Month Nine on the Metro Licensing Platform: Cure, Re-baseline, or Terminate
Metro Licensing Authority contracted with Veridian Systems for an $8.4M fixed-price, 18-month replacement of its permit-issuance platform. The statement of work contains 210 user stories with acceptance criteria defined only at the epic level. At month 9, 40% of the backlog is accepted, 62% of the contract value has been invoiced, and 14 change orders totaling $900,000 have been signed by the agency's project manager without legal or procurement review.
In month 5 a state statute changed the public-notice requirement, adding genuinely new functionality. The remaining change orders cover items that the statement of work arguably already required. Veridian has sent a letter reserving its rights to additional compensation for constructive acceleration and states that it cannot hold the original go-live date. The agency's CIO wants to terminate for cause and rebid, arguing that the vendor is overpaid and behind.
1. What must the agency do in the next 30 days before it decides whether to terminate, and why does each step matter?
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Do not terminate yet. Termination for cause requires a material breach, a contractual cure opportunity, and evidence the agency can defend in a dispute; a poorly documented termination for cause is routinely converted into a termination for convenience plus a settlement, and the agency still loses a year to re-procurement.
Steps. First, freeze change order signature authority and route all commercial correspondence through counsel and procurement. Second, check the disputes clause for a notice-of-claim deadline, because the clock on contesting change orders or preserving delay claims may already be running; protecting that deadline costs nothing and cannot be recovered later. Third, establish verified percent complete independently: invoiced amounts are not earned value, and if 62% has been paid against 40% accepted, the agency may be financing the vendor's overrun rather than the reverse. Fourth, issue a written cure notice identifying specific breaches and the cure period the contract provides. Fifth, obtain a schedule and cost assessment, ideally from an independent reviewer with WMS-scale project experience, to support any later position. Sixth, preserve the agency's assets: source code and documentation, data, environments, and access, plus any escrow rights.
Reasoning: the CIO's conclusion may be correct, but the case is currently built on an invoice ratio, which is the weakest possible evidence of breach.
2. How should the agency evaluate entitlement for the 14 change orders?
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Segment them; they are not one question.
Statutory change: the month-5 statute is the strongest claim. Check the changes and change-in-law clauses, and whether the statement of work contains a general compliance-with-law clause; a general clause does not usually require the contractor to absorb a new statutory requirement enacted mid-performance, but it may shift some design cost. Entitlement is probably good; the question is price reasonableness.
Arguable-scope orders: with acceptance criteria written only at epic level, the agency will struggle to prove that a story was included in scope. Ambiguity in a contract the agency drafted is generally construed against the drafter, and the order of precedence in the contract governs which document controls. Expect several of these to favor the vendor.
Authority and ratification: a project manager signing 14 orders worth $900,000 likely exceeded delegated authority. But the agency may still be bound through apparent authority or ratification, especially if it accepted the resulting work or paid the invoices. Analyze each order individually rather than assuming the signature defect voids them; a blanket repudiation of all 14 is both legally risky and commercially destructive.
Pricing: check whether the contract requires cost or pricing data above a threshold, and whether the orders were priced with any substantiation. Absence of data may support challenging the amount, not the entitlement.
3. What recovery alternatives exist, what contract levers support each, and what would you recommend?
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Option one, negotiated re-baseline. Combine a cure notice with a revised schedule and firm fixed price for remaining scope, descope non-mandatory epics, and ring-fence the statutory work as a separately priced change with its own acceptance criteria. Levers: changes clause, suspension, milestone-based payment tied to acceptance, liquidated damages for key dates, and audit rights. Requires an independent cost estimate and schedule risk analysis so the new baseline is not simply the vendor's next forecast.
Option two, termination for convenience with transition. Slower and it pays a settlement, but it avoids litigation and preserves the working relationship for transition services. Levers: termination for convenience, transition assistance, license and data return, escrow.
Option three, terminate for cause and rebid. Only with curated documentation and a credible cure record. Expect 6-12 months of re-procurement, loss of institutional knowledge, and a strong likelihood of a protest or claim; current staff would carry the system in the interim.
Recommendation: re-baseline now, with a hard decision gate at 60 days. If the vendor will not accept milestone-based payments, verified progress reporting, and fixed pricing for the remaining backlog, convert to a convenience termination with a transition plan. In either path, fix the root causes: acceptance criteria at story level, delegated signature limits with legal review, and a change control board that meets weekly rather than after the fact.