HANDLING UNSATISFACTORY PERFORMANCE
(CT:COR-39; 09-09-2015)
(Office of Origin: A/OPE)
14 FAH-2 H-541 GENERAL
(CT:COR-39; 09-09-2015)
a. In a delinquency or default, contractor performance is delayed, inadequate, or both based on the contract requirements. Contracting officer’s representatives (CORs) must understand the rights and responsibilities of both the U.S. Government and the contractor and should not take any actions that might be considered prejudicial to either party.
b. Two principles govern conduct in these situations: First, when a delinquency appears imminent, the U.S. Government must take prompt action to protect its rights. Second, in administering a delinquent contract, Department personnel should do nothing which might waive the U.S. Government's rights.
c. The COR should notify the contracting officer at the earliest moment when, as a result of monitoring the contractor's progress, it appears that the contractor may become, or is in fact, delinquent. The contracting officer will thus be prepared to take formal written action, depending on the facts.
d. Silence on the part of the U.S. Government could be interpreted by the contractor as revised U.S. Government expectation of performance. This could adversely affect the U.S. Government's right to withhold payments, terminate for default, or otherwise exercise certain rights under the contract.
e. Unsatisfactory contractor performance is often a matter of degree and the U.S. Government's actions can be directed toward correcting the unsatisfactory performance or protecting the U.S. Government's interest in the event of the contractor's default.
14 FAH-2 H-542 INITIATING CORRECTIVE ACTION
(CT:COR-39; 09-09-2015)
The contracting officer’s representative (COR) must take appropriate action to enforce any contract requirements that are not being met. The following are steps the COR should take if the contractor is not complying with a specific requirement called for in the contract:
(1) Call the contractor's attention to the discrepancy and seek the contractor's voluntary commitment to remedy the failure. Then follow up later to see if remedial action was taken;
(2) If the contractor disagrees that contract requirements are not being met, discuss the matter with the contractor to determine the basis for the contractor's position. Also, discuss the matter with the contracting officer to see what course of action should be taken to resolve whether or not the contractor is complying with the contract. If it is clear that the contractor's position has no reasonable basis, direct the contractor to take corrective or other action necessary to meet the requirements of the contract;
(3) Such directions, if oral, must be confirmed in writing, with a copy provided to the contracting officer and the COR file. The COR must not direct the contractor to do anything more than, or different from, what the contract requires. Such a direction would violate the limitation placed on the COR's authority;
(4) If the contractor fails to comply with a contract requirement within a reasonable time after having been directed to do so, then the COR may recommend that the contracting officer send a letter pointing out the failure of performance and its importance to the Department, and directing that the deficiency be "cured" within a specified time period—usually 10 days. This letter is called a "cure notice." Such a letter can be beneficial in assuring that top management in the contractor's organization is aware of the problem and in enlisting their support for corrective action; and
(5) If the departure from contract requirements continues, and if it appears that the contractor will not remedy his or her failure to do what the contract requires within the allotted time, the COR should consider recommending that the contracting officer take further action as discussed under remedies at 14 FAH-2 H-543.
14 FAH-2 H-542.1 Dealing with Delays
(CT:COR-39; 09-09-2015)
A delay occurs when a contractor fails to deliver products or make progress in accordance with the schedule set forth in the contract. When an actual or threatened delay occurs, the contracting officer’s representative (COR) must:
(1) Promptly notify the contracting officer;
(2) Determine the reason for the delay, and discuss it with the contracting officer. Based on the facts, the contracting officer will decide if the delay is excusable, and will determine an appropriate course of action;
(3) If it is decided that the delay is excusable, the COR should request that the contracting officer issue a modification to change the contract period of performance/delivery schedule; and
(4) If the delay is not excusable, then the contracting officer may take action as discussed under remedies at 14 FAH-2 H-543.
14 FAH-2 H-542.2 Dealing with a Cost Overrun
(CT:COR-39; 09-09-2015)
a. A cost overrun occurs when a contractor exceeds the estimated costs of a cost-reimbursement contract without proper authorization from the contracting officer. Cost overruns occur only in cost-reimbursement type contracts, since in fixed-price type contracts, the contractor is responsible for completion of the contract regardless of costs incurred.
