Failure to Deliver

[TippHill]

We have a component-breakout contract for the production of a component that is critical to the performance of a system. Without the Government's approval, the contractor incorporated a number of performance enhancements into the component. The contractor is now refusing to deliver the production units until it gets paid for the enhancements. Terminating the contract is not an option because the system will not function without the component Also, the component will be GFE to the system contractor and any delay in its delivery will likely result in cost/schedule impact. Any suggestions would be appreciated.

[joel hoffman]

In addition to the questions below, would the supplier be in breach of its contract with you for failure to deliver at a pre-established price?

[Jacques]

I assume the OP is with the government.

Is the contractor ready to tender delivery but refusing to do so unless it gets paid more? Presumably, it is arguing the Government made a constructive change, so, under its own theory, it should proceed with performance even though it believes it is entitled to an equitable adjustment. See, e.g., para (e) of the Changes clause at 52.243-1. Has the contractor argued it is entitled to more time as a result of this constructive change?

Does the contract contain the clause at 52.249-8? If so, look to paragraph (h) and encourage the contractor to consider the implications of this paragraph in deciding whether to continue on its current course of conduct. Common law damages (along with excess reprocurement costs) under a termination for default would be significant in your circumstances. Sorry, I just don't have a lot of sympathy for your statement, "Terminating the contract is not an option..." You say this is a breakout contract, so it probably is not literally impossible, and it may not even be practically impossible, for someone else to perform. It is not a pleasant option for either party, and the contractor may have a whole lot more to lose than government does. My point is not to make idle threats or to act in bad faith, but if the contractor is either in default, or the circumstances warrant a show cause, or it has anticipatorily repudiated its obligations, the Government is not powerless.

[Guest Vern Edwards]

Without the Government's approval, the contractor incorporated a number of performance enhancements into the component. The contractor is now refusing to deliver the production units until it gets paid for the enhancements.

1. Have you formally inspected the product?
2. If so, do the enhancements render the product nonconforming?
3. If so, have you formally rejected the product?
4. If not, are you willing to accept the product despite the enhancements?
5. Did any of your personnel request or knowingly authorize or permit the enhancements? Did the contractor do this entirely on its own, without permission or encouragement?

[Retreadfed]

Tipp, it would also be helpful if you said how the contract is priced, e.g., FFP, CPFF etc.

[here_2_help]

To Vern's point/questions, I find it difficult to believe that the contractor just proceeded to make a bunch of enhancements without the knowledge of any government person. That would mean there were no Technical Interchange Meetings, no Critical Design Reviews, no monthly status reports, no Acceptance Tests, no source inspections, etc. Not sure what industry this is, but in my 2 decades of experience with aerospace/defense contractors, I've never seen a program just throw a contract over the transom at the contractor and wait, passively and in isolation, for the product -- especially one that's going to be GFE for the system integrator.

I feel, rightly or wrongly, as if a piece or two of the story has gone missing.

H2H

[Guest Vern Edwards]

If, in fact, the contractor has refused to deliver unless paid for the enhancements, then they are beyond stupid. A good CO would work with them to encourage timely delivery accompanied by submission of a claim. An explanation of the claim-CO decision-appeal process along with a promise to give the claim prompt and just consideration might prevent a default termination and damage to the government's program.

[Don Mansfield]

TippHill,

Not this year.