constructive changes in a timely manner. They must then notify the Government to preserve their right to an equitable adjustment.
• Changes Clause in Subcontracts: While the changes clause is not a mandatory flowdown to subcontracts, it is considered best practice for prime contractors to include a similar clause in their subcontracts for business reasons. This ensures that the prime contractor can direct its subcontractors to perform changes directed by the Government. Subcontractors can negotiate the terms of the changes clause in their subcontracts, potentially limiting the prime’s unilateral right to make changes to only those directed by the Government.
• Christian Doctrine: The “Christian Doctrine” dictates that even if the changes clause is not explicitly included in the contract, it will be read into the contract because it reflects a “major government principle”.

A Termination for Convenience (T4C) is a unique aspect of government contracts where the government has the right to terminate the performance of work under a contract, in whole or in part, if the Contracting Officer (CO) determines that it is in the Government’s interest. This right exists even without any fault or breach of contract by the contractor. In commercial contracts, a similar clause is very unusual.
Here are some key points about terminations for convenience:

• Government’s Right and Purpose: The government can terminate for convenience without cause. The purpose of this clause is to allow the government to end contracts when circumstances change, such as the end of a war, changes in funding by Congress, or advancements in technology, preventing the waste of taxpayer money on unnecessary goods or services.
• Contractor Recovery: When a contract is terminated for convenience, the contractor is entitled to recover costs incurred up to the point of termination, plus a reasonable profit on the work performed. However, the contractor cannot recover anticipated future profits on the work that was not performed due to the termination. For commercial items contracts, the contractor may recover a percentage of the price based on the percentage of completion and settlement costs.
• The “Christian Doctrine”: The T4C clause is considered a major government principle, and even if it is not explicitly included in a contract, it will be read into the contract under the “Christian Doctrine”. Contracting Officers do not have the authority to waive this requirement.
• Limitations on Exercise: While the CO has broad discretion to terminate for convenience, this discretion is not unlimited. A T4C is not permitted if done in bad faith, such as due to malice towards the contractor or if the government never intended to honor the contract at the time of award and planned to terminate it immediately. Showing bad faith requires “well nigh irrefragable” evidence. If a termination for convenience is deemed invalid, the contractor may be able to recover damages, potentially including lost profits.
• Contracting Officer’s Actions: When a T4C is issued, the CO must provide the contractor with a written notice that includes:
  • A statement that the contract is being terminated for convenience.
  • The effective date of the termination.
  • The extent of the termination (if it’s a partial termination).
  • Any special instructions.
• Contractor’s Responsibilities: Upon receiving a T4C notice, the contractor must:
  • Stop work immediately.
  • Notify subcontractors. It’s a best practice for prime contractors to flow down a termination clause to subcontractors to avoid being obligated to pay for work no longer needed. A savvy subcontractor may want to limit the prime’s right to terminate to instances where the prime contract is terminated. Subcontractors should engage in clause-by-clause negotiation rather than accepting all clauses without review.
  • Mitigate termination costs.
  • Dispose of inventory and work in progress.
  • Submit a T4C settlement proposal within one year of the termination notice. This proposal details the costs incurred up to the termination and the requested payment. This is a negotiation with the government for fair compensation. Legal and accounting costs associated with preparing the settlement proposal can be included in the proposal.
• Settlement Basis: The settlement aims for a “fair and reasonable” compensation, and FAR Part 31 cost principles are not strictly applied as they would be in other circumstances.
• Constructive Termination for Convenience: If the government takes actions that make contract performance impossible without formally issuing a T4C, a court may treat it as a constructive termination for convenience, granting the contractor the same rights as a formal T4C.
• Partial Termination for Convenience: The government may terminate only a part of the contract. While similar to a deductive change (which reduces the contract price by the price of the deleted work), a partial termination for convenience allows the contractor to reprice the remaining work, which may result in a different financial outcome for the contractor.
• Best Practices: Good recordkeeping is crucial for supporting termination costs and settlement proposals. Contractors should have a system for diligently complying with the requirement to stop work and wind up subcontracts. Seeking accounting and legal assistance is advisable, and these costs can be included in the settlement proposal. It’s recommended that prime contractors include a termination clause in their subcontracts.
• Conversion from T4D: If a contractor successfully challenges a Termination for Default (T4D), it will be converted to a Termination for Convenience. In this scenario, the contractor will not get the contract back but will be compensated for costs and reasonable profit up to the point of the initial termination.

