Jump to content

Forbearance vs. Change Order


Voyager

Recommended Posts

33 minutes ago, C Culham said:

Thank you. 

 It leaves the question as to how the inaction of forbearance becomes enforceable. 

My personal conclusion - Leaving forbearance expectations to the imaginations of both parties own minds seems less acceptable than documenting the the expectations of forbearance in writing when both parties subscribe to forbearance as the option selected.

 

Both parties don’t necessarily have to subscribe to the option selected. The contractor is required to perform the contract. The owner has the option.m to defer a decision to TFD, for instance.

Link to comment
Share on other sites

  • Replies 77
  • Created
  • Last Reply

Top Posters In This Topic

22 minutes ago, joel hoffman said:

Both parties don’t necessarily have to subscribe to the option selected. The contractor is required to perform the contract. The owner has the option.m to defer a decision to TFD, for instance.

At the risk of everyone taking me to task for extending the discussion I do question your response. 

In the context of my question/response/conclusion as it relates to the article that Vern posted just a very small portion of  there are five options for "Responses" to a breach.  If the option of Forbearance is chosen it is refraining from the legal right of T4D.  The consideration for refraining is the the promise that the work will be done.  But by when? 

It would seem in the context of the article snippet provided by Vern that one must define what forbearance is, the promise for a promise, for the instant procurement or the inaction could be reasoned by others (and ultimately a court?) to be acquiescence  or waiver?  

Simply stated how would a contractor that you have forbeared know what you want for that forbearance, and that the contractor agrees to it over the other four options?   It would seem that a contractor would evaluate what of the five options is best for them.

As I have maintained in raising the question of whether a forbearance should be documented bilaterally (both parties agreeing to forbearance) how is it known that forbearance is what is happening and what must be done for the forbearance to be accomplished?

Link to comment
Share on other sites

1 hour ago, C Culham said:

My personal conclusion - Leaving forbearance expectations to the imaginations of both parties own minds seems less acceptable than documenting the the expectations of forbearance in writing when both parties subscribe to forbearance as the option selected.

What expectations of forbearance? Whose expectations?

I cannot understand why the injured party would make any new agreement with the breaching party concerning its right to forbear in the face of breach. The whole point of the period of forbearance is to give the injured party time to think things over. That doesn't mean that the parties cannot communicate with one another. But why agree to anything about forbearance while forbearing?  The injured party is holding all the marbles.

I think this thread is exhausted. I encourage everyone interested in this topic to do as much reading as you can with the resources available to you.

 

Link to comment
Share on other sites

33 minutes ago, Vern Edwards said:

What expectations of forbearance? Whose expectations?

 

34 minutes ago, Vern Edwards said:

I think this thread is exhausted. 

Then why pose more questions?

You may know by actual experience or study of the topic but do others? A thought you have already expressed.

To your questions as quoted above.

Forbearance is by the reference you posted an option of a "Response".  So as a "response" how does one "communicate" it.  Or is silence the response?

Both the promissee and promisoer have expectations do they not?  Completion of work and not T4D being primary.  As such completion by when as I am assuming if T4D is the option to forbearance PoP has passed.  Is the government going to forbear forever?

Link to comment
Share on other sites

40 minutes ago, C Culham said:

You may know by actual experience or study of the topic but do others?

I do, both by experience and study.

As for experience, in 1987, as a consultant contractor, I received a letter notice of forbearance from the head of the contracting activity of an office of the Department of Energy concerning a study I was doing for them. I was late submitting my report by two weeks. The report turned out to be influential. Nothing more was said or done, probably because I went above and beyond the requirements. You know me.

As for study, I have read a lot about forbearance. And what I have done in that regard others can do, including you, and I have recommended some readings. In addition to what I have already recommended𑁋

Forbearance has been discussed to a greater or lesser extent in 322 board of contract appeals decisions, most recently in SUPPLYCORE, INC., ASBCA 63057, 22-1 BCA ¶ 38,195, September 6, 2022, and for the first time in El-Tronics, Inc., ASBCA 2173, Aug. 19, 1954.

