Can you tell me when it is appropriate or is there a difference in when to use the Default Clause (52.249-8) vs. the Changes Clause (52.243-1 or 52.243-4)?
- The "Default" clause at FAR 52.249-8 gives the Government the right to terminate a contract if the contractor fails to: deliver on time; perform contract terms as stated; make adequate progress which endangers performance. Exceptional reasons for delays are stated in the clause. In those cases, the Government typically can not hold the contractor responsible for failure to perform, and therefore can not terminate the contractor for default.
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- For construction, the "Default" clause at 52.249-10 is generally more appropriate than the "-8" clause. This clause is similar to the "-8" clause, but the language is tailored to allow the Government to take over the work in the event the contractor defaults, and then holds the contractor or the surety responsible to pay for project completion.
- Both of these clauses allow the Government to end a contract relationship with a contractor when the contractor is not performing in a satisfactory manner. Such action is generally reserved for extreme cases of unsatisfactory performance, for the settlement and reprocurement processes require a significant investment of time and effort.
- The "Changes" clauses at 52.243-1 and -4 both provide the Government the right to change a contract (design, drawings, specifications, description of services, place of performance, method of shipment or packing, time of performance). These clauses even give the Contracting Officer the unilateral right to direct the contractor to accomplish the change, but protect the contractor with the right to submit a request for equitable adjustment.
- Discerning which clause to use. If the contractor is not making adequate progress, for reasons not listed as exceptions, the "default" clauses give the Gov't the right to terminate for default. However, this may not be in the Government's best interest due to the time and effort to settle a termination and start with a new contractor.
- On the other hand, if the contractor is not making adequate progress for reasons not listed as exceptions, the "changes" clauses allow the Government to change the contract, which could improve the contractor's chances for satisfactory performance. For example, if the contractor is running behind, and it appears inevitable delivery will be late, the "changes" clause could allow the parties to negotiate a contract extension. In these cases, if the delivery date is extended, the Government MUST receive consideration for the extension. For a construction or A&E contract, such consideration could include a price reduction, additional drawings or data, additional construction, or anything that is of value to the Government.
- In another scenario, the contractor is performing well in 9 areas of the SOW, but is failing in one area (again, with the failure not resulting from the exceptional cases stated in the "default" clauses). If the Government believes it would be more beneficial to take delivery on the 9 elements and avoid termination for "default", the "changes" clause could allow the parties to de-scope the 10th area in exchange for some type of consideration to the Government.
- Prudent contract management requires regular communication with the contractor and routine engagement in reviewing contractor performance. When performance does not meet contract requirements, the Government should take deliberate action to notify the contractor, and provide reasonable opportunity for the contractor to fix performance problems. This may be the appropriate time to employ the "changes" clause, as stated in the examples above. In addition, when evaluating the use of "changes" or "default" authority, note the following behaviors jeopardize the Government's right to terminate for default:
-- immediately terminating for default without giving the contractor the opportunity to correct the performance problem;
-- allowing unsatisfactory performance to continue without engaging the contractor, then terminating for default without warning;
-- when facing unsatisfactory performance, ordering the stoppage of work for an unreasonably long time without adequate explanation to the contractor, then terminating for default