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Darwin Const. Co., Inc. v. U.S., 811 F.2d 593, 33 Cont.Cas.Fed. (CCH) P 75,063

Facts

Darwin was awarded a fixed price construction contract for improvements at the Naval Ordnance Station in Maryland, with a completion deadline of November 15, 1983. Due to delays in receiving necessary materials, Darwin completed only 65% of the work by the deadline. The Navy terminated the contract for default, claiming lack of diligent performance, despite evidence that the contractor was ready to complete the work shortly thereafter. The Board initially found the termination arbitrary and capricious but later reversed this decision upon reconsideration.

The only reason Darwin was unable to complete the work in time was that the material needed for the unfinished portion was not delivered in the second 2–week period for performing the contract.

Issue

Was the termination for default of Darwin's contract arbitrary and capricious, warranting conversion to a termination for the convenience of the Government?

The Board found that 'on the record * * * no excusable cause for delay has been proven by the appellant.'

Rule

The contracting officer has discretion to terminate a contract for default, but this discretion must be exercised reasonably and not arbitrarily or capriciously.

The Board stated that 'the default article of the contract does not require the Government to terminate on a finding of default, but merely gives the procuring agency the discretion to do so, and that discretion must be reasonably exercised.'

Analysis

The court analyzed the circumstances surrounding the termination and found that the Navy's decision was not supported by the facts. The Board's initial findings indicated that the delays were due to material shortages and that the Navy had no basis for concluding that Darwin's late performance would cause further delays. The court concluded that the contracting officer's decision to terminate was arbitrary and capricious, as it did not consider the actual performance and readiness of the contractor.

As stated above, the Board found that the termination for default was 'arbitrary and capricious because it was evident to the Board that the default action was taken solely to rid the Navy of having to deal with Darwin.'

Conclusion

The court reversed the Board's decision on reconsideration and remanded the case with instructions to convert the termination for default into one for the convenience of the Government.

Accordingly, we hold as the court held in Schlesinger that the Board's decision on reconsideration must be reversed and the case remanded with instructions for the Board to reinstate its initial decision in which the default termination was converted into one for the convenience of the Government.

Who won?

Darwin Constr. Co. prevailed in the case because the court found that the termination for default was arbitrary and capricious, thus justifying the conversion to a termination for convenience.

The Board's finding that the contracting officer abused his discretion provides the legal predicate for converting the termination for default into one for the convenience of the Government.

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