It has been discussed in 160 Court of Federal Claims decisions, most recently in connection with a government contract in Gilead Sciences, Inc. v. U.S., 163 Fed.Cl. 104, Nov. 21, 2022, and for the first time in Atlantic Fish & Oyster Co. v. U.S., 126 Ct. Cl. 892, Dec. 1, 1953.

I don't know what point you are trying to make. Still clinging to the need for bilateral agreement?

Study is rewarding. Enjoy! I don't recommend experience. I found it unnerving.

 

Link to comment
Share on other sites

1 hour ago, C Culham said:

Forbearance is by the reference you posted an option of a "Response".  So as a "response" how does one "communicate" it.  Or is silence the response?

Forbearance is a response to breach. It consists of taking no legal action while taking time to think. There is no requirement to communicate forbearance. All the CO need do is nothing. To forbear is to do nothing when you have the right to do something. However, as I think I said earlier, I think it's wise for a CO to notify a contractor that it has defaulted, that the government is taking time to think things over, and that the government reserves its rights under the contract as written pending a decision.

1 hour ago, C Culham said:

Both the promissee and promisoer have expectations do they not? 

 I don't know. Maybe. The injured party might expect the contractor to fulfill its obligations or not, depending on what has gone before. The breaching party might expect the injured party to let it go or sue for damages, depending what has gone before. 

Link to comment
Share on other sites

On 1/21/2023 at 1:55 PM, C Culham said:

Both the promissee and promisoer have expectations do they not? 

Carl, I'm confused by this question.  Are you implying that an exchange of promises is necessary for forbearance to be permissible?

 

On 1/21/2023 at 1:55 PM, C Culham said:

Is the government going to forbear forever?

Maybe.  What chance does the government have of getting performance or excess reprocurement costs from some Afghan contractors?

Link to comment
Share on other sites

14 minutes ago, Retreadfed said:

Maybe.  What chance does the government have of getting performance or excess reprocurement costs from some Afghan contractors?

None, now (tongue in cheek)...

Link to comment
Share on other sites

2 hours ago, Retreadfed said:

Are you implying that an exchange of promises is necessary for forbearance to be permissible?

Part of my dilemma.  Forbearance is consideration in some cases, at least by my read over the last week.  So if consideration it implies a promise for a promise?    

I am being respectful of answering your question with no intention of posting further on the subject.

Link to comment
Share on other sites

On 1/19/2023 at 4:52 PM, Vern Edwards said:

The issue in this thread is whether an agreement, a mod, and consideration are necessary in order for a CO to forbear T for D if the contractor breaches. THEY ARE NOT NECESSARY!

The answer is still the same.

A bargain𑁋an agreement, a contract mod, and consideration𑁋are not necessary in order for a CO to exercise forbearance prior to deciding whether to T for D. If a bargain is made it might be interpreted as a waiver of the government's rights under the default clause.

But can forbearance serve as consideration in a bargain? Yes. See the quote I posted from Williston. 

Link to comment
Share on other sites

32 minutes ago, C Culham said:

Forbearance is consideration in some cases, at least by my read over the last week.  So if consideration it implies a promise for a promise?   

Carl, I know you stated you have no intention of posting further to this thread, however, to try to minimize your dilemma, I agree with your statement that forbearance can be consideration for a contract action such as the award of a contract or a modification to an existing contract.  However, that is a different context than forbearance in the T4D situation where the CO is determining what the facts are surrounding a default and determining what action the CO should take.  As a result of that deliberative process, the CO may determine that it is in the government's interest to T4D the contract.  No consideration would be due from the contractor in this situation because a T4D is a unilateral power given to the government.  However, if the CO determines that it is not in the government's interest to issue a T4D, but to have the contractor continue to perform, the CO would have to get some consideration from the contractor in exchange for the CO forbearing.  That is because prior consideration is no consideration for a future promise.   In this case, the CO may promise (forbear from) T4Ding the contract if the contractor agrees, for example, to complete the contract at a reduced price and with an extended warranty.  

