**Chapter 11. Contract Administration**

**11.1 General**

This chapter provides guidance on the administration of contracts.
Administration refers to all the actions taken regarding a contract
after award to ensure that it is successfully performed, and that the
PHA receives the required supplies or services.

**11.2 Administering Construction Contracts**

The following guidance and instructions are provided for administration
of construction contracts. Contract administration for non-construction
contracts is discussed in 11.3 of this chapter. (Information regarding
contract administration for PHA development contracts is included in HUD
Handbook 7417.1, Chapter 12.)

A. **Pre-construction Conference and the Notice to Proceed**. Following
the award of a construction contract, a pre-construction and safety
conference should be held to thoroughly discuss key construction and
contract administration-related issues. The PHA should issue a Notice to
Proceed to the contractor stating the starting and completion dates and
typical contract-related information. The notice should be prepared in
an original with at least two copies signed by the Contracting Officer.
The contractor should retain the original and sign, date, and return the
copies. This Notice may be hand-delivered to the contractor at the
conference and signed immediately. The PHA should retain one copy for
the official contract file and, if requested, send the other copy to
HUD. See **Appendix 14** for a sample Notice to Proceed.

B. **Progress Meetings**. The PHA should meet with its architect and the
contractor on a regular basis (usually weekly for large or complex
projects) to discuss work progress, payments, any problems or
deficiencies noted during inspection visits, overdue reports, and the
construction schedule. The PHA or the A/E should prepare a written
record of the items discussed at each meeting and place a copy in the
construction contract file.

C. **Inspections**. If an A/E firm has been retained to conduct the
contract administration function, the PHA must hold the A/E firm
accountable for carrying out the necessary inspections and monitoring.
The quality of the inspection is critical, and the PHA should ensure
that either the A/E or the designated person responsible for inspection
(Clerk-of-the-Works) is fully qualified and performs the inspections
frequently and thoroughly.

> 1\. **Inspection Reports**. All progress inspections should be
> documented using an appropriate PHA inspection report form. The
> inspection report should include a description of the work completed
> and a determination as to whether or not the work is acceptable. If
> payment is made on a unit price basis, quantities must be verified. If
> payment is made on a time and materials basis, the report should show
> that the time charged was spent on PHA work and that materials were
> charged at cost. A copy of the inspection report should be included in
> the contract file. Based on the progress report, the Contracting
> Officer should initiate any needed follow-up actions to ensure that
> the terms of the contract are being fulfilled.
>
> 2\. **Deficiencies**. Upon being notified by its architect or HUD of
> construction deficiencies, the PHA shall promptly notify the
> contractor in writing of the deficiencies observed. This notification
> should also advise the contractor that failure to make timely
> corrections will be an infraction of the contract and that the
> contractor will be held liable for any resulting losses or delays.

D. **Labor Standards**. The PHA is responsible for the administration
and enforcement of labor standards requirements as provided in HUD
Handbook 1344.1, REV 1, Chg1 as required by DOL regulations applicable
to Davis-Bacon covered work (**29 CFR 5**). See 10.8.E of this Handbook.

E. **Progress Payments**. Some state laws impose mandatory payment
schedules to contractors that may not be consistent with HUD's holdback
requirements. Any such problems should be resolved before soliciting
bids for a contract. For Capital Fund and Development Projects, payments
shall be made as follows:

