A show cause notice government contracting occurs when the government thinks that a contract has been violated in some way. When this happens, it has the option to terminate the contract. Before a termination is enforced, though, the government will usually send out a notice to the contractor stating that a termination may take place. It is extremely important to heed this type of notice and to try and come up with a solution.

How Does the Government View Show Cause Notices?

A lot of the time, the government will allow you to remedy the issue before actually terminating the contract. If you receive a show cause notice, you need to contact the appropriate entity and see what can be done. Sometimes, this type of notice is referred to as a cure notice. If you fail to remedy the situation, there's a good chance the contract will be terminated.

What to Do With a Show Cause Notice?

When you are looking at a cure notice, you need to make sure you carefully examine it to determine what has caused you to receive it. If you can pinpoint what went wrong, you will have a better chance of being able to come up with some type of solution. A cure notice must be provided with sufficient time to allow the contractor at least 10 days to try and remedy the situation. If not, the contractor can use this to his or her benefit and claim that the contract should not be terminated.

A cure notice must be sent as soon as the party issuing the notice wants to terminate the contract. This will give the contractor a sufficient period of time to try and remedy the situation. Usually, a contractor will be given one final chance to make right whatever went wrong.

Contractors should always take a show cause notice from the government seriously. It is in the contractor's best interest to come up with a full explanation as to why the contract should not be terminated.

If some type of change occurred that prevents the contractor from completing the job as outlined in the contract, and these changes were not communicated to the contractor, this can be used to keep the contract from being terminated. However, the contractor will need to state such defenses at the proper time and within the 10-day timeframe.

What Does a Cure Notice Need to Include?

A cure notice will need to include the following:

  • Outline why the contract is being terminated
  • Provide the contractor at least 10 days to come up with a remedy for the situation
  • Alert the contractor to the fact that, unless a cure has been given, the contract will be terminated
  • Make sure the GSA schedule clause has been identified

Once a contractor has received a show cause notice, he or she will have the opportunity to try to correct the problem. This is the contractor's only opportunity to evaluate the situation and try and come up with a solution. If the contractor fails to act, the contract will be terminated.

Types of Contract Termination

There are two common types of contract termination. The first type is a general consideration. When certain conditions are present and they lead to the fact that a contract should be terminated, a number of factors should be considered, including performance liability. Common types of general considerations that cause for contracts to be terminated include funding changes and product development costing more than initially planned for.

If you are in a contract with someone and you know they are facing funding issues, it is in your best interest to tailor your practices to ensure you don't exceed any cost limits. Another reason a contract could be terminated is because the contractor's quality of service is sub-par. Late delivery of services is another reason to terminate a contract.

Another type of contract termination is a termination for convenience. This allows the government to terminate a contract at any point in time without having to provide a reason. When this happens, the government will usually issue some type of compensation for ending the contract early.

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