Termination of Government Contracts - Essay Example

Government Contract or Acquisitions “Termination of Government Contracts” Introduction Number 4 Termination for default is a standard clause contained in the Federal government contracts. It is contained in clause 52.249-8 and applies mainly to supply contracts. This clause gives the government the right to terminate a contract partially or completely in situations where the contractor has failed to perform a service or deliver supplies on time, make progress or perform any other provisions stated in the contract. In addition, this clause requires that, the contractor bears all the costs incurred up to time of termination and thus, does not hold the government liable. Either this clause allows the government to charge the contractor procurement costs deemed excess, recover actual damages, confiscate inventory related to the contract lieu of excess costs of procurement or recoup unliquidated payments in progress (Feldman, 2013). However, if it is determined that failure arose because of factors beyond the contractors control or without fault or negligence of the contractor, the termination will be considered a termination for convenience. Therefore, given the circumstances under which this clause is used to terminate contractors, it is vivid that it can be either be regarded as a cost saving mechanism and an additional cost creator for the Federal government. For instance, as cost saving method, the clause gives the contracting officer the right to terminate a contract if a contractor fails to perform or make progress, deliver supplies on time an implication that the clause saves the government from making payments for ghost, or incomplete works. Either the clause requires that the contractor bears all costs incurred up to the time of termination of the contractor for default hence saving the government from incurring miscellaneous expenses for substandard or incomplete work. In addition, clause allows the government to recover actual damages, procurement costs deemed excess or confiscate inventory related to the contract in situations where the government performs some activity related to the contract hence enabling it recover costs that would give advantage to the contractor (Feldman, 2013). As an additional cost creator for the Federal government; the FAR section 49.402-2 (c) requires that the government to pay the contractor for all supplies completed, and any acquired manufacturing materials by the government. In addition, part (d) of section 49.402-2 demands that before such payments are made to the contractor, contracting officers should determine the feasibility of any outstanding bonds if any to meet the claims of lienors after contractors’ have presented their bonds for payment implying that the government can be forced to make additional payments after termination of contract for default if the contracting officer fails to make a feasible decision. In addition, contracting officers according to section 49.402-2 (d) sub-section 2 are required to obtain appropriate agreement from contractors that release the government any potential liability regarding the termination of the contract for default. Thus, this implies that if the contracting officer fails to obtain appropriate agreement and the contractor disputes the contract e.g. in case of failing to perform the contract for reasons beyond the contractors’ control, then the government will be mandated to make good of the situation. Number 5 Therefore, from the above analysis of the effect of the termination for default clause it is evident that the clause is both beneficial and disadvantageous to the government. However, closer analysis of the effect and tendency of the clause to increase costs of the contract indicate that, these costs can be avoided if contracting officers exercise due diligence in making their decisions regarding the termination of contracts for default. For instance, as stated earlier, part (d) of section 49.402-2 demands that before payments up to date of termination due to default are advanced to the contractors, contracting officers should determine the feasibility of any outstanding bonds if any to meet the claims of lienors after contractors’ have presented their bonds for payment implying that the government can be forced to make additional payments after termination of contract for default if the contracting officer fail to make feasible decisions. Thus, this implies that these costs are voidable on the side of the government if due diligence is exercised when making final decisions regarding termination for default. Number 6 In my opinion, I think the ‘Contract Disputes Act, 1978’ overlaps the FAR’s 52.233-1 ‘Standard Dispute Clause’. For instance, both the contract disputes act and FAR’s 52.233-1, the standard dispute clause gives the contracting officer of the government the mandate to hear and determine disputes from contractors and make a decision which is deemed final unless a contractor appeals the contracting officer’s decision (Cibinic, Nash & Nagle, 2006). Either both have a requirement that disputes should be in writing and be submitted within a period of six years to the contracting officers who consequently will determine them. In addition both the contract disputes act and FAR’s 52.233-1, the standard dispute clause requires among other things: Claims exceeding $100,000 must be certified by contractor Certify the claim within certain time limits Parties can agree to use ADR to resolve disputes Payment to contractor of interest on any amounts found due to contractor Contractor required to work on contract while dispute claims are being resolved As a contracting officer I would suggest that the Contract Disputes Act, 1978 be amended to provide for different mechanisms for dispute resolution given that the FAR clauses takes precedence over all other acts. Therefore, to avoid the overlap of the provisions of the two, the Contract Disputes Act, 1978 should be presented to the congress with specific recommendations