> 1\. If progress payments are necessary (they may not be necessary in
> small construction contracts), the PHA shall require the contractor to
> prepare a construction progress schedule for each project immediately
> after issuing the Notice to Proceed. The PHA may require use of form
> HUD-5372, Construction Progress Schedule, or another appropriate form
> from various professional organizations. The information must be
> realistic and consistent with the information provided by the
> contractor on the PHA-approved schedule of amounts for contract
> payments and the HUD-approved Project Implementation or Development
> Schedule, as applicable.
>
> 2\. The PHA or its architect should review the contractor's
> construction progress schedule to ensure that the scheduled dates and
> amount of work to be completed are reasonable and consistent with the
> contract. If acceptable, the PHA's architect shall sign the schedule
> and forward it to the PHA for approval. After approval by the PHA, the
> construction progress schedule shall be returned to the contractor and
> copies filed in both the construction contract file and the official
> contract file.
>
> 3\. The PHA should require the contractor to prepare a schedule of
> amounts of payments immediately after execution of the contract. The
> PHA must use form HUD-51000, Schedule of Amounts for Contract
> Payments, for this purpose.
>
> 4\. The PHA and its architect shall review the schedule to determine
> that both the scheduled work to be completed by the specified dates
> and the amount of payment for such work are reasonable. If acceptable,
> the PHA should approve and return the schedule to the contractor. HUD
> review is not required.
>
> 5\. The PHA is responsible for making progress payments to the
> contractor based on the PHA-approved schedule of amounts for contract
> payments. Generally, progress payments for acceptable work and
> materials delivered and stored on the site are made at 30-day
> intervals. HUD authorization of progress payments based on the
> approved payment schedule is not required.
>
> 6\. The contractor should submit a request for payment for each
> project on form HUD-51001, Periodic Estimate for Partial Payment. The
> request shall be accompanied by the contractor's written designation
> of a certifying officer. In addition, the contractor should submit the
> following HUD forms or other appropriate forms, if applicable, with
> each periodical estimate for partial payment: form HUD-51002, Schedule
> of Change Orders; form HUD-51003, Schedule of Materials Stored; and
> form HUD-51004, Summary of Materials Stored.
>
> 7\. The PHA should review each contractor request and should approve
> the payment if the following conditions have been met (if the
> contractor requests payment for items that have not been acceptably
> completed, the PHA should delete those items and adjust the payment
> accordingly):
>
> a\. The contractor's request is consistent with the PHA-approved
> schedule of amounts for contract payments;
>
> b\. The request does not include the amount to be retained by the PHA
> under the contract;
>
> c\. The work covered by the payment has been performed in accordance
> with the construction documents;
>
> d\. The form HUD-51001, Periodic Estimate for Partial Payment, has
> been properly executed and all applicable supporting documentation
> submitted; and
>
> e\. The contractor has submitted all required reports, such as payroll
> reports. The PHA shall retain the original form HUD-51001 and any
> applicable supporting documentation for its file and return a copy of
> the PHA-approved forms to the contractor.

F. **Delays and Time Extensions**. The contractor is responsible for
completing the work within the time established in the contract. The PHA
is responsible for monitoring the contractor to ensure that work will be
completed as scheduled. The PHA may authorize justifiable time
extensions without prior HUD review and approval, unless the PHA is
subject to prior HUD approval under a HUD-established threshold that is
less than the requested amount. The "Default" clause on the forms
HUD-5370, 5370-C and 5370-EZ prescribes the conditions under which a
time extension may be granted. The basic principle is that delays
arising from unforeseeable causes beyond the control and without the
fault or negligence of the contractor may be grounds for allowing a time
extension. Such time extensions should be formalized in a written
modification to the contract.

> 1\. **Construction Log**. The PHA should maintain a construction log
> to record potential causes for delays that may be used as the basis
> for granting time extensions or for denying a request for a time
> extension. The construction log should contain daily reports that
> record at least the following: the daily temperature, the daily amount
> of precipitation, delays in obtaining labor and materials, including
> the duration and the applicable construction trade, delays experienced
> by others in completing non-contract public improvements (whether
> on-site or off-site), and other causes for delays, such as fires,
> floods, vandalism, or court orders.
>
> 2\. **Time Extension Criteria**. In order to be considered for
> approval by the PHA, requests for time extensions should meet the
> following criteria:
>
> a\. The contractor should submit a written notice to the PHA within 10
> calendar days of the start of any delay;
>
> b\. The severity and extent of adverse weather could not have been
> reasonably foreseen by the contractor (normal seasonal levels of rain,
> snow, cold or heat should have been considered by the contractor); and
>
> c\. The cause of the delay was beyond the contractor's control.
>
> 3\. **Documentation**. Immediately upon receipt of the contractor's
> notification of delay or request for time extension, the PHA should
> send a letter of acknowledgment to the contractor. The letter should
> indicate that either: (1) immediate consideration will be given to the
> contractor's request or (2) the actual delay in work is difficult to
> determine and consideration will be given to the contractor's request
> upon completion of work. PHA staff should review records to ensure
> that the information provided by the contractor is accurate and
> complete. This will allow the Contracting Officer to determine the
> cause of the delay and the extent that it was within the contractor's
> control. It will also determine if the request meets the contract's
> criteria for approving or rejecting the request for a time extension.
> Two criterion for approval of time extension requests follow:
>
> a\. The contractor's request, as documented by the PHA "finding of
> fact," meets the requirements stated in paragraph 11.6.F.2 above, and
>
> b\. The additional time requested by the contractor is reasonable
> based on the nature and duration of the delay.

