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Does the vendor have rights to termination for cause if the government is the one in breach (eg. material breach) of an agreement?

I'm looking in the FAR and everything I see so far talks about the government's right to terminate but not the vendor's right to terminate. Is the vendor's right to terminate already implied  in regular contract law and not written in the FAR?

Will there be any contradictions to any required FAR clauses that needs to be incorporated into an agreement if the vendor wants a separate written section that says they are allowed to terminate if the government materially breaches and doesn't cure with 30 days?

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Please clarify. What do you mean by the term “vendor” (services supplies)?  What type of agreement are you referring to? Thanks 

You are asking if a vendor has the right to terminate “an agreement”  for cause due to a material breach of contract.

That would be an action beyond a dispute claim for damages, which would be covered under a Disputes clause. 

See for example, https://smallbusiness.chron.com/legal-action-against-government-breach-contract-64906.html

See also, for example: https://www.mdptac.org/post/what-government-breach-permits-a-contractor-to-ceaseperformance

 

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3 hours ago, NewbieFed said:

Does the vendor have rights to termination for cause if the government is the one in breach (eg. material breach) of an agreement?

I’m not a lawyer.  But in reading Administration of Government Contracts, Chapter 11, Termination for Convenience and, under Risk Allocation, the section on Breach of Contracts (I don’t have the Book in front of me at this time), the Termination for Convenience Clause was developed, in part, as a defense against breach of contracts claims for government defaults for cause. If the government breaches its duty of good faith dealings such that the contractor can’t perform, it is possible that the contractor may be legally permitted to cease performance.

I believe that the Contract Disputes Act would be the necessary means for the contractor to claim for damages and presumably for an action to cease performance. It depends upon the situation and/or nature of a breach.  There may also be constructive suspension of work, constructive changes, cardinal change(s), etc.

If the government or a legal forum finds that the contractor is entitled to cease performance, the government might have to terminate for convenience.

Again, I’m not a lawyer. But if you are with the government you should have agency counsel to advise you on these matters. 

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6 hours ago, NewbieFed said:

Does the vendor have rights to termination for cause if the government is the one in breach (eg. material breach) of an agreement?

No, if by "agreement" you mean a FAR-based contract.  Under the standard FAR clauses, the privilege of terminating a contract for convenience or default (or cause) lies only with the Government -- the contractor has no such privilege.  However, the contractor does have certain privileges under the Disputes clause of FAR-based contracts.

I am talking about standard FAR clauses.  Nothing stops a contractor from trying to negotiate the inclusion of home-made clauses in a contract when a negotiated process is used.

 

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3 hours ago, joel hoffman said:

I’m not a lawyer.  But in reading Administration of Government Contracts, Chapter 11, Termination for Convenience and, under Risk Allocation, the section on Breach of Contracts (I don’t have the Book in front of me at this time), the Termination for Convenience Clause was developed, in part, as a defense against breach of contracts claims for government defaults for cause. If the government breaches its duty of good faith dealings such that the contractor can’t perform, it is possible that the contractor may be legally permitted to cease performance.

I believe that the Contract Disputes Act would be the necessary means for the contractor to claim for damages and presumably for an action to cease performance. It depends upon the situation and/or nature of a breach.  There may also be constructive suspension of work, constructive changes, cardinal change(s), etc.

If the government or a legal forum finds that the contractor is entitled to cease performance, the government might have to terminate for convenience.

Again, I’m not a lawyer. But if you are with the government you should have agency counsel to advise you on these matters. 

This is a vendor that provides biotech licenses and some related equipment. The agreement is composed of a govt task order/purchase order + an intellectual property agreement that supplements govt task/purchase orders.

Thank you for the links - this is helpful.

 

14 minutes ago, ji20874 said:

No, if by "agreement" you mean a FAR-based contract.  Under the standard FAR clauses, the privilege of terminating a contract for convenience or default (or cause) lies only with the Government -- the contractor has no such privilege.  However, the contractor does have certain privileges under the Disputes clause of FAR-based contracts.

I am talking about standard FAR clauses.  Nothing stops a contractor from trying to negotiate the inclusion of home-made clauses in a contract when a negotiated process is used.

 

Thanks. This is supposed to be a conjunction of a FAR PO and a intellectual property licensing agreement.

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6 hours ago, NewbieFed said:

This is supposed to be a conjunction of a FAR PO and a intellectual property licensing agreement.

If the purchase order incorporates the license agreement, and if the license agreement gives the contractor the right to terminate the agreement, well, there you go.  One supposes that both the Government's and the contractor's attorneys will have reviewed the whole arrangement (purchase order plus license arrangement), and that both parties are satisfied with the arrangement. As far as I can tell, there is no FAR prohibition on allowing a termination privilege to a contractor -- the FAR only insists that the Government have the privilege.

