The End of the Road: CBCA Applies Federal Circuit’s Direction To Conduct De Novo Review of Default Terminations

The Civilian Board of Contract Appeals (CBCA or Board) recently released its remand decision in Eagle Peak Rock & Paving, Inc. v. Department of Transportation, CBCA 7832(5692)-REM, after the Federal Circuit reversed its prior decision for applying the incorrect standard of review for contract terminations. This appeal offers important lessons to contractors on how to effectively challenge a termination: most importantly, contemporaneously document events pertinent to the termination and apply the de novo standard when seeking Board or court review.

The underlying contract was for road improvement in Yellowstone National Park. Shortly after contract award, Eagle Peak submitted a preliminary schedule, and then several months later, after the Federal Highway Administration (FHWA or agency) issued a cure notice raising concerns with that schedule, multiple revised schedules. The agency alternatingly either did not respond to the revised schedules or responded with vague demands for additional revisions. The contractor made sure to document its responses to each agency concern and submitted additional written materials justifying its plan for contract performance. And, the contractor made good faith efforts to commence performance, despite a lack of clarity regarding government requirements, and provided detailed explanations to the agency of the additional manpower the company planned to commit to the project to protect against schedule creep.

Despite the contractor’s efforts, the agency terminated the contract for default, finding that the contractor could not complete the work by the contract’s completion date. The contractor appealed the termination to CBCA, which granted the appeal and converted the termination for default to one for convenience. CBCA 5692, 21-1 BCA ¶ 37,752. The CBCA based its decision on the agency’s failure to consider the factors in FAR 49.402-3(f), which list using mandatory language seven elements “the contracting officer shall consider … in determining whether to terminate a contract for default.” The Board also found that the record did not support the agency’s determination that the contractor’s progress “was so deficient as to support a termination for default” and the agency failed to present evidence that the contractor could not timely complete the work.

The contractor’s victory was short-lived, as the Federal Circuit then reversed the CBCA decision for applying the incorrect legal standard. 69 F.4th 1367 (Fed. Cir. 2023). The court reasoned that the Contract Disputes Act requires Board review to be de novo, id. at 1375, and criticized the Board for mixing its skepticism of the agency’s findings with its own analysis of the relevant issues. The Federal Circuit explained that the Board’s role was not to identify errors in the agency’s termination decision (citing portions of the decision discussing the contracting officer’s “failure to consider … critical information,” and noting that “substantial information was not given due consideration” by the contracting officer). Id. at 1378. Instead, the Board must consider, de novo, whether the termination decision was “performance-based and not pretextual.” Id. at 1376. On the FAR 49.402-3(f) point, the court noted its own precedent held those factors “may aid a Board of Contract Appeals or a court in determining whether a contracting officer has abused his discretion in terminating a contract for default,” but are not a sufficient basis on their own to overturn an otherwise justified termination decision. Id. at 1378 n.1 (quoting DCS, Inc. v. Perry, 79 F.3d 132, 135 (Fed. Cir. 1996) (holding that FAR provision “does not confer rights on a defaulting contractor”)).

On remand, the CBCA corrected its analysis yet reached the same result: the termination for default was improper and converted it to one for convenience. CBCA 7832(5692)-REM. First, the Board examined the contractor’s schedules and accompanying expert testimony and found timely contract performance to be feasible:

Eagle Peak’s schedules, although not perfect, provided the necessary details to show (arguably beyond contract requirements) that it understood the required work and had a plan to finish the project in the two remaining construction seasons. Further, in its narratives accompanying the submitted schedules, Eagle Peak provided specific details on the resources and plans it would use to complete the project by the contract deadline.

Second, the Board found that the contractor had made enough progress so as to not impair timely project completion. Third, the Board gave “significant weight to” the contractor’s submissions to the agency describing the contractor’s plans to increase its manpower before the agency made its termination decision. Fourth, the Board criticized the agency for failing to resolve, prior to termination, pending contract issues that could have impacted the contractor’s performance, going so far as to find that this “undermines the credibility and integrity of the agency’s arguments on termination.”

This saga yields at least three lessons to contractors hoping to challenge a default termination:

1. First, when performance problems arise, contemporaneously document how you are addressing them. The Board in Eagle Peak found persuasive that the contractor responded to each agency-identified concern with its schedules, including by submitting revisions as well as narrative cover letters explaining the contractor’s methodology. The Board also considered the agency’s failure to respond to contractual issues the contractor identified in writing during performance. Although sometimes it may seem like contractual communications go into a black hole, a record of prompt, substantive responses to agency identified areas of concern and contractor’s contemporaneous documentation of issues preventing full or effective performance can lay the groundwork for relief.
2. Second, when appealing a default termination, it is a tactical error to overly rely on pointing out errors in the agency’s asserted bases for the termination. Instead, in order to succeed, the Federal Circuit is clear that the contractor must prove that no grounds for default existed.¹ This requires entry of direct, substantive evidence that the contractor was willing and able to perform as the contract required (which was helped in Eagle Peak by the contractor’s contemporaneously submitted detailed cover letters saying as much).
3. Third, it is difficult to overstate the value of a good expert. The CBCA praised the contractor’s scheduling expert in Eagle Peak for explaining the submitted schedules “in a pragmatic, mathematical way, essentially relying on information from the schedules readily available to FHWA prior to the termination decision.” The CBCA credited the expert’s demonstration that the contractor’s last submitted schedule “was more than 98% compliant” with contract requirements and that any issues totaled only $27,000 of the more than $34 million contract value. By contrast, the CBCA found that FHWA’s experts contradicted each other and ultimately changed their conclusion regarding the percent of work the contractor had completed pre-termination (from 9% to 17%). Given these shifting findings, the CBCA credited the percent complete finding of 26.5% offered by the contractor’s expert. Notably, this is not the only recent decision in which CBCA overturned a default termination when a contractor provided convincing expert testimony justifying its performance in the face of little to no government evidence. See Adapt Consulting, LLC v. General Services Administration, CBCA 7213, 7393, 24-1 BCA ¶ 38,625 (converting termination to one for convenience where contractor’s “witnesses testified credibly” in the face of government testimony that “was so minimal” “that it carries no weight”).

Default terminations are calamitous breakdowns in the contractor-government relationship. Following these practical tips can help best position contractors to challenge unjustified termination actions.²

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.