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Default Termination of R&D Contract Was Justified

A sustained default termination of a research and development contract was upheld by the Court of Appeals for the Federal Circuit because the contractors' performance history, failure to meet progress milestones, and financial difficulties, indicated the contracting officer was reasonably justified in concluding there was no reasonable likelihood of timely completion. This long-running dispute arose from a fixed-price full-scale engineering and development contract to design and manufacture carrier-based stealth aircraft, which the government terminated for the contractors' inability to meet production goals. On remand from a prior appeal to the Federal Circuit (47 CCF 78,039), the Court of Federal Claims was directed to apply the standard in Lisbon Contractors, Inc. v. U.S. (34 CCF 75,358) to determine whether the CO had a reasonable belief there was no reasonable likelihood the contractors could perform the "entire contract effort," within the "time remaining for contract performance."
Negative Impact

The CO's determination must "be based on tangible, direct evidence reflecting the impairment of timely completion." Here, the CFC made detailed factual findings based on the CO's testimony, contractor statements, and contemporary documents. This evidence demonstrated the contractors' performance history --including the failure to meet several milestones, such as the first flight --coupled with the contractors' precarious financial condition, negatively impacted performance under the contract and indicated the CO was reasonably justified in feeling insecure about the contractors' rate of progress. Accordingly, the government satisfied its burden to justify the default termination, which then placed the evidentiary burden on the contractors to prove timely contract completion was not endangered or there was excusable delay. The contractors, however, presented no evidence to show, without contract restructuring, that they could have completed the contract by any date. (McDonnell Douglas Corp., et al. v. U.S., CA-FC, 53 CCF 79,115)

(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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