BOARD OF CONTRACT APPEALS
U.S. GOVERNMENT PRINTING OFFICE
In the matter of )
)
the Appeal of )
)
CIRCUIT SERVICES PRODUCTS, INC. ) Docket No. GPOBCA 12-98
)
Program 5565-S )
Purchase Order H-2105 )
For the Appellant: L. Lee Kull, Esq., Bird, Navratil & Kull,
PLLC, Maryville, Tennessee.
For the Respondent: Thomas T. Kelly, Esq., Assistant General
Counsel, U.S. Government Printing Office.
Before MILLER, Administrative Judge.
DECISION
This appeal arises out of a contract between the U.S.
Government Printing Office (GPO) and Appellant, Circuit
Services Products, Inc., (Circuit) that was terminated for the
convenience of the Government. Appellant seeks $14,608.10 in
termination costs, plus lost profits and attorney's fees. For
the reasons that follow, the Contracting Officer's final
decision denying all termination costs is REVERSED and the
claim is REMANDED to the Contracting Officer. Appellant's
claims for lost profits and attorney's fees are DENIED.
FINDINGS OF FACT
1. In 1994 Martin Marietta Energy Systems, Inc. (Martin
Marietta) operated a nuclear research and manufacturing
facility known as the Y-12 Plant as part of the Oak Ridge
National Laboratory for the U.S. Department of Energy (DOE)
under DOE Contract # DE-AC05-840R21400. The plant is used for
a variety of activities, including the manufacturing and
reworking of nuclear weapon components and the storage and
processing of nuclear materials.
2. On November 16, 1994, Martin Marietta issued a purchase
order to Appellant for the purchase of 252,000 Military D
Aperture - Air Sampler cards, used for monitoring plant
atmospheric radiation levels. The cards were described in the
purchase order as IBM-style punch cards containing a 1 7/8 by 1
3/8-inch rectangle of Whatman 41 filter paper1 mounted in a
window in the card. Rule 4 File, Tab G. The cards were to be
used as radiation sample holders, to transport dust samples
collected on the Whatman filter paper, to and from an automated
atmospheric sampler. Each card was to be individually numbered.
Rule 4 File, Tab F.
3. Appellant accepted the Martin Marietta purchase order on
December 5, 1994. Under the terms of that agreement, Appellant
was to deliver 10,500 cards each month to the Y-12 Plant
beginning December 6, 1994, and ending November 8, 1996. Rule 4
File, Tab G. On December 5, 1994, Appellant established a
blanket ordering agreement with its supplier Bell & Howell
Document Management Products Co. (Bell & Howell) to obtain
Whatman filter paper cards for the years 1995 and 1996. Under
the terms of the agreement, the supplier was to ship 33,000 cards
to Appellant every three months. Rule 4 File, Tab P.
4. It is not clear from the record whether Appellant's
agreement with Martin Marietta was ever formally terminated, but
Appellant did not perform any orders under the contract.
Instead, on December 8, 1994, Appellant was awarded a small
purchase contract from the GPO's Columbus Regional Printing
Procurement Office (RPPO) for 40,000 Military D Aperture Cards -
Air Sampler, to be delivered by February 15, 1995. Rule 4 File,
Tab Q. The product description was virtually identical to the
product originally to be purchased by Martin Marietta from
Appellant. Compare Rule 4 File, Tab Q with Rule 4 File, Tab G.
5. On March 3, 1995, the GPO's Columbus RPPO awarded Program
5565-S, to Appellant, following standard sealed bid solicitation
procedures. Rule 4 File, Tab G. Program 5565-S was a
requirements contract for the acquisition of approximately
126,000 Military D Aperture Cards - Air Sampler, per year. Rule 4
File, Tab O at 7, 10, 13. Under the terms of the contract,
Appellant was responsible for performing approximately 12 orders
per year, with each order consisting of approximately 10,500
cards. Rule 4 File, Tab O at 7.
6. The term of Program 5565-S was "for the period beginning
Date of Award and ending February 29, 1996 with an option for 4
additional years, one year at a time, beginning March 1, 1996;
March 1, 1997; March 1, 1998 and March 1, 1999." Rule 4 File,
Tab O at 1. The contract's term was changed by a January 3,
1996, contract modification to read: "Date of Award thru April
30, 1996." The modification also changed the starting date for
each option year to May 1. Rule 4 File, Tab G. Program 5565-S
contained the following clause governing the Contracting
Officer's exercise of contract options:
OPTION TO EXTEND THE TERM OF THE CONTRACT: The Government may
extend the term of this contract by written notice to the
contractor not later than 60 days before the contract expires.
If the Government exercises an option, the extended contract
shall be considered to include this provision. The total
duration of this contract shall not exceed 5 years.
Rule 4 File, Tab O at 3.
7. The contract also contained a standard GPO clause governing
the parties' obligations under a requirements contract:
REQUIREMENTS: This is a requirements contract for the items and
for the period specified herein. Shipment/delivery of items or
performance of work shall be made only as authorized by orders
issued in accordance with the clause entitled "Ordering". The
quantities of items specified herein are estimates only, and are
not purchased hereby. Except as may be otherwise provided in
this contract, if the Government's requirements for the items set
forth herein do not result in orders in the amounts or quantities
described as "estimated", it shall not constitute the basis for
an equitable price adjustment under this contract.
Except as otherwise provided in this contract, the Government
shall order from the contractor all the items set forth which are
required to be purchased by the Government activity identified on
page 1.
Rule 4 File, Tab O at 5.
8. The Government issued 11 print orders during the first year
of the contract, each calling for 10,500 aperture cards.
Appellant delivered the cards, submitted a separate voucher for
each print order and was paid by the Government as follows:
Print Order Date Quantity Voucher No. Payment Pay Date
20001 04/26/95 10,500 38854 $2,516,85 05/31/95
20002 05/22/95 10,500 51142 $2,516,85 07/03/95
20003 05/25/95 10,500 51142 $2,516,85 07/03/95
20004 05/25/95 10,500 623590 $2,516,85 07/21/95
20005 07/24/95 10,500 74298 $2,516,85 08/29/95
20006 10/13/95 10,500 12438 $2,516,85 11/22/95
20007 10/13/95 10,500 13962 $2,516,85 11/28/95
20008 11/09/95 10,500 26762 $2,516,85 01/03/96
20009 01/04/96 10,500 3869 $2,516,85 02/08/96
20010 01/04/96 10,500 3869 $2,516,85 02/08/96
20011 02/14/96 10,500 16559 $2,516,85 03/15/96
Declaration of Philip L. Jones.
