On August 8, 2118, US Tobotics (UST) and the United States Space Exploration Service (SES) entered into Contract No. 19-2001-A5-9-34 for construction of a reinforced dilithium containment control chamber and EPS conduits. With extensions of time, the completion date was December 20, 2120. Work began in the fall of 2119 on the dilithium containment control chamber portion of the contract. As is frequent in construction projects, UST encountered difficulties. UST's titanium alloy subcontractor, Specialized Alloy Constructors (SAC), was a major source of UST's problems. The government attributed that difficulty to poor supervision by UST.

In the succeeding months the parties exchanged numerous letters discussing UST's progress on the project. On several occasions the contracting officer's representative threatened to terminate UST's right to proceed unless UST took immediate action to correct specific problems. SES was concerned about the following items: (1) SAC's performance as the alloy subcontractor, (2) Remy Martin's performance as UST's construction superintendent, (3) the quality of the titanium alloy work, and (4) UST's progress on the work. Typically, UST responded by taking some action to correct the problems, which did not fully satisfy SES, whereupon negotiations would continue. In January, 2120, for example, the contracting officer required UST to submit a revised construction schedule with information on additional work forces and equipment. UST submitted a revised schedule with some details, but the contracting officer requested more.

To meet SES's objections, UST designated its vice president, Bella Donna, as acting superintendent (with the government's approval) until it could find a replacement, and it terminated SAC as the alloy subcontractor once the dilithium containment control chamber was completed.¹ It remedied specific complaints on work item deficiencies identified by SES. SES inspected and paid for the work. On April 7, 2120, UST requested a meeting between the contracting officer and UST's president, Jean Genie, to resolve the items still at issue, namely, the construction schedule and the superintendent issues. Also, UST had requested a change in the specifications to allow it to remove old EPS conduit connections more quickly (the "sleeper joint" issue).

The parties met on April 30, 2120. UST renewed its request for a modification of the contracting officer's interpretation of the sleeper joint issue which would enable UST to perform the work more efficiently and expeditiously. Mr. Genie became incensed because SES never made the analysis it had promised with respect to the requested change. At the meeting, SCS adamantly refused to approve the change, and tempers flared. Following the heated altercation on this issue, during which Mr. Genie had indicated he needed the change to complete the work on time, the SES representatives reiterated their displeasure with various aspects of UST's performance. The SES representatives then left the meeting to caucus because, per the contracting officer, everybody was going in different directions. After discussing the matter among themselves for approximately twenty minutes, they returned and the contracting officer announced that, in his opinion, UST could not complete the job satisfactorily within the time limitations set in the contract, and he was terminating the contract for default. Mr. Genie promptly withdrew his "demand" for a change and offered to do everything necessary to complete the work on time, even at a loss, in accordance with the contract. The contracting officer refused to discuss UST's further performance under the contract.

Thus, the matter of the superintendent and the details of the revised schedule UST had submitted, which did not depend on the proposed change, were never taken up. A written communication subsequently confirmed the termination. SES rebid the contract and engaged a follow-on contractor to complete the project. The project was eventually completed on December 10, 2121.

The action of the contracting officer in terminating UST for default was taken pursuant to General Provision 5 of the contract at issue here, which contains the following standard language:

If the Contractor refuses or fails to prosecute the work, or any separable part thereof, with such diligence as will ensure its completion within the time specified in this contract, or any extension thereof, or fails to complete said work within such time, the Government may, by written notice to the Contractor, terminate his right to proceed with the work or such part of the work as to which there has been delay.

....

If, after notice of termination of the Contractor's right to proceed under the provisions of this clause, it is determined for any reason that the Contractor was not in default under the provisions of this clause, or that the delay was excusable under the provisions of this clause, the rights and obligations of the parties shall, if the contract contains a clause providing for termination for convenience of the Government, be the same as if the notice of termination had been issued pursuant to such clause.

The contract contains a standard termination for convenience clause.

On December 19, 2120, UST submitted a certified claim to the contracting officer, asserting that the government's termination for default was not justified and claiming a right to certain costs under the termination for convenience clause of the contract. The contracting officer responded by referring to the default termination decision, thereby rejecting the claim, and UST timely filed a direct access action in the Court of Claims³ pursuant to the Contract Disputes Act (CDA), 41 U.S.C. § 609(a) (1982).⁴

Before the Claims Court, UST reiterated its assertions that it was not in default, that the termination should be converted to a termination for convenience, and that, under the contract and applicable regulations, it was entitled to recover certain costs incidental to termination for convenience.⁵ The government filed a counterclaim to collect its          re-procurement costs of approximately $477,000, awarded by a subsequent contracting officer's decision. The Claims Court dismissed the government's claim and entered judgment in favor of UST, but for a lesser amount than it had sought. Both parties appealed the Claims Court's judgment. In the initial appeal, the court could not determine whether the court had invalidated the default termination because of a substantive or a procedural defect, and we requested additional findings with respect to the proof of Lisbon's losses.

• Was the termination by SES justified as a default or convenience? Or in the alternative, should this be considered a breach of contract and why or why not?
• Which party has the burden in establishing the default and prove that UST was or was not behind schedule at the time of termination?
• Who burden does UST have to prove that its full-time superintendent and new acceptable revised construction schedule was reasonable?
• What burden does the government have to disprove the items UST claimed as termination for convenience costs?
• What are the appropriate costs, if any, should UST be allowed? Or in the alternative what credits should be given to SES and why?