GRANTED: March 6, 2023

GRANTED: March 6, 2023

CBCA 5964

HUGHES GROUP LLC,

Appellant,

v.

DEPARTMENT OF VETERANS AFFAIRS,

Respondent.

Robert A. Klimek, Jr. of Klimek & Casale, P.C., Upper Marlboro, MD; and Edward

G. Bentley, Washington, DC, counsel for Appellant.

Harold W. Askins, III, Office of General Counsel, Department of Veterans Affairs,

Charleston, SC, counsel for Respondent.

Before Board Judges SHERIDAN, SULLIVAN, and O’ROURKE.

O’ROURKE, Board Judge.

Hughes Group LLC (Hughes or contractor) appealed the decision of the Department

of Veterans Affairs (VA or agency) to terminate Hughes’ janitorial services contract for

cause based on Hughes’ failure to cure persistent performance deficiencies. Instead of

terminating Hughes’ contract in the weeks following the cure notice, the agency breached

the contract by failing to pay Hughes for months, while Hughes continued to perform. Ten

days after paying Hughes’ overdue invoices in full, the agency sought to terminate Hughes’

contract based on deficient work. The notice, styled as a termination for cause, directed

Hughes to continue performing until the contract nearly expired. Because we find that the

agency’s actions waived the right to terminate without first issuing a new cure notice,

rendered the purported termination for cause ineffective, and were arbitrary and capricious,

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we grant the appeal and convert the termination to one for the convenience of the

Government.

Findings of Fact

Solicitation and Award

In 2015, the VA solicited offers from service-disabled, veteran-owned small

businesses to furnish “all labor in order to provide total housekeeping cleaning services” at

multiple medical facilities in San Antonio, Texas. This was a performance-based contract

that required scheduled and “as needed” cleaning in these facilities in order to “maintain a

satisfactory facility condition and present a clean, neat, and professional appearance.” The

contract required services at nine facilities, which together comprised the VA South Texas

Healthcare System.

The statement of work (SOW) spanned twenty-three pages and contained detailed

requirements for various items, such as the minimum hours of coverage for contractor shifts,

staff qualifications, cleaning requirements, training, building security, quality control, safety,

government-furnished equipment, supplies, a cleaning schedule, and deliverables. Section

12 of the contract, titled “Quality Control Monitoring,” required the contracting officer’s

representative (COR) to perform regular inspections of the contractor’s performance to

ensure compliance with the SOW. The COR was also required to produce weekly and

monthly reports to document the results of those inspections. The contract provided for a

one percent decrease in monthly billing by facility when the VA received five or more

complaints about Hughes’ performance during the weekly reporting period. The contract

also contained Federal Acquisition Regulation (FAR) clause 52.212-4, Contract Terms and

Conditions – Commercial Items (Dec 2014), which included provisions for terminating the

contract for convenience and for cause.

Before submitting offers, interested firms, including appellant, participated in a partial

site visit that was limited in scope. Potential offerors then submitted questions about the

total number of patient rooms, the tenant population, the number of restroom fixtures (or

total square footage of the restrooms), the areas requiring aseptic cleaning, and the level of

staffing under the current contract. The VA did not provide definitive answers to these

questions but explained that the patient and tenant numbers were increasing to meet the

needs of veterans and that, as a performance-based contract, the agency did not dictate

staffing. The agency directed interested firms to refer to their notes from the site visit in

preparing their offers. In response to a question about the requirements listed in a cleaning

schedule attached to the contract, the VA replied that “the work schedule in attachment 2

should be used as a guide, as these are recommendations.”

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The solicitation informed potential offerors that proposals would be considered “only

from firms who are, in the judgment of the contracting officer, well established in the

janitorial business, are financially responsible, and able to show evidence of resources,

experience, and qualifications necessary to render service under the contract.”1 The VA

awarded the contract to Hughes in November 2015. The period of performance consisted

of one base year and two option years. The base year began on December 1, 2015, and

concluded on November 30, 2016.