9. On February 15, 1996, the Contracting Officer wrote to
Martin Marietta, and inquired whether funds were available for
the first option year. Martin Marietta responded that funds
were available for the period of May 1, 1996, to April 30,
1997. Rule 4 File, Tab G.
10. By letter to Appellant dated March 1, 1996, the
Contracting Officer exercised the Government's option to
extend the term of the contract for an additional year (i.e.,
May 1, 1996 to April 30, 1997). Rule 4 File, Tab G. However,
the Government did not actually issue any additional print
orders calling for the production of aperture cards during
this period.
11. Instead, on May 15, 1996, Martin Marietta wrote to the GPO
asking that the contract be terminated for the convenience of the
Government. Martin Marietta explained that it already had a
four-year supply of air sampler cards on hand, and that the Y-12
Plant had been put in "shut-down mode" further decreasing the
need for additional cards. Rule 4 File, Tab G.
12. On May 22, 1996, personnel from the Columbus RPPO left a
message on Appellant's answering machine informing the company
that the GPO was considering terminating the contract for the
convenience of the Government and inquiring whether this action
would cause Appellant to incur any costs. Rule 4 File, Tab B.
The next day, the Contracting Officer sent Appellant a copy of
GPO Form 911 - Settlement Proposal, a form used by contractors to
submit termination for convenience claims. The Contracting
Officer also discussed the termination procedures with
Appellant's President, Erron W. Anderson. Rule 4 File, Tab C.
13. By letter dated July 18, 1996, Appellant's supplier, Bell &
Howell informed Appellant that it would not accept the return of
60,000 aperture cards since the cards were imprinted with
Appellant's logo and "are made of a special paper that no one
else in the country uses." Rule 4 File, Tab D.
14. On August 5, 1996, Appellant wrote to the Contracting
Officer seeking reimbursement for certain costs it would incur
should the contract be terminated for convenience. Rule 4 File,
Tab D. Most of the claim consisted of the cost of 21,000
completed cards and 60,000 uncompleted cards in Appellant's
inventory. Id. After receiving Appellant's letter, the
Contracting Officer issued a formal Notice of Termination -
Convenience of the Government dated August 5, 1996. Id.
15. Appellant thereafter submitted a completed Form 911,
seeking $13,517.44 in termination costs. Rule 4 File, Tab F.
Appellant later revised its claim to $14,608.10. Pursuant to
agency regulations, the Contracting Officer sought an audit of
the claim by the GPO Office of Inspector General (OIG). Rule
4 File, Tab G. See, GPO Printing Procurement Regulation
(PPR), GPO Publication 305.3 (Rev. 10-90), Chap. XIV, Sec.
2.3h(1).
16. Nine months later, the OIG issued an audit report that
concluded the contractor's entire claim was "unallowable under
the terms of the contract." Rule 4 File, Tab I. The OIG
theorized that since Program 5565-S was a requirements
contract, and since no print orders had been issued to
Appellant during the second contract year, Appellant should
not have incurred any costs during the second year. Id.,
Appendix C.
17. On May 29, 1997, the Contracting Officer denied Appellant's
claim in its entirety, writing:
This determination is a result of the audit recently completed.
It is based on GPO Procurement Directive and the Federal
Acquisition Regulations. This contract was a requirements
contract that specified the quantities are estimates only, and
are not purchased hereby.
Rule 4 File, Tab J. On January 22, 1998, after several
conversations with Appellant's President, the Contracting Officer
issued a final decision denying Appellant's termination claim.
Rule 4 File, Tabs K, L, and M.
18. Thereafter Appellant filed a timely notice of appeal
with the GPO Board of Contract Appeals (GPOBCA). Rule 4 File,
Tab N.
DISCUSSION
Appellant questions whether the Contracting Officer had the
authority to terminate the contract for convenience, and claims
the termination was wrongful. Respondent's position is that
since Program 5565-S was a requirements contract, it does not owe
Appellant any termination costs. The Board concludes that while
the Contracting Officer had the legal right to terminate the
contract for convenience, the termination created the legal
obligation to compensate Appellant for certain termination costs.
The Contracting Officer's Right to Terminate for Convenience
Appellant complains that a contract it anticipated would continue
for at least two years was ended prematurely by the Contracting
Officer's exercise of the Termination for Convenience clause.
Appellant is particularly troubled that the termination for
convenience came soon after the Government had exercised its
option to extend the contract for another year. Appellant argues
that the Option to Extend the Term of the Contract clause acted
as a limitation on the Contracting Officer's right to terminate
the contract for convenience and that the Contracting Officer's
action therefore amounts to a wrongful termination. Appellant's
arguments are unpersuasive.
Challenges to the Government's exercise of its right to terminate
a contract for the convenience of the Government are rarely
successful given the breadth of the Government's discretion.
Program 5565-S contained a Termination for Convenience clause
that provided, in part:
The Government may terminate performance of work in whole or in
part if the Contracting Officer determines that a termination is
in the Government's interest.
Clause 19(a), GPO Contract Terms, GPO Publication 310.2 (Rev.
9-88). That language is nearly identical to the standard
Government-wide contract clauses contained in the Federal
Acquisition Regulation (FAR). See, 48 C.F.R. �� 52.249-1(a),
52.249-2(a), 52.249-3(a), 52.249-4(a), 52.249-5(a).
Decisions construing the Government-wide Termination for
Convenience clauses hold that a Contracting Officer's election
to terminate is conclusive in the absence of bad faith or a
clear abuse of discretion. See Melvin R. Kessler, PSBCA Nos.
2820, 2972, 92-2 BCA � 24,857, at 123,996 (citing John Reiner
v. United States, 325 F.2d 438, 442 (Ct. Cl. 1963), cert. den.
377 U.S. 931 (1964)), mot. for reconsid. denied 92-3 BCA �
25,092; Salisbury Industries v. United States, 905 F.2d 1518
(Fed. Cir. 1990)), mot. for reconsid. denied 92-3 BCA �
25,092. See also, Seaboard Lumber v. United States, 19 Cl.
