The U.S. Court of Federal Claims recently overturned an agency’s decision to terminate a government contractor for default ─ finding that the government allowed a series of contract disputes, poor practices, conflicting personalities, and a lack of effective communication to cloud its termination analysis.  The case serves as an important reminder that, when reviewing a termination for default, the Court gives little credence to the government’s “subjective beliefs” regarding the contractor’s ability to perform.  Rather, the Court conducts an objective inquiry and scrutinizes the events, actions, and communications that led to the agency’s termination decision.

Background

The National Guard Bureau (“Agency”) awarded a firm-fixed price construction contract in 2014 to Alutiiq Manufacturing Contractors, LLC (“AMC”) to repair asphalt roads at an Air Force base.  From the outset, AMC experienced performance issues on the project: its key personnel were not staffed on the project; it had difficulty finding a qualified subcontractor; and it failed to timely submit required contract documentation.  None of these deficiencies, however, would have prevented the contractor from timely completing the contract.

Nevertheless, these early performance problems engendered hostility towards the contractor among the government’s contract management personnel.  The Agency issued a Letter of Concern and multiple cure notices to the contractor.  In response, AMC adopted corrective measures to help move the project forward.  AMC developed a new asphalt design, made personnel changes, and submitted a revised baseline schedule.  It also worked with its main subcontractor to develop a recovery schedule under which AMC anticipated it could complete its work two days ahead of the original contract deadline.

At the same time the contractor was working to get the project back on schedule, however, Agency personnel were holding discussions on when and how to terminate AMC’s contract for default.  Ultimately, an onsite Agency representative took a “quick glance” at AMC’s proposed recovery schedule and determined it was not viable.  The Agency did not conduct a critical path analysis of the recovery schedule, but instead performed only a “cursory assessment” of the plan.  The Agency terminated AMC’s contract for default shortly thereafter.  AMC then challenged the Agency’s grounds for termination at the Court of Federal Claims.

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