The ASBCA Rejects the Navy’s Attempt to Use a Default Termination as a Sword and Shield

In Ultra Electronic Ocean Systems, Inc., ASBCA No. 62804 (June 17, 2021), the Armed Services Board of Contract Appeals (the “Board”) held that a contracting officer’s letter terminating the contract for default “effective immediately” constituted a Contracting Officer’s Final Decision for the purpose of granting the Board jurisdiction over the contractor’s appeal. 

In Ultra, the Navy issued a “Notice of Intent to Terminate for Default,” stating that “effective immediately . . . , the Government hereby exercises its right to terminate the contract.” Although the letter unequivocally terminated the contract, it was not styled as a final decision, and did not provide the contractor appeal rights language that is generally required in a Contracting Officer’s Final Decision. Nonetheless, the contractor appealed the termination letter, after which the contracting officer issued a second letter titled “Notice of Termination,” which was expressly characterized as a final decision and described the contractor’s right to appeal. The Government filed two motions to dismiss the contractor’s appeal of the first termination letter, arguing first that it was not a final decision and second, that it had been made moot by the second termination letter. 

The Board analyzed the language used in the first termination letter, and held that it constituted the final expression of the Government’s position, making it an appealable final decision. The Board also reaffirmed that the absence of appeal rights language in a final decision does not render an otherwise valid appeal invalid. Finally, the Board held that the second termination letter cannot render the earlier termination letter moot, because the second letter did not grant the contractor the relief it sought: conversion of the default termination to that of a termination for the convenience of the Government. The Board denied the Government’s motions.

This decision is another example of the occasional tension between the unique procedural requirements of the Contract Disputes Act, and the Act’s purpose of providing for the fair and efficient resolution of disputes. The Government’s attempt to use a default termination letter as both a sword to terminate the contract and a shield from judicial review of that decision, served only to delay resolution and increase costs to both the contractor and, ultimately, the U.S. taxpayer.