Link to comment
Share on other sites

1 hour ago, Retreadfed said:

However, if the CO determines that it is not in the government's interest to issue a T4D, but to have the contractor continue to perform, the CO would have to get some consideration from the contractor in exchange for the CO forbearing. 

Continue to perform? What does that mean? What was the nature of the default? In what way is the CO forbearing?

Forbearance allows a CO to deliberate without waiving the government's rights. It is a defense against waiver. If the CO decides to let the contractor continue despite a default, he or she is no longer forbearing during deliberation, he or she is waiving.

I think it's important to use the proper terminology.

Link to comment
Share on other sites

 

18 hours ago, Retreadfed said:

However, if the CO determines that it is not in the government's interest to issue a T4D, but to have the contractor continue to perform, the CO would have to get some consideration from the contractor in exchange for the CO forbearing.  That is because prior consideration is no consideration for a future promise.   In this case, the CO may promise (forbear from) T4Ding the contract if the contractor agrees, for example, to complete the contract at a reduced price and with an extended warranty.  

From 52.249-10 Default-Fixed Price Construction

(a)  “…The Contractor and its sureties shall be liable for any damage to the Government resulting from the Contractor’s refusal or failure to complete the work within the specified time, whether or not the Contractor’s right to proceed with the work is terminated. This liability includes any increased costs incurred by the Government in completing the- work” .

When the liquidated damages clause is in the contract, damages would be the LD’s for any inexcusable delays in completing the contract, plus any increased costs incurred by the Government in completing the work (if applicable).

This may be consideration in the initial contract bargain.  It is already part of the contract.

There is no additional “consideration” required. The contract provides the unilaterally applied damages solutions when the government doesn’t terminate.

This is a distinction between the Default clause for FP Construction and the defaults Clause for Supplies and Services contracts at 52.249-8. The latter clause doesn’t specifically mention payments for damages if the contract isn’t terminated..

 

Link to comment
Share on other sites

22 minutes ago, Vern Edwards said:

In what way is the CO forbearing?

Forbearance can be consideration if a party agrees to refrain from taking an act that the party is legally entitled to take.  If the contractor is in default, the government may terminate the contract for default.  Thus, a default termination is an act the government is legally entitled to take when the contractor is in default.  The contracting officer may promise not to T4D the contract in exchange for some consideration from the contractor such as a price reduction.   This is not a waiver of the contractor's default but a new bargain supported by adequate consideration between the parties.

Link to comment
Share on other sites

On 1/23/2023 at 4:14 PM, Retreadfed said:

Forbearance can be consideration if a party agrees to refrain from taking an act that the party is legally entitled to take.  If the contractor is in default, the government may terminate the contract for default.  Thus, a default termination is an act the government is legally entitled to take when the contractor is in default.  The contracting officer may promise not to T4D the contract in exchange for some consideration from the contractor such as a price reduction.   This is not a waiver of the contractor's default but a new bargain supported by adequate consideration between the parties.

Perhaps for services and supply contracts but not for construction contracts, where no new bargain or additional consideration is required . See my post above.

EDIT: One must be careful, especially in a For Beginners Only discussion Topic area,  not to over generalize about available government actions concerning performance failures, inexcusable delays, etc.

EDIT: The default clauses, which cover failure to perform a contract within a required period, progress failures, etc. and the government’s available remedies,  distinctly differ between FP construction and service or supply contracts or the Termination clause for A/E contracts. Specifically, when the government does not terminate the contractors right to proceed.

Edited by joel hoffman
Once must Differentiate between contract types
Link to comment
Share on other sites

1 hour ago, Retreadfed said:

Forbearance can be consideration if a party agrees to refrain from taking an act that the party is legally entitled to take.  If the contractor is in default, the government may terminate the contract for default.  Thus, a default termination is an act the government is legally entitled to take when the contractor is in default.  The contracting officer may promise not to T4D the contract in exchange for some consideration from the contractor such as a price reduction.   This is not a waiver of the contractor's default but a new bargain supported by adequate consideration between the parties.

