## Facts

- Lisbon Contractors, Inc. contracted with the United States Soil Conservation Service to construct a reinforced concrete flood control channel and a bridge, with an extended completion date of December 20, 1980.
- Lisbon subcontracted concrete work to Versatile Constructors; performance and quality problems led to repeated government complaints about subcontractor performance, supervision, concrete quality, and overall progress.
- The government issued multiple warnings that Lisbon’s right to proceed could be terminated unless specified deficiencies were corrected.
- Lisbon responded by implementing corrective actions, including appointing its vice president as acting superintendent with government approval, replacing the concrete subcontractor after the bridge work, and remedying identified deficiencies.
- The contracting officer terminated Lisbon for default based on Lisbon’s performance history, the alleged absence of a permanent full-time superintendent, and concern that Lisbon could not meet the completion deadline.
- The project was reprocured and completed by another contractor in December 1981.
- Lisbon challenged the default termination under the Contract Disputes Act; the Claims Court found the default termination wrongful, converted it to a termination for convenience, and awarded $95,748.15; after an earlier remand, the Claims Court reaffirmed that outcome.
- On appeal, the Federal Circuit upheld conversion to termination for convenience but reduced recoverable costs due to insufficient proof for certain items (including materials not shown to be used or accounted for).

## Issues

1. Which party bears the burden of proving whether a government default termination was justified?
2. What standard governs whether a contracting officer may terminate for default based on anticipated inability to complete on time?
3. If the default termination was improper, must it be treated as a termination for convenience under the contract?
4. What evidentiary showing is required for termination-for-convenience cost recovery, including claimed materials costs?

## Decision

- The Federal Circuit held the government bears the burden of proving that a default termination was justified.
- The court held the government need not prove impossibility of performance, but must show the contracting officer reasonably believed there was no reasonable likelihood of timely completion.
- The court agreed the government failed to meet that standard on this record; the default termination was therefore improper and was treated as a termination for convenience under the contract.
- The court reversed/vacated portions of the cost award where Lisbon failed to substantiate claimed items (including materials not shown to have been used or properly accounted for).
- The court affirmed in part, reversed in part, vacated in part, and remanded for entry of a reduced damages award.

## Legal Principles

- In disputes over a government contract default termination, the government bears the burden of proving the termination for default was justified, regardless of case posture or trial presentation order.
- A default termination based on prospective nonperformance is proper only if, at the time of termination, the contracting officer reasonably believed there was no reasonable likelihood the contractor could complete within the time remaining.
- The default-termination clause does not require proof of absolute impossibility, and it does not permit termination merely because timely performance is uncertain.
- If the government fails to justify a default termination, the termination is converted to a termination for convenience, entitling the contractor to allowable convenience-termination recovery.
- In convenience-termination recovery, the contractor bears the burden to substantiate claimed costs; it cannot recover for unaccounted-for or undocumented materials merely by asserting ignorance of their disposition, and the government need not disprove inadequately supported items.

## Conclusion

The Federal Circuit required the government to justify default termination by showing a reasonable contracting-officer belief that timely completion had no reasonable likelihood; because that showing was not made, the termination was treated as one for convenience, but the contractor’s recovery was reduced for failure to prove certain claimed costs.


Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987)