Opinion ID: 15647
Heading Depth: 2
Heading Rank: 1

Heading: Century’s “Contract Balance” Claim

Text: Century contends that it made out a prima facie case for recovery of a “contract balance” of either $1,293,218.54 or $768,889.54. It is undisputed that the total amount of the fixedprice contract, including all modifications, was $8,521,910.00, and that MARAD had paid Century $6,492,159.46 for work completed prior to Century’s termination for default, leaving an unpaid balance of $2,029,750.54 under the contract at that time. MARAD and Century presented conflicting technical expert evidence as to the estimated cost of completing the contract: Century’s estimate was $736,532.00 and MARAD’s was $1,260,861.00. Consequently, Century asserts, 8 after subtracting the estimated cost of completing the work under the contract from the unpaid balance, Century is entitled to the difference, viz., either $1,293,218.54 or $768,889.54, depending on whether the Century or the MARAD estimate is used. Century’s argument lacks a sound basis in law. Termination for default is generally the exercise of the Government’s contractual right to completely or partially terminate a contract because of the contractor’s actual or anticipated failure to perform its contractual obligations. 48 C.F.R. § 49.401(a). The Government has the right to terminate a fixed-price contract for default if the contractor fails to deliver the supplies or to perform the services within the time specified in the contract. 48 C.F.R. § 49.402-1. Under a termination for default, the Government is not liable for the contractor’s costs on undelivered work. 48 C.F.R. § 49.402-2(a). In contrast, under a fixed-price contract terminated for the convenience of the Government, a settlement should compensate the contractor fairly for the work actually done and for the preparations made for the terminated portions of the contract, including a reasonable allowance for profit applicable to that work and preparations. 48 C.F.R. §§ 49.201, 49.202. Anticipatory profits and consequential damages shall not be allowed under either a termination for convenience or a termination for default of a fixed-price contract. 48 C.F.R. §§ 49.201, 49.202, 49.402-2; See Mega Constr. Co. v. United States, 29 Fed. Cl. 396, 475 (1993); G.L. Christian & Assocs. v. United States, 312 F.2d 418, 426 (Ct. Cl.), cert. denied, 375 U.S. 954 (1963). 9 Consequently, as a contractor terminated for default, Century cannot, as a matter of law, recover the “unpaid balance” of the contract less the “cost of completion” of the work under the contract. To allow such recovery would permit Century to do indirectly what it could not do directly, viz., recover anticipated but unearned profits after the contract has been terminated because of its default. A contractor’s right to recover for anticipated profits arises only if the termination of the contract by the Government is wrongful and constitutes a breach. G.L. Christian, 312 F.2d at 423 (citing United States v. Behan, 110 U.S. 338, 346 (1884); United States v. Spearin, 248 U.S. 132, 138 (1918); Broadbent Portable Laundry Corp. v. United States, 56 Ct. Cl. 128, 132 (1921)). Any recovery of profits by a contractor on a contract terminated because of its own default is limited to earned profit on work actually performed prior to the termination. Mega Constr., 29 Fed. Cl. at 475.