FAR Termination for Default: Grounds, Damages, and Appeals

A FAR Termination for Default is the federal government’s exercise of its contractual right, under FAR 49.401, to end a contract in whole or in part when a contractor fails to perform its obligations.¹ Unlike a Termination for Convenience, it puts financial liability on the contractor, creates a public performance record, and can support debarment. If you have received a cure notice, a show cause notice, or a final default decision, the clock is already running: 90 days to appeal to a Board of Contract Appeals, or 12 months to file at the U.S. Court of Federal Claims.²

What the Government Has to Show

The standard default clause for fixed-price supply and service contracts, FAR 52.249-8, gives the contracting officer three grounds. The first is failure to deliver supplies or perform services within the time required by the contract, including any extensions. The second is failure to make progress that endangers performance. The third is failure to perform any other material provision of the contract, such as quality requirements, bonding, or key personnel commitments.³

Late delivery can be actioned immediately because the breach is already complete. For the other two grounds, the contracting officer must give written notice specifying the failure and allow at least 10 days to cure before proceeding.⁴

Two other contract types follow different rules. Construction contracts use FAR 52.249-10, which lets the government take over the site, take possession of materials and equipment needed to finish, and hold the contractor and its sureties liable for all damages from the failure to complete on time.⁵ Cost-reimbursement contracts use FAR 52.249-6, which also gives a 10-day cure period but replaces excess reprocurement liability with a proportional reduction in fee based on work actually delivered and accepted.⁶

Cure Notices and Show Cause Notices

Before termination for anything other than late delivery, the contracting officer must issue one of two notices. Which one depends on how much of the delivery schedule is left.

Cure Notice

A Cure Notice is used when at least 10 days remain in the delivery schedule. It identifies the specific deficiency and gives the contractor 10 days, or longer if the contracting officer allows, to fix it.⁷ If the government skips a required Cure Notice, the termination itself can be invalid; procedural failure is one of the most common grounds contractors raise on appeal.

Show Cause Notice

When fewer than 10 days remain, or the delivery date has already passed, a cure period would accomplish nothing. In that case the contracting officer sends a Show Cause Notice, which asks the contractor to explain in writing within 10 days why the contract should not be terminated for default.⁷ A contractor who does not respond hands the contracting officer an uncontested record.

Both notices are opportunities. The written response you file is often the same document your lawyer will build an appeal around later, so it should lay out every excusable delay, every government contribution to the problem, and every fact suggesting the schedule was informally relaxed.

Excusable Delays

A contractor is not liable for excess reprocurement costs when the failure arose from causes beyond its control and without its fault or negligence. FAR 52.249-8(c) lists nine illustrative categories: acts of God, acts of a public enemy, government actions in its sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather.³ The list is not exhaustive, but every excuse has to clear both bars: beyond your control, and not your fault.

Subcontractor problems get their own treatment. A subcontractor default excuses the prime only if the cause was beyond the control and without the fault of both parties, and the supplies or services were not obtainable from other sources in time to meet the schedule.⁸ If an alternative supplier existed, the excuse fails, even when the original subcontractor’s delay was genuinely unavoidable.

The Waiver Defense

Waiver is the other major defense, and it comes out of the government’s own conduct. If contracting personnel accepted late deliveries, quietly extended deadlines, or otherwise treated the delivery schedule as flexible, they may have waived the right to enforce it. Once that happens, the government cannot terminate for default without first reestablishing a firm date.

FAR 49.402-3(c) codifies the fix: if the government has taken any action that might be construed as a waiver, the contracting officer must issue a notice setting a new delivery or performance date and expressly reserving the government’s default rights.¹ A contractor with emails, meeting notes, or acceptance records showing a pattern of tolerated late delivery has real ground to stand on.

What You Owe If the Termination Stands

The exposure from a Termination for Default runs well past the contract value at stake.

Excess Reprocurement Costs

The largest number is usually the difference between the original contract price and what the government pays a replacement contractor to complete the undelivered quantity. The contracting officer must repurchase at a reasonable price and compete the reprocurement to the maximum extent practicable, but the replacement contract does not have to mirror the original terms.³ After the reprocurement contract is completed and paid, the contracting officer sends a written demand for the total excess, adjusted for differences in transportation, discounts, and similar items.⁴ The charge is limited to the undelivered quantity; if the government buys more, the extra is a new acquisition and cannot be billed back.

