U.S. GOVERNMENT PRINTING OFFICE
BOARD OF CONTRACT APPEALS
The Appeals of AUTOMATED DATATRON, INC.
Docket Nos. GPO BCA 25-87 & 26-87
April 12, 1989
MICHAEL F. DiMARIO
Administrative Law Judge
OPINION RESPECTING LEGAL ISSUES AND
ORDER
DENYING APPELLANT'S MOTION FOR PROTECTIVE ORDER AND
GRANTING RESPONDENT'S MOTION TO COMPEL
On May 18, 1988, this Board held a hearing on Appellant's
"Motion for a Protective Order" respecting certain discovery
requests made by Respondent. The Board at that time, pursuant
to the request of Appellant, agreed to hold a decision on the
Motion in abeyance pending resolution of certain legal
questions underlying Appellant's theory of recovery. In this
regard, the parties were asked to brief the following
questions:
1. Whether the Government, if it in fact knowingly accepted
nonconforming goods during the earlier term of the contract, is
now estopped from rejecting nonconforming goods for the remainder
of the contract.
2. If the Government has no knowledge whatsoever that they were
nonconforming, can the Government now, having accepted
nonconforming goods without knowledge, reject them for the
remainder of the contract?
3. To what degree can the Government require strict application
of its specifications? Is two-tenths of a millimeter a
reasonable variation from the specification?
4. At what point is the Government estopped from rejecting goods
which have been delivered to it and for which it has made
payment?
It is the sense of the Board that the following Synopsis of
Law, derived and composited exclusively from the submissions
of the parties, fairly represents the applicable law1 which
must be applied to the facts of Appellant's various pending
claims in order to ascertain their merits. The wording is
largely that of the parties sans their gratuitous arguments
respecting the underlying matter in dispute. Accordingly, the
citations have not been verified by the Board.
Synopsis of Law
1. The Government is generally entitled to require strict
compliance with its contract specifications, including those
of fixed-price supply contracts, Jefferson Construction Co. v.
United States, 151 Ct. Cl. 75 (1960); Red Circle Corp. v.
United States, 185 Ct. Cl. 1, 8 (1968); American Electric
Contracting Corp. v. United States, 579 F.2d 602, 608 (1978);
Dependable Printing Company, Inc., GPO BCA 5-84 (1985), and
can enforce this right at any time prior to final acceptance;
Maizel Laboratories, Inc., ASBCA 8597, 1963 BCA � 3898, stated
at 19,351. Strict compliance is especially appropriate where
the specifications are clear, unambiguous, and objectively
ascertainable by the contractor; Herley Industries. Inc., 72-2
BCA � 9,749 (1972) mot. for reconsid. denied, 73-1 BCA �
9,922 (1973); Arrow Lacquer Corp., 58-2 BCA � 2,002 (1958). A
principal purpose of
the rule is to ensure that the integrity of the competitive
bidding system will not be compromised, Ideal Restaurant Supply
Co., VACAB 570, 67-1 BCA � 6237 (1967).
Specifications are designed to elicit and define the essential
qualities necessary in the procurement of a product. Strict
compliance or conformance with specifications or contract
requirements means that the Government has a right to get
exactly what it asked for in the solicitation for contractual
performance. Nichols & Co. v. United States, 156 Ct. Cl. 358
(1962), cert. denied, 371 U.S. 959 (1963); Rohr Industries,
Inc., 82-1 BCA � 15,732. Thus, a contractor must comply with
the Government's requirements and cannot substitute its views
for those of the Government, Maxwell Dynamometer Co. v. United
States, 386 F.2d 855 (Ct. Cl. 1967), even if the substitution
would result in a superior product. Nichols & Co. v. United
States, supra. Likewise, a contractor's view that a particular
specification's high tolerance was not needed is irrelevant,
even if the view is proven correct and the specification in
question is found to add nothing to the value of the product
involved. Gramercy Machine Corp. v. United States, 228 Ct.
Cl. 825 (1981) aff'g 74-1 BCA � 10,611 (1974).
2. Inspection is the Government's primary means of ensuring
that it receives what it bargained for. 2 B. Nash & J.