Contract Performance

Significant challenges were evident during the first quarter of the base year. The VA

remarked that Hughes was simply not providing the level of service required by the contract.

Hughes, on the other hand, perceived a gap between its interpretation of the contract’s

requirements and the agency’s expectations of Hughes in light of those same requirements.

For example, two sources of frequent complaints were the canteen and an area of the hospital

that was under renovation. Hughes’ contract included requirements for cleaning the canteen

area. However, the food service contractor for the canteen was not disposing of its own food

trash, which created pest and rodent issues. The VA had a memorandum of understanding

(MOU) with the food service contractor which clarified the roles and responsibilities of each

entity, but it was not provided to Hughes until after award. Hughes, the VA, and the food

service contractor updated the MOU to clarify the division of responsibilities among the

entities. While this effort largely resolved the problems caused by the lingering food waste,

Hughes expected a modification to the contract, which did not occur. As for the area of the

hospital under renovation, Hughes was required to perform specific tasks in areas adjacent

to the construction site, such as mopping the hallway floor. Hughes explained that soon after

it mopped the floor, the construction workers would produce more debris and make the floor

dirty again. Hughes maintained that it was not responsible for cleaning up after the

construction contractor.

The VA identified numerous other complaints about Hughes’ performance, such as

leaving cleaning carts in front of patient access doors, failing to take cleaning supplies out

of boxes in supply rooms, failing to wear a uniform, dirty carpets and floors, unemptied trash

cans in patient rooms, and a lack of staffing in specific areas. In many instances, Hughes

acknowledged the discrepancies and corrected them by retraining specific personnel and

terminating others. At other times, Hughes offered explanations. For example, with regard

1

This was a competitively awarded contract that considered technical approach,

past performance, and price in its evaluation of offers. Although the solicitation placed great

emphasis on technical approach and past performance, it stated that “technical and past

performance, when combined, are less important than price.” (Emphasis added.)

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to the trash cans, Hughes explained that the containers were small and when hospital staff

discarded a disposable garment in the trash can, it filled up quickly and personnel were not

allowed to compact the trash. As a result, many trash cans had to be emptied more often

than the contract required. Also, there were some complaints about trash cans located in

areas that were not serviced by Hughes during weekend hours. When presented with

complaints about a lack of staffing in a particular area, Hughes responded that cleaning staff

were authorized by the contract to move around among the facilities to perform scheduled

tasks and to respond to unscheduled cleaning requirements.

Hughes had its own complaints. Vacuum cleaners and waxing machines were

identified in the contract as government-furnished equipment, but they were often broken

or poorly functioning, and the VA was slow to provide replacements or make the needed

repairs. The contract also required the VA to provide hospital-grade disinfectants, cleaning

supplies, soap, sanitizer, and paper products. Hughes complained that supplies would often

run out and fail to be replenished in a timely manner. On one occasion, when Hughes’ CEO

visited the facilities to meet with the VA and inspect his company’s work, he observed and

photographed cleaning staff using trash cans for mop buckets because the VA failed to

supply the mop buckets. As to the allegation that a member of Hughes’ staff was out of

uniform, Hughes stated that the individual was never identified or confirmed to be a Hughes

employee.

The record contains numerous communications between Hughes’ leadership, the

COR, the contracting officer, and members of the Environmental Management Staff (EMS),

which was responsible for infectious disease and quality control throughout these facilities.

Hughes took direction from multiple individuals on a daily basis to respond to complaints

and resolve problems, a fact which undermined the efficient administration of the contract

and increased tension between EMS, Hughes, and contracting personnel. Early on in the

contract, in an effort to resolve the challenges, Hughes proposed modifying the contract to

hire additional staff. The VA rejected Hughes’ proposal. The VA reasoned that the cost

increase associated with the modification would displace the next higher offeror in the

original competition for the contract. Without any change to the contract’s terms or the

contractor’s performance, Hughes’ level of service remained the same throughout the base

year. Although the contracting officer issued a cure notice to Hughes during the base year,

Hughes continued to perform, and the VA exercised the first option year, which began on

December 1, 2016.

