LEGAL ISSUES


a settlement proposal), and (3) any allowable profit. Because the terminated contractor


is not necessarily at fault, the FAR encourages the government to reach settlement that is “fair and prompt.” Compensation for costs do not require the same precise accounting needed for federal cost reimbursable contracts. Nevertheless, contractors terminated for convenience must comply with a plethora of rules and procedures in Part 49 and elsewhere in the FAR, many of which pose significant pitfalls for the unwary contractor. For a construction project termi-


nated in its entirety, the contractor must prepare a settlement proposal based upon the contractor’s “total costs” as of the termination date, and any additional costs incurred, as a result of the termi- nation. Tese costs must be allowable, reasonable and allocable to the contract. Te contractor is entitled to


recovery of overhead, and, to the


extent the contract would have been profitable, profit on the costs incurred prior to the termination. If, however, the government can show that the contractor would have suffered a loss on the project, the contractor does not recover a profit on its costs, and, in fact, the contractor may be subject to a “loss adjustment” reducing the contractor’s recoverable pre-termination costs. Te contractor is never entitled to antici- pated profit on work not performed due to the termination of the project. Where the terminated contractor


and government cannot reach agreement on a termination settlement, the government is entitled to make its own determination of the settlement amount. If the parties still disagree, the contractor can certify its claim under the Contract Disputes Act and file an appeal with the Board of Contract Appeals or Court of Federal Claims. Settlements with subcontractors and suppliers are generally governed by the


terms of their subcontracts or purchase orders. Similarly, state and local govern- ments often include termination for convenience clauses in their construction agreements on their own terms.


Conclusion Te change in administrations


will undoubtedly affect contractors differently depending upon the type of work and individual contract. Many contractors will benefit from increased funding and new opportunities. Termi- nated contractors must fight to be treated fairly – particularly where the government termination was due to the changing of the guard, and not fault of the terminated contractor. 


Joseph McGowan is Shareholder of Rogers Joseph O’Donnell and a member of the firm’s Construction Law, Environmental Law and Government Contracts Practice Groups.


Laborers’


 Union of


SKILLED, TRAINED, SAFE


          


 


HOURS OF TRAINING


443,488


3,114 CLASSES PERFORMED


 www.AGC-CA.org 1,430


APPRENTICESHIP GRADUATES


31,679 STUDENTS TAUGHT


Oscar De La Torre


Northern California District Council of Laborers


(925) 469-6800 Jon P. Preciado


Southern California District Council of Laborers


(626) 350-6900 Associated General Contractors of California 15 North America


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