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Adding limit or bounds to a subcontract Termination for Cause clause


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I received a subcontract with a Prime who has this clause in their MSA:

 

12. TERMINATION FOR CAUSE In the event SUBCONSULTANT fails or is unable to comply with the provisions of this Agreement, or there is a defect in the Services, and same is not corrected within five (5) workdays after written notice by CONSULTANT to SUBCONSULTANT, CONSULTANT may at its sole discretion, notwithstanding any other right or remedy:

(1).  Terminate this Agreement as provided above and be relieved of the payment of any further consideration to SUBCONSULTANT.  In the event of such termination, CONSULTANT may proceed to complete the services in any manner deemed proper by CONSULTANT, either by the use of its own forces or by re-subcontracting them to others.  In either event, SUBCONSULTANT shall be liable for the cost to complete the services herein provided for, over and above what SUBCONSULTANT would have been entitled to receive for the completion of said services.

(2).  CONSULTANT may, without terminating this Agreement or taking over the services, furnish the necessary materials, equipment, supplies or help necessary to remedy the situation, at the expense of SUBCONSULTANT.

 

This is a professional services contract. The Prime's legal advisor won't strip the yellow highlighted text. In the event of termination for cause, How do I mitigate my risk of being charged for another subcontractor's employee for a lengthy period?
Please advise acceptable bounds or limits that I can propose to the Prime that eliminate or limit my risk.

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Reprocurement or completion provisions are not unusual for defaults, and are in the FAR as well (see 49.402-6) but this one is a bit stricter than others. Possible approaches:

1. Put in a "not to exceed" amount.

2. Modify the "relieved of any further payment" provision. It's too vague. Does it mean they don't have to pay you even for services already delivered or invoiced? Suggestion - align it with the settlement and payment provisions of the FAR.

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Fara, In response to your point about "too vague"... a different clause allows the Prime to withhold "Any payments due SUBCONSULTANT may be reduced by (1) any retainage withheld from CONSULTANT, (2) amounts of work in dispute", so I believe it does mean they don't have to pay you even for services already delivered or invoiced?

I'd appreciate any suggestion about where to find the FAR settlement and payment provision you referenced.

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19 hours ago, ChuckB said:

In the event of such termination, CONSULTANT may proceed to complete the services in any manner deemed proper by CONSULTANT, either by the use of its own forces or by re-subcontracting them to others.  In either event, SUBCONSULTANT shall be liable for the cost to complete the services herein provided for, over and above what SUBCONSULTANT would have been entitled to receive for the completion of said services.

That strikes me as an extreme measure to include in a subcontract to a consultant contract, especially the "over and above" provision. Is the subcontract really for consulting services?

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On 11/6/2024 at 9:08 AM, ChuckB said:

I'm interested in the bolded words, above. What is a "defect in the services"? (I think Vern may have been thinking a similar question.) How is a "defect" defined or measured?

In my consulting relationships, the quality of service to be provided is defined in the agreements. Often, a reference is made to the AICPA consulting standards. Even more often, I agree to provide services "with due care and in conformity with a reasonable level of care generally associated with professionals in our business." (Vague, I know. But that's what my attorney recommended and it seems to be working so far.)

Unless "a defect in the Services" is defined, I don't see how a reasonable person would accept the agreement as drafted.

 

EDITED TO ADD: I always limit damages to fees paid or, less frequently, to a multiple of fees paid. Accepting the possibility of damages without limit seems ... reckless.

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On 11/6/2024 at 9:08 AM, ChuckB said:

In the event of termination for cause, How do I mitigate my risk of being charged for another subcontractor's employee for a lengthy period?

You may be able to mitigate up to the contract price, with a professional liability insurance policy. You may also look into a performance bond. I would not be worried about the lack of "defect" definition...ambiguity may work in your favor. I think the "over and above" language is a problem. If you get the insurance and/or bond, you can propose that the Contractor delete the "over and above" language and you will attempt to make them an additional insured party and provide a Certificate for the bond and/or insurance policy.

Edited by Neil Roberts
"additional" spelling
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All,
This issue is still in progress.  I'm working under an NTP while still negotiating the contract using your advice. I'll let you know what occurs as soon as I have a worthwhile update.

Vern, the company wrote this contract for several purposes, which include consulting services. Their legal advisor understands this is for consulting but won't budge on deleting the verbiage, so I've requested to apply limits/bounds to the paragraph.

v/r
Chuck

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  • 1 month later...

I finally got this matter resolved. The Prime's legal counsel would not budge on the contract verbiage, so I convinced the program manager in charge of project execution agreed to write in the Master Services Agreement a 30 day limit to each "Service" my employee will provide. That in effect bounds my risk to an acceptable level.

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