Ct. 310 (1989); Robert K. Adams, ASBCA No. 34519, 92-3 BCA �
25,165; Automated Services, Inc., DOTBCA No. 1753, 87-1 BCA �
19,459; ITG Corp., ASBCA No. 27285, 85-1 BCA � 17,935. Any
allegation of bad faith must be established by "well-nigh
irrefragable" proof because there is a strong presumption that
Government officials properly and honestly carry out their
functions. See e.g., Asa L. Shipman's Sons, Ltd., GPOBCA No.
06-95 (August 29, 1995), 1995 GPOBCA LEXIS 17, 1995 WL 818784,
slip op. at 12, fn. 16. Accord Brill Brothers, Inc., ASBCA
No. 42573, 94-1 BCA � 26,352; Karpak Data and Design, IBCA No.
2944 et al., 93-1 BCA � 25,360; Local Contractors, Inc., ASBCA
No. 37108, 92-1 BCA � 24,491. The key to such evidence is that
there must be a showing of a specific intent on the part of
the Government to injure the contractor. See Stephenson,
Inc., GPOBCA No. 2-88, (Dec. 20, 1991), 1991 GPOBCA LEXIS 14,
1991 WL 439274, slip op. at 54. Accord, Kalvar Corp. v.
United States, 543 F.2d 1298, 1302 (Ct. Cl. 1976), cert.
denied, 434 U.S. 830 (1977). See also, Solar Turbines, Inc.
V. United States, 23 Cl. Ct. 142 (1991).
Properly exercised, a contracting officer's discretion to act
pursuant to the "Termination for Convenience" clause is very
broad. See Caldwell & Santmyer, Inc., supra, 94-2 BCA at 133,625
(citing ARDCO Inc., AGBCA Nos. 94-101-1, 94-102-1, 94-103-1, 1994
WL 45000 (Feb. 16, 1994); Michael J. Earl, PSBCA No. 3332, 93-3
BCA � 26,234). One obvious exception is when the Government
enters into a contract with no intention of fulfilling its
promises, it may not use a termination for convenience to avoid a
breach of contract claim. See, Torncello v. United States, 231
Ct. Cl. 20, 681 F.2d 756 (1982). However, recent decisions from
the U.S. Court of Appeals for the Federal Circuit have reaffirmed
the principle that in the absence of bad faith or clear abuse of
discretion, the Contracting Officer's decision to terminate for
convenience is conclusive. See, T & M Distributors, Inc. v.
United States, No. 98-5106, slip op. (Fed. Cir. July 26, 1999);
Krygoski Const. Co. v. United States, 94 F.3d 1537 (Fed. Cir.
1996) cert. denied, 520 U.S. 1210 (1997); Caldwell & Santmyer,
Inc., v. Glickman, 55 F.3d 1578 (Fed. Cir. 1995); Salsbury Indus.
v. United States, 905 F.2d 1518 (Fed. Cir. 1990).
In the instant appeal, Appellant does not allege bad faith, but
questions the authority of the Government to end the contract.
The Board concludes that the Contracting Officer was well within
his contractual rights to terminate this contract for the
convenience of the Government. The unrebutted evidence of record
is that the need of the GPO's customer agency for additional
aperture cards was reduced due to a shutdown of a portion of the
plant that utilized the cards. The customer agency was left with
a large inventory of cards on hand, one that would not be
exhausted for four years. Rule 4 File, Tab G. Thus, the
Government had no need to continue ordering cards from Appellant
under Program 5565-S. Under these circumstances, a termination
for convenience was an appropriate exercise of the Contracting
Officer's discretion.
There is no merit to Appellant's argument that the exercise of
the first year option operates as a bar to the use of the
Termination for Convenience clause. While it is unfortunate that
the Government chose to extend the contract for an additional
year without any apparent need for the product, such an action
does not limit the Government's contractual right to terminate
the contract. The Termination for Convenience clause does not
restrict its use to any particular time. The clause's only
condition precedent is that the Contracting Officer must
determine that such action is "in the Government's interest."
Clause 19(a), GPO Contract Terms, GPO Publication 310.2 (Rev.
9-88). The Board has no difficulty concluding that termination
for convenience in these circumstances was in the Government's
interest.
Therefore, the Board concludes that the Contracting Officer
had the right to terminate Program 5565-S for the convenience
of the Government and that his exercise of that right was not
an abuse of discretion.
Entitlement to Convenience Termination Costs
While the Government has an inherent right to terminate its
contracts for the convenience of the Government, it also owes
contractors the duty to fairly compensate them for legitimate
termination costs. Having decided that the Contracting
Officer appropriately exercised his discretion to terminate
Program 5565-S for convenience, the analysis now shifts to an
examination of the termination claims made by Appellant. In
the instant appeal, the Contracting Officer, relied entirely
upon an audit recommendation from the GPO Office of inspector
General (OIG), that concluded Appellant was not entitled to
any termination settlement costs because Program 5565-S was a
requirements contract. There appears to be no support in the
contract, or applicable case law for the OIG's conclusion.
Program 5565-S incorporated by reference the GPO's standard
Termination for Convenience clause contained in GPO Contract
Terms, GPO Publication 310.2 (Rev. 9-88). Rule 4 File, Tab O
at 2. That provision sets forth the procedures for filing a
termination claim and establishes the parameters of any
termination settlement. Under the clause:
(e) If the contractor and the Contracting Officer fail to
agree on the whole amount to be paid because of the
termination of work, the Contracting Officer shall pay the
contractor the amounts determined by the Contracting Officer
as follows, but without duplication of any amounts agreed on
under paragraph (d) above:
(1) The contract price for completed supplies or services
accepted by the Government (or sold or acquired under
subparagraph (b)(9) above) not previously paid for,
adjusted for any savings of freight and other charges.
(2) The total of-
(i) The costs incurred in the performance of the work
terminated, including initial costs and preparatory
expenses allocable thereto, but excluding any costs
attributable to supplies or services paid or to be paid
under subparagraph (e)(1) above;
(ii) The cost of settling and paying termination
settlement proposals under terminated subcontracts that
are properly chargeable to the terminated portion if not
included in subdivision (i) above; and
(iii) A sum, as profit on subdivision (i) above,
determined by the Contracting Officer to be fair and
reasonable; however, if it appears that the contractor
would have sustained a loss on the entire work had it
been completed, the Contracting Officer shall allow no
profit under this subdivision (iii) and shall reduce the
settlement to reflect the indicated rate of loss.
