In latest edition of The Wright Toolbox:
- “Build That Wall…Or, Actually, Don’t.” What Happens to Wall-Building Contractors if Biden Wins the Election?
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“Build That Wall…Or, Actually, Don’t.” What Happens to Wall-Building Contractors if Biden Wins the Election?
The fate of one of the most visible tangible results of the 2016 election – the Border Wall project – will be highly dependent on whether President Trump wins reelection or Joe Biden unseats him to become the 46th President of the United States. President Trump has to some extent delivered on his promise to fortify the structure on the nation’s southern border; just a few days ago, the Acting Secretary of the Department of Homeland Security announced the completion of 400 miles of border wall . But the project is nowhere near finished, as according to its last update, the Trump Administration plans to build a total of 738 miles of fence, gates, roads, lighting, and other infrastructure . The former Vice President, meanwhile, has been vocal in his criticisms of the wall and has vowed to stop construction should he be elected. So, what happens to the federal contractors who are mid-build if Biden wins the White House?
The most likely scenario for contractors who are in the midst of completing their wall-building contracts is a termination for convenience. Most federal contracts contain a termination for convenience provision by law, such as the one found at Federal Acquisition Regulation (FAR) 52.249-2 . When told to stop work, the contractor has the opportunity to negotiate the payment of its costs, whether outstanding or necessary to demobilize or secure the site, plus a reasonable profit.
A contractor in receipt of a stop work notice pursuant to a termination for convenience has various obligations and rights. It must, of course, cease all work as specified in the notice, and refrain from engaging subcontractors or placing orders beyond those needed to continue work that has not been stopped. All ongoing subcontracts must be terminated and assigned to the Government for settlement arising from the terminations. The Government must also receive all plans, drawings, supplies, fabricated or unfabricated parts, and materials acquired for use on the project. The jobsite must be adequately secured. Finally, with the Contracting Officer’s authorization, the contractor must use its “best efforts” to sell any unneeded supplies or materials, or agree to retain them while giving an appropriate credit. The contractor will still be required to finish the portion of the contract that is not stopped.
The contractor has a year after the effective date of termination to file its “final termination settlement proposal.” This proposal may include a “reasonable allowance for profit on work done.” However, wall-building contractors expecting a healthy award as a result of a termination for convenience may find some formidable hurdles in their way. Under the FAR, the profit awarded as part of a final settlement cannot result in a total award beyond the contract price as reduced by the amount of payments made and the contract price of work not terminated. Further, if it appears that if the contractor would have suffered a loss if it had completed the entire project, the Contracting Officer may reduce the settlement to take such expected loss into account. A contractor in a termination for convenience scenario must thus be prepared to fully document its expected and actual profit on the job, starting with the profit built into its bid and any change orders, and continuing through the costs incident to termination.
Given the political climate surrounding the border wall and the skepticism a Biden administration is likely to show for demands for payment resulting from work on a project it would rather consign to the dustbin of history, wall-building contractors can expect an even higher level of scrutiny than most contractors who find themselves terminated for convenience. Early involvement of counsel in a termination for convenience scenario can often make the difference between an acceptable financial outcome and a heavy loss. If you believe the results of the Presidential election could shift the federal government’s priorities away from a project your company is currently working on, please contact a member of Wright, Constable & Skeen’s construction litigation team today.