Overall, a Termination for Convenience provides the government with significant flexibility but also includes provisions to compensate the contractor fairly for the work performed when the government decides to end the contract for its own reasons.

A termination for default (T4D) is an action by the government to end a contract due to the contractor’s failure to fulfill their contractual obligations. This is a significant sanction that the government can impose when a contractor is considered to be “in default”. While similar to “Termination for cause” found in commercial contracts, government contracts have specific regulations and procedures for T4D.
Grounds for Termination for Default: Under FAR 52.249-8, the government may terminate a contract for default if the contractor fails to:

• Deliver the supplies or perform the services within the time specified in the contract.
• Make progress so as to endanger performance of the contract.
• Perform any of the other provisions of the contract. This can include situations where a contractor refuses to proceed with work directed by the Contracting Officer, potentially leading to a claim later, as refusing to proceed could be seen as anticipatory repudiation.
• Failure to Proceed.
• Failure to Complete by Required Date.
• Failure to comply with other contract requirements.

Discretionary Nature and Procedural Aspects: A termination for default is a drastic sanction and should only be imposed for good cause and with solid evidence. The government is never compelled to terminate for default; it is a highly discretionary decision for the Contracting Officer. The government bears the burden of proving that a default termination was substantively justified, procedurally correct, and not an abuse of discretion.
Before issuing a T4D before the delivery date for reasons other than late delivery (e.g., failure to make progress or perform other provisions), the government is typically required to issue a Cure Notice. This written notice must identify the contractor’s problem with enough particularity to inform them of the danger of default and provide a minimum 10-day “grace period” for the contractor to contest or cure the failure. A Cure Notice is not required if the deadline for performance has passed or if the contract has been repudiated.
An optional but often used procedural step is the Show Cause Notice, which is written and provides a reasonable time for the contractor to respond and show why the Contracting Officer should not terminate for default. This is used when a cure notice response is unsatisfactory or when T4D is considered after the delivery date or for anticipatory repudiation.
Contractor Defenses Against T4D: A contractor may have several defenses against a termination for default, including:

• Excusable Delay: The delay in performance was beyond the contractor’s control and without the fault or negligence of the contractor or its subcontractors/suppliers at any tier. Examples include fires, floods, sovereign acts, and labor strikes. The claimed excuse must have actually prevented performance. The remedy for an excusable delay is typically an extension of time, not additional payment.
• Waiver of Schedule (Delivery Date): If the government fails to terminate within a reasonable time after the scheduled delivery date, they may be considered to have waived the delivery date. In such cases, the government must reestablish a “reasonable” delivery schedule before terminating for default. This requires detrimental reliance by the contractor (the government led the contractor on).
• Substantial Compliance: The contractor has delivered goods or services that meet all five elements of substantial compliance: on-time performance, good faith belief the item complies, a minor defect/deficiency, correctable within a reasonable time, and time not being of the essence. Even with substantial compliance, the contractor must still correct deficiencies.
• No ground for termination existed.
• The Contracting Officer did not consider all relevant information or relied on erroneous information.
• The Contracting Officer failed to exercise independent discretion.
• The Contracting Officer did not follow required procedure (e.g., failure to issue a required Cure Notice).
• Improper motive (Bad Faith) on the part of the Contracting Officer. This is different from the high “well nigh irrefragable” evidence standard for bad faith in termination for convenience.

Consequences of Termination for Default: T4D has significant financial and non-financial consequences for the contractor:

• Financial:
  • The contractor must return unliquidated progress payments and excess payments.
  • The government is not liable for the cost of work in process that is not accepted, but may elect to accept defective goods at a lower price.
  • The government may “reprocure” the undelivered goods or services from another contractor, and the defaulting contractor may be liable for any excess costs incurred by the government (reprocurement costs). The government has a duty to mitigate these excess costs.
• Non-financial:
  • Can lead to adverse responsibility determinations.
  • Results in negative past performance evaluations.
  • May be a consideration for suspension and debarment from future government contracts. These consequences can be more significant than the financial costs.

Contractor Remedies: A contractor has options if their contract is terminated for default.