In late February and early March of 2017, complaints about the level of cleanliness

in various facilities increased. At that point, two different contracting officers had been

assigned to the contract, both of whom entertained working with Hughes to modify the SOW

in an attempt to resolve the challenges. But since neither party seemed willing to absorb the

additional costs of hiring more staff, nothing changed. Complaints were routine, the VA did

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not take any payment deductions, and Hughes continued to provide sub-standard service.

Several months later, a new contracting officer was assigned to the contract. During his first

meeting with Hughes, on June 6, 2017, the contracting officer issued Hughes a cure notice.

Hughes responded to each item in the cure notice in writing and provided a proposed

corrective action plan to address the deficiencies. At the request of the contracting officer,

Hughes followed up with a revised corrective action plan on June 30, 2017. Hughes never

received a response to either of its proposed corrective action plans.

In the months after the cure notice was issued, conditions remained the same. Hughes

continued to perform, the VA continued to issue contract deficiency reports (CDRs), and no

deductions were taken under the contract. Then, in August 2017, without any notice or

explanation, the VA stopped paying Hughes. Invoices were submitted, but no payments

were received. Hughes kept working while making repeated attempts to contact the

contracting officer about the lack of payment. For months, the contracting officer did not

respond to Hughes’ entreaties for payment. Conversations with the COR did not resolve the

problem. Her explanations were evasive, and her efforts to address the lack of payment were

dilatory, at best. When the deadline for the VA to exercise the option passed in late

September, Hughes reached out to the contracting officer’s supervisor about the overdue

payments and received an immediate response. On October 23, 2017, the VA paid Hughes

in full, without any reservations or exceptions to the invoices. The record contains no

evidence that the lack of payment was due to deductions taken under the contract.

Termination for Cause and Appeal

Ten days after the VA paid all of Hughes’ overdue invoices, the contracting officer

terminated Hughes’ contract for cause. The termination notice, dated November 3, 2017,

informed Hughes that its task order contract was “being terminated effective November 25,

2017,” in accordance with the termination clause, FAR 52.212-4(m), which stated, in

relevant part: “The Government may terminate this contract, or any part hereof, for cause

in the event of any default by the Contractor, or if the Contractor fails to comply with any

contract terms and conditions, or fails to provide the Government, upon request, with

adequate assurances of future performance.”

According to the letter, the facilities had not been cleaned to the standards outlined

in the SOW, and more than twenty CDRs had been issued to Hughes since receiving the cure

notice. The contracting officer remarked that Hughes’ corrective action plan had not

resulted in improved performance and advised that the VA would notify Hughes as soon as

reprocurement costs were calculated. The termination letter contained no notice of appeal

rights and was not identified as a contracting officer’s final decision. Hughes’ contract was

due to expire on November 30, 2017, just five days after the effective date of termination.

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In response to the termination, Hughes submitted an eleven-page letter, dated

November 15, 2017, with fifteen attachments. Hughes repeated its previous contentions and

complained that it was essentially being set up for failure. Pointing to a provision in the

contract that gave Hughes two hours to correct problems, Hughes claimed that it corrected

problems but still received CDRs for them. Hughes also pointed out the inconsistencies

between the SOW and the directives of EMS personnel and the contracting officer’s failure

to follow through with promised modifications to the contract. By using MOUs to “clarify”

roles and responsibilities rather than modifying the contract, Hughes remonstrated that the

VA imposed additional work on Hughes without having to pay for it. “Hughes Group is

being judged based on the customer’s requirement, not what is written in the SOW.” Hughes

also raised the issue of nonpayment for six consecutive invoices as further evidence of the

VA’s attempts to undermine Hughes’ performance. Finally, Hughes commented on the

timing of the termination, issued just five days before the end of the contract, and five

months after the cure notice. While Hughes expressed a desire to remain on the contract and

not be terminated, Hughes questioned the motives of the contracting officer and worried

about the impact of this situation on any future performance.

