Opinion ID: 208635
Heading Depth: 1
Heading Rank: 4

Heading: Termination for failure to make progress in the absence of a contract completion date

Text: In McDonnell Douglas XII, we quoted the language from Lisbon in toto and directed the Court of Federal Claims to determine the performance required by the contract [1] and the contract completion date.  323 F.3d at 1018 (emphasis added, footnote added). We acknowledge that this specific instruction, if read literally, turns out to be difficult to apply. This is largely due to the unique facts of this case and the disadvantage we faced last time when deciding the case without the benefit of sufficient fact findings from the trial court. See id. at 1014. The difficulty in strictly applying the Lisbon test lies in the critical fact that P00046 revised the prototype aircraft delivery dates but left Lot I delivery dates unchanged. As such, there is an overlap between the modified delivery schedule for the eight prototype aircraft and the original delivery schedule for the Lot I production aircraft. See Delivery Schedules, supra. The government insists that the Lot I schedule remains in effect because that portion of the original contract was not modified by P00046. However, [t]he A-12 contract was designed as a long-term research and development effort, structured so that each period of performance built upon preceding work. McDonnell Douglas XIII, 76 Fed.Cl. at 432. Because the eighth test plane would serve as the prototype for the Lot I aircraft, the contractors could not have delivered Lot I aircraft according to the original schedule as that would require delivering the production aircraft prior to the prototype planes. Therefore, we agree with the Court of Federal Claims that the [a]pplication of the contract in [the] manner [advocated by the government] would be nonsensical. McDonnell Douglas XIII, 76 Fed.Cl. at 432. It follows that the contract, as modified by P00046, does not provide a definite contract completion date. [2] Id. at 401. The contractors would have us apply the Lisbon test literally and hold that the absence of a contract completion date per se precludes the government from ever justifiably terminating a contract for failure to make progress. We cannot adopt such a broad categorical rule. The propriety of such a default termination, even though ultimately a question of law, is a fact-sensitive inquiry. The Lisbon test requires the contracting officer's reasonable belief that there was no reasonable likelihood of timely completion. Lisbon, 828 F.2d at 765. Therefore, it is inevitable that some case-by-case adjudication is required. To be sure, just as the prior panel did, we reaffirm that the test formulated in Lisbon is a correct standard for determining whether a default termination for failure to make progress is justified. However, this test was announced in view of the specific facts presented in that case, where there was a definite contract completion date. Lisbon, 828 F.2d at 761, 762. It did not address the situation where, as in the present case, the contract does not specify a fixed completion date. See United States v. Alaska S.S. Co., 253 U.S. 113, 116, 40 S.Ct. 448, 64 L.Ed. 808 (1920) (stating that a court will determine only actual matters in controversy essential to the decision of the particular case before it, and that it is not empowered to decide... abstract propositions ... which cannot affect the result as to the thing in issue in the case before it). As such, the Lisbon standard could not be literally applied in every default termination for failure to make progress case. We are confident that Lisbon does not, as the contractors argue, foreclose a court's review of a default termination for failure to make progress merely because of an unascertainable contract completion date. This is evident from Lisbon itself, in which the court approved the Claims Court's citation and interpretation of Universal Fiberglass Corp. v. United States, 210 Ct.Cl. 206, 537 F.2d 393, 397 (1976). [3] Lisbon, 828 F.2d at 765. Universal Fiberglass involved a supply and service contract for more than 12,000 mail delivery trucks. 537 F.2d at 394. The contractor in that case repeatedly failed to meet the installment delivery schedule, even after several extensions of time. Id. at 394-95. It closed down almost all of the production lines and laid off most of its labor force. Id. at 395. Meanwhile, a government audit showed that the contractor was insolvent. Id. Time and again, the government asked the contractor to furnish its proposed revised delivery schedule, but to no avail. Id. The government issued a Preliminary Notice of Default and gave the contractor ten days to cure all of its defaults. Id. at 396. After the contractors waived its rights to the full ten-day notice period, the government promptly terminated the contract for failure to make progress. Id. The Court of Claims held that the contract was properly terminated for failure to make progress. Id. The court found that in the absence of a delivery schedule, i.e., the contract completion date, the cure notice served the purpose of advising the contractor when the time for default has been reached. Id. at 398. The court reasoned: The contractor had already been asked to submit a new delivery schedule and had not done so. Nor had the contracting officer learned, from the contractor or any other source, any information to lead him to believe that deliveries would or could ever be resumed. In such circumstances, a unilateral delivery schedule prescribed by him would have been an exercise in futility, except for forensic purposes, should we be so foolish as to give the absence of such a schedule any legal significance or weight. Id. We realize that the facts in Universal Fiberglass are not exactly the same as in the present case. First, the difficulties in designing and manufacturing stealth aircraft are incomparable to those in making small three-wheeled mail delivery trucks. More importantly, as the contractors correctly point out, in Universal Fiberglass, the contractor was making no progress at all, had never