G. **Completion of Work**. The completion of a construction contract
requires some formal procedures, including the following:

> 1\. **Notification**. The contractor should provide prompt written
> notification to the PHA when all work is completed. A final inspection
> of completed work shall then be conducted. Until the final inspection
> has been carried out and corrections made, the PHA should not advance
> any of the retainage or make the final payment to the\
> contractor.
>
> 2\. **Final Inspection**. Upon receipt of the contractor's
> notification of the date when the work has been completed, the PHA
> should conduct a final inspection within 10 calendar days.
>
> 3\. **Post-Inspection Meeting**. The inspection team should meet after
> completing the final inspection to determine whether the work has been
> completed in accordance with the construction documents and to
> identify any minor items of incomplete or unsatisfactory work (or
> seasonal work such as planting of shrubs and lawns). The team should
> also reach agreement on the items to be included on the PHA's or its
> architect's final punch list and on any major deficiencies that must
> be corrected by the contractor.
>
> 4\. **Documentation**. Following final inspection, the PHA should
> notify the contractor to submit the following documentation to the
> PHA:
>
> a\. A certificate of occupancy issued by the responsible local agency
> for each building (where appropriate);
>
> b\. One notarized original and two copies of the contractor's release,
> including certification that indicates:
>
> i\. The work was completed in accordance with the construction
> documents, including contract modifications, except any minor items
> identified on the PHA's or its architect's proposed certificate of
> completion;
>
> ii\. The total amount due the contractor and a separately stated
> amount for each unsettled claim against the PHA;
>
> iii\. Documentation noting that the PHA is released of all claims,
> other than those stated in the contractor's release; and
>
> iv\. Wages paid to laborers or mechanics were consistent with the wage
> rate requirements of the contract and there are no outstanding claims
> for unpaid wages.
>
> c\. Assignment of all guarantees and warranties to the PHA; and
>
> d\. "Final" partial payment. The PHA may accept part of a project for
> occupancy before contract settlement if the following conditions are
> met:
>
> i\. The dwelling units to be accepted (except items approved for
> delayed completion) have been completed and are ready for occupancy;
>
> ii\. The general contractor agrees to early occupancy and completion
> of items approved for delayed completion;
>
> iii\. Early occupancy will not unduly inconvenience or represent a
> safety risk to tenants while the unfinished work is being completed;
>
> iv\. The PHA has obtained occupancy permits from the responsible local
> agency for each unit to be accepted; and
>
> v\. The PHA has executed an occupancy agreement with the general
> contractor indicating that the PHA partially accepts specified work,
> provided that the contractor accepts the responsibility to complete
> the project by the established completion date.

H. **Final Payment**. The PHA should ensure that an adequate and
notarized certificate and release are received from each construction
contractor to assure that the work was in full compliance with the
construction contract documentation and that all materials, supplies,
equipment, and labor-related expenses have been paid in full by the
contractor. Prior to making final payment, the PHA should ensure that
all required certified payroll reports have been received and that any
discrepancies and/or wage underpayments have been corrected. Upon
receipt of the approved certificate of completion, the PHA is authorized
to make payment to the contractor. The PHA payment to the contractor
should be the amount specified in the certificate of completion, but it
should not include any amount to be retained for disputed items and
incomplete work, such as the punch list or seasonal items.

I. **Construction Warranties**. The warranty period for all construction
work should be at least 365 calendar days from the date of final
acceptance of the work in question or such longer period as otherwise
specified in the contract. For complex equipment or systems (such as
boilers, air conditioning units, thermal paned windows or storefronts,
or membrane roofs), the PHA should consider using a full two-year
warranty. The extra year will help to ensure that the PHA can discover
and report any hidden or latent deficiencies while the warranty is still
in force. The contractor is fully responsible to correct any and all
legitimate deficiencies reported within the warranty period. It is often
a good approach to specify the additional warranty period on replaced or
repaired items; one full additional year is generally reasonable and
appropriate.

