Termination For Default: The “No Reasonable Likelihood” Standard

Sometimes you may find yourself running late. It happens to the best of us for a multitude of reasons. But what happens to federal contractors when they are running late in performing under a contract and there is “no reasonable likelihood” of timely performance?

Unfortunately for contractors in this position, as illustrated by a recent Civilian Board of Contract Appeals (CBCA) decision, the result may be a default termination.

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OMB Pushes Prompt Payment To Small Subcontractors

Small subcontractors sometimes find themselves facing a cash flow crunch when they take on new work.  Under some subcontract payment clauses, a small subcontractor might not be entitled to payment until 30 days or more after the prime contractor receives payment from the government for the subcontractor’s work.  Even subcontracts with more generous payment terms often require small subcontractors to make significant up-front investments in terms of employee salaries, materials, and the like before receiving payment.

The Office of Management and Budget apparently recognizes that there is a problem, because yesterday OMB issued a memorandum entitled “Providing Prompt Payment to Small Business Subcontractors,” setting forth three steps the government is taking to address the matter.  One of these steps–if it comes to fruition–may even have some “teeth.”

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