The making of a new bargain in lieu of T for D is not forbearance as that term is used in government contracting. The making of a new bargain is the making of a new bargain𑁋a settlement.

Here is a definition of forbearance from The Government Contracts Reference Book, 5th ed. p. 226:

Quote

FORBEARANCE The postponement of the decision to terminate for default while the contracting officer is investigating the reasons for the contractor's failure to  meet the contract requirements. With regard to the government's WAIVER of its right to terminate a contract for late delivery, the contracting officer has a reasonable period of forbearance to investigate facts and determine what course of action best serves the government's interests. During the forbearance period, the government may terminate at any time, without prior notice. The facts and circumstances of each case determine the length of time constituting a reasonable forbearance period; no clear demarcation exists between reasonable forbearance and waiver. Once the forbearance period expires, the government waives its right to terminate for default and must reestablish a delivery schedule if it wishes to terminate for default.

I think that once the CO decides upon a course of action he or she is no longer forbearing in the sense in which that term as used in contracting𑁋postponement of a decision. If the government promises not to T for D in return for a negotiated settlement, that act is not forbearance. It is not a mere postponement pending a decision. It is settlement. It is more like forbearance in the sense in which the word is used in the financial fields of mortgage and lending, where it refers to a bargain struck with the lender, such as a new payment schedule that will bring the borrower current.

See: https://www.zeislaw.com/Commercial-Loan-Forbearance-Agreements-Striking-a-Fair-Balance-from-the-Borrower-s-Perspective

https://www.contractscounsel.com/t/us/forbearance-agreement

The concepts are similar, but not the same.

Link to comment
Share on other sites

15 hours ago, Vern Edwards said:

The making of a new bargain in lieu of T for D is not forbearance as that term is used in government contracting.

Forbearance is used in two different contexts in government contracting.  One is the act of forbearing from terminating a contract while the government is deciding what to do about the contractor's default.  The other is forbearance (refraining from doing an act that the government is legally entitled to do) can act as consideration (the government's promise) for a new bargain or settlement as you called it.  I know that forbearance and settlement are not the same thing.    That is a point I have been trying to make with Carl.

Link to comment
Share on other sites

Just now, Retreadfed said:

Forbearance is used in two different contexts in government contracting.  One is the act of forbearing from terminating a contract while the government is deciding what to do about the contractor's default.  The other is forbearance (refraining from doing an act that the government is legally entitled to do) can act as consideration (the government's promise) for a new bargain or settlement as you called it. 

@RetreadfedWhat you describe in the second sentence above quote from your last post is the kind of forbearance usually referred to as mortgage or lending forbearance, i.e., a "forbearance agreement." I know of only one government contract case, from 1960, in which the term forbearance was used in that way, Bronze Marker Corp., ASBCA 5650, 60-2 BCA ¶ 2811, and it was used by the parties, not by the board. As far as I have been able to determine, the word forbearance was not been used in that way before and has not been used in that way since.

The government had entered into a requirements contract for grave markers. The contractor fell behind on deliveries and the parties entered into a supplemental agreement to convert the contract from a requirements contract to an indefinite quantity contract. The supplemental agreement included the following language:

 
Quote

 

Now, therefore, It Is Hereby Mutually Agreed By And Between The Government And The Contractor, as follows:
‘1. The contractor agrees that the Government may cancel, without the Government being liable to the contractor, and place with other manufacturers any or all orders sent to the contractor at any time the contractor is delinquent.
‘2. The contractor agrees that at any time the contractor is delinquent in filling the government orders placed with the contractor, the government may order any or all further requirements from any other manufacturer until such time as the contractor has completed the orders placed with it.
‘3. The contractor further agrees that it will pay to the government any excess costs above the contract price (as determined by the contract between the contractor and the government) resulting from the purchase of Bronze markers from other manufacturers as allowed by paragraphs 1 and 2 above. Any increased postal costs due to shipments to consignees from manufacturers other than the Bronze Marker Corporation will be included in determining excess costs.
‘4. The contractor agrees that the Government may invite bids and award contracts to obtain bronze markers in accordance with this agreement on such terms as it may determine to be in the best interests of the Government.
‘5. The contractor agrees to the above amendments in consideration of the government's forbearance to terminate the contract at this time and for the present default of the contractor.
‘6. Nothing contained herein is to be interpreted or considered as being a termination for the convenience of the government.
‘7. That except as hereby amended all terms and conditions of contract DA 49–056 QM 248 shall remain unmodified and in full force and effect and shall also apply in carrying out the provisions of this Agreement.’