On November 29, 2017, one day before the contract expired, the contracting officer

issued a second termination notice to Hughes Group, the subject of which was “Amendment

to Termination Notice for VA257-16-F-0912 dated September 13, 2017.”2 The amended

notice replied to Hughes’ response to the termination for cause, explaining that the contract

required continuous cleaning but also pointed to “a matrix at pp. 24-26 [of the contract]

which tells the contractor how often cleaning must be done.” The contracting officer also

stated that twenty-seven CDRs had been issued between June 6 and August 1, 2017, and

then another eighteen CDRs had been issued between August 1 and September 13, 2017.

The contracting officer explained that “due to the end of the fiscal year rush, [many of the

CDRs] were not reviewed by contracting or issued to the contractor,” and that is why they

were not identified in the first termination notice, but Hughes nonetheless received emails

about the deficiencies.

Finally, the contracting officer stated that he conducted sequential random inspections

of a medical center and an outpatient clinic, both of which Hughes was required to clean.

He stated: “The first inspection was done on September 15, 2017, and the second one was

done [on] October 18, 2017. [I] made fingerprints in the dust on the 1st inspection that were

still there on the second. These two inspections support the VA’s decision to terminate the

contract for default.” Unlike the original termination notice, the amended one contained the

appeal rights notice and informed Hughes that it was a contracting officer’s final decision.

2

The record contains no termination notice dated September 13, 2017.

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Hughes appealed the decision to the Board. Hughes asked the Board to convert the

termination for cause to one for the convenience of the Government. Hughes did not request

monetary damages in its appeal and made no separate claim for termination costs. A virtual

hearing took place during which the Board received testimony about the facts and

circumstances surrounding the termination.

Discussion

The Board has jurisdiction to entertain a timely challenge of a termination for default,

even absent a certified claim for monetary restitution. See Malone v. United States, 849 F.2d

1441, 1444-45 (Fed. Cir. 1988). In such cases, “the only relief available under an appeal of

a default termination is the conversion of the default termination to one for the convenience

of the Government.” Aurora, LLC v. Department of State, CBCA 2872, 16-1 BCA ¶ 36,198,

at 176,648 (2015). Here, Hughes timely appealed the default termination but submitted no

separate monetary claim. Our sole task is to review the propriety of the termination.

“[A] government decision to terminate a contractor for [cause] is the assertion of a

government claim against such contractor within the meaning of the [Contract Disputes

Act].” Johnson & Gordon Security, Inc. v. General Services Administration, 857 F.2d 1435,

1437 (Fed. Cir. 1988). In cases where the Government seeks to terminate a contractor for

cause, the Government bears the initial burden of proving, by a preponderance of the

evidence, that the termination decision was justified. Lisbon Contractors, Inc. v. United

States, 828 F.2d 759, 765 (Fed. Cir. 1987). Once the Government has satisfied its burden,

and default has been established, the burden shifts to the contractor to demonstrate that the

causes of the default were excusable under the terms of the contract. Heroes Hire, LLC v.

Department of Veterans Affairs, CBCA 7195, et al., 22-1 BCA ¶ 38,101, at 185,037 (citing

Emiabata v. United States, 792 F. App’x 931, 937 (Fed. Cir. 2019)).

“The default clause does not say that the Government ‘shall’ or ‘must’ terminate the

contract in the event of default, only that the Government ‘may’ terminate it.” JAMCO

Constructors, Inc., VABCA 3271, 94-1 BCA ¶ 26,405, at 131,361 (quoting Fairfield

Scientific Corp. v. United States, 611 F.2d 854, 862 (Ct. Cl. 1979)). The Board further

observed that “the exercise of discretion . . . presupposes an active and reasoned

consideration of available and sometimes contradictory information. Various factors must

be evaluated and the totality of circumstances weighed by the Contracting Officer in arriving

at a decision which has the most serious consequences for a contractor.” Id. (citing

Executive Elevator Service, VABCA 2152, 87-2 BCA ¶ 19,849, at 100,438).

The record before us is replete with such contradictory information. There are

numerous CDRs evidencing frequent, noncompliant work by Hughes. The cure notice

identified multiple instances of deficient performance between March 21 and May 18, 2017.

