BOARD OF CONTRACT APPEALS
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON, DC 20401
In the Matter of )
)
the Appeal of )
VATEX AMERICA ) Docket No. GPOBCA 08-96
Jacket No. 790-836 )
Purchase Order R-6130 )
For the Appellant: VATEX America, Richmond, Virginia, by Anthony
W. Hawks, Esq., Alexandria, Virginia.
For the Government: Thomas Kelly, Esq., Assistant General
Counsel, U.S. Government Printing Office.
Before BERGER, Ad Hoc Chairman.
DECISION AND ORDER1
VATEX America (Appellant), 2395 Hermitage Road, Richmond,
Virginia, appeals the final decision of U.S. Government Printing
Office Contracting Officer David Goldberg terminating VATEX's
contract (Jacket 790-836, Purchase Order R-6130) for default.
For the reasons which follow, the Contracting Officer's decision
is REVERSED and the appeal is GRANTED.
I. BACKGROUND
1. The contract, calling for the production of 20,000 etched-
image lapel pins for the Bureau of Land Management (BLM),
Department of the Interior, was awarded to VATEX under small
purchase procedures on December 8, 1995, by GPO's Seattle
Regional Printing Procurement Office at a price of $13,400. Rule
4 File, Tab B.2 Although a press sheet inspection was not
required by the original solicitation, Rule 4 File, Tab A, the
purchase order included that requirement. Pre-production samples
were also required to be furnished to BLM; these were to be held
for 1 day. Delivery was required by January 12, 1996.
2. VATEX sent pre-production samples to BLM which BLM received
on December 14 and 18, 1995. Joint Stipulation of Facts,3 � 4.
On January 8, 1996,4 BLM rejected the samples as unacceptable,
essentially because they were not etched as required by the
specifications. Rule 4 File, Tab F; Stipulation, �� 8, 9.
3. On January 11, GPO sent VATEX by facsimile transmission a
Cure Notice which stated that VATEX's failure to provide "an
etched metal product of the thickness range specified" was
considered "a condition that is endangering performance of the
contract ...." The Notice afforded VATEX 3 days to present, in
writing, "the measures adopted which have cured such condition,"
and
warned that unless the condition was cured a termination for
default might result. Rule 4 File, Tab
G; Stipulation, �� 10, 11.
4. On that same date VATEX sent a reply by facsimile
transmission. In the reply VATEX stated that the etching process
required by BLM "is no longer done in the United States" for
environmental reasons, but is done in Taiwan. VATEX stated that
it had tried to produce the items in the United States because
that is what BLM wanted. VATEX further stated that it was
prepared to complete the job at its quoted price through
production in Taiwan, with approximately 10 to 14 days required
for furnishing pre-production proofs and another 3 weeks for
delivery after proof approval. Rule 4 File, Tab H; Stipulation,
� 13.
5. On January 16 the Contracting Officer requested the
concurrence of GPO's Contract Review Board (CRB) to terminate the
contract for default. The Contracting Officer noted that VATEX,
in its response to the Cure Notice, stated that it could do the
job but "would need five more weeks." The Contracting Officer
also noted VATEX's statement about BLM's request for production
in the United States, but pointed out that the specifications did
not impose that requirement and that GPO had not directed the
contractor to produce the order domestically. The CRB concurred
with the request. Rule 4 File, Tab I.
6. On January 17, the Respondent terminated the contract for
default "because of [VATEX's] failure to produce the
preproduction samples as per specifications." Rule 4 File, Tab
J.
7. A reprocurement contract subsequently was awarded at a price
of $17,800. The reprocurement contract required partial delivery
of 4,000 pins by February 9 and the remainder by March 8, 1996.
GPO recovered the $4,400 of excess reprocurement costs through
offset against other contract funds owed to VATEX. Stipulation,
�� 15, 16, 18.
II. DISCUSSION
The outcome of this case depends upon the proper application of
the rules governing use of the contract's default clause to the
facts set forth above. GPO asserts that the default was proper
because the Appellant twice submitted nonconforming samples,
while the Appellant asserts that, notwithstanding the
nonconforming samples, it was entitled to an extension of the
delivery date and to an opportunity to deliver conforming samples
and the production quantity of lapel pins by the extended
delivery date.
