FAR 49.402-3—Procedure for default.
Plain-English Summary
FAR 49.402-3 lays out the procedure the Government must follow before terminating a contract for default. It covers the decision-making process for choosing among default termination, termination for convenience, or no-cost cancellation; the approval required before issuing a show cause or cure notice; when notice is or is not required before termination; how to handle waiver of delivery or performance dates; the use of cure notices and show cause notices; notice to sureties; special handling for small business contractors; the factors the contracting officer must weigh before deciding to terminate; and the required contents of the final termination notice. In practice, this section is designed to ensure default terminations are legally supportable, procedurally fair, and well documented before the Government takes the serious step of ending the contractor’s right to proceed. It also protects the Government’s rights to recover excess costs and preserves the contractor’s appeal rights. For contracting officers, this section is a checklist for due process and decision discipline; for contractors, it signals when they may receive cure or show cause notices and what information a termination notice must contain. For sureties and small business support offices, it establishes mandatory notification and coordination points.
Key Rules
Choose the right termination type
Before taking action, the Government must review the facts with contracting and technical personnel and counsel to decide whether default termination, convenience termination, or no-cost cancellation is appropriate. This review is intended to ensure the proposed action is legally and factually proper.
Get approval before notices
An administrative contracting officer may not issue a show cause notice or cure notice without prior approval from the contracting office. That approval should be obtained as quickly as possible, using the most expeditious means available.
No pre-termination notice for missed delivery dates
If the default is based on failure to deliver supplies or perform services on time, the Government generally does not have to send a warning notice before issuing the termination notice. However, if the Government’s conduct may have waived the delivery or performance date, the contracting officer must set a new date in writing and reserve the Government’s rights.
Use cure notices for other failures
If the problem is failure to perform another contract requirement or failure to make progress that endangers performance, the contracting officer must give written notice describing the failure and allow at least 10 days, or longer if needed, to cure it. If the contractor does not cure the problem, the contracting officer may terminate for default.
Show cause notice when default is likely
When default appears appropriate, the contracting officer should, if practicable, send a written show cause notice asking the contractor to explain why the contract should not be terminated. The notice should explain the contractor’s potential liabilities and may invite a conference; failure to respond may be treated as an admission that no valid explanation exists.
Notify the surety
If default termination appears imminent, the contracting officer must notify the surety in writing. If the contractor is later terminated for default, the surety must receive a copy of the default notice.
Protect small business interests
If the contractor is a small business, the contracting officer must immediately send any cure notice or show cause notice to the small business specialist and the nearest SBA Area Office. The contracting officer should also consult the small business specialist whenever practicable before defaulting the contract.
Weigh all relevant factors
Before terminating for default, the contracting officer must consider the contract terms, the contractor’s failure and excuses, alternative sources, urgency, the contractor’s importance to the acquisition program, effects on other contracts and financing, and any other relevant facts and circumstances.
Issue a complete default notice
If default is still proper after following the required procedures, the termination notice must identify the contract, describe the default, terminate the contractor’s right to proceed, reserve the Government’s right to buy elsewhere and charge excess costs, state whether the failure is excusable or not, and explain the contractor’s appeal rights under the Disputes clause.
Responsibilities
Contracting Officer
Review the facts with technical personnel and counsel; decide whether default, convenience, or no-cost cancellation is appropriate; determine whether waiver has occurred; issue any required cure notice, show cause notice, or termination notice; notify the surety; send notices to SBA and the small business specialist when applicable; consider all required factors before defaulting; and ensure the final notice contains all required statements.
Administrative Contracting Officer
Obtain prior approval from the contracting office before issuing a show cause notice or cure notice.
Contracting Office
Review and approve proposed show cause and cure notices before they are issued, and participate in the decision on the proper termination action.
Technical Personnel
Assist in evaluating the contractor’s performance, the nature of the failure, and whether default is factually justified.
Counsel
Review the proposed termination action for legal sufficiency and procedural propriety.
Surety
Receive written notice when default appears imminent and a copy of the default notice if the contractor is terminated for default; may request arrangements for future checks to be mailed in care of the surety if the contractor and assignees agree.
Small Business Specialist
Receive immediate copies of cure notices and show cause notices for small business contractors and advise the contracting officer when practicable before default termination.
SBA Area Office
Receive immediate copies of cure notices and show cause notices for small business contractors located in its area.
Contractor
Respond to cure notices and show cause notices, cure the identified failure within the allowed time if possible, and if terminated for default, may appeal the decision under the Disputes clause.
Assignees and Disbursing Officer
If the surety and contractor agree to redirect future checks, the contractor must submit a written request to the designated disbursing officer specifically directing the mailing address change.
Practical Implications
Default termination is not a quick administrative step; it requires a documented, legally reviewed process, and skipping notice or approval steps can make the termination vulnerable to challenge.
The distinction between a missed delivery date and other performance failures matters a lot: missed delivery may allow immediate default action, while other failures usually require a cure notice and time to fix the problem.
Contracting officers must watch for waiver of delivery dates. If the Government has acted in a way that could be seen as accepting late performance, it should reset the date in writing and reserve rights before defaulting.
Show cause and cure notices are not just formalities; they create the record showing the contractor was warned and given a chance to respond, which is critical if the termination is later appealed.
For small business contractors, the SBA and small business specialist must be looped in immediately, so failing to copy them can create process problems and missed coordination opportunities.