> 1\. **Warranty Inspections**. The PHA is responsible for performing
> required warranty inspections, including the 11-month inspection,
> during the warranty period and promptly notifying the contractor in
> writing to remedy any defects relating to manufacturer or contractor
> warranties on equipment and systems and contractor warranties on
> materials and workmanship. This is an area that has been frequently
> overlooked by some PHAs and their A/Es. Failure to enforce warranties
> is a violation of the ACC requirement for economy and efficiency and
> can be very costly to the PHA. In such cases, the PHA will have to use
> its own funds after the expiration of the warranty to correct defects
> that were the contractor's responsibility.
>
> 2\. **Corrective Action**. Upon receipt of the PHA's written notice,
> the contractor should promptly remedy any defects due to the use of
> faulty equipment or materials or poor workmanship. The contractor is
> also responsible for paying for any damage to other work resulting
> from such defects. If the contractor fails to resolve such warranty
> issues, the bonding company should be contacted by the PHA for final
> resolution.

**11.3 Administering Non-Construction Contracts**

The necessary amount of oversight and monitoring, i.e., contract
administration, will vary with the complexity of the work. Relatively
simple contracts may require limited monitoring, while large, complex
contracts will need more in-depth monitoring and oversight. Efforts to
develop good specifications and a carefully planned solicitation can be
undermined by weak contract administration.

A. **Post-award Conference**. For relatively complex projects, it is
advisable to meet with the contractor soon after contract award to
ensure that all parties understand the contract's performance
requirements. Terms of the contract should be thoroughly discussed. In
addition, formal minutes of the meeting should be recorded and
subsequently issued to all meeting attendees. Also at this meeting,
samples may be presented if required and inspection personnel
introduced. Any necessary changes to the contract resulting from this
meeting should be reflected in a formal written modification to the
contract, rather than through oral agreements or instructions from PHA
staff. Only the Contracting Officer has the authority to make a formal
change in a contract.

B. **Establishing a System for Receiving Supplies, Equipment, and
Services**.

> 1\. The PHA should establish a system for ensuring that the items
> required by contract are delivered to an appropriate location where
> PHA personnel can make certain that receipt of supplies, materials, or
> equipment is properly handled and documented. For example, a contract
> for supplies should indicate where delivery should be made (what room
> or other location, such as a management office) and how the receipt
> will be recorded and provided to the contractor.
>
> 2\. The receiving report, either a standardized PHA document or one
> submitted by the contractor, should contain, at a minimum, the
> following information: contract number, item number/description of the
> item, date of receipt, place received, receiving official (printed
> name, signature, date), date of inspection, inspection official
> (printed name, signature, date), whether the work/item was or was not
> accepted (and, if not accepted, reasons for rejection), and accepting
> official (printed name, signature, date). The receiving, inspecting,
> and accepting official may, in certain circumstances, be the same
> individual, particularly under project-based management.

C. **Monitoring and Inspecting Supplies and Services**. Once received,
the PHA should monitor or inspect the supplies or services obtained in
accordance with the contract. If poor contractor performance occurs, the
PHA should document the file and remember that performance when awarding
future contracts. The PHA should also make recommendations to HUD, when
appropriate, regarding suspensions and debarments and provide evidence
involving serious complaints, areas of non-responsibility, and other
violations of or failure to comply with Federal, State, or local laws
and regulations to the HUD Field Office for review (see Chapter 10,
Evaluating Contractors and Analyzing Cost and Price).

D. **Enforcing Specifications and Timelines**. The PHA should establish
a system to enforce both specifications and timelines and, when
necessary, enforce compliance with all of the contract specifications,
particularly since the rules of law may relieve a contractor of any
liability if the PHA failed to regularly monitor the contractor's
performance before final acceptance. The PHA is not obligated to pay for
or accept supplies or services until it has had an opportunity to fully
inspect them. Such inspection and any rejection resulting therefrom
should be within a reasonable time after delivery or performance. If the
PHA fails to require the contractor to correct a particular defect
because of the PHA's failure to inspect (assuming that the defect could
have been found by reasonable inspection), the PHA may have waived its
rights to future rejection based on that particular defect.