The "Default" clause of the contract, GPO Contract Terms,
Solicitation Provisions, Supplemental Specifications, and
Contract Clauses, GPO Pub. 310.2, effective December 1, 1987
(Rev. 9-88) (hereafter GPO Contract Terms), Contract Clauses, �
20, provides that the Respondent, by written notice to the
contractor, may terminate a contract for default in whole or in
part if the contractor fails to (1) deliver the supplies or
perform the required services within the time specified or any
extensions thereof; (2) make progress, so as to endanger
performance; or (3) perform any other contract provision.
However, because the clause provides that the Government "may"
terminate for default when one of the specified grounds for
default is present, a default termination is a discretionary act
subject to challenge as an abuse of discretion. Darwin Constr.
Co. v. United States, 811 F.2d 593 (Fed. Cir. 1987); Schlesinger
v. United States, 390 F.2d 702 (Ct. Cl. 1968); Artisan Printing
Inc., GPOBCA 15-93 (February 6, 1998), slip op. at 8, 1998 WL
149001; Rose Printing, Inc., GPOBCA 32-95 (December 16, 1996),
slip op. at 21, 1996 WL 812880. GPO's regulations set forth
various factors that its contracting officers are to consider in
determining whether to terminate for default. Among these
factors are the "specific failure of the contractor and the
excuses ... made by the contractor for such failure" and "the
urgency of the need ... and the period of time which would be
required to obtain sources as compared with the time in which
delivery could be obtained from the delinquent contractor."
Printing Procurement Regulation (hereafter PPR), GPO Pub. 305.3
(Rev. 10-90), Chap. XIV, Sec. 1, � 3.c.(3)
Under the "Default" clause, a failure to timely deliver
conforming supplies may result in an immediate termination for
default. The Standard Register Co., Inc., GPOBCA 25-94 (March
23, 1998), slip op. at 8, 1998 WL 350448; Artisan Printing Inc.,
supra at 8. A failure to deliver acceptable preproduction items,
however, is not a failure to deliver "supplies" since that term
is understood to refer to the end items required by the contract.
Bailey Specialized Bldgs., Inc. v. United States, 404 F.2d 355
(Ct. Cl. 1968); see John Cibinic. Jr. & Ralph C. Nash, Jr.,
Administration of Government Contracts 928-9 (Third ed. 1995).
Rather, it is typically viewed as a failure to make progress,
thereby endangering ultimate performance, i.e., delivery of an
acceptable product by the required date. System Dev. Corp.,
VABCA 1976, 87-2 BCA � 19,946. Before a contract may be
terminated for default for a failure to make progress, in most
cases the Respondent must notify the contractor of the failure
and allow a reasonable period for the contractor to cure the
failure.5 Artisan Printing Inc., supra, at 8. The notification
is made through a "Cure Notice" which allows for a 10-day cure
period or for a shorter period that the contracting officer
determines to be reasonable. GPO Contract Terms, Contract
Clauses, � 20; PPR, Chap. XIV, Sec. 1, � 3.c.(2). A default
termination properly may ensue after expiration of the cure
period if the contractor fails to respond to the "Cure Notice,"
or provides less than adequate assurances that the problem has
been or is in the process of being cured so that performance is
no longer endangered and that the work will be completed on time.
Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed.
Cir. 1987); Composite Laminates, Inc. v. United States, 27 Fed.
Cl. 310 (1992); Lopez Machine Works, Inc., ASBCA 45509, 97-1 BCA
� 28,622; John F. Lehnertz, AGBCA 77-132, 78-1 BCA � 12,895;
Dozie I. Rienne, ENGBCA 5711, 91-1 BCA � 23,432; RFI Shields-
Rooms, ASBCA 17374, 77-2 BCA � 12,714.
In this case the Appellant responded almost immediately to the
Contracting Officer's "Cure Notice." In that response the
Appellant explained that (1) the etching process required is not
done in the United States, (2) nevertheless the Appellant had
tried to produce the items in the United States because BLM
"requested it," (3) now that it had been determined that
satisfactory production could not take place in the United States
VATEX, which "does this type of job very often" and "suppl[ies]
other [government] agencies with etched metal products on the
average of once a month," was prepared to have it done overseas,
and (4) the time frame for production would require 10 to 14 days
for submission of new preproduction samples and three weeks from
proof approval to final delivery. The Contracting Officer
reacted to this explanation by seeking CRB concurrence in a
default termination, explaining to the CRB only that the
contractor had not been required to produce the items in the
United States, and that the contractor now wanted an additional
five weeks.
