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If you terminate a contract for Default and fail to notify the SBA offices in accordance with FAR 48 CFR 49.402-3 (e)(4), is this a big deal or not? Is it worse if this occurred 10 times over the course of two years? What are they supposed to do with this info, anyway?

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Guest Vern Edwards

lbrob1:

You're new, so I'm not going to fuss too much, but your question was ambiguous. What does "big deal" mean? Are you asking if failure to notify SBA would invalidate or otherwise impair the termination? Are you asking if it could get the CO in trouble with an inspector general? Or are you asking something else? Try to be specific.

Such failure might be a 'big deal." Failure to notify SBA has been asserted as a challenge to the propriety of a termination for default a few times at the boards of contract appeals and once at the Court of Federal Claims. As far as I can tell, such assertions have been to no avail. However, the boards and the court have suggested that such a failure could impair a termination if the failure was prejudicial to the contractor's interests. See, for example, Rowe Inc. v. General Services Administration, 01-2 BCA ¶ 31630, GSBCA 14211, Sept. 28, 2001:

The main deficiencies cited by appellant essentially involve FAR provisions encouraging consultation with SBA and with the agency small business specialist prior to implementing a default termination of a contract with a small business. 48 CFR 49.402-3(e)(4). First, GSA had previously put SBA on notice that it was considering a partial default termination of the contract. Nothing in the record indicates that SBA objected to GSA's taking this action. Second, the requirement to notify SBA and the agency small business specialist of a pending default termination does not provide a basis for relief. The requirement is imposed for informational purposes. The contracting officer is not constrained to obtain a response from SBA or from the small business specialist before terminating a contract for default. S & W Associates, DOT CAB 2633, 96-2 BCA ¶ 28,326, at 141,454; McOuiston Associates, ASBCA 24676, 83-1 BCA ¶ 16,187, at 80,441. Appellant has not shown how the subsequent omission harmed it.

In this same vein, Rowe also contends that the failure of the contracting officer to consult with the small business specialist in accordance with FAR 49.402-3 (e)(4) renders the termination procedurally defective. However, consultation with the small business specialist is not a mandatory requirement. The contracting officer need do so only if it is “practicable.” While there is no evidence that it was not practicable to consult with the small business specialist, appellant has not shown that this omission prejudiced it. Consequently, we conclude that the failure to consult with the small business specialist did not affect the propriety of the termination for default. S & W Associates, 96-2 BCA at 141,455; AlW-Alton, Inc., ASBCA 45032, 96-1 BCA ¶ 28,232, at 140,980.

See also Hanno ElectricCo. v. U.S.,31 Fed. Cl. 135, April 29, 1994:

Hannon also contends that the CO acted arbitrary and capriciously by failing to forward a copy of the cure notice to the Small Business Administration (“SBA”) as required by 48 C.F.R. § 49.402–3(e)(4). Such a failure is not grounds for overturning a default where, as here, notice is provided to SBA only “as a matter of information,” and plaintiff has not demonstrated that the lack of notice prejudiced it. Acquisition Assocs., ASBCA No. 24676, 83–1 BCA ¶ 16,187, Apr. 29, 1994.

Off hand, I don't know how the failure might prejudice a contractor, but contractors hire lawyers to figure that out. In theory, SBA might advise the contractor or try to intercede on the contractor's behalf, although I think that's unlikely. In any case, the rule is there for some reason, so it's a good idea to comply with it, if only to deny the contractor a potential legal issue.

The requirements of FAR 49.402-3(e)(4) do not apply to contracts for commercial items. See FAR 12.403(a).

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I have a new question...is a T for D defective if the following are present on a FFP, unilateral PO for non-commercial supplies, if:

1. FAR 52.249-8 (T4D)is missing from the PO (contract??),

2. A first article is required prior to production, it is supplied, but it is (likely wrongfully) rejected for a minor/easily correctable defect,

3. A T4D is issued referencing 52.249-8 based on a failure to supply acceptable first article and failure to make delivery.

4. The Contractor fails to take action for 16 months, then wants to file a claim

I have my own interpretation, but want to see what superior minds might think....

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I'll offer an opinion while we're waiting for the superior minds to show up.

If you issued a unilateral purchase order and the vendor did not deliver an acceptable product by the date stated in the order, then I don't think you had a contract. There was an offer, but no acceptance. If that's the case, there's nothing to terminate and the vendor is not in default.

That's what I think based on the facts provided.

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Don,

They said the contractor provided a first item for testing. So, isn't that legally an acceptance of the order.

However,if the order depended on first order acceptance and there was none, that really complicates the issue.

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If the order just required them to provide an item for testing and they did that, then you probably would have acceptance. I assumed that the vendor was required to deliver an acceptable first item by a specified date.

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I don't know what lbrob is asking for an opinion on. If he is asking can the contractor file a claim, I do not see any reason why it can't. Of course we do not know what the theory of the claim would be because that is up to the contractor. However, if it wants to challenge the T4D, from what is written, I see no reason why it cannot. In this regard, remember that a T4D is a government claim and the government would have to establish that a termination for default clause was required to be included in the contract as a matter of law and that the predicate for a T4D under that clause was met.