b. When the contracting officer’s representative (COR) becomes aware of a cost overrun situation:
(1) Do not request or encourage the contractor to continue work. Such action may legally obligate the U.S. Government to reimburse the contractor for continuing work, notwithstanding the Federal Acquisition Regulation (FAR) 48 CFR 52.232-20 "Limitation of Cost" clause which limits the U.S. Government's obligation to the stated estimated amount. This might constitute an improper obligation of appropriated funds, i.e., an unauthorized commitment;
(2) Promptly notify the contracting officer and the requirements office;
(3) Decide with the contracting officer on one of the following actions:
(a) Terminate the contract for the convenience of the U.S. Government before the cost overrun occurs;
(b) Modify the contract to decrease the technical effort in order to eliminate the need for additional funding;
(c) Increase the contract funding to permit completion of the work; or
(d) Advise the contractor that additional funding will not be forthcoming and the contract should be stopped; and
(4) If the U.S. Government determines to complete the work and if additional funding is available, the COR must initiate the procurement request package and submit it to the contracting officer for action.
14 FAH-2 H-543 REMEDIES AVAILABLE TO THE U.S. GOVERNMENT
14 FAH-2 H-543.1 Issue Cure Notice
(CT:COR-39; 09-09-2015)
A contractor's failure to submit a report or to perform or deliver services or goods when required by the contract is a deficiency. The contracting officer may require contractor correction of deficiencies within a cure period.
14 FAH-2 H-543.2 Withholding Payments
(CT:COR-39; 09-09-2015)
When a determination is made to withhold contract payments, the contracting officer will notify the contractor in writing that payments have been suspended until the deficiency or failure is cured. This withholding of payment would affect future invoices but would not apply retroactively. It is most effective on contracts where payments are made as work progresses.
14 FAH-2 H-543.3 Reduction in Price
(CT:COR-39; 09-09-2015)
On fixed-priced contracts the contracting officer may accept a nonconforming item or service at a reduced price. The COR must determine that the item or service is still of value to the U.S. Government and should assist the contracting officer in determining the amount of the reduction.
14 FAH-2 H-543.4 Terminations
(CT:COR-39; 09-09-2015)
a. Situations may arise when the work contracted for does not run to completion. The type(s) of termination clause(s) included in a contract depend upon the contract type, but terminations can usually be characterized as a termination for the convenience of the U.S. Government or termination for the default of the contractor. See FAR 48 CFR 49.000 for further explanation. No matter which type of termination is issued, or the extent of the terminated portion of the work, the decision to terminate is a unilateral right of the U.S. Government.
b. Both types of terminations can be either partial or complete. The portion of the contract that is not terminated must be completed by the contractor. The contractor has no contractual right not to continue with the remaining work.
14 FAH-2 H-543.4-1 Termination for Convenience
(CT:COR-39; 09-09-2015)
a. The various termination-for-convenience clauses explained in FAR 48 CFR 49.501 give the U.S. Government the right to cancel a contract when to do so is in the U.S. Government's best interest, without regard to the contractor's ability and readiness to perform.
b. A termination for convenience requires that a financial settlement be made for the work that has been accomplished under the contract up to the effective date of the termination. The contractor is paid for work on the terminated part of the contract as well as a reasonable allowance for profit on work done and reasonable settlement expenses without profit or fee. The contractor is not paid any profit or fee on work that was not performed before the effective date of termination (reference FAR 48 CFR 49.201, "Additional Principles for Fixed-Price Contracts Terminated for Convenience" or FAR 48 CFR 49.301, "Additional Principles for Cost-Reimbursement Contracts Terminated for Convenience").
c. Once it is determined that a contract is to be terminated, the contracting officer initiates the termination immediately to preclude the further incurrence of cost.
14 FAH-2 H-543.4-2 Termination for Default
(CT:COR-39; 09-09-2015)
a. The various termination for default clauses explained in FAR 48 CFR 49.504 allow the U.S. Government to terminate the contract when the contractor fails to make progress or to perform any other contract requirements within the period specified by the "cure notice." Terminations for default usually occur in fixed-price contracts.
