## Facts

- Darwin Construction Company, Inc. entered a fixed-price Navy construction contract on June 3, 1983, for improvements at an operating facility in Maryland.
- The contract required completion within 150 calendar days, with a completion date of November 15, 1983; the agreed schedule set the last construction day as November 7, 1983.
- Because the facility remained in operation, Darwin was allowed access only during two 14-day work periods, separated by at least 14 days for Navy operations.
- By the end of the second access period, Darwin had completed about 65% of the work.
- After a show-cause letter, Darwin attributed delay to late delivery of necessary equipment and asserted it was physically and financially ready to complete the remaining work in a two-week period beginning December 17, 1983.
- The Navy asserted Darwin failed to prosecute the work diligently during the access periods and claimed a December shutdown to finish the work was not feasible.
- The Navy terminated the contract for default on February 13, 1984.
- Darwin appealed to the Armed Services Board of Contract Appeals (ASBCA); the Board initially found Darwin in default with no excusable delay but nevertheless concluded the default termination had to be converted to a termination for convenience.
- On reconsideration, the ASBCA reversed and upheld the default termination, reasoning Darwin failed to prove bad faith by the Navy.
- Darwin appealed the reconsidered decision to the Federal Circuit.

## Issues

1. Whether the ASBCA committed legal error by requiring the contractor to prove governmental bad faith as a condition to converting a default termination to a termination for convenience.
2. Whether, given the Board’s factual findings about the contractor’s ability and readiness to complete performance with limited additional time, the termination should be converted to a termination for convenience.

## Decision

- The Federal Circuit reversed the ASBCA’s reconsidered decision.
- The court held the Board’s reconsidered rationale conflicted with Schlesinger v. United States by conditioning conversion on proof of bad faith.
- Accepting the Board’s factual findings, the court concluded those findings compelled conversion of the termination for default to a termination for convenience.
- The case was remanded with instructions to convert the termination to one for the convenience of the Government.

## Legal Principles

- A termination for default may be converted to a termination for convenience when the circumstances and findings show that sustaining the default termination is unjustified, even without proof of governmental bad faith.
- The Government’s discretion to terminate for default is constrained by the applicable legal standard; a board may not treat “no bad faith” as dispositive where precedent permits conversion based on the overall circumstances.
- On appellate review, where factual findings are accepted, misapplication of the governing legal standard to those findings constitutes reversible legal error.

## Conclusion

The Federal Circuit required conversion of the Navy’s default termination to a convenience termination because the ASBCA applied an incorrect “bad faith” requirement, contrary to governing precedent, and the Board’s own findings supported conversion despite the contractor’s default status as of the contract completion date.


Darwin Constr. Co. v. United States, 811 F.2d 593 (Fed. Cir. 1987)