• They are entitled to payment for supplies and services accepted by the government and for completed construction.
• They can appeal the Contracting Officer’s T4D decision to the Board of Contract Appeals (BCA) or the Court of Federal Claims (COFC).
• They can defer appeal of the validity of the T4D until reprocurement costs are assessed (Fulford doctrine).
• If the contractor prevails in their appeal, the T4D will be converted to a Termination for Convenience (T4C). The original contract is not reinstated. The contractor will then be able to recover costs incurred plus reasonable profit up to the point of termination, but not anticipated future profits. A faulty T4D is considered a “constructive termination for convenience”.

It’s important to note that the T4D clause is not a mandatory flowdown to subcontracts, but prime contractors should generally include a termination for cause provision in their subcontracts.

An Organizational Conflict of Interest (OCI) means that because of other activities or relationships with another person, a person is unable or potentially unable to render impartial assistance or advice to the Government, or the person’s objectivity in performing the contract work is or might be otherwise impaired, or a person has an unfair competitive advantage. The OCI regulation in FAR 9.5 directs the Contracting Officer to “avoid, neutralize or mitigate significant potential conflicts before contract award,” preferably early in the process. Communication, both internal and external, is key to managing OCIs.
There are generally three kinds of Organizational Conflicts of Interest:

• Unequal access to information: This arises when a contractor, as part of its performance, has access to nonpublic information that will give it an unfair competitive advantage over other offerors. The usual mitigation for this type of OCI is a firewall to prevent the sharing of this information with the proposal team, or full disclosure of the information to all parties involved. Some advantages gained by an incumbent, like knowledge of what works or agency hot buttons, are not necessarily considered unfair.
• Impaired objectivity: This occurs when a contractor has the opportunity to provide advice that might affect its own business interests. For example, if a company is asked to recommend products and another division of the same company makes those products, their objectivity might be questioned. Usual mitigation for this involves limiting the scope of work.
• Ability to set biased ground rules: This type of OCI arises when a contractor has the ability to set the ground rules for another procurement, leading to a presumed unfair advantage. This can happen if a contractor helps in evaluating proposals, writing the scope of work, or performing preliminary studies for a new contract, potentially tailoring it to their advantage. This type of OCI is very difficult to mitigate after the fact.

Contractors should proactively assess potential OCIs by asking if they are being asked to provide advice or information that could benefit their company in future competitions or other business interests. It’s important to remember that competitors are often looking for potential OCIs to protest. Sometimes, a company may have to choose which contract it wants, as it might not be able to pursue multiple opportunities due to OCI concerns.

A personal conflict of interest in government contracting, as defined by FAR 52.203-16, means a situation in which a covered employee has a financial interest, personal activity, or relationship that could impair the employee’s ability to act impartially and in the best interest of the Government when performing under the contract.

It is important to note that a de minimis interest that would not “impair the employee’s ability to act impartially and in the best interest of the Government” is not covered under this definition.

The Christian Doctrine is a unique aspect of government contracts. Even if a clause reflecting a “major government principle” is not explicitly written in your contract, it will be read into your contract.

Here are some key aspects of the Christian Doctrine:

• If a clause reflects a major government principle, it will be considered part of the contract even if it’s not physically included.
• A Contracting Officer (CO) does not have the authority to waive a requirement that is mandated by the Christian Doctrine.
• Examples of clauses required under the Christian Doctrine include:
  • Termination for Convenience (T4C)
  • Changes clause
  • Buy American Act
  • Bonds (in construction)
• Examples of clauses not required under the Christian Doctrine include:
  • Variation in estimated quantities
  • Contractor patent rights
• The Christian Doctrine is named after the company involved in the lawsuit that established the principle, G. Christian and Company (or similar initials).

Therefore, it is important to understand that your government contract may include certain mandatory clauses based on major government principles, even if they are not expressly stated in the contract documents. Contracting Officers cannot waive these requirements.

A constructive termination occurs when the government takes actions that effectively terminate a contract, even if they don’t issue a formal termination notice. The sources primarily discuss this in the context of a constructive termination for convenience (T4C).