(3) The reasonable costs of settlement of the work
terminated, including-
(i) Accounting, legal, clerical, and other expenses
reasonably necessary for the preparation of termination
settlement proposals and supporting data;
(ii) The termination and settlement of subcontracts
(excluding the amounts of such settlement); and
(iii) Storage, transportation, and other costs incurred,
reasonably necessary for the preservation, protection,
or disposition of the termination inventory.
(f) Except for normal spoilage, and except to the extent that
the Government expressly assumed the risk of loss, the
Contracting Officer shall exclude from the amounts payable to
the contractor under paragraph (e) above, the fair value, as
determined by the Contracting Officer, of property that is
destroyed, lost, stolen, or damaged so as to become
undeliverable to the Government or to a buyer.
(g) The cost principles and procedures of article 45, Contract
Clauses in effect on the date of this contract, shall govern
all costs claimed, agreed to, or determined under this clause.
* * *
(i) In arriving at the amount due the contractor under this
article, there shall be deducted-
(1) All unliquidated advance or other payments to the
contractor under the terminated portion;
(2) Any claim which the Government has against the
contractor under this contract; and
(3) The agreed price for, or the proceeds of sale of,
materials, supplies, or other things acquired by the
contractor or sold under the provisions of this article and
not recovered by or credited to the Government.
* * *
Id. � 19.
The Termination for Convenience clause does not exempt
requirements contracts. Nor does Program 5565-S contain any
provision2 restricting the contractor's right to receive
compensation under the Termination for Convenience clause. The
GPOBCA and other Boards have found entitlement to termination
costs in situations where requirements contracts or indefinite
quantities contracts were terminated for convenience. See e.g.,
R.C. Swanson Printing & Typesetting Co., GPOBCA No. 15-90 (July
1, 1993), 1993 GPOBCA LEXIS 22, 1993 WL 526638; New South Press &
Assoc., GPOBCA No. 14-92 (Jan. 31, 1996), 1996 GPOBCA LEXIS 23,
1996 WL 112555; Edward V. Cambell, LBCA No. 82-BCA-4, 84-2 BCA �
15,375; A-American, Inc., ASBCA No. 28823, 84-1 BCA � 17,479.
Thus, both the Contracting Officer and the OIG were mistaken
about the fundamental legal principles to use in analyzing
Appellant's termination claim. Accordingly, this appeal must be
remanded to the Contracting Officer to allow him an opportunity
to reconsider Appellant's termination claim. To assist the
parties in their subsequent consideration of this claim, the
Board offers the following summary of the applicable termination
for convenience recovery standards.
The GPO Termination for Convenience clause contains the
general rule that once a contract is terminated, the
contractor is entitled to recover its incurred costs, plus a
reasonable profit. See GPO Contract Terms, GPO Publication
310.2 (Rev. 9-88), Contract Clause 19(d); PPR Chap. XIV, Sec.
2.3.n. See also, R.C. Swanson Printing & Typesetting Co.,
Supplemental Decision, GPOBCA No. 15-90, (July 1, 1993) slip
op. at 17-18, 1993 GPOBCA LEXIS 26, 1993 WL 526638 (citing
Humphrey Logging Co., AGBCA Nos. 84-359-3, 85-204-3, 85-3 BCA
� 18,433); Graphic Litho Co., Inc., GPOBCA No. 17-85, (Feb.
23, 1988) slip op. at 10, 1988 GPOBCA LEXIS 15, 1988 WL
363327. Accord, Youngstrand Surveying, AGBCA No. 90-150-1,
92-2 BCA � 25,017, at 124,694; Chamberlain Manufacturing
Corp., ASBCA No. 16877, 73-2 BCA � 10,139 at 47,678.
However, recovery of anticipated profits is not allowed. See
PPR, Chap. XIV, Sec. 2.3.n. Accord, D.E.W. & D.E. Wurzbach,
JV, ASBCA No. 50796, 98-1 BCA � 29,385 at 146,055; Plaza 70
Interiors, Ltd., HUD BCA No. 94-C-150-C9, 95-2 BCA � 27,668,
at 137,939 (citing FAR 49.202; Steelcare, Inc., GSBCA No.
5491, 81-1 BCA � 15,143, at 74,901). Similarly, where a
contractor is in a loss position on the terminated contract,
it is not entitled to recovery of any profit. See GPO
Contract Terms, Contract Clauses, � 19(e)(2)(iii); PPR, Chap.
XIV, Sec. 2.3.o. See also Maitland Brothers Co., ASBCA No.
40388, 93-3 BCA � 26,007, at 129,304, motion for reconsid.
denied 94-1 BCA � 26,285; Tom Shaw, Inc., ENG BCA Nos. 5540,
5541, 5620-5628, 93-2 BCA � 25,742, at 128,082.
The terminated contractor has the burden of establishing both
that it actually incurred costs and the amount of its incurred
costs. See R.C. Swanson, supra, Supplemental Decision, slip
op. at 19 (citing Building Maintenance Specialists, Inc., ENG
BCA No. 5654, 90-3 BCA � 23,032). Accord, Lisbon Contractors,
Inc. v. United States, 828 F.2d 759, 767 (Fed. Cir. 1987);
J.W. Cook & Sons, Inc., ASBCA No. 39691, 92-3 BCA � 25,053, at
124,863 (citing Tubergen & Associates, Inc., ASBCA Nos. 34106,
34107, 90-3 BCA � 23,058); Youngstrand Surveying, supra, 92-2
BCA at 124,694 (citing Roberts International Corp., ASBCA No.
15118, 71-1 BCA � 8869); R.G. Robbins & Co., Inc., ASBCA No.