Acceptance may be assumed to have occurred, with or without concurrence
by the PHA, if after a reasonable time to inspect has passed and the PHA
has failed to make any notification to the contractor that the supplies,
services, or construction do not conform to the contract requirements.

E. **Acceptance of Supplies and Services**

> 1\. The Contracting Officer should ensure the supplies received from
> vendors are inspected and accepted, the performance of services was
> satisfactory, and receiving documents are prepared and processed for
> payment. This acceptance should not be delayed, since prompt payment
> will help to ensure good relations with vendors and contractors. In
> addition, many contracts allow a discount for prompt payment if made
> within a specified number of days. Discounts, if offered by the
> contractor, should always be taken by the PHA to the greatest extent
> feasible, and procedures should be established to facilitate expedited
> receipt and prompt payment.
>
> 2\. **Nonconformance**. When supplies, services, or construction items
> do not conform to the contract, the PHA has three response options.
> reject the items, require the contractor to correct them, or
> conditionally accept them.
>
> If any items or services are rejected, the contractor is subject to
> being declared in default unless it can provide conforming items or
> make a correction within the required delivery schedule/completion
> time. If the contractor is required to correct the defects, it would
> appear that the PHA has elected to have them corrected; therefore, the
> PHA may not terminate the contract for default until the contractor
> has a reasonable opportunity to correct the defects. If the contractor
> does not correct the defects within the required timeframe, the PHA
> may accept the defective items or deficient services, but negotiate a
> commensurate reduction in price.

F. **Labor Standards**. Maintenance contracts in excess of \$2,000
require the payment of HUD-determined wage rates.

> 1\. **Posting Wage Rates.** PHAs must ensure that a copy of the
> applicable HUD wage decision is displayed at the job site in a place
> accessible to all maintenance laborers and mechanics and placed in an
> area that is protected from inclement weather.
>
> 2\. **Compliance Monitoring.** PHAs have certain compliance monitoring
> and enforcement responsibilities for maintenance contracts subject to
> HUD-determined wage rates. See Chapter 10 of this Handbook for a
> discussion of the wage and recordkeeping requirements and the
> enforcement requirements of the PHAs.

G. **Control of Payments**. To the extent practical, and to help
eliminate disputes that arise when shortages or damages are not
discovered until after payment has been made, payment for supplies and
services should be made only after the delivered items are inspected and
found to be satisfactory.

**11.4 Contract Modifications**

A. **General**. Occasionally, it is necessary to modify a contract or
purchase order to reflect changes in the required effort, period of
performance, or price. Contract and purchase order modifications shall
be issued in writing in one of the following forms:

> 1\. Unilateral modification (a modification that is signed only by the
> Contracting Officer, such as a change order pursuant to the Changes
> clause on form HUD-5370, or administrative modification, such as a
> change in the address of the payment office), or
>
> 2\. Bilateral modification (such as a supplemental agreement in which
> both parties mutually agree on contract changes) that is signed by
> both the Contracting Officer and the contractor. Bilateral
> modifications are the preferred method of modifying contracts and
> purchase orders.

B. **Process**. A change order is issued by the Contracting Officer
after the award of a contract in any of the contract terms, including
specifications, completion time, description of the work, etc., within
the scope of the contract.

> 1\. The Changes clause is included in form HUD-5370 (for construction)
> and form HUD-5370-C (for non-construction contracts) and form
> HUD-5370-EZ (for small construction/development contracts).
>
> 2\. A change order may be issued unilaterally by the Contracting
> Officer. In such cases, the contractor is entitled to submit a change
> order proposal to identify any changes in cost or schedules as a
> result of the change, and the parties negotiate an equitable
> adjustment.
>
> 3\. Change orders may be issued bilaterally if the contractor agrees
> to the change in advance. When a change is mutually agreed upon,
> including price adjustment for concessions made by either party, a
> contract modification is prepared and signed by both parties to the
> original contract. See **Appendix 15** for a Sample Contract
> Modification format that may be used for modifications.
>
> 4\. Change orders/modifications should include at least the following:
> a detailed description of the proposed change in work, a reference to
> the applicable working drawings and specifications, when applicable, a
> price (credit, debit, or no change) for the change in contract work,
> estimate of additional time, if any, required to complete the work,
> the contractor's itemized breakdown of the cost of materials and labor
> and an itemized breakdown for any applicable subcontractors, and the
> change indicate on the architectural or engineering drawings, if
> applicable.