Here are the key aspects of a constructive termination:

• Government Action (Without Formal T4C): A constructive termination for convenience can arise when the government takes action or fails to act in a way that makes it impossible for the contractor to perform the contract, even though the government doesn’t formally state it’s terminating for convenience. An example provided is the government closing down an entire base, making a building contract unnecessary, but not formally terminating the contract. In such cases, a court or board may recognize the situation as a constructive termination for convenience.
• Faulty Termination for Default (T4D) Converted: If the government improperly terminates a contract for default (T4D) and the contractor successfully challenges this termination, the T4D will be converted into a constructive termination for convenience. This is because the government generally has the right to terminate a contract for its convenience. Even if the grounds for default were insufficient or the procedures were incorrect, the underlying right to terminate for convenience remains.
• Contractor Rights: In the case of a constructive termination for convenience, the contractor has the same rights as they would under a formal termination for convenience. This includes the right to submit a settlement proposal to recover costs incurred up to the point of termination, plus reasonable profit (but not anticipated future profits). If a settlement cannot be reached through negotiation, the contractor can convert it to a claim and appeal to the Board of Contract Appeals or the Court of Federal Claims.

It is important to note that even if a T4D is deemed faulty and converted to a constructive T4C, the contract is not reinstated. The contractor will not get the opportunity to complete the original work.

A constructive change in government contracting occurs when government actions or a failure to act are treated as changes to the contract, even though the contracting officer (CO) has not issued a formal, written change order. Unlike a directed change where the CO explicitly orders a change, a constructive change arises from the government’s conduct during contract performance that has the effect of requiring the contractor to perform work outside of the original contract requirements, often leading to increased costs or delays. In a commercial contract, such actions might be considered a breach of contract.

Learn more about constructive changes:

• No Direct Order: The CO does not issue a formal change order.
• Government Action (or Inaction): The change results from something the government does or fails to do.
• Increased Cost or Time: The government’s action or inaction increases the contractor’s costs or the time required for performance.
• Contractor’s Duty to Monitor: Contractors should continuously monitor their performance and costs to identify potential constructive changes at the time the action (or inaction) occurs. However, a constructive change might only be recognized later when performance is over budget or behind schedule.
• Notification is Crucial: The contractor must notify the government of the constructive change in a timely manner, typically within 30 days as per the Notification of Changes clause (e.g., FAR 52.243-1(c)). This gives the government the opportunity to reconsider the extra work before the contractor incurs significant costs. Failure to provide timely notice can result in the contractor losing the right to an equitable adjustment.
• Basis for Claims: Most claims, including those arising from constructive changes, fall under the Changes clause of the contract.

Here are several examples of situations that can lead to constructive changes:

• Contracting Officer’s Misinterpretation of Specifications: When the CO’s interpretation of the contract specifications requires the contractor to perform more work than the contractor believed was originally required. For instance, in the Marvin Construction scenario, a dispute over the definition of “bare spots” for painting led to a potential constructive change.
• Defective Specifications: If the government-provided design specifications are flawed, requiring the contractor to expend additional effort to achieve the intended result (e.g., a rowboat built to spec sinks).
• Differing Site Conditions: In construction contracts, encountering subsurface conditions that differ materially from what was indicated in the contract or typically found in the area.
• Government Failure to Cooperate or Assist: When the government fails to fulfill its contractual obligations to cooperate or provide necessary assistance, hindering the contractor’s performance (e.g., delay in approving the exemplar in the Marvin Construction case).
• Delay in Approval Process: Unreasonable delays by the government in reviewing and approving the contractor’s work.
• Overzealous Inspection: Government inspection that goes beyond the contract requirements or is conducted improperly. A change in how inspections are conducted, even if still technically within the contract, can be a constructive change if the contractor relied on a prior course of dealings.
• Superior Knowledge: The government possesses vital information relevant to contract performance but fails to disclose it to the contractor, who is unaware.
• Constructive Acceleration: When government actions or excusable delays effectively force the contractor to accelerate the work schedule without a formal directive, leading to increased costs.
• Improper Inspections: Issues with the inspection process, including waivers or prior courses of dealing, can give rise to constructive changes.

When a constructive change occurs, the contractor is typically entitled to an equitable adjustment to the contract price, schedule, or both, to compensate for the increased costs or time. The contractor must assert its right to an adjustment within a specific timeframe after receiving notice of the change (or recognizing the constructive change). Resolving constructive changes proactively, before significant costs are incurred, is generally easier than addressing them reactively.