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Here is some more on the subject...

1. There is a thing called the Christian Doctrine, apparently including T4D in all contracts,even if not cited explicitly, to my understanding.

2. It may or may not apply to this case, because it may only permit T4D for a failure to make progress and not a failure to supply an acceptable first article....need a big brain to advise more on this one.

3. The Branch Chief stepped in and issued a statement that claims submitted by the contractor more than 12 months after the Government's T4D are untimely and will not be evaluated for a final decision.

Some questions are: is the Branch Chief correct? Did she set up the agency for trouble by stepping in? Can a contractor still file am actionable claim despite the T4D against them or is the issue technically already adjudicated?

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lbrob1,

May I re-state the facts? I want to make sure I'm understanding...

1. YES NO A Government agency issued a unilateral purchase order under FAR Part 13.

2. YES NO The purchase order was for supplies -- non-commercial, so no FAR Part 12 clauses were used.

3. YES NO The purchase order did not include the clause at FAR 52.249-8, Default (Fixed-price Supply and Service), because the prescribing language makes the clause optional under the simplified acquisition threshold.

4. YES NO The purchase order required a first article submission for the Government's testing and approval. The purchase order included the clause at FAR 52.209-4, First Article Approval--Government Testing.

5. YES NO The contractor delivered a first article item on time.

6. YES NO The Government disapproved the first article for an easily correctable defect and provided timely notice to the contractor under paragraphs ( b ) or ( c ) of the clause at FAR 52.209-4.

7. YES NO The Government did not request that the contractor submit an additional first article for testing.

8. YES NO Because of the first article disapproval, the Government deemed the contractor to have failed to make delivery under paragraph ( d ) of the clause at FAR 52.209-4.

9. YES NO The Government terminated the purchase order because of the contractor's default, and cited the clause at FAR 52.249-8, and paragraph ( a )( 1 )( i ) within that clause, as the basis for the termination.

10. YES NO The Government provided notice of the termination to the contractor, and has evidence of delivery and receipt of the notice.

11. YES NO The Government heard nothing more from the contractor for the following sixteen months.

12. YES NO The contractor then indicated that it wanted to file a claim, but did not actually do so.

13. YES NO The contracting officer's branch chief issued a written statement to the contractor that claims submitted by the contractor more than 12 months after the Government's notice of termination for default are untimely and will not be evaluated for a final decision.

If any of these are NO, please provide the correct information.

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One more question. Was the termination notice in the form of a final decision under the Disputes clause in which the contractor was informed of its appeal rights?

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#5 No, the contractor was 18 months late to submit a first article, but the Government still evaluated it in full.

#6 No: The Government's notice of disapproval was slightly untimely (56 days late). Other than this, yes to the question.

#7 No: The Govt requested a new first article, but the Contractor refused, asking Engineers from the local COR (DCMA) to see the minor defects and report back to the KO. DCMA refused and the original KO took no action for a year+.

#8 No: Govt found failing to provide a first article that meets contract requirements AND BY NOT MAKING DELIVERY UNDER THE CONTRACT

#9 No: FAR 52.249-8 was used, but (a)(1)(i) was omitted. FYI, the Govt took one year to decide to T4D after receiving Contractor's request for reevaluation.

#11 No: Govt heard nothing back regarding this contract, but had extensive contact with the KO 30+ times in that time frame regarding improper Govt first article testing results, often verified as improper by results sent over from independent laboratories.

#12 No: Contractor did file a claim 18+ months later.

and to Retreadfed: Yes, the proper method of termination was performed in a contract mod (good one!).

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The bases are Improper and delayed Government inspection of the first article, Government failure to use a proper, contractually binding authority to terminate the contract., Government failure to enter into discussion or negotiate a termination settlement in good faith. and a long standing failure to cooperate to correct known problems with the first article process....

Are any of these defensible?? What would you do?

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lbrob, since you did not answer my question directly, I want to make sure of one thing, the termination notice was in the form of a decision under the Disputes clause that complied with the requirements of FAR 33.211.

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Retreadfed: Correct, FAR 33.211 was followed, however the statement of facts in agreement and disagreement 33.211 (a)(4)(iii) is poorly supported and vague...effectively saying the first article failed and the KO agrees it failed, without going into detail.

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From what you have written, I would say that the contractor cannot file a valid claim in regard to any matter that is within the scope of the final decision. Under the CDA, a contractor can challenge a decision under the Disputes clause by filing an appeal with the appropriate appeals board within 90 days of receipt of the decision or by filing a lawsuit in the COFC within 1 year of receipt of the decision. If the contractor does neither, the decision becomes final and binding even if it is erroneous. Because the decision was delivered to the contractor 16 months ago, any challenge to that decision would not be timely.

However, because a contractor has six years within which to file a claim after the claim accrues, the contractor can file a claim unrelated to the subject of the final decision so long as the six year period has not elapsed.

