## Facts

- The Navy contracted with AEC Corp. in May 1989 to build a Naval and Marine Corps Reserve Training Center in Miami, Florida, with an original completion date of October 14, 1990.
- AEC fell behind schedule and encountered financial problems involving its surety.
- After a December 1990 cure notice, the parties agreed to a revised schedule that used April 27, 1991 as the projected completion date.
- In late February 1991, AEC’s surety froze the project bank account, and AEC’s productive workforce began to decline.
- At a March 5, 1991 meeting, AEC stated it could not make progress because the surety would not release funds; the Navy warned AEC it was close to default termination.
- On March 20, 1991, the Navy issued a cure notice stating concern that AEC was not adequately pursuing performance and might not meet the April completion date.
- AEC responded by letters dated April 3 and April 5, asserting unspecified government-caused delays and stating that surety “financial strangulation” made it impossible to complete on time or provide a reliable updated completion estimate.
- By early April 1991, AEC removed files and equipment, disconnected the worksite telephone, and reduced on-site staff to two people.
- The Navy issued a final cure notice on April 9, 1991; AEC did not respond.
- On April 22, 1991, the Navy terminated the contract for default; the ASBCA set aside the default termination based on government-caused changes and delays, and the Navy appealed.

## Issues

1. Whether the Navy had reasonable grounds to doubt timely completion and therefore could demand adequate assurances through a cure notice.
2. Whether AEC’s responses to the cure notice constituted adequate assurances of timely performance sufficient to preclude a default termination.
3. Whether alleged government-caused delay or the contractor’s financial distress could excuse the failure to provide adequate assurances and continued progress.

## Decision

- The Federal Circuit reversed the ASBCA and upheld the Navy’s default termination.
- The court held the Navy had reasonable grounds to doubt timely completion given schedule slippage, frozen funds, workforce decline, and AEC’s admission that it could not make progress.
- The court held AEC failed to provide adequate assurances in response to the March 20 cure notice because it offered no concrete plan, schedule, or credible commitment to complete by the required date.
- The case was remanded for proceedings consistent with the ruling that the default termination was proper.

## Legal Principles

- When the government has reasonable grounds to question a contractor’s ability to perform on time, it may issue a cure notice and seek adequate assurances of future performance.
- A contractor’s response must address the government’s concerns with specific, credible information (e.g., a workable schedule and plan to regain progress); vague allegations and inability to estimate completion do not constitute adequate assurances.
- Financial difficulties, including surety-related funding problems, generally do not excuse failure to make progress or relieve the contractor of the duty to provide adequate assurances.
- Assertions of government-caused delay do not negate a contractor’s obligation to demonstrate present capability and intent to proceed, particularly where the contractor’s conduct indicates abandonment or inability to perform.

## Conclusion

The Federal Circuit sustained a default termination where the government reasonably doubted timely completion and the contractor’s cure-notice responses failed to provide specific, credible assurances of performance, with financial distress and generalized delay allegations insufficient to avoid default.


Danzig v. AEC Corp., 224 F.3d 1333 (Fed. Cir. 2000)