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Default and Dispute


Defaultand Dispute

Defaultand Dispute

Acontract refers to an agreement that establishes obligations that areenforceable by a law. The agreement defines the obligations thateach participating party in the treaty is supposed to accomplish. Themost essential considerations for a contract include legality, mutualassent, capacity, and consideration. In case one of the parties thathave made the contract defaults, the other stakeholder may decide toend the agreement. Although there are many reasons that could makepeople to terminate a contract, the Federal Acquisition Regulation(FAR) asserts that most agreements end through dissolution either dueto termination for convenience or default. This essay will focus onvarious instances that dictate various instances, which may result ina contract termination. This essay will focus on the basis fortermination of a contract based on both contractual and conveniencereasons (Gillies, 2008).

Basesfor a termination for default

Terminationfor default occurs when a contractors’ actual or potentialincapability to accomplish a task in accordance to the terms statedin an agreement. The contractors are often not eligible forcompensation of the incomplete part of a contract. In its place, thecustomers may demand the contractors to refund the down payment,damages such as the liquidated cash and any extra cost that acustomer may incur for completing the task using another contractor.Second, a customer can execute termination for default fornoncommercial contracts only. Third, the customer must ensure thatthe customer did not fail to accomplish the desired obligations dueto inescapable inconveniences otherwise, a contractor can appeal fora client’s request for termination of default if they have validevidence that they could not control the inconveniences. Fourth,termination for default is also applicable in case a contractorbecomes bankrupt. However, the clients should follow specificregulations prior to forwarding a contract termination document tothe contract. Fifth, clients should consider evaluate the remainingduration for a contract to be accomplished, and the period executingthe same task would take if it were reassigned to another contractor.In case it would take longer to hire another contractor to do thesame job that the default contractor may require to accomplish thejob, then it would not be necessary to terminate the contract. On theother hand, if another contractor has capacity of accomplishing thejob within a shorter time, and with higher precision than the defaultcontractor were to accomplish, this would be a good base fortermination for default (Gillies, 2008).

Terminationfor default application

Ifthe government hires a road construction company to make a 20kilometers road, the company is the contractor while the governmentis the clients. Prior to the construction company receiving anapproval for commencing on the construction work, the government omake an agreement that stipulates the amount of time a company couldtake to accomplish the project. For instance, the treaty may statethat the contractor should accomplish the project within sevenmonths, whereby, one month is extra time to allow the contractor toinspect the work and polish up to ensure quality work. If thegovernment releases funds for executing the project, but the companyfails to start working on the project within the stated time withoutproviding a valid reason for the delay, the government can terminatethe contract for default (Gillies, 2008). This is because a delay incommencing the projects increases the feasibility of a companyfailing to meet its goal on time. Similarly, the client may terminatethe contract based on the fact the contractor failed to startoperating on the specified dates, which amounts to breach ofcontract.

Similaritiesof consequences termination for default and convenience

Atermination for default is similar to a termination for conveniencein that the clients will assign the project to another party. Theclient gives the work to another contractor because the initialassigned company lacks the capacity for accomplishing the terms andconditions stated in the contract. Second, the contractors do notreceive the full compensation stated in the agreement because they donot satisfy the outlined objectives in the treaty (Peacock &ampUnited States, 2004.

Differencesbetween consequences termination for default and convenience

Ina termination for default, clients do no compensate contractors forundelivered work. In addition, the clients often demand for a refundfor the down payment and other advance payments they could have giventhe contractor, but have not yet executed the task. This is becausecontractors have a capacity for solving issues that could beobstructing them from executing the agreement. Moreover, the clientmay also demand the contractor to pay extra costs to compensate foradditional costs for hiring another contractor, as well as forcatering the time a customer has wasted (Gillies, 2008).

Onthe contrary, termination for convenience arises when a contractorfails to achieve the stated goals because of reasons beyond theircapacity to control them, and without fault or negligence. Forexample, if the contractor fails to deliver ordered goods on timebecause the roads because unexpected bad weather such as snow or rainhas rendered the roads impassable, a client may opt to terminate thecontract in favor of another supplier who can meet the deadline. However, the initial client will not be liable to pay extra coststhat the client might incur when hiring another contractor. On thecontrary, termination for convenience does facilitate the contractorto regain allowable costs, as well as a realistic amount of profit(Peacock &amp United States, 2004).