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Although Hughes responded to the cure notice and specifically addressed each discrepancy

in writing, the VA continued to identify and report noncompliant work by Hughes in June,

July, and August of 2017. At that point, the VA was likely in a strong position to terminate

the contract for cause. “Each individual omission of a service is technically a default, but

not necessarily a basis for a default termination . . . . The contract may be terminated for

default only when the number of individual defaults have accumulated to the point where

it may be said that the contract has not been substantially performed.” Handyman Building

Maintenance Co., IBCA 1335-3-80, 83-2 BCA ¶ 16,646, at 82,775 (citing Pride Unlimited,

Inc., ASBCA 17778, 75-2 BCA ¶ 11,436, at 54,500).

Instead of terminating the contract, however, the VA stopped paying Hughes, though

Hughes continued to work. On August 1, 2017, Hughes presented the VA with an invoice

for payment of work performed during the second half of July, but the VA did not pay it.

This same pattern was repeated every two weeks until October 23, 2017, when the VA paid

Hughes in full for all of its overdue invoices. The VA had no legal basis to stop paying

Hughes while Hughes continued to work. The contract only permitted a one-percent

deduction in billing when five or more complaints were received during the weekly report

period. There is no evidence that the VA was exercising its rights under the deductions

provision of the contract when it stopped all payment. By failing to pay Hughes without

excuse, the VA breached the contract. We examine the impact of the VA’s material breach,

and its remedy of that breach, on the termination decision.3

In both its initial and amended termination notices, the VA pointed to numerous

CDRs as a basis for terminating Hughes’ contract for cause. “Generally, in janitorial and

other service-type contracts, the necessary proof [to establish default] may be found in

contemporaneous detailed inspection and evaluation reports, which usually are an essential

part of the record keeping process of such contracts.” Givens Services, DOT BCA 2907,

96-2 BCA ¶ 28,271, at 141,168 (citing Building Maintenance Specialists, Inc., DOT CAB

71-35, 72-2 BCA ¶ 9553). Under normal circumstances, such a performance record would

likely be a sufficient basis to terminate the contract. 5860 Chicago Ridge, LLC v. General

Services Administration, 104 Fed. Cl. 740, 763 (citing Cervetto Building Maintenance Co.

v. United States, 2 Cl. Ct. 299 (1983) (upholding termination of a janitorial services contract

when performance deficiencies became the rule rather than the exception)). Here, however,

the agency’s puzzling actions in the months following the cure notice undermined the

termination decision. For the reasons that follow, we find that those actions amounted to a

3

“Under general contract principles, a party sued for breach of contract may

defend on a theory that its non-performance is excused because the other contracting party

committed the first material breach.” Hometown Financial, Inc. v. United States, 409 F.3d

1360, 1370 (Fed. Cir. 2005).

CBCA 5964

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waiver of the deficiencies complained of, rendering the termination invalid as well as

arbitrary and capricious.

Beginning with the issuance of the cure notice on June 6, 2017, and Hughes’ timely

response to the same, the sequence of events that followed included a cluster of performance

deficiencies, a material breach by the agency, and a long overdue payment to Hughes

without deductions or reservations. Hughes argues, and we agree, that when the agency paid

Hughes in full on October 23, 2017, the agency waived Hughes’ performance deficiencies

to date, and any subsequent campaign to terminate the contract required the VA to issue a

new cure notice, which it did not do.

The waiver doctrine has been described as a hybrid of estoppel and election remedies.

When an action or statement by the Government indicates a preference for the contractor’s

continued performance rather than termination of the contract, the Government’s election

opens the door to a claim of waiver. The election alone, however, is not enough to establish

that the Government has waived any subsequent claim for default against the contractor.

Another key element of the waiver doctrine is reliance:

An election becomes legally operative (as a waiver) if the contractor relies in

a significant way on this election. It is this reliance element that makes waiver

a form of estoppel. In deciding whether a waiver has occurred, the courts and

appeals boards weigh both (a) the statements and acts of the Government

indicating election, and (b) the amount of reliance of the contractor, to

determine whether the Government should be held to have lost its right to

terminate for default.