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The answer to Newbie's question is found in this extract from one of  the articles to which Joel provided a link:  “'[u]pon material breach of a contract, the non-breaching party has the right to discontinue performance of the contract.' Stone Forest Industries, Inc. v. United States, 973 F. 2d 1548, 1550-1551(Fed. Cir. 1992), citing Restatement (Second) of Contracts § 241 cmts a & b. The choice of remedy is up to the non-breaching party."  This same principle has been stated in many cases.  It is frequently cited in cases where there is an assertion that the government did not properly exercise an option.  However, in many situations, there are FAR clauses that provide a contractor with a remedy for government actions that might ordinarily be a breach of contract.  The T4C clauses and Government Property clause are examples of this.

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@NewbieFedYou asked:

18 hours ago, NewbieFed said:

Does the vendor have rights to termination for cause if the government is the one in breach (eg. material breach) of an agreement?

... Is the vendor's right to terminate already implied  in regular contract law and not written in the FAR?

"Termination" is a term of art used in government contracts to describe an act of the government, not of a contractor. Contractors do not terminate contracts.

However, under the common law of contracts in the United States, if one party to a contract fails to fulfill a material contractual obligation—which is a material breach of contract—the other party is excused from further performance. See Restatement of the Law, Second, Contracts 2d, Section 235, "Effect of Performance and Non-Performance," which states:

Quote

(1) Full performance of a duty under a contract discharges the duty.

(2) When performance of a duty under a contract is due any non-performance is a breach.

Now see Section 237, "Effect on Other Party's Duties of a Failure to Render Performance," which states:

Quote

Except as stated in § 240, it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time.

And now see Section 240, "Part Performances As Agreed Equivalents," which states:

Quote

If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party's performance of his part of such a pair has the same effect on the other's duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised.

And now see Section 241, "Circumstances Significant in Determining Whether a Failure is Material":

Quote

In determining whether a failure to render or to offer performance is material, the following circumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;

(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;

(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;

(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Bottom line: As a general rule, if the government materially breaches the contract the contractor is freed from its remaining obligations to perform.

However, see the Disputes clause, FAR 52.233-1, Alternate I, which states:

Quote

(i) The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under or relating to the contract, and comply with any decision of the Contracting Officer.

If that version of the Disputes clause is in the contract it may limit the contractor's common law right to cease performing.

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19 hours ago, NewbieFed said:

his is a vendor that provides biotech licenses and some related equipment. The agreement is composed of a govt task order/purchase order + an intellectual property agreement that supplements govt task/purchase orders.

You posted "How to classify technology licenses - Product Service Codes, Supply/Service, & Manufactured End Products (MEP). Is that post now resolved with you? Is your current post about the same transaction?

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Let me add....if a commercial item acquisition pursuant to FAR Part 12 look to FAR 52.212-4 if in the contract (order)  for the actual terms and conditions for the language related to Disputes.   And I might add that the (d) paragraph of 52.212-4 is not to be "tailored" so if the 52.212-4 is in the contract then Alt 1 is by my read not applicable.

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10 hours ago, C Culham said:

Let me add....if a commercial item acquisition pursuant to FAR Part 12 look to FAR 52.212-4 if in the contract (order)  for the actual terms and conditions for the language related to Disputes.   And I might add that the (d) paragraph of 52.212-4 is not to be "tailored" so if the 52.212-4 is in the contract then Alt 1 is by my read not applicable.

See FAR 52.212-4(d), which says:

Quote

(d) Disputes. This contract is subject to 41 U.S.C. chapter 71, Contract Disputes. Failure of the parties to this contract to reach agreement on any request for equitable adjustment, claim, appeal or action arising under or relating to this contract shall be a dispute to be resolved in accordance with the clause at FAR 52.233-1, Disputes, which is incorporated herein by reference. The Contractor shall proceed diligently with performance of this contract, pending final resolution of any dispute arising under the contract.

Emphasis added.

Compare the last sentence in that paragraph to the alternate to FAR 52.233-1:

Quote

The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under or relating to the contract, and comply with any decision of the Contracting Officer.

There is no need to tailor paragraph (d) to add the alternate. As written, paragraph (d) bars a contractor from ceasing performance pending final resolution of an accusation of government breach. 

 

 

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For the purposes of this scenario, there is no need to use alternate 1 to 52.233-1. Paragraph i of the basic clause would cover a dispute arising under a non-commercial contract.

”       (i) The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer.”

The only difference between the basic clause at 52.233-1 and it’s alternate 1 are the words “or relating to” .

The contractor would be claiming a government material breach of contract, in order to seek relief and release from further performance of the contract. The alleged breach is an action under the contract. No need to show it is an action “relating to” the contract.

As Vern said, final resolution of the matter “means until after CO final decision and contractor appeals, if any.”