Thegovernment’s remedy of excess cost of re-procurement refers toextra compensation the government charges on the default contractorto finance the additional expenses the company may require in orderit will incur to hire another company to complete a project, ordernew supplies or accomplish incomplete work. On the other hand,liquidated damages refer to the sum of cash that the governmentshould get from a default contractor. The government agrees andnegotiates the amount of money it should get in case a contractorbreaches the terms of regulations prior to assigning the job to acontractor. The law requires the government to demand reasonablecompensation on the contractor, as well as, outline circumstancesupon which the regulations will be executed (Peacock &amp UnitedStates, 2004).

Analyzethe dispute process under the Contract Dispute Act

Contractors’claims against the federal government are supposed to be put inwriting, and then given to Government’s Contracting Officer forapproval. Similarly, a Federal Government claim on a contractor alsorequires approval of the Contracting Officer. The policy requiresboth the federal government and contractors to file their disputes aperiod of six years after the incidence happens. However, theContract Dispute Act allows the federal government an exception tofile a dispute even after this period has passed if it realizes thata claim that the contractors’ allegations were fraudulent (Peacock&amp United States, 2004).

Ifcontractors are filing claims worth more than $100,000, the policystates that they should include a certification. One of theobjectives for including certifications is proving that thecontractors are making an honest claim. Second, the contractor isgoing provide complete and accurate evidence to the best of his orher belief and knowledge. Third, the compensation quoted representsthe compensation amount the government should offer the contractor.The law requires a certifier to present a contractor’s claim to atribunal (Peacock &amp United States, 2004).

Forclaims where contractors are seeking compensation of less than $100,000, Contracting Officers should make their final decisions withinless than sixty days. In case the Contracting Officer fails toapprove the claim, the contractor can file an appeal to have thedecision reconsidered. The appeal could either be at United StatesCourt of Federal Claims within a year after receiving the ContractingOfficer’s decision. On the other hand, the contractor may opt tocounter the Contraction Officer’s decision at the cognizant agencyboard of contractor appeals within three months (Peacock &amp UnitedStates, 2004).

Theimportance of acquisition planning to cost containment in governmentcontracting

Acquisitionplanning is essential in government planning because it helps inensuring that the contracting process is accomplished on time and incompliance with the policy, statutory and regulatory requirements. Inaddition, it helps in reflecting the objective of the organization. Since the procurement process is accomplished in the desired way,this lowers the chances of the government paying reprocurement costswhen looking for another contractor. On the same note, efficientplanning measures are essential for preventing contractors from suingthe government on termination for default (Peacock, 2006).

Whenall the government departments that require supplies are representedin acquisition planning, this will help the company to order suppliesin large scale. Organizations that order on large scale do benefitfrom economics of large scale in that they can negotiate with thecontractors to supply the products at a cheaper price than if eachdepartment orders independently (Peacock, 2006).

Lastly,acquisition planning is critical as it helps in ensuring that thegovernment orders only the essential products it actually needs. Thisimplies that the procurement department can avoid impulse buying thatmay result in acquisition of supplies that are not essential to thegovernment (Peacock, 2006).

Recommendationsto improve government procurement procedures

Enhancingfraud detection measures

Thegovernment procurement process is among the lucrative contracts asthe federal government is a big consumer. This implies that severalcontractors are often willing to provide services and products tobenefit from the huge profits. Unfortunately, some of the suppliersare fraudulent services. This makes it essential for the governmentto establish improved methods of vetting potential contractors toavoid hiring fraudulent and incompetent firms (Peacock &amp UnitedStates, 2004).


Thegovernment can effectively improve the procurement process, as wellas reduce the overall cost of purchasing the supplies throughordering the supplies in bulk. Various departments can compile thesupplies they need, then integrate the order so that they can orderfrom a wholesaler or a directly from the manufacturer. A bulk orderensures that the government can bargain for bargain for an affordableprice (Peacock &amp United States, 2004)


Gillies,P. (2008). Concisecontract law.Sydney: Federation Press.

Peacock,R. T. (2006). AComplete guide to the Contract Disputes Act.Chicago, Ill.: American Bar Association, Section of Public ContractLaw.

Peacock,R. T., &amp United States. (2004). TheContract Disputes Act: Five year annotation : text, legislativehistory, legal precedents.Chicago, Ill.: American Bar Association.