Ralph C. Nash & John Cibinic, Waiver of the Right to Terminate for Default: The Impact of

No-Waiver Language, 13 Nash & Cibinic Report ¶ 64 (Dec. 1999).

When the agency paid Hughes without reservation, it made an election for continued

performance. Up until the time of payment, Hughes was operating off of its own resources,

continuing to perform in reliance upon the agency’s promise of payment and a reasonable

belief that the contracting officer was allowing the contract to expire. Hughes could have

cut its losses, stopped performing, and filed a claim against the agency for breach of contract,

but Hughes did none of those things. The agency’s election combined with Hughes’ reliance

satisfy the elements of waiver. As such, a new cure notice was required before the agency

could terminate the contract for cause:

When a “cure” notice is given, the Government must act with reasonable

promptness and terminate the contract upon the expiration of the ten-day

period set forth in the notice or upon expiration of any period of forbearance.

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If the Government does not act promptly, it has waived its right to terminate

based on the original cure notice and must issue another cure notice, giving the

contractor ten days to cure the failure specified in that “cure” notice, prior to

termination under section (a)(ii) of the “Default” article.

Acudata Systems, Inc., DOT CAB 1198, et al., 84-1 BCA ¶ 17,046, at 84,865 (1983).4

The agency argues that a second cure notice was not required in this case because the

first one remained valid. The agency explained that the five-month time frame between the

cure notice and the termination provided Hughes with the opportunity to submit a corrective

action plan in response to the cure notice, to further revise that plan after the contracting

officer found it to be lacking, and to implement it. While avoiding any discussion of its own

breach, the agency contends that five months was a reasonable forbearance period, and no

waiver of the termination occurred. Even if this period of time could somehow be construed

as a forbearance period during which the agency reserved its right to terminate, we would

still find that the agency waived the termination due to the amount of time that passed.

Whether the period between default and the contracting officer’s termination notice

constituted a “reasonable time” depends “on the circumstances of each case.” DeVito v.

United States, 413 F.2d 1147, 1154 (Ct. Cl. 1969). Boards of contract appeals have found

the following termination periods reasonable in the context of commercial item contracts–

a thirty-nine-day delay after response to a show cause notice during which the contractor did

not “perfor[m] any substantial work on the contract,” Progressive Tool Corp., ASBCA

42809, 94-1 BCA ¶ 26,413, at 131,392-93; a forty-nine-day delay after a failure to deliver

1,040,000 bottles of water with no subsequent preparations for delivery, American

Aquasource, Inc., ASBCA 56677, 10-2 BCA ¶ 34,557, at 170,417; a seven-day delay after

the contractor’s failure to deliver on an acquisitions contract, Terraseis Trading Ltd.,

ASBCA 58731, 15-1 BCA ¶ 36,176, at 176,521; and an eighty-four-day delay after failing

to correct deficiencies in a janitorial services contract, SCS Building Maintenance v.

General Services Administration, CBCA 5766, 22-1 BCA ¶ 37,992, at 184,493. When a

contractor “continues performance in reliance on the lack of termination and proceeds to

incur obligations in [its] efforts to perform,” the permissible period is shorter. Aquasource,

Inc., 10-2 BCA at 170,417.

4

The fact that Hughes’ contract contained the commercial items termination for

cause clause does not change our position. Brent Packer v. Social Security Administration,

CBCA 5038, et al., 16-1 BCA ¶ 36,260, at 176,899 (“Although the commercial items

termination provision . . . does not expressly reference the need for the contracting officer

to issue a cure notice before terminating a contractor for failure to comply with contract

provisions, FAR 12.403 imposes that requirement.”).

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In this case, 119 days elapsed between the cure notice and the first termination notice.