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I can envision a scenario for a claimable government action “relating to the contract.

The government awards another contract relatively soon after the instant contract, with higher wage rates or otherwise was more attractive for labor or professional employees. The contractor claims that it severely affected its cost of labor or ability to attract and retain personnel. Only the government knew or could have known about the second contract.

There are examples like that cited in Nash and Cibinic’s Administration of Government Contracts (my latest is the Fourth edition).

For the purposes of this discussion thread, a material government breach of contract would be an action “under” but not otherwise “relating to” the contract.

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See FAR 33.213, Obligation to continue performance:
 

Quote

(a) In general, before passage of the Disputes statute, the obligation to continue performance applied only to claims arising under a contract. However, the Disputes statute, at 41 U.S.C.7103(g), authorizes agencies to require a contractor to continue contract performance in accordance with the contracting officer’s decision pending a final resolution of any claim arising under, or relating to, the contract. (A claim arising under a contract is a claim that can be resolved under a contract clause, other than the clause at 52.233-1, Disputes, that provides for the relief sought by the claimant; however, relief for such claim can also be sought under the clause at 52.233-1. A claim relating to a contract is a claim that cannot be resolved under a contract clause other than the clause at 52.233-1.) This distinction is recognized by the clause with its AlternateI (see 33.215).

(b) In all contracts that include the clause at 52.233-1, Disputes, with its AlternateI, in the event of a dispute not arising under, but relating to, the contract, the contracting officer shall consider providing, through appropriate agency procedures, financing of the continued performance; provided, that the Government’s interest is properly secured.

So what's the difference between "arising under" and "relating to"?

In ABB Enterprise Software, Inc., ASBCA 60314, June 29, 2016, 16-1 BCA ¶ 36425, a software company accused the Navy of breach of contract based on breach of a master software license agreement, which the government had signed. The Navy argued that the board had no jurisdiction, because the license agreement was not mentioned in or incorporated into the government contract. The board decided that violation of the license agreement was a matter "relating to" the contract, and it thus had jurisdiction. In making its decision, the board cited  Todd Construction, L.P. v. United States, 656 F.3d 1306, 1311 (Fed. Cir. 2011).

A read of those two decisions, ABB and Todd, will give you a better idea of the distinction between "arising under" and "relating to" a contract.

For details about the breach accusation, see ABB Enterprise Software, Inc., ASBCA 60314, January 9, 2018, 18-1 BCA 36954. The board granted the contractor summary judgment. The Navy agreed to pay the contractor $600,000 in settlement.

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8 minutes ago, Vern Edwards said:

See FAR 33.213, Obligation to continue performance:
 

 In ABB Enterprise Software, Inc., ASBCA 60314, June 29, 2016, 16-1 BCA ¶ 36425, a software company accused the Navy of breach of contract based on breach of a master software license agreement, which the government had signed. The Navy argued that the board had no jurisdiction, because the license agreement was not mentioned in or incorporated into the government contract. The board decided that violation of the license agreement was a matter "relating to" the contract, and it thus had jurisdiction. In making its decision, the board cited  Todd Construction, L.P. v. United States, 656 F.3d 1306, 1311 (Fed. Cir. 2011).

A read of those two decisions, ABB and Todd, will give you a better idea of the distinction between "arising under" and "relating to" a contract.

For details about the breach accusation, see ABB Enterprise Software, Inc., ASBCA 60314, January 9, 2018, 18-1 BCA 36954. The board granted the contractor summary judgment. The Navy agreed to pay the contractor $600,000 in settlement.

Here, NewbieFed didn’t describe the  circumstances of the alleged breach of contract. So, I suppose that we can’t determine whether the alleged government breach is an action under or relating to the contract. 

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5 minutes ago, joel hoffman said:

Here, NewbieFed didn’t describe the  circumstances of the alleged breach of contract. So, I suppose that we can’t determine whether the alleged government breach is an action under or relating to the contract. 

Here is the original question:

On 9/12/2021 at 3:40 PM, NewbieFed said:

Does the vendor have rights to termination for cause if the government is the one in breach (eg. material breach) of an agreement?

That question has been answered, with plenty of authoritative references. If NewbieFed is still interested he or she can read up.

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59 minutes ago, Vern Edwards said:

Here is the original question:

That question has been answered, with plenty of authoritative references. If NewbieFed is still interested he or she can read up.

Agreed, I was simply responding to the several posts, which implied that  alternate 1 to 52.233-1 is necessary for non-commercial contracts.

However, if it is a commercial contract, 52.212-4(d) doesn’t refer to actions relating to the contract.

10 hours ago, Vern Edwards said:

There is no need to tailor paragraph (d) to add the alternate. As written, paragraph (d) bars a contractor from ceasing performance pending final resolution of an accusation of government breach. 