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I'm no attorney and it would be interesting (read: *vital*) to get an attorney's view of this issue. That said, I had thought there was a 2010 Federal Circuit decision (Maropakis Carpentry) that required defenses against government actions to be submitted to a KO and to receive a COFD before being adjudicated. My understanding of that dispute is that the government assessed liquidated damages and the contractor raised a defense of excusable delay, but because the contractor failed to submit that defense to the CO within 6 years, the defense was found to be outside the statute of limitations and would not be heard. Thus, the contractor had 6 years to raise all claims, including defenses to the government's actions.

If my understanding of that decision is correct -- and let me emphasize I may not have it right -- then the Branch Chief's edict that contractor claims submitted more than 12 months after the T4D are untimely and would not be considered may be construed as denying a contractor the right to raise defenses and to have them heard on appeal, in certain circumstances. I don't know. But I would be worried that, if the contractor is raising a defense against the T4D, then its claim may not be untimely and would require a separate COFD, even if more than a year has passed since the T4D.

At least, that's how I think the Federal Circuit decision reads.

Did I mention I'm not an attorney?

H2H

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From a legal perspective, I am in agreement with Retreadfed's assessment that the ship has sailed to dispute the T4D. However, from an ethical perspective, I am having a difficult time with that action. Originally, lbrob1 stated:

"2. A first article is required prior to production, it is supplied, but it is (likely wrongfully) rejected for a minor/easily correctable defect"

From this statement, I inferred that the agency possibly erred in rejecting the Contractor's first article. This improper rejection might have influenced the Contractor's capability to perform on the remainder of the contract. While many of the details in this case are obfuscated, the Government might have set the Contractor up for failure, and ultimately the T4D.

lbrob1's agency is within its rights to do absolutely nothing with the T4D. However, if I was in the situation, and knowing that the agency might have contributed to the Contractor's failure, I would offer the Contractor the option to convert the T4D to a termination for convenience with a no cost settlement agreement. TheT4C with a no cost settlement agreement would allow the Contractor to improve its business process while also eliminating any further hassle and cost of involving agency staff to defend against the Contractor's claims.

A T4D has a devastating effect on a business. A T4D stays on the Contractor's record for up to six years and could prevent it from seeking future business. The Contractor has employees which rely on the Government's business for their livelihoods. Those employees are taxpayers. Even if I knew I could get away with it, I would prefer not to have the weight of those employees' future on my conscience if I knew that the Government was contributory to the Contractor's failure.

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H2H, your memory is partially correct. In Maropakis, the government did assert a claim for liquidated damages and issued a final decision establishing the amount and demanding payment by the contractor. Three days before the time for filing in the COFC expired, Maropakis filed suit. Maropakis submitted a complaint in which it asserted a right to a schedule adjustment. The COFC held that the request for a schedule adjustment was a claim by Maropakis. Because that claim had never been submitted to the contracting officer, the court had no jurisdiction to rule on that part of the complaint and dismissed it. The CAFC affirmed the COFC's decision. Thus, the Maropakis decision only dealt with whether a part of Maropakis complaint constituted a separate claim that needed to be submitted to the contracting officer before the court had jurisdiction to rule on the substance of the complaint, not whether the claim was barred by the 1 year period in which to appeal a contracting officer's decision or the six year period within which to assert a claim after the claim accrued.

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Retreadfed,

Thank you for clarifying.

H2H

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Guest Vern Edwards

From what you have written, I would say that the contractor cannot file a valid claim in regard to any matter that is within the scope of the final decision. Under the CDA, a contractor can challenge a decision under the Disputes clause by filing an appeal with the appropriate appeals board within 90 days of receipt of the decision or by filing a lawsuit in the COFC within 1 year of receipt of the decision. If the contractor does neither, the decision becomes final and binding even if it is erroneous. Because the decision was delivered to the contractor 16 months ago, any challenge to that decision would not be timely.

However, because a contractor has six years within which to file a claim after the claim accrues, the contractor can file a claim unrelated to the subject of the final decision so long as the six year period has not elapsed.

Did the contractor ever submit a claim as defined in FAR 2.101 about the T4D?

If not, how could there have been a CO final decision on such a claim?

Did the T4D communication include the CO final decision language from FAR 32.211?

If not, was the T4D communication a final decision?

Could the T4D communication have validly included that language if the contractor had not yet submitted a claim as defined in FAR 2.101?

Would/could the contractor have submitted a claim as defined in FAR 2.101 about a prospective T4D?

If there was a claim as defined by FAR 2.101, I wonder if a "statement" by a "branch chief" would constitute a final decision of the CO.

If the branch chief were a CO and could have issued a final decision, would he have done so if he had stated that it was too late to submit a claim?

If he did, wouldn't he have contradicted himself?

If the contractor had submitted a claim about the branch chief's statement that it was too late to file a claim, and if the branch chief had properly issued a final decision denying that claim, and if the contractor had failed to timely appeal that decision, couldn't the contractor still submit a claim about the T4D?

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Vern,

Outstanding points. You articulated what I could only hint at.

H2H

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