27516, 83-1 BCA � 16,420. The actual incurrence of costs is a
prerequisite to recovery under a termination for convenience;
i.e., if the contractor has incurred no cost, there is no
recovery. See R.C. Swanson, supra, Supplemental Decision,
slip op. at 19 (citing Seiler Instrument and Manufacturing
Co., Inc., ASBCA No. 44380, 93-1 BCA � 25,436). Accordingly,
in these cases it is the contractor's cost, not the value of
the performance to the Government, that is the measure of
recovery. See, e.g., Fil-Coil, ASBCA No. 23,137, 79-1 BCA �
13,618 (1978), mot. for reconsid. denied, 79-1 BCA � 13,683
(1979); Scope Electronics, Inc., ASBCA No. 20359, 77-1 BCA �
12,404, mot. for reconsid. denied, 77-2 BCA � 12,586 (1977);
Arnold H. Leibowitz, GSBCA No. CCR-1, 76-2 BCA � 11,930
(1976).
Another significant convenience termination principle is that
the "total contract price" sets the outside limit of the
contractor's potential recovery. See R.C. Swanson, supra,
Supplemental Decision, slip op. at 19 (citing GPO Contract
Terms, Contract Clause 19(d); FAR 52.249-2(e)). Accord Alta
Construction Co., PSBCA Nos. 1463, 2820, 94-3 BCA � 27,053, at
134,816; Tom Shaw, Inc., supra, 93-2 BCA at 128,073. GPO's
Termination for Convenience clause provides that the
convenience termination settlement may not generally exceed
the "total contract price" as reduced by: (1) the amount of
payments previously made; and (2) the contract price of work
not terminated. See GPO Contract Terms, Contract Clauses, �
19(d). The theory behind this limitation is that the
contractor should not receive more than the contract price for
doing less than the full amount of work required by the
contract. Id. The "total contract price" concept encompasses
three things: (1) it sets the maximum amount a contractor may
recover under a termination for convenience; (2) it is
important when considering the recovery of costs continuing
after termination; and (3) the rules for setting the "total
contract price" vary depending on the type of contract
terminated. See R.C. Swanson, supra, Supplemental Decision,
slip op. at 19-20 (citing Nolan Bros., Inc. v. United States,
405 F.2d 1250 (Ct. Cl. 1969); Alta Construction Co., PSBCA No.
1463, 92-2 BCA � 24,824; Celesco Industries, Inc., ASBCA No.
22460, 84-2 BCA � 17,295; Pioneer Recovery Systems, Inc.,
ASBCA No. 24658, 81-1 BCA � 15,059; Okaw Industries, Inc.,
ASBCA Nos. 17863, 17864, 77-2 BCA � 12,793; Chamberlain
Manufacturing Corp., supra).
In the case of a requirements contract, like Program 5565-S,
the "total contract price" is the estimated value of the
contract, determined by multiplying the Government's estimate
of the number of cards to be purchased3 by the "per 1000
cards" price bid by Appellant. See, Albano Cleaners, Inc. v.
United States, 197 Ct. Cl. 450, 455 F.2d 556 (1972); R.C.
Swanson Printing & Typesetting Co., GPOBCA No. 15-90 (July 1,
1993), 1993 GPOBCA LEXIS 26, 1993 WL 526638, slip op. at
21-27; Alta Constr. Co., PSBCA Nos. 1463, 2920, 92-2 BCA �
24,824; Aviation Specialists, Inc., DOT BCA No. 1967, 91-1 BCA
� 23,534. The "total contract price" for Program 5565-S is
further modified by doubling the initial year's estimates due
to the Government's decision to extend the contract into the
first option year.
Finally, the OIG and the Contracting Officer must not ignore
the underlying philosophy of the termination for convenience
procedure when compensating a terminated contractor. It is
"fairness," rather than strict adherence to principles of
cost accounting, that should guide settlement calculations.
See Richerson Construction, Inc., GSBCA Nos. 11161,
11263(11045)-REIN, 11430, 93-1 BCA � 25,239; Youngstrand
Surveying, supra; Industrial Refrigeration Service Corp.,
VABCA No. 2532, 91-3 BCA � 24,093, at 120,595; Arctic
Corner, Inc., VABCA No. 2393, 86-3 BCA � 19,278; American
Electric, Inc., ASBCA No. 16635, 76-2 BCA � 12,151. The
General Services Administration Board of Contract Appeals
recently explained:
Under applicable Federal Acquisition Regulations (FAR), the
objective of a termination for convenience settlement is to
provide the contractor with "fair compensation" both for the work
that has been completed prior to termination and for preparations
made for terminated portions of the contract, including a
reasonable allowance for profit. FAR 49.201. . . . To this end,
the cost standards of the FAR, in part 31, are applied in
accordance with principles of business judgment and fairness,
Codex Corp. v. United States, 226 Ct. Cl. 693, 699 (1981), with
the ultimate objective of making the contractor "whole." See
Industrial Refrigeration Service Corp., VABCA 2532, 91-3 BCA �
24,093, at 120,595; American Electric, Inc., ASBCA 16635, 76-2
BCA � 12,151.
See Richerson Construction, Inc., supra, 93-1 BCA at 125,704.
See also, General Electric Co., ASBCA No. 24111, 82-1 BCA �
15,725, reconsid. denied 83-1 BCA � 16,207. See also, Industrial
Refrigeration Service Corp., supra, 91-3 BCA � 24,093, at
120,594-95.
Although a convenience termination settlement should
compensate a contractor fairly, this is not to say that the
concept has no boundaries. A contractor may not use
"fairness" as a "sword to dispense with its obligation to
prove its monetary claim." See J.W. Cook & Sons, Inc., supra,
92-3 BCA at 124,863. The ASBCA takes a narrower view of
"fairness" as a concept in termination settlements:
. . . It is not our province to fashion equitable or
extracontractual relief on the grounds of fairness, or otherwise.
In this context, "fairness" to the parties is the realization of
the benefit of each party's bargain through the contractual
instrument they signed. We exercise "fairness" through the
reasonable interpretation of that contractual instrument and the
related regulations, with due regard to all relevant
circumstances.
Id., 92-3 BCA at 124,865.
In New South Press & Assoc., Inc., GPOBCA No. 14-92 (Jan. 31,
1996), 1996 GPOBCA LEXIS 23, 1996 WL 112555, the Board
discussed how these fairness concepts should be applied. The
Board noted that both the GPO Cost Directive4 and the PPR
caution contracting officers that in negotiating termination
settlements, the objective is to negotiate prices that are
fair and reasonable, notwithstanding the mandatory use of cost
principles. See GPO Cost Directive, Sec. 2, � 3, p. 6; PPR,
Chap. VIII, Sec. 1.3.a.