manufactured a vehicle under the new specifications it had agreed to, did not have the necessary parts and could not obtain them and had allowed its labor force to wither away. Id. at 398. In contrast, in the present case, [d]espite delays, the contractors continued operations. They were spending $120 to $150 million of their own money every month. They were committed to performing the A-12 contract until the date of termination. McDonnell Douglas XIII, 76 Fed.Cl. at 427. However, the contractors' commitment to performing the contract was not without conditions. Starting from as early as June 1990, the contractors had asserted that the A-12 contractual schedule [was] not achievable and need[ed] to be changed. They also predicted that the cost of completing the contract would exceed the ceiling price so substantially that it would be unacceptable to the contractors. Insisting that the A-12 project could not be accomplished under a fixed price type contract without [solving] the financial, schedule and specification problems, the contractors proposed that the contract be modified. The contractors maintained this position throughout their performance of the A-12 contract. After missing the original first flight date, [t]he contractors were working to an aggressive schedule, but they would not sign up for one. McDonnell Douglas XIII, 76 Fed.Cl. at 399. Because the contractors rejected the government's proposal of a bilateral modification of the contract, the government imposed the unilateral modification of the delivery schedule for the prototype airplanes, P00046, as a first step in achieving the overall delivery schedule. McDonnell Douglas XIII, 76 Fed.Cl. at 400. P00046 extended the first flight date from June 1990 to December 1991. The contractors' projected delivery date, however, further slipped away. Six months prior to termination, the contractors projected a twelve to fourteen-month delay in first flight [June  August 1991]. By termination, the contractors' expectations extended first flight to March 1992. McDonnell Douglas XIII, 76 Fed.Cl. at 422. In fact, by December 1990, the contractors' confidence in even the March 1992 flight date was reduced. They believed that such a date was achievable only after significant changes. As the trial court found, Navy officials ... could not predict when the contractors would deliver first flight. McDonnell Douglas XIII, 76 Fed.Cl. at 401. As the contractors themselves emphasize, one cannot test an aircraft before it has been built, nor build a production airplane before developing its prototype. Therefore, without the timely delivery of the prototype airplanes, there would be no basis for the government to prescribe a new delivery schedule for Lot I aircraft. In this sense, similar to the Court of Claim's opinion in Universal Fiberglass, we believe requiring the contracting officer to artificially reset the contract completion date would have been supererogatory, except for forensic purposes. See Universal Fiberglass, 210 Ct.Cl. at 217, 537 F.2d 393. Therefore, we agree with the trial court that this case is similar to Universal Fiberglass in that a schedule is not necessary because the cure notice supplants the schedule and serves a similar function. The cure notice lets a contractor know that even if performance or delivery is not yet due, the contracting officer believes the contractor may not be making sufficient progress to complete the contract on time. The burden is then on the contractor to advise the Government how it will complete the project on time, according to contract requirements. Id. at 419. One could analogize the per se rule advocated by the contractors to an injunction against the government. In granting or denying an injunction, a court follows traditional equitable principles and balances the conveniences of the parties and possible injuries to them to arrive at a nice adjustment and reconciliation between the competing claims. Weinberger v. Romero-Barcelo, 456 U.S. 305, 312, 102 S.Ct. 1798, 72 L.Ed.2d 91 (1982). When a government contract is terminated, there are two interests at issuethe contractor's interest in holding the government to its obligation to carry out the contract, and the government's interest in not wasting taxpayer dollars. The contractors in this case, however, would have us enjoin the government from ever terminating a contract for failure to make progress based on a single factorthe contract lacks a set completion date. We reject such a per se rule because it serves only the contractors' interest. Instead, we favor an ad hoc, factual inquiry that allows careful examination and weighing of all relevant circumstances. See McDonnell Douglas XII, 323 F.3d at 1014 (stating that [i]n determining whether a default termination was justified, a court must review the evidence and circumstances surrounding the termination, and that assessment involves a consideration of factual and evidentiary issues). In fact, in our 2003 opinion, we provided the same guidance, stating that to determine whether a default termination is justified, the trial court should focus on the events, actions, and communications leading to the default decision in ascertaining whether the contracting officer had a reasonable belief that there was no reasonable likelihood of timely completion. McDonnell Douglas XII, 323 F.3d at 1017. Of course, in some cases, it is possible that a conclusion drawn from a comparison of the entire contract effort and the time remaining for contract performance is so clear that it becomes dispositive. See Lisbon, 828 F.2d at 765. However, in cases such as the present one, where such a comparison is inapplicable, the court must examine other factors, including the contractor's failure to meet progress milestones, its problems with subcontractors and suppliers, its financial situation, and its performance history. See McDonnell Douglas XII, 323 F.3d at 1017. Only after analyzing the totality of the circumstances can a court determine whether a contractor failed to [p]rosecute the work so as to endanger performance of the contract. See 48 C.F.R. § 52.249-9.