b. Handling terminations for fixed-price contracts:
(1) Fixed-price contracts may be terminated for default if the contractor fails to:
(a) Make delivery of the supplies, or to perform the services within the time specified in the contract;
(b) Perform any other provision of the contract including public policy provisions (such as equal employment opportunity standards); or
(c) Make sufficient progress to ensure timely or successful performance of the contract;
(2) In the first instance, the Notice of Termination for Default may be issued immediately. In the latter two cases, however, the contracting officer issues a "show cause" or "cure notice" to the contractor, citing the failure and allowing at least 10 days for the contractor to submit a plan to cure the problem. If the contractor's plan does not offer a reasonable solution to the problem, the contractor may then be defaulted for failure to perform. Refer to FAR 48 CFR 49.000, which describes the procedures, factors, and contents of notices to be considered when such actions are taken;
(3) Excusable delays: The default clause in fixed-price contracts states the general reasons that may excuse a contractor's delay in performance. For example, a delay is excused when it is caused by a factor beyond the contractor's control and is not caused by fault or negligence of the contractor. Examples of possible excusable delays include acts of God (fire, flood, etc.), acts of the U.S. Government, and strikes. Delays arising from excusable causes are not excused beyond the time the excuse continues to prevent performance. A situation might arise, for example, when a month's delay in delivery or performance is excused, but the contractor's own action and negligence causes a second month's delay. In this case, the right to terminate for default would not be lost with respect to the second month's delay;
(4) Effect of default: When a fixed-price contract is terminated for default, the contractor is not entitled to compensation for work performed prior to the termination and not yet accepted by the U.S. Government, and the U.S. Government is entitled to repayment of any advance or progress payment that applies to such work. The U.S. Government may, however, order the contractor to deliver any completed or partially completed work produced or acquired for the terminated part of the contract. The contractor must protect and preserve any property in which the U.S. Government has an interest (as directed by the contracting officer) and is entitled to compensation for any expenses involved;
(5) Right to buy against account of defaulted contractor: When a fixed-price contract is terminated for default, the U.S. Government may repurchase the same or substantially similar items/services to those the contractor was to furnish and hold the terminated contractor liable for the excess costs of the replacement procurement (reference FAR 48 CFR 49.402-6). However, reprocurement action must be initiated as soon as practicable after the default termination and at as reasonable a price as possible, considering the quality and time factors; and
(6) Terminations on commercial item contracts: Under commercial item contracts, the term “termination for default” is not used. Rather, the procedure is called a “termination for cause.” The U.S. Government may terminate a commercial item contract for the same reasons as any other contract. However, the contracting officer must send the contractor a cure notice before terminating for any reason other than a late delivery (reference FAR 48 CFR 12.403 and paragraph m entitled "Termination for cause" of the clause FAR 48 CFR 52.214-4, Contract Terms and Conditions - Commercial Items).
c. Handling terminations on cost-reimbursement type contracts:
(1) The provisions for default termination contained in cost-reimbursement type contracts are part of the general FAR 48 CFR 52.249-6 termination clause, which covers both convenience and default terminations. Excusable contractor delays are described in a separate FAR 48 CFR 52.249-14 clause entitled "Excusable Delays"; and
(2) The distinction between a default and a convenience termination is not so great under a cost-reimbursement contract as it is in the fixed-price situation. When a cost-type contract is terminated for convenience or for default, the contractor receives all allowable costs incurred up to the time of termination, and he or she is not liable for reprocurement costs if the U.S. Government purchases replacement supplies or services.
d. In order to successfully pursue a termination for default, the COR must act promptly and thoroughly document inadequate contractor performance. Otherwise, the termination for default may be converted to a termination for convenience by a board or court and the U.S. Government would then be liable for any excess new procurement and other costs. It may appear obvious to the COR that the contractor has defaulted, but terminations for convenience are frequently contested and the U.S. Government frequently loses such contests due to lack of adequate documentation and not having taken timely appropriate action when the problems first arose.
14 FAH-2 H-543.5 Poor Past Performance Evaluation
(CT:COR-39; 09-09-2015)
a. Contractors are given past performance evaluations in accordance with Departmental policy. These evaluations are entered into a U.S. Government-wide Contractor Past Performance Assessment Reporting System (CPARS). A contractor with deficient performance should be advised of the impact of performance on their evaluation when given an opportunity to correct deficiencies.
b. The FAR 48 CFR 42.1503(h)(iii) requires CPARS updates to accurately report within 3 calendar days after a contracting officer issues a final termination for cause or default notice, or makes a subsequent withdrawal or a conversion of a termination for default to a termination for convenience.
14 FAH-2 H-543.6 Suspension and/or Debarment
(CT:COR-39; 09-09-2015)
a. Deliberate or repeated failure to perform may constitute grounds for denying a contractor future awards. A suspension is a temporary action barring a contractor from receiving awards. A debarment prohibits awards for a set period of time, generally 3 years.
b. The Office of the Procurement Executive (A/OPE) manages the suspension (FAR 48 CFR 9.407-1) and debarment (FAR 48 CFR 9.406-1) program. CORs should refer cases of deliberate or repeated instances of contractor failure to perform to A/OPE.
14 FAH-2 H-544 THROUGH H-549 UNASSIGNED