14 FAH-2 H-540
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 officers 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 officers 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 periodusually
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 officers
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 officers 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