Cure Notices, Excusable Delay and Reprocurement Costs

Three grounds support a default termination on a fixed-price supply or service contract. Failure to deliver the supplies or perform the services within the time specified. Failure to make progress so as to endanger performance, where the contractor does not cure within ten days of notice. And failure to perform any other provision, again with a ten-day cure period. Only the first requires no warning.

The letter, and what it must contain

Where the ground is failure to make progress or failure to comply with a provision, the contracting officer must give written notice specifying the failure and allowing at least ten days to cure before terminating. The notice is a condition of the termination, not a courtesy, and a default taken without one on a ground that required one is defective.

A cure notice is available only if time permits. The notice must be issued far enough before the delivery date that the ten-day period, plus whatever time the government needs to evaluate the response, still leaves the schedule intact. Where the delivery date is imminent or has passed, the cure notice route is unavailable and the government uses a show cause notice instead.

Answering a cure notice is a technical exercise rather than a rhetorical one. Address each specified failure, state what has already been done, give a dated recovery plan with milestones, and identify any excusable cause with the supporting facts. A response that disputes the characterization without describing corrective action reads as a refusal to cure.

The defense that decides the outcome

The contractor is not liable for excess costs where the failure to perform arises out of causes beyond its control and without its fault or negligence. The clause lists examples: acts of God or of the public enemy, acts of the government in either its sovereign or its contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes and unusually severe weather.

The list is illustrative rather than exhaustive, and the two-part test governs. Beyond control means the contractor could not have prevented the event. Without fault or negligence means the contractor's own conduct did not contribute, which is where most arguments fail. A supplier chosen without diligence, a workforce plan with no margin, or a subcontract signed without a delivery commitment all supply the fault the test asks about.

What the government can recover afterward

Following a default, the government may acquire similar supplies or services and hold the contractor liable for any excess costs. The demand is a government claim, asserted by a contracting officer's decision, and it is contestable through the ordinary route in claims, certification and the disputes process.

Four conditions constrain the recovery and each is a defense worth testing. The reprocured items or services must be the same as or similar to those terminated. The government must have acted within a reasonable time after the termination. It must have used the method that would produce the lowest reasonable cost in the circumstances. And it must have mitigated, rather than paying a premium for speed that the record does not justify.

Excess costs are not the only exposure. Where a liquidated damages clause applies, damages accrue for the period of unexcused delay independently of the reprocurement. And the government may require the contractor to transfer title to and deliver completed work, partially completed work, materials and drawings, which removes the contractor's practical leverage.

Why the conversion remedy is the real objective

Where a default termination is found improper, the rights and obligations of the parties become the same as if the termination had been issued for the convenience of the government. That conversion is the central reason to contest a default. It replaces a demand for excess costs with an entitlement to be paid for work performed, through the process described in the settlement proposal after an early ending.

Improper defaults arise in recognizable ways: a cure notice never issued where one was required, a cure period too short for the failure alleged, a schedule already waived by acquiescence in continued performance, an excusable cause established on the record and ignored, or a termination taken while a directed change was still being priced under the changes clause.

The consequences also outlive the contract. A default termination is part of the performance record examined the next time a contracting officer asks whether the firm is responsible, which is the question described in responsiveness and responsibility. Costs incurred responding to a cure notice and preparing a settlement are tested under the principles in the three cost tests, so they should be segregated from the day the notice arrives.