Cibinic, Federal Procurement Law, 1552 (1980). However,
inspection is not meant to replace the contractor's required
quality controls.2 The right to inspect is clearly for the
benefit of the Government and creates no Government duty to
inspect. Kaminer Construction Corp. v. United States, 488 F.2d
980 (Ct. Cl. 1973); Penguin Industries, Inc. v. United States,
530 F.2d 934 (Ct.Cl. 1976).3 Indeed, it has been held that even
the failure of a Government inspector to notify a contractor of
known defects does not relieve the contractor of his primary
responsibility of ensuring compliance with contract
specifications. Rosendin Electric, Inc., 81-1 BCA � 14,827
(1980).
3. Strict compliance can be enforced either by rejecting the
defective product or, if for reasons of economy or urgency
acceptance is in the Government's best interest, by requiring
a price reduction for nonconforming work. The Government is
not required to accept nonconforming supplies, and the right
to refuse the product is the prerogative of the procuring
agency.
Famous Model Co., ASBCA No. 12526, 68-1 BCA � 6,902 (1968).
Therefore, a contractor has no contractual right to force the
Government to accept defective products at a reduced price, even
if the defects are relatively minor, Cherry Meat Packers, Inc.,
ASBCA No. 8974, 1963 BCA � 3,937 (1973), notwithstanding the fact
that on occasion a Board of Contract Appeals might hold, as a
matter of its delegated administrative discretion (rather than
law), that a particular deviation from specifications was too
minor to warrant spending significant additional funds by the
Government for its correction, Bruce Anderson Co., Inc., 83-2 BCA
� 84,057; See also John McShain, Inc. v. United States, 412 F.2d
1281 (1969); or that "[I]n the real world of day-to-day
Government contracting and administration, alterations and
deviations from initial express specifications are frequent, if
not a matter of course." See Stockwell Rubber Co., Inc., 76-2 BCA
� 12,130 (1976).
4. In general, when the Government accepts deliveries of
nonconforming supplies under a contract, it does not waive
specifications for subsequent deliveries under the same
contract. DeeLite Indus., Inc., 71-1 BCA � 8,788, affirmed
on rehearing, 72-1, BCA � 9,258. (Cf. General Motors Corp.,
72-1 BCA � 9405 at 43,678.) Likewise, neither acceptance of
defective goods under previous contracts for the same item
with the current contractor, Doyle Shirt Mfg. Corp. v. United
States, 462 F.2d 1150 (Ct. Cl. 1972); Respiration Technology
Corp., 77-1 BCA � 12,345; Shannon Luminous Materials Co., 71-2
BCA � 8,997; nor with other contractors, McDowell & Rapp
Construction
Co., 73-1 BCA � 9,834 (1972); R&M Mechanical Contractors, Inc.,
76-2 BCA � 12,084, constitute conduct which alone can form the
basis of a waiver.
Moreover, the Government is not estopped to reject defective
work because of a prior, erroneous "approval" or "acceptance"
by one of its inspectors, W.L. Spruill & Co., 71-2 BCA �
8,930 (1971) , or because of the failure of the inspector to
require correction of defects. Penn Construction Co., 66-2,
BCA � 5,800; Ruscon Construction, 65-2 BCA � 5,146; Robert
McMullan & Sons, Inc., 77-1, BCA � 12,456; Richard E.
Alexander Co., 79-2 BCA � 14,034. Nor can the Government be
estopped due to inadvertent acceptance of nonconforming goods
without knowledge of the nonconformity. Castle Construction
Co., 84-1, BCA � 17,041 (1983).
5. However, "[W]hen the government enters the marketplace . .
. and puts itself in the position of one of its citizens
seeking to enforce a contractual right . . . it submits to the
same rules which govern legal relations among its subjects."
See McQuagge v. United States, 197 F. Supp. 460 (W.D.La. 1961)
and cases cited therein. Accordingly, the strict enforcement
rule falls when the Government waives or is otherwise estopped
from enforcing its specifications. Inet Power, NASABCA
566-23, 68-1 BCA � 7,020 (1968).
6. In general, the Government will be estopped in
circumstances where a board or court concludes that it would
be unfair to allow the Government to enforce a contract right
after a contractor has relied on an earlier waiver of that
contract right based upon the well settled contract principle
that when one party acts in a manner that causes another party
to rely on that conduct to his or her detriment, the former
party is prevented or estopped from repudiating the effects of
those actions. David J. Joseph Co. v. United States, 82 F.
Supp. 345, 113 Ct. Cl. 3. In this regard, the 9th Circuit in
United States v. Georgia Pacific Company, 421 F.2d 92, 104
(9th Cir. 1970), set out the four elements or requirements
necessary to estop Government action: (a) The Government must
know the facts; (b) The Government must intend or induce the
contractor to believe that it intended certain acts to be
relied upon; (c) The contractor must be unaware of the true
facts; and (d) The contractor must rely on the Government's
actions to its detriment.