The overall philosophy of the GPO regulations appears to be
similar to and in harmony with the approach taken by the Court
of Claims in Codex Corp. v. United States, and adopted by the
GSBCA in Richerson Construction, Inc., and the VABCA in
Industrial Refrigeration Service Corp., and Arctic Corner,
Inc. In that regard, the above-cited provisions from the GPO
Cost Directive and the PPR appear to be simply condensed
versions of the regulatory provisions at issue in Arctic
Corner, Inc., supra, 86-3 BCA at 97,456. Where GPO adopts the
regulatory language followed by other agencies as its own, in
this case the cost principal rules governing contracts which
are terminated for convenience, we must presume that the
uniform interpretation
given to those words has also been accepted. See Banta Co.,
GPOBCA 03-91 (November 15, 1993), slip op. at 34, 1993 WL 526843
("Changes" clause); McDonald & Eudy Printers, Inc., supra, slip
op. at 11-12 ("Requirements" clause); Shepard Printing, supra,
slip op. at 21-22 ("Requirements" clause).
Consequently, this Board will continue to administer the cost
principles in the relevant regulations of this agency-the GPO
Cost Directive, the PPR, and the implementing provisions of
GPO Contract Terms-consistent with the meaning and philosophy
of the parallel provisions in the FAR, as interpreted by the
Claims Court, the GSBCA and the VABCA in the above cited
cases. The Board will likewise approach disputed cost
elements with an eye toward fair compensation rather than
imposing strict accounting principles upon the Appellant. New
South Press & Assoc., Inc., GPOBCA No. 14-92 (Jan. 31, 1996),
1996 GPOBCA LEXIS 23, 1996 WL 112555; George Marr Co., GPOBCA
No. 31-94 (Apr. 23, 1996), 1996 GPOBCA LEXIS 43, 1996 WL
273662. See also, Foremost Mechanical Systems, GSBCA No.
13250-C (12335), et al., 98-1 BCA � 29,652 at 146,917-8;
Industrial Refrigeration Service Corp., supra, 91-3 at
120,594; Arctic Corner, Inc., supra, 86-3 BCA at 97,457.
In the instant appeal, the bulk of Appellant's termination for
convenience claim is for its unused inventory, consisting both
of completed aperture cards and the raw materials used to
manufacture the cards.5 Rule 4 File, Tab G. Such items do
not appear to be "common items" which Appellant could utilize
in its other work, and which would be excluded from recovery
under a termination settlement. See, GPO Cost Directive
�49(a). Rather, Appellant alleges, and
Respondent does not dispute, that Appellant designed these cards
specifically for use in the Y-12 Plant's air monitoring
equipment. In addition, the Whatman filter paper used was
manufactured in England and not used by any other company in this
country, thus limiting Appellant's ability to sell the excess
materials to other companies or to return them to Appellant's
supplier. Rule 4 File, Tab G. It would appear, based on the thin
record developed in this appeal, that the claimed materials fall
into the category of direct costs.
Respondent argues that Appellant should not be compensated for
any of the supplies it received after the Contracting
Officer's May 22, 1996, oral notification of Respondent's
intent to terminate the contract for convenience. However,
the contractor was not obligated to stop work and discontinue
subcontracts for supplies until "[a]fter receipt of a Notice
of Termination" GPO Contract Terms, term 19 (b). Appellant
did not receive the formal notice of termination until August
5, 1996. Rule 4 File, Tab D. Therefore, Appellant's receipt
of materials in June 1996 was not per se unreasonable. 6
In its audit report the OIG takes the position that since no
print orders requesting the delivery of cards were issued by
the Government during the second contract year, then none of
the costs incurred by Appellant during the second year are
allowable. The OIG reasons that since Program 5565-S was a
requirements contract with no guarantees of orders, Appellant
should not have incurred any costs in anticipation of orders.
Rule 4 File, Tab I. This view ignores the evidence that the
Whatman 41 filter paper required by the contract
specifications had to be imported from England and required
approximately 18 weeks for delivery. Rule 4 File, Tab G.
Since Program 5565-S obligated Appellant to deliver completed
aperture cards to the Government within 20 workdays of receipt
of the Government's order, it would have been impossible to
comply with the delivery schedule unless the contractor had on
hand a supply of the necessary raw materials.7 See Rule 4
File, Tab O at 8.
The fact that some of the raw materials may have been
delivered during the first year of the contract is not
significant. If the contractor's acquisition of raw materials
was reasonable during the first year of the contract, the fact
that termination occurred during the second year does not bar
recovery, since once exercised, a contract option becomes part
of a single unitary contract. VHC Inc., No. 98-1327 (Fed.
Cir. June 10, 1999), 1999 U.S. App. LEXIS 11943; International
Business Investments, Inc. v. United States, 21 Cl. Ct. 79, 80
(1990); C.M.P., Inc. v. United States, 8 Cl. Ct. 743, 746
(1985); Boeing Aeorospace Operations, Inc., ASBCA Nos. 46274,
46275, 94-2 BCA � 26,802 at 133,281 n.4; Varo, Inc., ASBCA No.
16606, 72-2 BCA � 9720.
Neither the Contracting Officer nor the OIG considered the
details of Appellant's claim, focussing instead on what they
viewed as Appellant's lack of entitlement to any recovery
given that Program 5565-S was a requirements contract.
Accordingly, neither evaluated the inventory claim to
determine whether Appellant's arrangements with its suppliers
were reasonable or whether they resulted in the delivery of
excess quantities of raw materials or whether Appellant's
manufacturing plan resulted in the stockpiling of an
unreasonably large inventory of completed cards. See, DCAA
Contract Audit Manual ��12-304.3, 12-304.4. Therefore, the
Contracting Officer's final decision denying all termination
costs is REVERSED and
Appellant's claim is REMANDED to the Contracting Officer for a
re-evaluation of the claimed costs.
Lost Profits Claim
Appellant also seeks to recover "lost profits" as part of this
appeal. Complaint � 7. It is unclear from the complaint whether
lost profits are sought as a component of Appellant's termination
for convenience claim, or as a separate breach of contract claim
arising out of the Contracting Officer's termination of the
contract for the convenience of the Government. Appellant is not
entitled to recovery under either theory.