C. **Limitations on Change Orders**. The Changes clause contained in
forms HUD-5370, 5370-C, and 5370-EZ, prescribes the specific
circumstances in which a change order may be issued. For example, adding
the construction of a new building to a modernization contract would not
be considered within the scope of the contract or within the authority
of the Changes clause but should be considered a new contract (and
subject to competition).

D. **Modification Register**. The PHA shall maintain accurate records
and documentation regarding contract modifications by including a
modification register or other record in each contract file. This
register is required to provide a permanent record of all actions taken
in connection with each contract. The modifications register should
generally include information on the following: the number of
modifications, a brief description of the change, the cost of the
proposed modification, the date submitted to HUD for approval, if
applicable, any critical deadline dates, the date of HUD approval or
disapproval, if applicable, and the action taken, and the amount of any
additional time required by the contractor.

E. **HUD Approval of Modifications**. PHAs must submit to HUD for prior
approval any proposed contract modifications changing the scope of the
contract in accordance with the Changes clause in the contract, or that
increases the contract by more than the Federal small purchase
threshold, unless exempted under paragraph 12.5 of this handbook.

**11.5 Contract Claims**

A. **General**. Contract claims may occur after the contract has been
executed and may be pursued by the PHA or the contractor, although most
often the contractor is the claimant. Disputes may arise regarding
breach of contract, mistake, misrepresentation, other cause for contract
modifications, or other disputes as described in the contract documents,
such as unforeseen conditions. Forms HUD-5370, 5370-C and 5370-EZ,
describe types of disputes and how claims will be processed. PHAs are
required to have a provision in the procurement policy that explains how
claims and disputes will be handled.

B. **Filing Claims**. The PHA should make every effort to resolve claims
informally and expeditiously to avoid time losses or expensive delays.
However, if the dispute cannot be resolved by mutual agreement, the
following steps must be taken:

> 1\. The contractor must submit the claim to the PHA's Contracting
> Officer in writing within the timeframe specified in the contract
> documents.
>
> 2\. The claim must identify the nature and scope of the claim,
> including extra costs or time sought by the contractor.

C. **Rendering Decisions on Claims**. The Contracting Officer shall
review the facts pertinent to the claim and secure any necessary
assistance from legal, technical, or other advisors and shall issue a
final written decision promptly and within the timeframe stated in the
contract documents. (As provided by forms HUD-5370 and 5370-C, if the
Contracting Officer does not issue a final decision within 60 days after
written request by the contractor for a final decision, or longer period
if mutually agreed upon by both parties, then the contractor may proceed
as if an adverse decision has been received.) The written decision
should include:

> 1\. A description of the claim;
>
> 2\. A reference to the pertinent contract clauses;
>
> 3\. A statement of the factual areas of agreement or disagreement;
>
> 4\. A statement of the Contracting Officer's decision with support
> rationale; and
>
> 5\. A statement referencing appeal rights as provided in the PHA's
> Procurement Policy.

D. The Contracting Officer shall immediately furnish a copy of the
decision to the contractor by certified mail, with return receipt
requested.

E. **Records of Claims**. The PHA shall maintain a complete written and
dated record of any actions that may result in a dispute or claim for
damages. An example would be records of weather conditions during the
course of a contract, delays in receiving materials ordered by the PHA,
or other items that may result in requests for time delays that may be
disputed. These records protect the PHA's interests during any
litigation that may arise later.

At a minimum, the PHA should maintain records of the following:

> 1\. A complete and detailed job record; and
>
> 2\. A disputes and claims file, including a cross-reference to other
> pertinent files (such as a separate file for a particular
> subcontractor), any correspondence related to a dispute, written
> minutes of meetings between the PHA and architects, or job meetings
> where decisions or agreements were made regarding disputes.

**11.6 Contract Terminations**

A. **General**. Contracts are terminated either for default or
termination, as prescribed in the termination clauses on forms HUD-5370,
5370-C, and 5370-EZ.