As the Board has stated on many occasions, a default termination
is a drastic action which may be taken only for good cause and on
the basis of solid evidence, with the Respondent having the
burden of proving the basis for default. Artisan Printing Inc.,
supra, at 7; K.C. Printing Co., GPOBCA 2-91 (February 22, 1995),
slip op. at 10, 1995 WL 488531; Sterling Printing, Inc., GPOBCA
20-89 (March 28, 1994), slip op. at 32-33, 1994 WL 275104. The
record adequately establishes that the Appellant, by virtue of
its effort to manufacture pins in the United States, could not
have delivered acceptable lapel pins by the contract delivery
date of January 12, 1996-the Appellant's response to the January
11, 1996 "Cure Notice" indicated that it needed an additional
4-1/2 to 5 weeks from when it learned of the rejection of its
samples to provide new samples and deliver the production
quantity. Thus, assuming that the same additional time also
would have been required had the Appellant been notified of the
sample rejection on December 18, 1995, when the second sample was
received by BLM, it is apparent that the Appellant could not
have delivered an acceptable product by January 12.
The problem for GPO here, however, is that the January 12 date
lost the significance that was attached to it initially as the
contract delivery date. First, the issuance of the "Cure Notice"
on January 11 with its 3-day cure period indicated that the
Contracting Officer no longer considered January 12 to be a
viable delivery date, since cure notices are not to be issued if
the time remaining for contract performance is insufficient to
permit a realistic cure period. PPR, Chap. XIV, Sec.1, �
3.c.(2); Graphics Image, Inc., supra. Second, the Government's
delay in notifying the Appellant that the preproduction samples
were unacceptable automatically extended the contract delivery
date. The purchase order stated that the Government would hold
the sample 1 workday. GPO's "Notice of Compliance With
Schedules" clause, GPO Contract Terms, Contract Clauses, � 12,
incorporated by reference into the contract, provides that in the
event of a Government delay the delivery schedule "will be
extended automatically by the total number of workdays that work
was delayed PLUS 1 workday for each day of delay; such period of
grace for any schedule will not exceed 3 workdays."6 Under this
clause contract delivery dates are automatically extended for
Government delays in furnishing Government material to the
contractor, providing "OK to print" authorizations, and
responding to proofs and preproduction samples. See, e.g.,
Graphics Image, supra; Pennsylvania Printed Products Co., Inc.,
GPOBCA 29-87 (January 22, 1990), slip op., 1990 WL 454977, recon.
denied, GPOBCA 29-87 (June 7, 1990), slip op., 1990 WL 454985;
American Drafting & Laminating Co., GPOBCA 6-85 (April 15, 1986),
slip op., 1985 WL 181459; Printing Corp. of the Americas, Inc.,
GPOBCA 14-84 (January 28, 1985), slip op., 1985 WL 154851; see
also IPI Graphics, GPOBCA 04-96 (April 9, 1998), slip op., 1998
WL 350490; The George Marr Co., GPOBCA 31-94 (April 23, 1996),
slip op., 1996 WL 273662. Thus, the delivery date for this
contract was automatically extended from January 12, 1996 to a
later date, which by the Board's calculations was February 8.7
While February 8 was less than 5 weeks-the maximum time the
Appellant said it needed to provide acceptable lapel pins-from
January 11, it was only 3-7 days prior to the Appellant's
proposed delivery date. Nothing in the record establishes that
the Contracting Officer took that into account in determining
that termination for default and reprocurement were appropriate.