The final termination notice must be precise and complete. Omissions about the default basis, excess costs, appeal rights, or reservation of rights can weaken the Government’s position and create disputes over the termination’s validity.
Official Regulatory Text
(a) When a default termination is being considered, the Government shall decide which type of termination action to take ( i.e., default, convenience, or no-cost cancellation) only after review by contracting and technical personnel, and by counsel, to ensure the propriety of the proposed action. (b) The administrative contracting officer shall not issue a show cause notice or cure notice without the prior approval of the contracting office, which should be obtained by the most expeditious means. (c) Subdivision (a)(1)(i) of the Default clause covers situations when the contractor has defaulted by failure to make delivery of the supplies or to perform the services within the specified time. In these situations, no notice of failure or of the possibility of termination for default is required to be sent to the contractor before the actual notice of termination (but see paragraph (e) of this section). However, if the Government has taken any action that might be construed as a waiver of the contract delivery or performance date, the contracting officer shall send a notice to the contractor setting a new date for the contractor to make delivery or complete performance. The notice shall reserve the Government’s rights under the Default clause. (d) Subdivisions (a)(1)(ii) and (a)(1)(iii) of the Default clause cover situations when the contractor fails to perform some of the other provisions of the contract (such as not furnishing a required performance bond) or so fails to make progress as to endanger performance of the contract. If the termination is predicated upon this type of failure, the contracting officer shall give the contractor written notice specifying the failure and providing a period of 10 days (or longer period as necessary) in which to cure the failure. When appropriate, this notice may be made a part of the notice described in paragraph (e)(1) of this section. Upon expiration of the 10 days (or longer period), the contracting officer may issue a notice of termination for default unless it is determined that the failure to perform has been cured. A format for a cure notice is in 49.607 . (e) (1) If termination for default appears appropriate, the contracting officer should, if practicable, notify the contractor in writing of the possibility of the termination. This notice shall call the contractor’s attention to the contractual liabilities if the contract is terminated for default, and request the contractor to show cause why the contract should not be terminated for default. The notice may further state that failure of the contractor to present an explanation may be taken as an admission that no valid explanation exists. When appropriate, the notice may invite the contractor to discuss the matter at a conference. A format for a show cause notice is in 49.607 . (2) When a termination for default appears imminent, the contracting officer shall provide a written notification to the surety. If the contractor is subsequently terminated for default, a copy of the notice of default shall be sent to the surety. (3) If requested by the surety, and agreed to by the contractor and any assignees, arrangements may be made to have future checks mailed to the contractor in care of the surety. In this case, the contractor must forward a written request to the designated disbursing officer specifically directing a change in address for mailing checks. (4) If the contractor is a small business firm, the contracting officer shall immediately provide a copy of any cure notice or show cause notice to the contracting office’s small business specialist and the Small Business Administration Area Office nearest the contractor. The contracting officer should, whenever practicable, consult with the small business specialist before proceeding with a default termination (see also 49.402-4 ). (f) The contracting officer shall consider the following factors in determining whether to terminate a contract for default: (1) The terms of the contract and applicable laws and regulations. (2) The specific failure of the contractor and the excuses for the failure. (3) The availability of the supplies or services from other sources. (4) The urgency of the need for the supplies or services and the period of time required to obtain them from other sources, as compared with the time delivery could be obtained from the delinquent contractor. (5) The degree of essentiality of the contractor in the Government acquisition program and the effect of a termination for default upon the contractor’s capability as a supplier under other contracts. (6) The effect of a termination for default on the ability of the contractor to liquidate guaranteed loans, progress payments, or advance payments. (7) Any other pertinent facts and circumstances. (g) If, after compliance with the procedures in paragraphs (a) through (f) of this 49.402-3 , the contracting officer determines that a termination for default is proper, the contracting officer shall issue a notice of termination stating- (1) The contract number and date; (2) The acts or omissions constituting the default; (3) That the contractor’s right to proceed further under the contract (or a specified portion of the contract) is terminated; (4) That the supplies or services terminated may be purchased against the contractor’s account, and that the contractor will be held liable for any excess costs; (5) If the contracting officer has determined that the failure to perform is not excusable, that the notice of termination constitutes such decision, and that the contractor has the right to appeal such decision under the Disputes clause; (6) That the Government reserves all rights and remedies provided by law or under the contract, in addition to charging excess costs; and (7) That the notice constitutes a decision that the contractor is in default as specified and that the contractor has the right to appeal under the Disputes clause. (h) The contracting officer shall make the same distribution of the termination notice as was made of the contract. A copy shall also be furnished to the contractor’s surety, if any, when the notice is furnished to the contractor. The surety should be requested to advise if it desires to arrange for completion of the work. In addition, the contracting officer shall notify the disbursing officer to withhold further payments under the terminated contract, pending further advice, which should be furnished at the earliest practicable time. (i) In the case of a construction contract, promptly after issuance of the termination notice, the contracting officer shall determine the manner in which the work is to be completed and whether the materials, appliances, and plant that are on the site will be needed. (j) If the contracting officer determines before issuing the termination notice that the failure to perform is excusable, the contract shall not be terminated for default. If termination is in the Government’s interest, the contracting officer may terminate the contract for the convenience of the Government. (k) If the contracting officer has not been able to determine, before issuance of the notice of termination whether the contractor’s failure to perform is excusable, the contracting officer shall make a written decision on that point as soon as practicable after issuance of the notice of termination. The decision shall be delivered promptly to the contractor with a notification that the contractor has the right to appeal as specified in the Disputes clause.