for amendment of the provisions of the act, which overlap with the FAR’s 52.233-1 ‘Standard Dispute Clause’ which are supreme. Number 7 Partial termination of contracts poses such challenges as: How do you value the terminated work already performed by the contractor and the remaining work after partial termination? Should the partial termination be for convenience or for default in order to avoid liability arising because of breach of contract? There exists a significant difference between partial termination of contracts and deductive changes. Work substitution: deductive change is appropriate where deleted work is to be substituted with some other work while partial termination especially for convenience is appropriate where there is no work to be substituted e.g. substituting the work of building a bridge with that of building a section of a road, constructing a section of a railway with that of a road etc. Type of work deletion: Deductive changes are appropriate where work deletions are considered minors while partial termination especially for convenience are deemed appropriate for major deletions or termination e.g. reducing the height of walls, eliminating the coats of paint etc. Number 8 Contracting officers have too much power in awarding of the contracts of the government. They are solely mandated to determine the circumstances under which contracts awarded to contractors can be revoked or terminated to the advantage of the government even in some situations for their own self-interests since they have the power to determine circumstances for terminating government contracts whole or partially either for convenience or for default. For instance, the FAR clause 52.249-2, termination for convenience allows the contracting officer to terminate a government contract partially or in whole if the contracting officer deems the termination of the contract beneficial and protects the government’s interest (Pederson, 2001). Therefore, this vividly shows that contracting officers have too much power in awarding government contracts to contractors and can use such loopholes to terminate contracts to perpetrate mischief. In addition, the FAR clause 52.249-8 gives the contracting officer the right to terminate a contract partially or completely in situations where the contractor has failed to perform a service or deliver supplies on time, make progress or perform any other provisions stated in the contract (for default). Therefore, just like a termination for convenience where the contracting officer is allowed to make the ultimate decision concerning a termination of a contract indicates that contracting officers have too much power in allocating and determining the contracts of the government. Thus, unscrupulous contractors can try to entice and collude with contracting officers in order to be awarded government contracts. For instance, contracting officers can use threats of termination after a competitive award to propagate their own self interests. Therefore, because of the power possessed by contracting officers it is imperative that a checks and balance system is instituted to ensure that contracts are awarded in a competitive manner and disputes arising after awarding are solved in an amicable and transparent way. Thus, I would propose that: The procedure and process of awarding government contracts be executed by a panel of contracting officers, administrators and other stakeholders as opposed to one contracting officer to ensure that the process is credible, fair and transparent. The claims arising from termination of contract either for convenience or default should be a handled by a task force committee with the mandate to hear and determine such cases to avoid a situation where the contracting officer who awarded the contract to contractor is the same person determining a termination. Rationale According to clause 52.203-8 a, 1(B), contracting officers are prohibited from giving competitive advantage to contractors in the Federal government procurement contracts but rather through competitive and transparent mechanisms (Racca, Perin & Albano, 2011). Thus, ensuring that the awarding process of the contract is executed by a panel of contracting officers, administrators and other stakeholders will ensure there is transparency and fairness in the process. In addition, disputes from contractors are first presented to and determined by contracting officers before they are forwarded to the ABCA, Court of Federal Claims, and finally the USCA for the Federal Circuit (Acquisition Central, 2014). Therefore, given the previous circumstances where a contracting officer awards and determines a claim resulting from termination of the same contract, then contracting officers are likely to use their powers to intimidate contractors to further their self-interests. Therefore, using a task force committee with such mandate to hear and determine post award disputes will help eliminate chances of contractors enticing contracting officers to gain competitive advantage during the pre-award period of the contracts. Thus, it is evident that the aforementioned suggestions will foster transparency and credibility in the entire process of government contracts, which in the long-run will increase cost savings and eliminate situations where additional costs to finance governments will be required. References Acquisition Central.(2014). Federal Acquisition Regulation (FAR). Retrieved from http://www.acquisition.gov/far/index.html. Cibinic, J., Nash, R. C., & Nagle, J. F. (Eds.). (2006). Administration of government contracts. CCH Incorporated. Feldman, S. W. (2013). Government contract guidebook (4th, 2013-2014 ed.). Eagan, MN: Thomson Reuters, Westlaw. Pederson, M. A. (2001). Rethinking the Termination for Convenience Clause in Federal Contracts. Pub. Cont. LJ, 31, 83. Racca, G. M., Perin, R. C., & Albano, G. L. (2011). Competition in the execution phase of public procurement. Retrieved from http://www.robertocavalloperin.it/repository/PCLJ%2041-1_04Racca-1. Read More