As most government contractors will readily admit, there are few pieces of mail more unwelcome than a cure notice from Uncle Sam. This letter, for those of you who may be blissfully unaccustomed, is a government-issued notification that is supposed to put the contractor on notice that the contract may be terminated for default in light of certain alleged performance failures, which the government is supposed to specify for the contractor. In addition, as its name would suggest, the purpose of the communication is to give the contractor an opportunity to explain how it will cure the issue(s) giving rise to the government’s concerns by a date certain—often established as a number of days from the contractor’s receipt of the notice (typically 10 days, but sometimes longer).
Given the catastrophic impacts that a default termination can have on a company’s existing and future business, all contractors should be able to expect—at a minimum—that the government do its job when issuing a cure notice by ensuring that the notice sufficiently identifies the purported performance failures that the contractor is supposed to correct. Unfortunately—as demonstrated by the Civilian Board of Contracts Appeals (CBCA or the Board) January 12, 2023 decision in Alan E. Fricke Memorials, Inc.—the government sometimes fails to do its job. Here is a brief summary of the relevant facts:
- In October 2020, the contractor (Fricke)was awarded two contracts to provide on-site grave marker inscription services at two national cemeteries maintained by the US Department of Veterans Affairs (VA) in Long Island, New York.
- Fricke quickly fell behind schedule, and by January 2021, was delinquent on both contracts because of certain equipment delays and other administrative issues.
- Although the backlog was eliminated by April 2021, it soon returned, and by June 2021, Fricke was again behind schedule on both procurements.
- In September 2021, the VA issued a contractor deficiency report (CDR) in which it complained about the delays and advised Fricke that cure notices would be issued if the problems were not remedied.
- Remarkably, just one day after issuing the CDR, the VA exercised options on both contracts.
- In October 2021—approximately one month after exercising the options—the VA issued cure notices for both contracts and advised that (a) the contracts could be terminated if the delinquencies were not cured within 10 days of the date of the notice, and (b) Fricke’s “failure to present any alternate plan for cure within [the 10-day period] may be considered as an admission that none exist.”
- Both contracts contained FAR 52.212-4, which sets forth standard terms and conditions for the provision of commercial products and services and which, at subparagraph (m), allows a contract to be terminated for default if the contractor “fails to provide the Government, upon request, with adequate assurances of future performance.”
- At the time the cure notices were issued, Fricke was delinquent on providing two grave markers for one contract and nine grave markers for the other contract. Although Fricke did not respond to the notices specifically, it did provide all previously delinquent markers by the second week of November 2021.
- On December 21, 2021, and January 11, 2022, respectively, the VA terminated the contracts for default. The termination notices cited three reasons for the termination: (i) Fricke’s failure to respond to the cure notices, (ii) Fricke’s failure to provide timely inscription services for three of the four types of markers, and (iii) Fricke’s failure to provide the services within the time specified by the contract.
Fricke challenged the VA’s actions at the CBCA and sought to have both terminations converted from default to convenience, the effect of which would be to relieve Fricke of enduring the deleterious impacts of default termination. The Board agreed with Fricke and overturned both terminations because (a) Fricke was not delinquent on any orders at the time of the terminations, (b) Fricke did not have any active orders for markers at the time of the terminations, and (c) the cure notices—which requested only a “plan” for Fricke to perform “in accordance with the terms and conditions of the contract”—were inadequate to put Fricke on notice as to the specific nature of the corrective action plan that the VA actually wanted to receive. The Board also noted that the VA’s exercise of options on both contracts was inconsistent with unsatisfactory performance on behalf of the contractor because FAR 17.207(c) requires that the government exercise an option only after determining that “the contractor’s performance [on the contract] has been acceptable.”
Conclusion and Best Practices
Although the Fricke decision presents a unique fact pattern, its core lesson is a useful reminder that the government can—and often does—get it flat wrong when issuing a cure notice and later deciding to terminate a contract for default. That said, Fricke’s performance was far from perfect on both contracts, and the contractor was tremendously lucky that the government fumbled the ball so badly. Moving forward, here is some advice from the trenches that every contractor should take to heart:
- If your company receives a cure notice, treat it with the utmost sensitivity and urgency, and pay particular attention to the response deadline. Remember, time is not on your side—so you must act quickly to prepare a comprehensive response to the issues that the government has identified. This will often require extensive coordination between and among multiple contractor functions supporting the procurement (including cognizant program management personnel, in-house and/or outside counsel as appropriate, and subject matter experts).
- If you need more time to respond to the notice, be sure to contact the contracting officer immediately to request an extension. There is no guarantee that the government will grant the request, but there is no harm in asking.
- If the cure notice is ambiguous in any respect, engage in a written dialogue with the contracting officer to determine precisely what the government is seeking in response to the notice.
Finally, it is critically important to begin marshaling all applicable defenses to the allegations set forth in the cure notice. This means that in addition to “answering the mail” by providing a detailed, timely response and a tailored corrective action plan, you will want to preview any legitimate defenses that you have so the government understands that it will have a fight on its hands if it proceeds to terminate the contract for default.