Liquidated Damages

If the contract has a liquidated damages clause, those damages stack on top of excess reprocurement costs rather than offsetting them. On construction contracts, liquidated damages continue to accrue from the missed deadline until the replacement contractor actually finishes.⁹

Repayment and Withheld Payment

The contractor is not entitled to payment for work or supplies the government has not accepted. Any unliquidated progress payments or advance payments tied to the terminated portion have to be repaid, and the government collects other ascertainable damages through the debt collection procedures in FAR Subpart 32.6.

Sureties on Construction Work

If a performance bond is in place, the contracting officer generally lets the surety propose a plan to complete the contract, unless the proposed completion contractors are not competent or the plan is otherwise not in the government’s interest. A takeover agreement obligates the surety to finish, with the government paying up to the unpaid contract balance at the time of default. Unpaid earnings of the defaulting contractor are subject to debts owed to the government, but can be used to pay the completing surety’s actual costs.¹⁰

FAPIIS and Debarment

Within three calendar days of issuing the final termination notice, the contracting officer must report the action in the Federal Awardee Performance and Integrity Information System, part of the Contractor Performance Assessment Reporting System.¹¹ The record is public and stays in the system for years. Every future contracting officer evaluating you for a new award will see it and must document how the information factored into the responsibility determination.¹²

The bigger risk is debarment. FAR 9.406-2 lists willful failure to perform, or a history of unsatisfactory performance, as causes for debarment.¹³ When a contracting officer finds a default termination in FAPIIS while reviewing a new award, the agency must notify the official responsible for debarment or suspension proceedings if the information warrants it, before proceeding with the award.¹² For a business that relies on federal work, debarment is often existential.

Appealing the Decision

A Termination for Default is a contracting officer’s final decision, so it moves into the dispute framework of the Contract Disputes Act. You have two paths, and the deadlines are firm:

Appeal to the agency’s Board of Contract Appeals within 90 days of receiving the decision.
File a direct action in the U.S. Court of Federal Claims within 12 months.²

Miss the deadline and the right to challenge through that forum is gone. Most contractors treat the 90-day board deadline as the binding one because that is the route they intend to use.

Arguments That Work

Appeals cluster around a handful of arguments. Excusable delay: the failure came from a cause beyond your control and without your fault, and any subcontractor problem meets the alternative-sourcing test. Waiver: the government’s own tolerance of late performance eliminated its right to terminate without a fresh, firm deadline. Procedure: the contracting officer skipped a required Cure Notice, gave too little time to respond, or ignored the factors FAR 49.402-3(f) requires before deciding.⁴ Government contribution: constructive changes, defective specifications, or interference by government personnel caused or materially added to the delay.

Conversion to Termination for Convenience

The remedy that matters most is conversion. If you show you were not in default, or that the failure was excusable, FAR 49.401(b) treats the action as if it had been a Termination for Convenience from the start.¹ Excess reprocurement liability and liquidated damages fall away. In their place you get a convenience settlement covering allowable costs for work performed, the cost of settling subcontracts, and a reasonable profit on the completed work. The FAPIIS record must be updated to reflect the conversion.¹¹ For a company built on federal work, that is often the line between winding down and staying in business.

1
Acquisition.GOV. FAR Subpart 49.4 – Termination for Default
2
Office of the Law Revision Counsel. 41 USC 7104 – Contractor’s Right of Appeal From Decision by Contracting Officer
3
Acquisition.GOV. 48 CFR 52.249-8 – Default (Fixed-Price Supply and Service)
4
Acquisition.GOV. FAR 49.402-3 – Procedure for Default
5
Acquisition.GOV. Default (Fixed-Price Construction)
6
Acquisition.GOV. FAR 52.249-6 – Default (Cost-Reimbursement)
7
Acquisition.GOV. FAR 49.607 – Delinquency Notices
8
eCFR. 48 CFR 52.249-8 – Default (Fixed-Price Supply and Service)
9
Acquisition.GOV. 52.211-12 – Liquidated Damages-Construction
10
Acquisition.GOV. FAR 49.404 – Surety-Loss Involvement
11
Acquisition.GOV. FAR 42.1503 – Procedures
12
Acquisition.GOV. FAR 9.104-6 – Federal Awardee Performance and Integrity Information System
13
eCFR. 48 CFR 9.406-2 – Causes for Debarment