 

 
[Emphasis added.]
 
The case was about excess costs incurred by the government after the contractor defaulted under the new contract. That's the only appearance of the word forbearance in the board decision. Forbearance was not an issue. It was a term used by the parties in connection with their settlement, under which the government agreed not to terminate for default in return for the contractor's agreement to new contract terms.
 
I think that's the kind of thing that you are talking about, in which the government agrees to forego T for D in exchange for new terms. But that is not the way the word forbearance has been used in government contracting. I have not found any other case in which the word forbearance was used in that way, and the phrase "forbearance agreement" does not appear in any BCA decision, ever.
 
The first use of forbearance in a board decision was in 1954, El-Tronics, Inc., ASBCA 2173, Aug. 19, 1954. The government terminated the contract for default and the contractor argued that the government has waived the breach. The board disagreed, saying:
 
Quote

Upon due consideration of appellant's allegations of excusable causes of delay and upon perusal of all the available evidence the Board finds no justification for deciding that the contracting officer erred in his action terminating the contract for default. In our opinion the Government's letter of 17 February 1954 advising appellant of its delinquency and its telegram of 23 February 1954 requesting the withholding of further shipments, did not constitute a waiver of the delivery schedule. The Government's right to terminate the contract existed upon failure of appellant to deliver the required nine items by 15 February 1954 as unequivocally set forth in the contract terms. The delay of nine days from 15 February to 24 February 1954 is considered as mere Government forbearance.

 
As far as I have been able to determine, that's the way the boards have used the term ever since. The FAR System does not use the word forbearance, and the word is not in the DAU Glossary.

I know I'm being a pain about this, but I'm doing so for a reason. The reason is to avoid the kind of confusion we have seen in this thread concerning forbearance, bilateral agreement, and consideration. I think we should use the word in accord with documented long-standing government contracting usage, and distinguish forbearance (postponement of decision) from settlement (agreement as to new terms). It is in settlement that bilateral agreement and consideration are required.

Link to comment
Share on other sites

3 minutes ago, Vern Edwards said:

distinguish forbearance (postponement of decision) from settlement (agreement as to new terms). It is in settlement that bilateral agreement and consideration are required.

Agreed.  That is the point I have been trying to make with Carl, but, perhaps inartfully.

Link to comment
Share on other sites

Dang it my name keeps cropping up so I am compelled to respond.

I appreciate all responses as added to my own research they have made me comfortable with my expanded view of forbearance.

The extended discussion was a result of @Krimz posting about a letter they use with additional details about the use of the letter etc.

I do appreciate all the posts to educate me.  In the end what has been most helpful to me is this document and its various discussions of forbearance - 2022 CONTRACT ATTORNEYS DESKBOOK.  Find it here https://tjaglcs.army.mil/publications

Thanks again

 

 

Link to comment
Share on other sites

Thanks, Carl. See Chapter 25 [EDIT (add):] of the Contract Attorneys Deskbook (2022 edition): “CONTRACT TERMINATIONS FOR DEFAULT (T4D)”

Great reference material.

EDIT(add):  https://tjaglcs.army.mil/documents/35956/56922/2022+Contract+Attorney+Deskbook.pdf/9a2d2125-61b4-7dbe-8e1c-5ccf1339d9dd?t=1657901660444

Chapter 25 contains 45 pages, although not all of it is directly relevant to the questions in the original post. Nevertheless, it provides a good general reference for TFD issues and procedures, including contracts for commercial supplies and services.

