I recently penned an article about Terminations for Convenience, or T4C, which can seem very arbitrary or capricious at times, even to those of us that know the reasons behind such decisions. So, I thought I would follow that up with a personal account of a couple T4Ds, or Terminations for Default, which are anything but capricious. Rather, they are deliberate, painstaking, demoralizing, and can be exhausting. In my first tour in Afghanistan as a Contracting Officer, I had to execute two such terminations, and I can truthfully say that I was ill-prepared at that time to capably manage such an arduous process. Really, I had only been a CO for a few months when the first one happened, and I learned a lot of what not to do, or what must be done better, to make it work.
In the first instance, I took over the contract after the previous CO departed at the end of their tour. I can’t recall exactly, but they may not have awarded that contract, either, meaning it had languished in post-award Purgatory for at least six months. The contract was for a small building, probably around $250,000 in face value. Remember, in Afghanistan, $250k goes a long way – or it used to, anyway. After about 3 months on the job, my customer for this contract (also new to Afghanistan, an Air Force civil engineer type) decided to ‘cut sling-load’ and dump this contract, in hopes of making a new award and breaking ground before his 6-month tour was over. Unfortunately, it was mid-August, and we dealt primarily with O&M (Operations & Maintenance) funds, meaning our money was going expire in 6 weeks if we did not obligate it. [NOTE – if you’re unfamiliar with the Colors of Money and the End of the Fiscal Year, we have podcasts on both of those topics.] So, terminating an old-dog contract was low priority at that time of year. I had to regrettably inform the young captain to look me up in October, when I had breathing room to deal with problems from the previous FY.
After a grueling but successful end of fiscal year closeout, the young captain dutifully reported to my desk in the Regional Contracting Center. We prepared the following documents for issuance: a cure notice, a show cause notice, and the notice of termination. Going through the process took upwards of two months, until all ‘chances’ were exhausted and I was left with no choice but to issue the modification that terminated the contract, and assessed liquidated damages for the extensive delay and eventual default. At this point, I should mention that the company being terminated was Afghan, did all their business through an interpreter, and had a very difficult time understanding what ‘cure notice,’ ‘show cause,’ and ‘termination for default’ even meant. In fairness, their culture embraces Islam, and the concept of ‘inshAllah,’ or ‘as God wills,’ explains most happenings, whether beneficial or disastrous. So, when confronted with the notion that they were impossibly far behind schedule, and stood no chance of ever making good on the contract, the company representative’s reply was essentially, ‘we are late because of inshAllah, God’s will.’ Understandably, the US forces could not accept that as a valid reason why the building was not completed on time.
Taking pity on the poor contractor that probably did his best in a situation far beyond his capability or even comprehension, I wrote off the liquidated damages, waived the termination costs, and basically cut the contractor loose. Of course, he was out the cost of materials thus far expended, plus payroll, operating expenses, etc. And for the rest of my tenure, and those fellow COs whose tour overlapped mine, his company did not get anymore contracts. But I always felt bad about having to deal with that situation – I’d like to think that I would not have awarded the contract to his company. But that’s Monday-morning quarterbacking, and I try to give the previous CO the benefit of the doubt. I don’t know the context of their decision during the technical evaluation and source selection, and I don’t know the workload, pace, and pressure they were operating under. But I learned a valuable lesson, and when presented with a similar situation at a different base camp at the end of my tour, I took decisive action immediately.
For my second T4D, the contractor did not begin to place materials, perform site clearance, or even coordinate with base engineers after the 10-day notice to proceed (NTP) was issued. I granted them another week, out of respect for ‘inshAllah,’ and then issued a cure notice. Ten days later, I followed up with a show cause, and within another two weeks had prepared and issued the T4D modification. It may sound harsh, but at least the contractor did not sink a vast amount of capital, time, or effort into the failed project. He got away fairly clean, and while my time in country was up and I departed soon thereafter, the CO that followed me did not have that particular mess to clean up in my wake.
If there’s a moral to this story, it’s to bring a blend of pragmatism with compassion to the situation as a CO. Be realistic, and somewhat skeptical, when making awards – if you have any doubts at award, chances are they are just going to get worse when performance commences. And once the project encounters difficulties, take immediate action, again with a sense of pragmatism. As the saying goes, bad news does not get better with age. Problems do not fix themselves, and companies that cannot avoid or prevent major setbacks are probably not all that skilled at dealing with them once they have occurred. So, it’s better to take swift, decisive action than to let the situation fester and hope the contractor will successfully correct their shortcomings. And then, when the fateful moment comes, remember to be compassionate. Consider the effects this termination will have on the contractor, the employees, the project, and the stakeholders. T4D is a devastating blow – if you can soften it somewhat, as I did in Bagram, Afghanistan, I would encourage you to at least consider it. Liquidated damages are intended as a forcing function, to motivate improvement. When the termination is decided, LDs are merely piling on at that point. And termination costs ought to be tempered as well; if the company could not perform the work adequately, how will forced restitution affect their standing?
I’m not saying to be a patsy or a push-over; but do consider the bigger picture, and do not get lost in the passion of the moment. Make sure your decisions are deliberate, well-thought-out, and considerate of all parties. Hammering the hapless contractor when they are already down will not likely serve any productive purpose. Do what you need to do, but with compassion in your heart.