Termination of a Government Contract under Law 44-FZ Does Not Mean the Contract Is Dead

Undoubtedly, the special provisions of the law take precedence in certain matters; nevertheless, the provisions of Law 44-FZ are still subject to the general principles and norms of the Civil Code of the Russian Federation, because a government contract is always, fundamentally, a civil-law agreement.

In our practice, paradoxical situations sometimes arise, where the government customer’s refusal to perform a government contract is recognized as lawful, while at the same time the performance of the contract is accepted. It was precisely this complex situation that we successfully resolved in one of our recent cases. Here is our case, in which we defended the interests of a contractor under a government contract.

The contractor was unable to complete the contract for design work on time due to COVID-related restrictions, which resulted in a delay. The Customer issued a notice of termination of the government contract, but de facto the parties continued to perform the contract, and the work was completed. However, the Customer refused to make payment, citing the termination of the contract.

As I mentioned earlier, the provisions of the Civil Code of the Russian Federation are applicable — specifically, Article 450.1 of the Civil Code, which allows a contract to be recognized as valid even in the presence of a legally effective termination. This is a crucial point that parties to such contracts often overlook. It was precisely on this provision that we focused in court to protect the interests of our client, the contractor.

It is also worth noting that, even if COVID-19 might not be recognized as a force majeure, the contractor may not be included in the Register of Unfair Suppliers (RNP) if they acted in good faith — for example, by sending letters regarding delays, employee illness, and not avoiding the performance of the government contract. In this case, we were able to prove the contractor’s good faith actions.

Based on our successful experience in this particular case, we recommend the following to contractors under government contracts:

1. If you are unable to perform on time, always notify the Customer in writing, specifying the reason for the delay. In some cases, the fault may lie with the Customer, which can justify an extension of deadlines for you. Do not forget to collect supporting documents.

2. If a termination of the contract is issued, it is necessary to provide the Federal Antimonopoly Service (FAS) with all possible evidence of your good faith.

3. If the contract has been performed, you can submit the completed work even after the Customer has issued a termination, and claim payment for it. Likewise, make sure to request acceptance certificates (acts of completion).