Most aptly described as a legal fiction, the doctrine of constructive termination is invoked when the basis upon which the government contract was actually terminated is legally inadequate to justify the government’s actions. Stated another way, the doctrine of constructive termination is invoked to prevent the government’s breach of contract in case of an improper termination. Similar to termination for convenience, constructive termination is an option uniquely available to the government. The doctrine may be applicable as long as the contract, or a portion thereof, is actually terminated. Thus, in cases where the government has stopped the contractor’s performance for questionable or invalid reasons, the government’s actions can amount to a convenience termination under this doctrine. Notably, in such cases, the contractor is entitled to an amount it would otherwise be owed if the government had in fact terminated the contract for convenience. Consequently, the contractor may not recover for work not performed or any anticipatory profits. This means that fixed-price contracts or line items are essentially converted into a cost-reimbursement contract for the purposes of calculating the contractor’s recovery under the constructive termination.
In Armed Services Board of Contract Appeals (ASBCA) No. 62979, a decision issued on September 12, 2022, the Board determined that the government had constructively terminated a task order for convenience when the contracting officer (CO) failed to institute a proper termination for convenience. The United States Army Corps of Engineers (USACE) issued the underlying commercial items task order for technical, analytical, planning, and administrative support for the USACE’s physical security mission. The task order consisted of 11 firm-fixed-price contract line items (CLINs), along with some cost-reimbursable CLINs for related travel and other direct costs (ODCs). In March 2020, a USACE contracting specialist instructed the contractor to discontinue performance on four of the fixed-price CLINs due to the restrictions caused by the COVID-19 pandemic. However, instead of terminating the CLINs at issue, the government tried to negotiate the performance of alternative tasks or the descoping of the CLINs. Despite these negotiations, the parties failed to reach an agreement before the end of the task order’s period of performance.
The contractor later filed an appeal at the ASBCA, contending that it was entitled to complete payment on the four firm-fixed-price CLINs even though it had not performed the necessary work. Meanwhile, the government argued that even though a contract specialist without adequate authority had instructed the contractor to discontinue performance on the four firm-fixed-price CLINs, constructive termination was still applicable. In its decision, the Board noted that although the CO had a valid reason to partially terminate the contract due to COVID-19 restrictions, he had failed to terminate the relevant CLINs. However, while the contract specialist clearly did not have the authority to terminate, the contractor had still stopped work on the firm-fixed-priced CLINs based on his instructions. Thus, if the Board were to determine that the relevant CLINs were not constructively terminated, the contractor would be in breach of its duty to perform the fixed-price CLINs. Under the circumstances, while the government had failed to partially terminate the contract for convenience, constructive termination was still applicable. In rendering its decision, the Board reminded the parties that constructive termination imposes the standard limitations of the termination clause on the contractor even when a termination is not ordered by the CO. Consequently, the Board determined that the delivery order had been partially terminated for the government’s convenience.
Constructive termination is a legal fiction that prevents the government from breaching a contract in the event of an improper termination, if the contract or a portion of it is, in fact, terminated. When a contract is constructively terminated, the government is deemed to have terminated the contract for convenience, even when it stops the contractor’s performance for invalid reasons. Contractors are unable to recover anticipated profits when a contract is constructively terminated. Furthermore, it is worth noting that the doctrine of constructive termination may be applicable even when the contract inadvertently omits a termination for convenience clause or contains an inapplicable version of the clause. In such cases, the proper termination for convenience clause is generally included in the contract under the Christian doctrine, which requires that a mandatory clause be read into a government contract if it represents a significant aspect of public procurement policy.
This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.