A contractor terminated for convenience may not recover
anticipated profits as part of its termination for convenience
cost claim. Salsbury Indus. v. United States, 905 F.2d 1518,
1522 (Fed. Cir. 1990); G.C. Casebolt Co. v. United States, 190
Ct. Cl. 783, 421 F.2d 710, 713 (1970); Nolan Bros., Inc. v.
United States, 405 F.2d 1250 (Ct. Cl. 1969). Recovery of lost or
anticipatory profits under a termination for convenience claim is
prohibited by the Termination for Convenience clause. That
clause relieves the Government from the obligation of paying
anticipated profits by limiting profit to profit on work
performed. Dairy Sales Corp. v. United States, 219 Ct. Cl. 431,
593 F.2d 1002 (1979), aff'g Dairy Sales Corp., ASBCA No. 20193,
75-2 BCA � 11,613). See PPR, Chap. XIV, Sec. 2.3.n. Accord,
D.E.W. & D.E. Wurzbach, JV, ASBCA No. 50796, 98-1 BCA � 29,385 at
146,055; Plaza 70 Interiors, Ltd., supra, 95-2 BCA at 137,939
(citing FAR 49.202; Steelcare, Inc., GSBCA No. 5491, 81-1 BCA �
15,143, at 74,901). Similarly, termination claims cannot be
based on loss of business or anticipated sales. Unified
Engineering, Inc., ASBCA No. 21565, 81-1 BCA � 14,940.
Appellant cannot use a breach of contract theory to recover lost
profits, as it is settled law that this Board has no jurisdiction
over breach of contract claims. The Board's decision in Wessel
Company, Inc., GPOBCA No. 90-8 (Feb. 28, 1992), 1992 GPOBCA LEXIS
19, 1992 WL 487877 is dispositive of that issue. See also, Rim
Advertising, GPOBCA No. 38-94, (Sept. 24, 1997) 1997 GPOBCA LEXIS
15, 1997 WL 742429; Rose Printing, Inc., GPOBCA No. 32-95 (Dec.
16, 1996), 1996 GPOBCA LEXIS 34, 1996 WL 812880; R. C. Swanson
Printing and Typesetting Co., GPOBCA No. 15-90 (Mar. 6, 1992),
1992 GPOBCA LEXIS 20, 1992 WL 382924,; Cloverleaf Enterprises,
Inc., GPOCAB 79-12 (May 9, 1980), 1980 GPOBCA LEXIS, 1980 WL
81267, slip op. at 10-11; Microform Data System, Inc., GPOCAB
3-79 (Feb. 1, 1980), 1980 GPOBCA LEXIS 41, 1980 WL 81258, slip
op. at 11-12; Information Systems, Inc., GPOCAB 78-11 (Jan. 18,
1979), slip op. at 5-7, 1979 GPOBCA LEXIS 38, 1979 WL 28889;
Harbor Printing & Copy Service, Inc., GPOCAB 77-5 (Nov. 4, 1977),
slip op. at 1, 1977 GPOBCA LEXIS 26, 1977 WL 24257.
As a creature of contract, rather than of statute, this Board's
remedial authority is strictly limited, and confined to the
contract before it. See Olympic Graphic Systems, GPOBCA No. 1-92
(Sept. 13, 1996), slip op. 36, 1996 GPOBCA LEXIS 32, 1996 WL
812957; Big Red Enterprises, supra, slip op. at 38; GraphicData,
Inc., GPOBCA No. 35-94 (June 14, 1996), slip op. at 57, 1996
GPOBCA LEXIS 28, 1996 WL 812875; The Wessel Co., Inc., supra,
slip op. at 32. As a forum of limited jurisdiction whose
remedial powers are tied to the clauses in the contract, the
Board functions essentially as a pre-CDA board of contract
appeals. See Olympic Graphic Systems, supra, slip op. 37;
GraphicData, II, supra, slip op. at 85; R.C. Swanson Printing and
Typesetting Co., GPOBCA 15-90, Supplemental Decision (July 1,
1993), slip op. at 28, 1993 GPOBCA LEXIS 26, 1993 WL 526638; The
Wessel Co., Inc., supra, slip op. at 34. Accord United States v.
Utah Construction and Mining Co., 384 U.S. 394 (1966); Jet
Services, Inc., DOT CAB No. 77-14, 78-2 BCA � 13,223; Blake
Construction Co., Inc., GSBCA No. 2205, 67-1 BCA � 6,311.
This simply means that the Board must take the agreement as it
finds it, and unless the Board can locate the relief granting
source within the "four corners" of the contract, the contractor
will have to seek its remedy in another forum. See Olympic
Graphic Systems, supra, slip op. 37; R.C. Swanson Printing and
Typesetting Co., supra, slip op. at 40-41; The Wessel Co., Inc.,
supra, slip op. at 45-46. Thus, even if the Board concluded that
the termination for convenience was improper in this case, its
remedial authority would not encompass awarding Appellant
anticipated profits as breach of contract damages.
Accordingly Appellant's claim for anticipated profits is DENIED.
Claim for Attorney's Fees
Appellant also seeks to be reimbursed for the attorney's fees it
incurred in pursuing the instant appeal. Complaint � 7.
Such costs are generally unallowable when asserted in the context
of a termination for convenience settlement claim. Robertson Co.
v. United States, 194 Ct. Cl. 289, 437 F.2d 1360 (1971). GPO
Contract Terms, which is incorporated by reference in Appellant's
contract, requires the application of the provisions of GPO
Procurement Directive 306.2, Subject: Contract Cost Principles
and Procedures, dated April 1, 1988 (GPO Contract Cost
Principles) to GPO contracts, in appropriate circumstances. GPO
Contract Terms, Contract Clauses, � 45. See, Banta Company,
GPOBCA 03-91 (November 15, 1993), slip op. 34-35, 1993 GPOBCA
LEXIS 20, 1993 WL 526843. One such circumstance mandated by
GPO's procurement regulations is the determination of costs under
terminated contracts. PPR, Chap. VIII, Sec. 1.3.b.(1). In that
regard, GPO Contract Cost Principles expressly states that: "[c]
osts of legal . . . services and directly associated costs
incurred in connection with . . . defense against Government
claims or appeals, or the prosecution of claims or appeals
against the Government are unallowable [Cross reference
omitted.]." GPO Contract Cost Principles, p. 28, � 3.41(d). See
also, FAR 31.205-47(f)(1); A.T. Kearney, Inc., DOTCAB No. 1580,
86-1 BCA � 18,613.
