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Contractor’s Appeal of Default Termination Dismissed as Time-Barred

Wed 30th Jun, 2021 Industry News

Under the Federal Acquisition Regulations, the federal government, through its contracting officer, may terminate a construction contract for default. Frequently, the terminated contractor does not agree with the CO’s decision to terminate the contract, and the contractor will want to appeal the CO’s decision.

A default termination may be challenged in an appeal to either the pertinent agency board within 90 days of receiving the termination notice or to the United States Court of Federal Claims within 12 months of receiving the notice. These deadlines are generally strictly enforced, and construction contractors should always calendar the preceding two deadlines whenever they are default terminated. If a contractor fails to file its appeal by the applicable deadline, the contractor’s claim will be time-barred.

For example, in J-Way Southern, Inc. v. United States, a contractor was default terminated in March 2017, and the contractor did not file its appeal of that decision until November 2019. The government filed a motion to dismiss the contractor’s lawsuit because the contractor did not file its lawsuit within one year of the termination. The contractor argued that its lawsuit was timely because the government’s notice of default did not contain specific termination language noted in the FARs and the contractor detrimentally relied on the allegedly defective notice, which led the contractor to believe a final appealable decision had not been issued in March 2017.

The court held that the termination notice was not defective and rejected the contractor’s other arguments. The court reasoned that the termination notice was adequate because it informed the contractor that it was being default terminated and the contractor could appeal the decision. The court also found the contractor’s argument that it believed the CO would reconsider the termination decision was not plausible because the CO ordered the contractor to demobilize, called in the surety to complete the work, and a completion contractor was hired to finish the job. Thus, the court dismissed the contractor’s claims as time-barred.

Bottom Line: If the federal government default terminates a construction contractor, the contractor should immediately calendar the 90-day and 12-month deadlines to file an appeal. Failure to do so may prove fatal to the contractor’s case against the government. A terminated contractor should retain experienced construction counsel to ensure that the appeal is timely filed.