ASBCA: Contractor’s Request For Cancellation Was Not A Default

A contractor’s request that the agency issue a “no-cost” cancellation of its contract was not a default–and did not justify the government’s default termination of the contract.

In a recent decision, the Armed Services Board of Contract Appeals held that a contractor did not repudiate its contract by requesting a cancellation because the contractor’s request was not a “positive, definite, unconditional, and unequivocal refusal to perform.”

The ASBCA’s decision in Capy Machine Shop, Inc., ASBCA No. 59133 (2015) involved a DLA contract for the supply of 27 splice fairings.  The DLA awarded the contract to Capy Machine Shop, Inc.

After award, Capy’s subcontractor amended its quotation to Capy to include a one-time tooling charge of $26,512.  This cost was not included in Capy’s original proposal to the DLA.  Apparently concerned that it would be forced to perform the contract at a loss, Capy emailed the contracting officer, “[p]lease cancel the above contract at no cost to Capy Machine.”

Less than a week later, the DLA responded by issuing a show cause notice, stating that it was considering terminating the contract for default.  In response, Capy explained that the “cost of new tooling . . . is the reason for asking to cancel this contract.”  After receiving Capy’s response, the DLA terminated the contract for default.

Capy then appealed to the ASBCA.  At the ASBCA, the DLA argued, in part, that the default termination was justified because Capy had anticipatorily repudiated the contract by asking for the no-cost cancellation.

The ASBCA recited the longstanding rule that a default termination is “a drastic sanction which should be imposed . . . only for good grounds and on solid evidence.”  In an appeal of a default termination, “[t]he government bears the burden of proving that the termination was justified.”

In this case, the ASBCA held, “Capy’s requests [for a no-cost cancellation] did not evince the ‘positive, definite, unconditional, and unequivocal’ refusal to perform required to prove anticipatory repudiation.”  Rather, “Capy made a request to which the government never really responded, except to terminate for default.”  The ASBCA sustained Capy’s appeal and converted the termination to a termination for convenience.

It is not unusual for a contractor in Capy’s position–faced with changed circumstances that significantly affect performance costs–to request that the government cancel the contract.  As the Capy Machine Shop case demonstrates, a mere request for cancellation, standing alone, does not mean that the contractor is refusing to perform the contract–and does not justify a default termination.

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