Enron Federal Solutions, Inc. v. United States
80 Fed. Cl. 382 | United States Court of Federal Claims | 2008
What This Case Means for Subcontractors
Enron Federal Solutions signed a 10-year contract with the Army to operate utility systems at Fort Hamilton and make capital improvements upfront. After Enron's parent company collapsed and EFSI defaulted, the Army terminated the contract. EFSI sued for payment of the capital improvements it had completed, but the court ruled against them. The court found the contract clearly put all financial risk on EFSI—if you default, you don't get paid for work done, even if the government benefited from it.
Key Takeaways
- •Fixed-price contracts shift risk to you as the contractor. If you default for any reason, you may lose all compensation for completed work, regardless of the government's benefit.
- •Capital improvements and upfront costs are especially risky under fixed-price terms. Make sure your contract explicitly protects you if the project is terminated early or if circumstances change.
- •Review termination clauses carefully before signing. Understand what happens to your payment if you default, and negotiate protection for work already completed and accepted.
EFSI's material breach of contract terminated the defendant's obligations to EFSI pursuant to the Contract.
Frequently Asked Question
If I default on a government contract, can I still get paid for work I've already completed?
Not necessarily. If your contract is unambiguous and allocates all financial risk to you, the government may terminate for default and owe you nothing for completed work. This is especially true for capital improvements and upfront costs. Always negotiate specific protections for work already done and accepted before signing a fixed-price contract.
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