 

and…   

10 hours ago, Vern Edwards said:

The Contractor shall proceed diligently with performance of this contract, pending final resolution of any dispute arising under the contract.

So, if 52.212-4(d) is adequate for commercial contracts, then so is 52.233-1 for non-commercial contracts, without alternate 1.

Thats all I meant.

I said this morning: “For the purposes of this scenario, there is no need to use alternate 1 to 52.233-1. Paragraph i of the basic clause would cover a dispute arising under a non-commercial contract.”

Sheesh. 

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29 minutes ago, joel hoffman said:

I said this morning: “For the purposes of this scenario, there is no need to use alternate 1 to 52.233-1. Paragraph i of the basic clause would cover a dispute arising under a non-commercial contract.”

Joel, it would not cover a dispute "relating to" the contract.

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1 hour ago, Vern Edwards said:

Joel, it would not cover a dispute "relating to" the contract.

Vern, yes.

I focused on your Bold type wording in your earlier post quoting paragraph (d) of 52.212-4: “The Contractor shall proceed diligently with performance of this contract, pending final resolution of any dispute arising under the contract.

I failed to notice the word “arising under or related to” in the wording of (d) above the bolded quote:

11 hours ago, Vern Edwards said:

“Failure of the parties to this contract to reach agreement on any request for equitable adjustment, claim, appeal or action arising under or relating to this contract shall be a dispute to be resolved in accordance with the clause at FAR 52.233-1, Disputes, which is incorporated herein by reference.”

Note that it doesn’t specifically refer to alternate 1 of the FAR 52.233-1. Clause. Just the clause is incorporated by reference.

However, the 52.212-4 clause at (d) specifically requires diligent performance pending resolution of any dispute “arising under the contract.”

So, does that mean that, in a commercial contract, the contractor doesn’t have to continue performance under any dispute “relating to” the contract? 

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9 minutes ago, joel hoffman said:

So, does that mean that, in a commercial contract, the contractor doesn’t have to continue performance under any dispute “relating to” the contract? 

I think that's right. It does not mention disputes "relating to the contract."

Now the question is whether adding the alternate would be "tailoring." I don't know.

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4 hours ago, Vern Edwards said:

In general, before passage of the Disputes statute, the obligation to continue performance applied only to claims arising under a contract. However, the Disputes statute, at 41 U.S.C.7103(g), authorizes agencies to require a contractor to continue contract performance in accordance with the contracting officer’s decision pending a final resolution of any claim arising under, or relating to, the contract.

This is from FAR 33.213.  However, this is what 41 U.S.C. 7103(g) actually says "This chapter does not prohibit an executive agency from including a clause in a Federal Government contract requiring that, pending final decision of an appeal, action, or final settlement, a contractor shall proceed diligently with performance of the contract in accordance with the contracting officer’s decision."  Thus, the statute does not make a distinction between claims arising under the contract and claims relating to a contract.  What the statute does is give agencies discretion in how they write clauses requiring continued performance by the contractor following a contracting officer's decision.  Excluding continued performance from the contractor's obligation under a contract for commercial items and services following a decision on a claim relating to the contract (e.g., a breach claim) seems consistent with standard commercial practices.

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Since NewbieFed is a government employee, he or she should have access to their agency counsel for answers to the questions herein. 

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On 9/13/2021 at 8:52 PM, Neil Roberts said:

You posted "How to classify technology licenses - Product Service Codes, Supply/Service, & Manufactured End Products (MEP). Is that post now resolved with you? Is your current post about the same transaction?

It's a different transaction but involves something that is somewhat similar. 

That other post is "resolved" because I went with the PSC that Program and past Programs/past contracts used, so it remains more of a theoretical question of what falls under services vs supplies in general and in the context of PSC.

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On 9/13/2021 at 1:03 PM, Vern Edwards said:

@NewbieFedYou asked:

"Termination" is a term of art used in government contracts to describe an act of the government, not of a contractor. Contractors do not terminate contracts.

However, under the common law of contracts in the United States, if one party to a contract fails to fulfill a material contractual obligation—which is a material breach of contract—the other party is excused from further performance. See Restatement of the Law, Second, Contracts 2d, Section 235, "Effect of Performance and Non-Performance," which states:

Now see Section 237, "Effect on Other Party's Duties of a Failure to Render Performance," which states:

And now see Section 240, "Part Performances As Agreed Equivalents," which states:

And now see Section 241, "Circumstances Significant in Determining Whether a Failure is Material":

Bottom line: As a general rule, if the government materially breaches the contract the contractor is freed from its remaining obligations to perform.

However, see the Disputes clause, FAR 52.233-1, Alternate I, which states:

If that version of the Disputes clause is in the contract it may limit the contractor's common law right to cease performing.

Thank you.

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