9a2d2125-61b4-7dbe-8e1c-5ccf1339d9dd?t=1

Edited by joel hoffman
Link to comment
Share on other sites

12 hours ago, C Culham said:

In the end what has been most helpful to me is this document and its various discussions of forbearance - 2022 CONTRACT ATTORNEYS DESKBOOK.  Find it here https://tjaglcs.army.mil/publications

The link didn't work for me, but if you are interested in forbearance, save yourselves the trip. Here's what is helpful about our topic in that 1,521-page pdf publication, which mentions the word forbearance all of six times:

Quote

1. Waiver of the right to terminate for default occurs if: a. The government fails to terminate a contract within a reasonable period of time after the default under circumstances indicating forbearance, and b. Detrimental reliance by the contractor on the failure to terminate and continued performance by him under the contract, with the government's knowledge and implied or express consent.

2. As a consequence, detrimental reliance usually cannot be found merely from government forbearance and continued contractor performance.

3. Forbearance = Reasonable Time Period... General Rule. The government may “forbear” for a reasonable period after the default occurs before taking some action... 

4. (although forbearance for 42 days after show cause notice was “somewhat long”... )

5. Government actions inconsistent with forbearance may waive a delivery date.

6. Contracting officers should use show cause notices to avoid waiver arguments. Show cause notice is inconsistent with waiver. See Charles H. Siever Co., ASBCA No. 24814, 83-1 BCA ¶ 16,242 (using timely show cause notice preserved right to terminate despite four month forbearance period).

That's all I found via an Adobe Acrobat search of the document. 😐 You'll learn more from Cibinic, Nash, and Nagle's one-page discussion. 

The issue in this thread was whether an agreement, a mod, and consideration are necessary in order for a CO to forbear T for D if the contractor breaches. THEY ARE NOT NECESSARY!

Link to comment
Share on other sites

Carl does have a penchant for often requiring readers to make an effort to find and read his information resources. Unfortunately, every reader must duplicate that effort…

It is time consuming for one, let alone every reader to do that.

Link to comment
Share on other sites

Once again I am compelled to respond.

On 1/24/2023 at 9:16 PM, Vern Edwards said:

The issue in this thread was whether an agreement, a mod, and consideration are necessary in order for a CO to forbear T for D if the contractor breaches. THEY ARE NOT NECESSARY!

An agreement CAN BE but is not necessary  in every case.  Consideration CAN BE determined to confirm the forbearance but is not in every case.  By my read each and every instance of intentional forbearance is determined on its merits.

The real issue is what I would  do in each and every specific case where forbearing was an intentional act that I might take.  That is a future decision and a future discussion when the need arises and then you can debate it with me if you want.  But until then you use your research and I will use mine.   THATS IT!

On 1/25/2023 at 5:02 AM, joel hoffman said:

Unfortunately, every reader must duplicate that effort…

It is time consuming for one, let alone every reader to do that.

 WHAT!  So I as a practitioner should take every comment in Forum at face value, not question it, not do in depth reading and research about it.  READING, in my view is neither time consuming or duplicative it is a MUST.  A MUST that includes not just reading one source but many.

 

 

Link to comment
Share on other sites

1 hour ago, C Culham said:

WHAT!  So I as a practitioner should take every comment in Forum at face value, not question it, not do in depth reading and research about it.  READING, in my view is neither time consuming or duplicative it is a MUST.  A MUST that includes not just reading one source but many.

Carl, I don’t mind reading it. Edit: Sorry - I didn’t mean that in my earlier post. Poor choice of words.

I don’t like searching for it, when no link is provided or when a general link is provided and I have to go two or three links deep to find the desk book on my iPhone. And there are no links within the online Deskbook index to reach a chapter. I had to scroll through 24 chapters to reach Chapter 25. Fortunately the chapter 25 index had links. 

Edited by joel hoffman
Link to comment
Share on other sites

Guest
This topic is now closed to further replies.

×
×
  • Create New...