Following the award, the government issues a notice to proceed directing the contractor to begin contract performance. The contract or the notice of award may provide a specific date for issuing the notice to proceed, in which case the government has an express duty to issue the notice to proceed by that date. If a date of issuance is not specified, the government still has an implied duty to issue the notice to proceed within a reasonable time. Claims adjudicative forums have held that damages for the government’s unreasonable delay in issuing the notice to proceed may be recovered under the suspension clause. Such damages may include unabsorbed overhead, which are indirect costs that can no longer be charged through the application of the contractor’s overhead rate to its direct costs due to the delay in performance. As set forth in the seminal Armed Services Board of Contract Appeals (ASBCA) decision issued in 1960, the Eichleay formula is the exclusive method for calculating unabsorbed overhead damages due to a period of government-caused delay when contract performance has commenced. However, there may be situations in which the contract is terminated for the government’s convenience without commencement of performance following a period of government-caused delay in the issuance of the notice to proceed. In such cases, while the Eichleay formula may not be used to determine the contractor’s unabsorbed overhead damages due to a lack of allocability, the contractor’s recovery is not altogether barred.

The government has the right to terminate a contract under the default clause for the contractor’s unexcused failure to meet its performance obligations. In making the default termination decision, it is the responsibility of the contracting officer (CO) to exercise sound business judgment while generally considering the seven factors listed in Federal Acquisition Regulation (FAR) 49.402-3(f), including the totality of the circumstances. Once default is established, the burden shifts to the contractor to prove that its failure to meet contractual obligations was excusable. Although in the vast majority of cases the government’s decision to terminate for default is considered proper if the government has a right to terminate and the appropriate termination procedures are followed, there may be instances where the government’s motive to terminate may be implicated, such as when agency actions surrounding the termination amount to bad faith in the administration of the contract. In such cases, the contractor must present evidence that the government had some specific intent to injure it to overcome the presumption that government officials act in good faith. Such evidence showing a specific intent to injure the contractor satisfies the well-nigh irrefragable proof standard that must be met to show the government’s bad faith. This standard is considered higher than the legal standard necessary to prove arbitrary and capricious decisions of the government. Thus, if the contractor can establish that the government had some specific intent to injure it, the termination decision, if tainted by bad faith, may be considered arbitrary and capricious and the default termination may be converted into one for the government’s convenience.

To recover under a differing site condition claim in federal construction contracts, the contractor must establish that the conditions it encountered were either materially different from those indicated in the contract (type I) or those ordinarily encountered (type II). In both types of differing site conditions claims, the contractor must demonstrate the existence of an unexpected physical condition. In addition to the differing site conditions clause, solicitations for construction contracts typically also contain a site investigation provision that places a duty on offerors to perform a reasonable pre-bid site investigation. If the adverse condition is or should have reasonably been discovered during the pre-bid site investigation, it can no longer be considered unexpected during performance. Thus, the reasonableness and results of the site investigation may later impact the contractor’s differing site conditions claim. While performing a reasonable site investigation is an important obligation, the duties imposed on the contractor in this regard are not so broad as to frustrate the key purpose of the differing site conditions clause, which is to encourage contractors not to inflate their bids in anticipation of conditions that may not ultimately arise. Accordingly, unless otherwise indicated in the contract documents, offerors are typically required to show that they performed at least a relatively straightforward site investigation for type I condition claims, with a more extensive site investigation obligation for type II condition claims. However, if the contractor fails to conduct any pre-bid site investigation, it may later be precluded from bringing a differing site conditions claim altogether if it is determined that a reasonable site investigation would have revealed the adverse condition.