B. **Termination Notice**. The Contracting Officer shall terminate
contracts for convenience or default only by a written notice to the
contractor. The notice shall be sent by certified mail with a return
receipt requested. The notice shall state, at a minimum, the following:

> 1\. The contract is being terminated for default or for the
> convenience of the PHA under the cited contract clause authorizing the
> termination;
>
> 2\. Whether the contract is terminated in whole or in part (for
> partial terminations, identify the specific items being terminated);
>
> 3\. If terminated for default, the acts or omissions constituting the
> default, the Contracting Officer's determination that failure to
> perform is not excusable, the PHA's rights to charge excess costs of
> re-procurement to the contractor, and the contractor's appeal rights;
>
> 4\. The effective date of termination;
>
> 5\. The contractor's right to proceed under the non-terminated portion
> of the contract;
>
> 6\. Any special instructions; and
>
> 7\. Copies of the notice should be sent to the contractor's surety, if
> any, and any assignee.

C. **Termination for Convenience**. Contracts may be terminated for
convenience when the PHA no longer needs or desires the supplies or
services under contract or can no longer fund the procurement.

> 1\. **Settlement**. Settlement of contracts terminated for convenience
> may be settled through negotiations or by a unilateral determination
> of the Contracting Officer. The contractor should submit a settlement
> proposal promptly to the Contracting Officer for any amounts claimed
> as a result of the termination. Whenever possible, the Contracting
> Officer should negotiate a fair and prompt settlement with the
> contractor and should settle by determination only when mutual
> agreement cannot be reached.
>
> 2\. **Compensation**. A settlement should compensate the contractor
> fairly for work performed, for other costs incurred under the
> contract, and for preparations made for the terminated portions of the
> contract, including a reasonable allowance for profit. However, no
> profit shall be allowed on settlement expenses. In addition, the
> Contracting Officer shall not allow profit if it appears that the
> contractor would have incurred a loss had the entire contract been
> completed. Fair compensation is a matter of judgment and cannot be
> measured exactly. The Contracting Officer should use prudent business
> judgment in the settlement process, as opposed to strict accounting
> principles. The parties may agree to a total amount to be paid to the
> contractor without agreeing on individual cost items or profit.

D. **Termination for Default**. A contract may be terminated for default
because of the contractor's actual or anticipated failure to perform its
contractual obligations. Under a termination for default, the PHA is not
liable for the contractor's costs on undelivered work and may be
entitled to the repayment of progress payments. If the contractor fails
to make progress so as to endanger performance of the contract, the
Contracting Officer should issue a written notice to the contractor
(generally called a "Cure Notice") specifying the failure and providing
a period of 10 days (or longer period if needed) in which to "cure" the
failure. After the 10 days, the Contracting Officer may issue a notice
of termination for default, unless the failure to perform has been
cured.

> 1\. **Notice**. If the contractor has failed to perform work within
> the required time and a termination for default appears appropriate,
> the Contracting Officer should, if practicable, notify the contractor
> in writing of the possibility of the termination. This notice shall
> call the contractor's attention to the contractual liabilities if the
> contract is terminated for default, and request the contractor to
> "show cause" why the contract should not be terminated. If the
> response to this "show cause" notice is inadequate or insufficient,
> action is taken in response to it; the contract should then be
> terminated for default.
>
> 2\. **Alternatives to Termination**. Alternatives to termination for
> default include the following (at the PHA's discretion): allow
> alternative dispute resolution (arbitration or mediation) as agreed to
> by both parties; allow the contractor or the surety to continue
> performance of the contract under a revised delivery schedule (in
> exchange for a reduced price or other consideration); permit the
> contractor to continue performance of the contract by means of a
> subcontract or other business arrangement with an acceptable third
> party, provided the rights of the PHA are adequately protected; or, if
> the contractor is not liable to the PHA for damages, execute a no-cost
> termination settlement agreement.
>
> 3\. **Repurchase**. When the supplies, services, or construction
> activities are still required after termination, the Contracting
> Officer should seek to contract for the same or similar items as soon
> as possible. The Contracting Officer may use any appropriate
> contracting method for the procurement (sealed bids or competitive or
> noncompetitive proposals, as appropriate), provided competition is
> solicited to the maximum extent practicable to secure the lowest price
> obtainable under the circumstances in order to mitigate damages.