7. Thus, to prevail on a theory of waiver or estoppel based
upon a prior acceptance of defective goods, a party must prove
that: (a) It provided a nonconforming product; (b) The
Government had actual knowledge of the nonconformity. Castle
Construction Co., supra. (However, actual knowledge can be
imputed from the facts. See Gresham & Company, Inc. v. United
States, 470 F.2d 556 (Ct. Cl. 1972) citing Chernick v. United
States, 372 F.2d 492, 178 Ct. Cl. 498 (1967) and other
cases.); (c) There was a direct and unambiguous communication
between the parties with regard to the acceptance of
nonconforming goods.
Joseph Morton Co., 78-1 BCA � 13,173 (1978); (d) The waiver of a
contract provision was made by a responsible officer assigned the
function4, not just any Federal employee whose work happens to be
connected with the contract. Deloro Smelting & Refining Co. v.
United States, 317 F.2d 382 (Ct. Cl. 1963); (e) The Government
employee waiving the specification must have actual authority to
do so. Apparent authority will not bind the Government. Drake &
Piper. Inc., 65-2 BCA � 4,868; and (f) The waiver must have been
communicated to Appellant with an intent to induce Appellant to
believe that the Government intended Appellant to rely on the
waiver. Merchant's National Bank of Mobile v. United States, 231
Ct. Cl. 563 (1982).
It has been said that a "transaction, though . . . originally
impeachable, becomes unimpeachable . . . when a party with
knowledge or the means of knowledge of his rights and of the
material facts does what amounts to a recognition of the
transaction . . . ." Harvey Radio Laboratories, Inc. v. United
States, 115 F. Supp. 44, at 449; 126 Ct. Cl. 383 at 391
(1953), cert. denied, 346 U.S. 937, 74 S.Ct. 377, 98 L.Ed. 425
(1954). Accordingly,
Where work is accepted . . . under such circumstances that
knowledge of its imperfect performance may be imputed, the
acceptance will generally be deemed a waiver of the
defective performance. But this rule does not apply to latent
defects. The acceptance of work which has been defectively done,
the defects being unknown and not discoverable by inspection,
does not amount to a waiver of the imperfect performance.
City of Seaside v. Randles, 92 Or. 650, 180 p. 319, 324 (Or Sup.
Ct. 1919).
[W]hen the Government with full knowledge of a contractor's
quality control procedure permits the contractor to perform the
contract in accordance with such procedure, either as
constituting compliance with the quality control requirements or
an authorized deviation from such requirements, this results in a
waiver of any objections the Government might otherwise have
raised to the contractor's performance up to the time the
Government put the contractor on notice that its procedure is
unsatisfactory to the Government where, as here, retroactive
compliance is impossible.
Maizel Laboratories, Inc., ASBCA 8597, 1963 BCA � 3898 at 19,351.
8. Moreover, even where the Government has no knowledge that
certain goods were nonconforming, it may still be precluded,
under certain facts and circumstances, from later rejecting
those nonconforming goods after having accepted them. For
example, not all acceptances are made formally, and the
Government is often held to have impliedly accepted the work.
Whether an implied acceptance had occurred depends, of course,
upon the facts of each individual case. In this regard it has
been held that implied acceptance occurs when a contractor
informs the Government of its inability to meet specifications
and the Government nonetheless exhorts the contractor to
continue performance, Inet Power, supra, at 32,440, or when
the Government takes the contractor's work and uses it without
complaint or reservation of right, Silent Hoist & Crane Co.,
ASBCA 9872, 1964 BCA � 4,488, or where the supplies are retained
an unreasonable length of time by the Government without
acceptance or rejection, J.R. Simplot Co., ASBCA 3952 59-1 BCA �
2,112 (1959); Cudahy Packing Co., 109 Ct. Cl. 833 (1948), or when
there is unreasonable delay in issuing rejection, Max Bauer Meat
Packer, Inc. v. United States, 198 Ct. Cl. 97, 458 F.2d 88. (See
also UCC � 2-602(1) which states that acceptance can occur when
a buyer neglects to make an effective rejection in a timely
fashion.)
