US Court of Appeals, Federal Circuit

Case no.: 2025-1116
Date filed: May 21, 2026

The US Court of Appeals for the Federal Circuit ruled that a tardy contractor repudiated its contractual obligation when it responded to a government “cure notice” with a proposed completion date later than the contractual deadline. The government was entitled to terminate the contract for default.

The US Department of Veterans Affairs awarded a contract to Sergent’s Mechanical Systems Inc. (Sergent) for improvements to the HVAC system at the VA Medical Center in Bay Pines, Florida. The work necessitated removal of asbestos-containing insulation from the ductwork and chilled water pipe fittings. The contract included this abatement work, with the cooling coil replacement required by March 16, 2021 and a contract completion date set for August 17, 2021.

Sergent encountered problems with asbestos abatement. It contended the government’s quantity estimates were greatly understated and that the VA had not disclosed challenging site access conditions. The VA did not extend the performance period, and Sergent fell behind schedule.

The VA sent Sergent a cure notice on February 19, expressing concern the contractor would not meet the March 16 milestone for cooling coil replacement. Sergent responded with a request for a 192-day extension of the overall contract performance period due to “unforeseen” asbestos abatement issues.

On March 16, the VA sent Sergent a “show cause notice” threatening termination of the contract for default. Sergent responded with a “schedule deviation” proposal with an “updated” project completion date of December 9, 2021. The VA terminated the contract for default on March 31, and Sergent appealed.

Sergent argued in the US Court of Federal Claims that it had encountered excusable delay. Its argument focused on government misrepresentation of the location and quantity of asbestos-containing material. The claims court said the contract expressly required a pre-bid site investigation to determine the specific locations and quantities. This was the contractor’s responsibility.

The claims court determined Sergent had repudiated its contractual obligations, a material breach, when it responded to the cure notice with a proposal to extend the contract performance period by 192 days. There was no triable issue of excusable delay. The claims court granted summary judgment in favor of the VA, upholding the default termination. Sergent appealed again.

The US Court of Appeals for the Federal Circuit said it agreed with the claims court “in all respects material to the outcome.” There was no evidence to support Sergent’s claim of excusable delay.

“The Contract explicitly clarified that VA had provided only ‘estimate[s]’ of how much asbestos was within the abatement responsibility of Sergent and that Sergent bore the responsibility for investigating the site to identify what specific work was entailed by the abatement obligation.”

In the absence of excusable delay, the matter came down to Sergent’s response to the government’s cure notice. “Sergent repudiated its contractual obligations when it submitted schedules to VA, following the cure notice, indicating its performance would not be completed by the agreed-upon deadline…. We therefore affirm the Claims Court judgment upholding VA’s termination for default.”

The court expressly found repudiation in the contractor’s response to the cure notice and did not mention the response to the Show Cause Notice. Presumably, this would be considered a further repudiation of the contractor’s obligations.

The government may default a contractor prior to the contractual completion deadline if the contractor has no reasonable likelihood of achieving timely completion; however, the government has the burden of proof. As seen here, a contractor makes it easier on the government if the contractor repudiates its obligation of timely completion.

Participants:
For Sergent’s Mechanical Systems: Joseph Whitcomb; Lakewood, Colorado
For the Department of Veterans Affairs: Vincent de Paul Phillips; Washington, D.C.

Before: Judges Taranto, Schall, and Chen

Opinion by: Judge Taranto

Outcome: Summary judgment in favor of government upheld

Source: Please click here to read the complete opinion.