This is particularly significant in light of the regulatory
requirement that the Contracting Officer take into account,
before deciding to terminate, "[t]he urgency of the need for the
supplies or services and the period of time which would be
required to obtain sources as compared with the time in which
delivery could be obtained from the delinquent contractor." PPR,
Chap. XIV, Sec. 1,� 3.c.(3)(iv). The reprocurement contract
called for a partial delivery of 4,000 pins by February 9, but
the remainder were not required until March 8. There is nothing
in the record establishing why the Contracting Officer thought
that delivery of 80 percent of the pins 3 weeks later than the
Appellant offered to deliver them was advantageous to the
Government; there is also nothing even suggesting that the
Contracting Officer explored with the Appellant the possibility
of a partial delivery by February 9. Although the Contracting
Officer, in his memo to the CRB requesting concurrence in the
proposed default action, stated that he gave "careful
consideration" to the PPR regulatory factors to be taken into
account prior to making a default termination, paying "mere lip
service" to the factors is insufficient to insulate a default
termination from appropriate scrutiny. National Medical
Staffing, Inc., ASBCA 40391, 92-2 BCA � 24837; Lafayette Coal
Co., ASBCA 32174, 89-3 BCA � 21,963. Where there is no evidence
that a contracting officer considered how much time a delinquent
contractor needs to complete the work or how long would be
required for a replacement contractor to do the work, and the
circumstances do not otherwise indicate that an ensuing
termination for default represented a reasonable exercise of
discretion, the default termination will be set aside. See D.W.
Sandau Dredging, ENGBCA 5812, 96-1 BCA � 28,064; Jamco
Contractors, Inc., VABCA 3516T, 3271, 94-1 BCA � 26,405, recon.
denied, VABCA 3271R, 3516 TR, 94-2 BCA � 26,792.
Here, the circumstances do not indicate that the termination was
otherwise a reasonable exercise of discretion. In fact, they
indicate the contrary. Although the Respondent, in its brief,
states that because of the Appellant's submission of two
nonconforming samples it had no reason to believe that the
Appellant would ever comply with contract requirements, the
record does not provide a reasonable basis for that statement.
In this regard, the Contracting Officer dismissed the
Appellant's explanation for the defective samples-it had
attempted to produce in this country lapel pins acceptable to BLM
because that is what BLM wanted-simply by noting that neither he
nor the contract required domestic production. However, the
record contains a Declaration from the Appellant's Government
Sales Manager stating that the day after quotes were due, he was
called by GPO's Seattle office, advised that VATEX was the low
quoter and that "BLM was very concerned about conducting a press
sheet inspection ... although no press sheet inspection was
specified in the solicitations ...," and requested to identify
the location of the plant where the lapel pins would be
manufactured. The Sales Manager further states that he responded
that the pins "were normally manufactured in Taiwan, but that
VATEX would attempt to produce a satisfactory product in Boca
Raton and only resort to manufacturing in Taiwan if the
preproduction proofs from Boca Raton were unsatisfactory to the
BLM." Declaration of Robert Goode. Although the record contains
a Declaration from the contract administrator that disputes other
statements in Mr. Goode's Declaration, nothing in the record
contradicts what is quoted above. These statements of Mr. Goode
are also consistent with the Appellant's response to the "Cure
Notice." Thus, the Board finds from this record that the
Contracting Officer knew or should have known that the Appellant
had adopted a manufacturing approach to facilitate BLM's desire
for a press sheet inspection (reasonably considered to be far
more practicable in Boca Raton than in Taiwan). That being so,
the fact that the specifications and the Contracting Officer did
not require manufacture in the United States is not a
particularly persuasive basis for rejecting the Appellant's
explanation for the nonconforming samples and failing to give
serious consideration to the Appellant's ability to provide a
conforming product and to do so within a time frame that only
minimally went beyond the automatically-extended delivery date
and, at least with respect to 80 percent of the pins, that was
better by 3 weeks than what was available through a
reprocurement.
In cases where a contracting officer's decision to terminate a
contract default notwithstanding the contractor's response to a
cure notice is found to be a reasonable exercise of discretion,
the contractor typically failed to address the contracting
officer's concerns, see Hannon Elec. Co. v. United States, 31
Fed. Cl. 144 (1994), failed to provide sufficient information to
convince the contracting officer of timely job completion, see
Michigan Joint Sealing, Inc., ASBCA 41477, 93-3 BCA � 26,011,
failed to provide reasonable assurances in light of long history
of failure, AIW-Alton, Inc., ASBCA 45032, 96-1 BCA � 28,232, or
failed to make any meaningful progress toward actual production.