During that time, Hughes continued working, mostly without pay, and the agency did not

provide any feedback on Hughes’ corrective action plan. Moreover, the agency’s

characterization of this time period as one of forbearance is disingenuous, since the agency

was in breach of contract for the majority of that time. For these reasons, we are not

persuaded by the agency’s argument that five months was a reasonable period of time. On

the contrary, we find that the agency’s actions, to include the substantial delay in issuing the

termination, resulted in a waiver of the termination. To meet its burden, the agency needed

to issue a new cure notice prior to terminating the contract for cause. Since no new cure

notice was issued, we find that the agency failed to establish that termination was justified.

Waiver can also be found in the termination notice itself. The notice, dated

November 3, 2017, informed Hughes that it was terminated for cause effective November 25,

2017. By the plain language of the notice, the contracting officer sought to terminate

Hughes’ contract while concurrently securing its continued performance. The incompatible

commands of the termination notice are self-defeating. “Where the Government elects to

permit a delinquent contractor to continue performance past a due date, it surrenders its

alternative and inconsistent right under the Default clause to terminate.” DeVito, 413 F.2d

at 1153. Here, the agency’s express willingness to allow Hughes to continue to perform,

despite Hughes’ poor performance history, indicates an election by the agency to waive that

same history.

Finally, we recognize that a contracting officer has broad discretion in terminating a

contract for cause. Consolidated Industries, Inc. v. United States, 195 F.3d 1341, 1343-44

(Fed. Cir. 1999). But that discretion is not without limits. Where a contract gives discretion

to the Government, “exercise of that discretion must be fair and reasonable, not arbitrary and

capricious.” Everett Plywood Corp. v. United States, 512 F.2d 1082, 1090 (Ct. Cl. 1975);

see also Quality Environment Systems, ASBCA 22178, 87-3 BCA ¶ 20,060, at 101,570

(stating that “whether or not to terminate a contract for default is not left by regulations to

the contracting officer’s unchecked or unlimited discretion”). As we previously noted, the

exercise of discretion requires a reasoned consideration of all of the available information.

JAMCO Constructors, Inc., 94-1 BCA at 131,361. The conduct of a government official

will be deemed arbitrary and capricious where no reasonable basis can be found to support

the actions of that official. Quality Environment Systems, 87-3 BCA at 101,569. Here, there

is no evidence that the contracting officer considered the agency’s own failures in

administering the contract or the utility of imposing such a drastic sanction on the contractor

on the eve of the contract’s expiration.

This does not mean that Hughes’ performance was satisfactory or did not merit

adverse action. That is not the case here. During the pendency of this contract, Hughes

consistently, on the whole, failed to perform to the standards set by the contract, despite its

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substantial experience in this field. It appears from the record that Hughes realized early on

that it had likely underbid the contract and then failed to add the needed personnel when it

realized the staffing on which it based its bid would not provide adequate performance. That

being said, the VA made “price” the most important factor in a procurement that

simultaneously sought the small business community’s top performers, then failed to hold

Hughes’ “feet to the fire” in a timely fashion, even after noting multiple and repeated

deficiencies and underperformance.

The VA exercised the option year without Hughes significantly improving

performance and continued to issue Hughes deficiency reports throughout the contract

without taking any deductions. Then, for unexplained reasons, the VA failed to issue the

termination for cause until the last possible moments of the contract performance period,

while simultaneously directing the contractor to continue performing. At that point, a more

reasoned approach to addressing Hughes’ poor performance may have been through the

contractor performance assessment reporting system. In light of these facts, we find no

evidence of a reasoned consideration of the circumstances by the contracting officer at the

time of the termination. Indeed, the amended notice, issued just one day prior to the

contract’s expiration, can only be explained as an arbitrary and capricious act.

For the foregoing reasons, we decline to uphold the agency’s termination for cause

and convert it to one for the convenience of the Government.

Decision

We GRANT the appeal.

Kathleen J. O’Rourke

KATHLEEN J. O’ROURKE

Board Judge

We concur:

Patricia J. Sheridan

PATRICIA J. SHERIDAN

Board Judge

Marian E. Sullivan

MARIAN E. SULLIVAN

Board Judge