Attorney's fees are not available to Appellant as a prevailing
party in this appeal, as such a remedy is beyond the power of
the GPOBCA to grant. Sterling Printing, Inc., GPOBCA No. 8-90
(Feb. 28, 1992), 1992 GPOBCA LEXIS 19, 1992 WL 487877. The
Board's counterparts in the Executive branch are now8,
authorized to award attorneys fees under the Equal Access to
Justice Act (EAJA), 5 U.S.C. � 504, to prevailing parties in
administrative hearings. Congress amended EAJA in 1985 to
include the proceedings of agency contract appeals boards
established pursuant to the Contract Disputes Act (CDA), 41
U.S.C. �601 et seq., within the definition of an "adversary
adjudication." See, 5 U.S.C. � 504(b)(1)(C). See, e.g.,
Marty's Maid and Janitorial Service, GSBCA Nos. 11980-C
(10614), 11981-C (10996), 93-2 BCA � 25,713; JR and
Associates, ASBCA No. 41377, 92-3 BCA � 25,121.
However, the GPOBCA is not a CDA Board because GPO, as a
Legislative branch agency, is excluded from the coverage of that
statute. See, Tatelbaum v. United States, 749 F.2d 729 (Fed.
Cir. 1984). Furthermore, because the EAJA also excludes the
Legislative branch from its sweep, the Board derives no powers or
authority from that law. 5 U.S.C. � 504(b)(2) (incorporating the
definitions of 5 U.S.C. � 551, which excludes "the Congress" from
the
definition of "agency"). Cf., Mayo v. Government Printing
Office, 9 F.3d 1450, 1451 (9th Cir. 1993) (GPO excluded from
coverage of the Freedom of Information Act, 5 U.S.C. � 552); Gray
Graphics Corporation v. U.S. Government Printing Office, et al.,
Civil Action No. 82-2869 (D.D.C. 1982) (GPO not covered by the
Small Business Act, 15 U.S.C. � 631 et seq.). See also, Chavis
and Chavis Printing, GPOBCA No. 20-90 (Feb. 6, 1991), slip op. at
7, fn. 7, 1991 GPOBCA LEXIS 15, 1991 WL 439270 (where the Board
held that GPO was not subject to the Prompt Payment Act of 1982,
as amended, 31 U.S.C. � 3901 et seq., because the Prompt Payment
Act defined its agency coverage in terms of 5 U.S.C. � 551).
This Board's authority is derived from the "Disputes" clause of
the contract. See, GPO Contract Terms, Contract Clause 5. See
also, R.C. Swanson Printing and Typesetting Company, supra, slip
op. at 27-28, 41; The Wessel Company, Inc., supra, slip op. at
32-35, 46. As such, the Board, its proceedings, and its powers,
are ". . . closer to the administrative practice followed in
contract appeals prior to the enactment of the CDA, . . .". B.
P. Printing and Office Supplies, GPOBCA No. 14-91, (Aug. 10,
1992), slip op. at 20 1992 GPOBCA LEXIS 15, 1992 WL 488447.
Thus, the Board is without authority to award attorney's fees and
appeal expenses in proceedings such as this. Accordingly,
Appellant's claim for attorney's fees is DENIED.
CONCLUSION
For the foregoing reasons, the Contracting Officer's final
decision regarding entitlement to termination for convenience
costs is REVERSED and the claim is REMANDED to the
Contracting Officer9 with instructions to reconsider Appellant's
termination claim in accordance with this decision. Appellant's
claims for attorney's fees and anticipated profits are DENIED.
July 29, 1999 KERRY L. MILLER
Administrative Judge
_______________
1 Whatman 41 filter paper is used in aerosol sampling as a medium
for the collection of airborne particles. See, D.H. Lowenthal &
K.A. Rahn, B.T. Storr & J.L. Baker "The Use of Whatman 41 Filter
Papers For High Volume Aerosol Sampling - Further Comments"
Atmos. Environ. 21, 2732-2736.
2 The only provision in Program 5565-S touching on this issue is
the Limitation of Performance and Contractor Obligations clause
that defines 'total contract price' as that term is used in the
Termination for Convenience clause. Rule 4 File, Tab O at 4.
3 The estimate is contained in the Determination of Award section
of the IFB. See Rule 4 File, Tab O at 10.
4 The GPO Cost Directive, Procurement Directive 306.2, April 1,
1988, Contract Cost Principles and Procedures, is incorporated by
reference by GPO Contract Terms, Contract Clauses, �� 19(g), 45.
5 The existence of these cards in Appellant's plant was verified
by the Department of Energy during an inventory conducted at the
request of the OIG. Rule 4 File, Tab I, Appendix A.
6 In addition, the record is unclear whether Appellant actually
received the materials after May 22, 1996. Although the record
contains an invoice from Appellant's supplier dated June 6, 1996,
the supplier certified later that this invoice was a bill for
three previous deliveries, the last of which occurred on May 9,
1996. See, Appellant's Supplement to the Record, April 6, 1999.
7 The contractor's difficulty would have been compounded, should
the Government decide, as it did in May 1995, to place three
orders within a three-day period. See Rule 4 File Tabs S, T, and
U. On two other occasions the Government placed two orders in a
single day. See Rule 4 File, Tabs W, X, Z, AA.
8 Prior to 1985, CDA contract appeals boards were without
jurisdiction to award attorneys fees and litigation costs under
the EAJA. Fidelity Construction Company v. United States, 700
F.2d 1379, 1385 (Fed. Cir. 1983), cert. denied, 464 U.S. 826;
C.S. Smith Training, Inc., DOT CAB No. 1434, 84-3 BCA � 17,700.
9 While the Board cannot order the GPO Office of Inspector
General to conduct an audit, the Board strongly urges that one be
performed in order to provide the Contracting Officer with the
data needed to make an informed final decision.