See Adaptive Concepts, Inc., ASBCA 43123, 96-1 BCA � 28,248.
This is not any of those cases. This is a case where a competent
contractor made an effort to accommodate its customer and in
doing so produced nonconforming samples. While the contractor
must bear the risk associated with its decision to try a
nonconforming manufacturing approach, the Contracting Officer
must also act reasonably in determining what the appropriate
consequences should be. A contracting officer's discretion
always "must be exercised in a fair and reasonable manner, not
arbitrary and capricious, and always in the best interest of the
Government." Udis v. United States, 7 Cl. Ct. 379, 387 (1985).
In Graphics Image, Inc., supra, the Board concluded that a
decision to terminate a contract for default was arbitrary and
capricious because the contracting officer failed to consider a
delinquent contractor's explanation provided in response to a
cure notice and the time frame necessary for a reprocurement as
compared with allowing the contractor to continue. The Board
reaches the same conclusion here. It is simply not established
on this record that the decision to terminate the Appellant's
contract for default was based on any reasoned consideration of
the Appellant's explanation for the nonconforming samples and of
its offer to produce conforming pins in Taiwan within a time
frame that exceeded what the contract called for by only a few
days and that overall was better than that available from a
reprocurement. Accordingly, the Board concludes that the
Contracting Officer failed to comply with the requirements of the
PPR, failed to act in the best interest of the United States, and
thereby abused his discretion in terminating the contract for
default.
III. ORDER
The decision of the Contracting Officer is REVERSED and the
appeal is GRANTED. The termination for default is converted to a
termination for the convenience of the Government and the
assessment of excess costs of reprocurement is reversed. The
matter is remanded to the Contracting Officer for negotiation of
an appropriate cost settlement.
It is so Ordered.
October 14, 1998 Ronald Berger
Ad Hoc Chairman
GPO Board of Contract Appeals
_______________
1The Appellant has elected to have its appeal decided pursuant to
the Small Claims Procedure provided for by Rule 12.1 of the
Board's Rules of Practice and Procedure. Under this procedure
decisions are to be "brief," with "summary findings of facts and
conclusions," and shall have no value as precedent and, in the
absence of fraud, shall be final and conclusive and may not be
appealed or set aside." See Daniels Press, Inc., GOBCA 18-95
(September 23, 1998), slip op. at 3 n.3, 1998 WL ______: Kennedy
Graphics, GPOBCA 15-98 (August 21, 1998), slip op. at 1 n. 1,
1998 WL 640419.
2 The Contracting Officer's appeal file, assembled pursuant to
Rule 4 of the Board's Rules of Practice and Procedure, was
delivered to the Board on May 15, 1996. It is referred to as the
Rule 4 File, with an appropriate Tab letter also indicated. The
Rule 4 File consists of 11 tabs identified as Tab A through Tab
K.
3 The parties submitted a Joint Stipulation of Facts on January
29, 1997. It will be referred to hereafter as Stipulation.
4 Although BLM was to hold the samples for only 1 work day, BLM,
as part of a nationwide Government shutdown, closed on the
afternoon of December 18, 1995 and remained closed until January
8, 1996. Stipulation, � 7.
5 In certain cases, where there is no realistic time for a cure
period, a cure notice is not required. Hurt's Printing Co.,
Inc., GPOBCA 27-92 (January 21, 1994), slip op. at 4 n.6, 1994 WL
275098; Graphics Image, Inc., GPOBCA 13-92 (August 31, 1992),
slip op. at 16-17, 1992 WL 487875.
6 GPO defines "workday" as excluding "those days on which [GPO]
is not open for the transaction of business, such as days of
national mourning, hazardous weather, etc.," GPO Contract Terms,
Contract Clauses, � 3. The Board understands that despite the
parties' reference to the "nationwide federal government
shutdown" that led to BLM's closing, GPO in fact was open for
stion.
7 From December 19, the date on which the Government should have
returned the Appellant's second preproduction sample, to January
11, when the Appellant was advised that the sample was
unacceptable, the Board counts 15 days excluding Saturdays and
Sundays and the Christmas and New Year holidays. Extending the
contract those 15 days, plus an additional 3 days, and taking the
Martin Luther King, Jr. holiday into account, leads to a delivery
date of February 8.