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Jim Psenak Construction v. State11/16/2005
his does not invalidate the termination or prohibit the use of any such ground to justify termination.
The Federal Court of Claims has stated that default termination of a government contract can be a drastic, but still proper contractual sanction:
Default termination is a "drastic sanction," and should be imposed only on the basis of "solid evidence." J.D. Hedin Constr. Co. v. United States, 187 Ct. Cl. 45, 408 F.2d 424, 431 (1969); Sun Cal, Inc. v. United States, 21 Cl. Ct. 31, 39 (1990) (citing Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987)). It is a type of forfeiture. De Vito v. United States, 188 Ct. Cl. 979, 413 F.2d 1147, 1153 (1969). Nevertheless, it is well settled that the contracting officer possesses authority to terminate a contract for default, and under the proper circumstances is obligated to exercise his discretion to do so. Schlesinger v. United States, 182 Ct. Cl. 571, 390 F.2d 702, 707-08 (1968).
Mega Const. Co., Inc. v. United States, 29 Fed. Cl. 396, 414 (1993).
In this case, the State had adequate grounds to terminate Psenak for default under 108-1.08 of the contract. Psenak undisputedly failed to prosecute work under the contract and became insolvent.
Psenak argues that to the extent it was (1) in default for failure to prosecute the work and (2) insolvent, these problems were caused by the State, and thus the State is prohibited from terminating Psenak on those grounds. This argument is based on the idea that the State failed to adequately instruct Psenak regarding the 3:1 embankment slope, thus causing Psenak excessive additional costs. Psenak's argument, however, ignores that it is premised on an untenable interpretation of the contract. As described in the previous section, any concerns Psenak had related to the design conflict were not material to Psenak's performance of the contract unless the 3:1 slope limitation applied to both the embankment and excavation portion of the project. Because the limitation only applied to the embankment portions, Psenak cannot complain that the State caused its failure to prosecute the work and its insolvency.
The hearing officer also found that Psenak breached the implied covenant of good faith and fair dealing and intentionally misrepresented the quantities of materials it had excavated in order to secure payments to which it was not entitled. Although these were not the State's stated reasons for default termination, " ny extant reasons supporting a default termination are sufficient to sustain the default, even if not known or discovered until after the decision to terminate for default is made." The termination for default was initially based on Psenak's failure to return overpayments made and for its failure to submit a plan to complete the unfinished work. This court agrees with the hearing officer's determination that the termination was justified, as well, by Psenak's breach of the implied covenant of good faith and fair dealing and its intentional misrepresentations of the quantities of material it had excavated as further described in section V below.
V. Application of A S 36.30.687 (a)(1) - Misrepresentations and Fraudulent Claims
Psenak argues against the application of AS 36.30.687(a)(1) to forfeit his claims under the contract for two reasons. First, Psenak argues that it did not make or use any misrepresentations or attempt to practice or commit any frauds in relation to the contract. Psenak argues that the contract did not preclude the use of accumulated quantities to calculate payments, and thus Psenak did nothing wrong in presenting accumulated quantities to the State. Second, Psenak cites a recent Al
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