A termination for default (for cause) is drastic recourse. It operates as the harshest breach of contract recourse out there. The reason being is that you are saying the other side’s breach of the contract is material—goes to the essence of the contract—and forms the basis of being terminated for default. If you are entertaining this recourse, it needs to be justifiable. You need to have evidence that justifies the reasoning / basis for exercising the termination for default. You want the evidence to be objective based on objective project information and documentation, backed up by contractual language. Sure, your subjective feelings, testimony, will come into play, but it’s the objective evidence that will carry the day. The more objective backup, the better you are substantiating your basis for the termination for default.
In a decision out of the Armed Services Board of Contract Appeals, the Board discussed this termination for default recourse and the justifiable basis needed to substantiate this recourse.
Regardless of whether your project is a federal project, public project, or private project, consider this reasoning establishing justification for a termination for default:
A termination for default is a government claim. “When a CO terminates a contract for default, and the contractor appeals that termination decision, ‘the government … bear[s] the burden of proof with respect to the issue of whether termination for default was justified.’” The government must prove proper justification by a preponderance of the evidence. “[A] default-termination is a drastic sanction [citation omitted] which should be imposed (or sustained) only for good grounds and on solid evidence.”
In appeals involving failure to make progress – the issue presented here – “the government must establish that ‘the CO’s decision to terminate … was reasonable given the events that occurred before the termination decision was made.”’ Whether the government’s termination of the contract was reasonable is an objective inquiry, based not upon the CO’s subjective beliefs, but upon a review of the evidentiary record developed during the proceedings here. Our inquiry focuses “on ‘tangible, direct evidence reflecting the impairment of timely completion”’ to “decide the actual performance that the contract requires and the amount of time remaining for performance.”
Appeals of – Pinewood Inc. f/k/a PNI Incorporation, ASBCA No. 63588, 2025 WL 1427483 (ASBCA 2025) (internal citations omitted).
Once the government (owner) satisfies its burden substantiating the termination for default, the burden shifts to the contractor to demonstrate that its failure to perform or the basis supporting the termination for default was excused. “The contractor can meet its burden by establishing that ‘the government materially breached the contract thereby discharging [the contractor’s] duty to perform,” or that the contractor’s failure to perform was well beyond its “control and without its fault or negligence or that of its subcontractors or suppliers.” See, supra, Appeals of-Pinewood (internal citations omitted).
If you are considering terminating your contractor for default, make sure you do so with precision, and not haphazardly. Conversely, if you are a contractor and you think or have encountered a termination for default, dot your i’s and cross your t’s establishing the lack of justification in the termination for default and the excuse of any claim you failed to performed.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.