The Contractor Challenged a Default Termination, But ASBCA Didn’t Find the Contractor’s Excuse Compelling

The contractor challenged the Navy’s decision to terminate its contract for default. It argued the default was excused because the contract was not modified to address alleged manufacturing defects from the original equipment manufacturer (OEM). ASBCA rejected the argument, finding the supposed defects were consistent with the OEM drawings.

Appeals of Langdon Engineering & Mgt., ASBCA Nos. 61959, 63501

• Background – The Navy terminated for default the contractor’s firm fixed-price contract to refurbish and deliver eight bow thruster nozzles. The Navy claimed the contractor failed to refurbish or deliver any of the bow thruster nozzles. The contractor appealed and additionally sought monetary damages.
• Justified Termination – ASBCA first clarified that the Navy satisfied its initial burden that the termination for cause was justified. It was undisputed that the contractor failed to deliver any bow thrusters despite two significant schedule extensions.
• Excuse Defense – The contractor contended the contracting officer (CO) blocked it from performing by refusing to modify the contract to address alleged manufacturing defects in the thrusters. It claimed refurbishing the bow thrusters would cause it to “violate the contract documents and specifications” by having original equipment manufacturer (OEM) manufacturing defects. The Board ruled the contractor failed to show that the defects prevented the contractor from performing according to the statement of work. The purported defects did not materially differ from the OEM drawings referenced in the contract.
• Impracticality – The contractor also argued it suffered a cost overrun of 400 percent which demonstrated the unreasonable nature of the SOW. The Board noted the this was a firm fixed-price contract, which meant the contractor bore the risk of cost overruns. The 400% cost overrun, even if substantiated, was not itself sufficient to establish commercial impracticability.
• Entitlement to Cost – Because the Board decided the contractor could not recover for its claims of breach of contract, the Board denied the contractor’s request for monetary compensation.

Mr. Albert L. Swank, Jr. appeared for the contractor. Allison M. McDade, Elizabeth C. Tosh, Jerry Kim, and Russel A. Shultis of the Navy appeared for the government.

— Case summary by Joshua Lim, Assistant Editor.