Does anyone ever really have a contract with the government or can a customer terminate for convenience? One sole practitioner pushed back and found that even termination for convenience has procedures and rules. Haynes Boone procurement attorney Zach Prince says you should know your rights as a contractor. He joined the Federal Drive with Tom Temin to discuss.

Interview transcript:

Tom Temin: And unlike the multimillion or multiyear award contracts we often talk about, this was a single person who had a contract with USAID. Tell us about this case.

Zach Prince: Yeah, it’s a quirky little case, and I selected it to talk with you today because I thought it had some good lessons for folks to be aware of. So this guy had a contract with AID out in Ghana. It’s a personal services contract. You don’t hear about those very often for senior development outreach and communication specialist services supporting the West Africa Regional Executive Office for AID out in Accra. But as much as it is what sounds sort of like an employee-type relationship, it’s a government contract. It’s a personal services contract and it has a period of performance. It has option periods and it has termination for convenience rights.

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Tom Temin: All right. And by the way, termination for convenience is an option peculiar to the government, isn’t it?

Zach Prince: It is. It’s become a little bit more common as time has gone on in certain parts of the commercial world. But in essence, what it does is it lets the government or its sole convenience, as the name suggests, walk away from its contracts. It can terminate the contract and say, ‘You thought this was five years. It’s not. We’re done. Time to wrap up.’ In the commercial world, you think of a contract, it has obligations from both sides. That’s what makes it a contract. Quid pro quo. You do X, and in exchange, we do Y, right. You can’t just walk away from those. And if you do, it’s called a breach. The government, however, for 100 years at least, has been able to walk away from its contracts when it needs to, which makes good sense, right. If you’ve got a war going on, you’ve got a bunch of contracts for munitions, then the war ends. You don’t need those munitions. The government priorities change. Government needs change. And so it has to be able to, unlike a private party, stop a contract. But the only reason the private sector will still do business with the government, despite that right, is because the government promises to make you whole. They’re not going to give you your lost profits, which is a big surprise to a lot of commercial businesses. Think, ‘Well, I anticipated that I was going to do the work for the government for X years. I was going to make this much money. You cut it off on Year 1. I should be able to be put in the same position that I otherwise would be.’ Not exactly. But you do get your costs and you do get some profit on those costs.

Tom Temin: So you get made whole for that portion of the contract that you did do?

Zach Prince: Right. Exactly.

Tom Temin: So this person appealed the termination and is that allowable under termination for convenience?

Zach Prince: Well, ultimately, it might be, but not right off the bat. So the government terminates your contract for convenience. That’s a contract mechanism. And so what that does is triggers an obligation for you as a contractor to submit a termination settlement proposal. You go through certain steps, usually that are outlined by the termination letter, and you get rid of your subcontractors. You end costs that are continuing to be incurred and you start proving up what you’re entitled to. Then the government acts on that. And if you don’t like the way they acted on it, that might be time for an appeal. But their decision to terminate for convenience, that’s not an appealable action by the government.

Tom Temin: So what happened when he tried to appeal it anyway?

Zach Prince: Well, unfortunately for him, the government, when they terminated this thing, they sent a letter that was totally wrong, which shocker, I know, it does happen. The contracting officer had this letter that said this is the final decision of the government. Here’s your appeal rights. You can go bring an appeal to the Board of Contract Appeals. And if it’s under $50,000, use the expedited appeal rights there. And so this guy looks at it and says, ‘OK, I’m going to follow the government’s instructions.’ But the government’s instructions were wrong. And the Boards of Contract Appeals operate as a matter of jurisdiction. This is the things that they’re allowed to hear by statute based on whether there is a claim that there’s an appeal from a decision denying or asserting by the government. And none of that existed here.

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Tom Temin: We’re speaking with procurement attorney Zach Prince. He’s a partner at Haynes Boone. So the letter was wrong in that it said that he could appeal?

Zach Prince: Yeah, that’s right. It said, ‘Yeah, go right ahead and appeal if you want to.’ And he said, ‘Great.’ And did. And it was for not because it immediately got dismissed.

Tom Temin: So. Well, if you do appeal, then what is it that you can appeal in a termination for convenience?

Zach Prince: And so what he should have done was submitted a proposal for recovery of the costs. And this is a little bit of a quirky contract. So it had different provisions about what he was entitled to than you’d see in a usual construction or military type contract. But he had to go through that process of preparing a settlement proposal, send it to the government. The government either says, ‘Great, we’re going to pay it,’ and then the whole thing’s resolved or the government says, ‘No, we have issues with these things. This is our final decision setting the settlement amount at X instead of Y.’ That might have been the appealable decision. Then he goes to the board.

Tom Temin: Right. So the settlement agreement is kind of a contract in itself that the Civilian Contract Board of Appeals can deal with. But the termination for convenience is the opposite of a contract. It’s a lack of contract. And therefore the appeals board can’t hear it, basically.

Zach Prince: Yeah. It’s just a standard administrative process, essentially. The contract says the government can terminate for convenience. It does. If you think they did it wrong, then you submit a claim under the Contract Disputes Act. And then the government might say, ‘This is a contract officer’s final decision and you can appeal from this. We think we did it right.’ You basically can never successfully argue that the government terminated for convenience improperly. It happens once in a blue moon. It’s you really need to be able to demonstrate that the government acted in bad faith, which in the words of one judge in the Court of Federal Claims many years ago, requires ‘well-nigh irrefragable proof,’ a phrase I’ve never seen anywhere else, but basically totally irrefutable proof. The government says, ‘We hate you and that’s why we terminated. It has nothing to do with our convenience. We just hate you.’

Tom Temin: Right. OK. By the way, is termination for convenience different from termination for lack of performance or you did something wrong?

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Zach Prince: Yeah. Termination for default is the other thing that could happen if you screw up and don’t do your job right. And in that case, you might submit a claim, saying the government’s termination for default was wrong. And the remedy ultimately is to convert it into a termination for convenience. That’s what the boards or courts will usually do on appeal if you win one of those types of cases. What is happening here actually when you read this very short decision, sure sounds like it could have been termination for cause grounds. The letter from AID to this contractor and the termination explanation said, ‘This requires a commitment to working with USAID. And you’ve told us expressly that you’re going to work independently and not collaboratively. You’re not going to go to public events. You don’t want to work within our framework for approvals. So this isn’t working out.’ I don’t know. That sounds kind of like grounds for termination for default. And this guy got lucky by having it be termination for convenience.

Tom Temin: Yeah, they were doing him a favor by not terminating him in a way that could be construed by other agencies as he’s not very good at his work.

Zach Prince: Yeah, it’s not going to be bad past performance for him, but I think it was the easy way out for everyone. This guy really just needs to go ahead with the process, submit for his cost and see where that falls out.

Tom Temin: But the error was the advice from the contracting officer that wrote that letter that said, ‘Go ahead and appeal the termination for convenience?’

Zach Prince: Yeah. And the guy read the letter and he did the thing they told him to do. So you can’t fault him for it.

Tom Temin: So at this point, all he’s lost is paperwork, maybe. I mean, what could just out of curiosity if you’re in a personal services contract and you’re far from home, in this case, New Jersey, I guess airfare back home could be part of what it is you could sue for in terms of making yourself whole?

Zach Prince: Yeah, I think that’s probably right. I mean, there’s some discussion in the contract about return transfer costs and travel allowance and things like that. So that’s probably all he’s going to get.

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