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The Government Cannot Terminate Construction Contracts At Will

10/20/2014 | Construction Blog, Kaplin Stewart Blog

The Federal Claims Court recently ruled against the United States government on claims that it improperly terminated a metal building contractor on a U.S. Coast Guard project. The claim arose when a plethora of problems out of the control of the contractor, K-Con, Inc., caused it to deliver the project late.

By way of additional background, K-Con Building Systems, Inc., was awarded a Federal Supply Schedule contract by the General Services Administration to erect a prefabricated metal building for the Coast Guard.The contract contained a clause which required that an officer of the GSA would have to determine whether the cause of delays put forward by the contractor were “excusable” or not.

K-Con’s work was set back on a number of occasions due to a world-wide shortage in steel, weather related issues, and complications in the coordination of specific portions of the building design caused by the Coast Guard according to the contractor. Communication regarding these issues occurred regularly between representatives of K-Con and the Coast Guard and the project completion date was even extended on a number of occasions.

Eventually, the Coast Guard became impatient about the delays and elected to terminate K-Con. They argued they had the authority to do so due to the inadequacy of K-Con’s work. Conversely, K-Con argued it had no control over the delays and could not be terminated as a result. The Federal Claims Court held that the termination was improper regardless of fault because the proper protocol called for in the contract was not followed. Since the parties agreed that an officer of the GSA had to make a determination of whether the delays were “excusable” before termination occurred – and that the GSA review never took place – the termination was improper.

This decision is a unique one. While it begs the question of whether the Court sought a specific outcome and found a way to justify it, the logic behind the decision makes a larger point. Participants in the construction industry are well advised to read their contracts and follow the claims protocol outlined in them. The failure to do so may result in claims be waived or dismissed.