A contract requirement for the benefit of a party becomes dead
if that party knowingly fails to exact its performance, over
such an extended period, that the other side reasonably
believes the requirement to be dead. Where a party has
administered an initially unambiguous contract in such a way
as to give a reasonably intelligent and alert opposite party
the impression that a contract requirement has been suspended
or waived, the requirement cannot be suddenly revived in the
future to the prejudice of a party who has changed his
position in reliance on supposed suspension. See Gresham &
Company, supra. 470 F.2d 542 at 554.
Moreover, "where a contract has been performed and a
stipulated consideration has been paid, the general
presumption is that the transaction is closed and this
presumption operates against the government as well as against
private individuals." McQuagge v. United States, supra. See
Dubois Construction Corp. v. United States, 98 F. Supp. 590,
120 Ct. Cl. 139 (1951) and
Poole Engineering & Machine Co. v. United States, 57 Ct. Cl. 232,
234. But a contract's "Warranty" clause5 or the discovery of
latent defects, City of Seaside v. Randles. supra, may give the
Government additional rights which survive acceptance.
9. Once strict compliance is waived, a contractor is entitled
to reasonably adequate notice that the Government would no
longer approve noncompliance. Litton Systems Inc. v. United
States, 449 F.2d 392, 401 (Ct. Cl. 1971). Additionally,
depending upon the circumstances, once the Government demands
strict compliance after such waiver, the contractor may be
entitled to an equitable adjustment. Gresham & Co. Inc. v.
United States, 470 F.2d 542 (Ct. Cl. 1972); Herley Industries,
Inc., 81-1 BCA � 15,155 (1981). For example, in General
Motors Corp.. supra, the Government contended that it had a
right to still reject nonconforming products delivered after
an initial set of products had been delivered and accepted
under the same contract. The Board, in response, pointed out
however, that because the Government was sanctioning the
continuation of production with the knowledge of the defect in
the items tendered for delivery, the contractor was entitled
to an equitable
adjustment.
10. While Appellant is entitled to present evidence of bad
faith on the part of the Government, National Factors, Inc. v.
United States, 492 F.2d 1383, 1385-86 (Ct. Cl. 1974); see also
Allied Materials & Equipment Co. Inc. v. United States, 569
F.2d 62, 565 (Ct. Cl. 1978), such evidence must show a
specific intent to injure Appellant in order for it to be
considered by this Board or a court of law, Kalvar Corp. v.
United States, 543 F.2d 1298, 1302 (Ct. Cl. 1976), cert.
denied, 434 U.S. 830 (1977). There is an inherent
presumption that public officials act in good faith. Knotts
v. United States, 121 F. Supp. 630, 631 (Ct. Cl. 1954).
OPINION
Given the above "Synopsis of Law," it is the opinion of this
Board that:
1. The Government may be estopped from strictly enforcing
Program B-154-S length specification for diazo duplicate
microfiche if Appellant proves, by a preponderance of
substantial evidence, that the CO, as the responsible officer
having actual authority to waive contract specifications under
the contract, had actual or imputed knowledge of the
nonconformance of the microfiche as to its length, and did
waive the diazo microfiche length limitation provisions of
such specification by actual or implied acceptance of such
microfiche, and did communicate such acceptance to Appellant
in such a clear and unambiguous manner as
to convey the sense of waiver to Appellant in order to induce
continued performance in accordance with such waiver; and that
Appellant, in reliance upon such communication, did in fact
continue its performance and will be injured by the Government's
action if estoppel is not granted.
2. The rule of finality may be applicable to Respondent's
attempt to recover payment from Appellant made by check dated
more than 120 days prior to Respondent's demand for strict
compliance, unless the Respondent proves, by a preponderance
of substantial evidence, that the defects alleged were latent
and that the demand for strict compliance was made within a
reasonable time after discovery of the defects.
3. Appellant may be entitled to be paid for those diazo
microfiche which it delivered to Respondent which it alleges
were collaterally rejected by Respondent upon a finding of
rejectability of silver master and silver duplicate microfiche
because of fingerprints, scratches, or other nonexcessive
length defects, provided that Appellant proves, by a
preponderance of substantial evidence, that the acceptable
quality level requirements of the " Quality Assurance Through
Attributes Program" (QATAP) contract provisions were not
adhered to by Respondent respecting the rejection of such
diazo microfiche and providing further that it can show that
it timely appealed the rejection of such microfiche within the
time requirements set in
the contract for such appeals.
A more definitive ruling upon the legal question raised by
Appellant cannot be given in the abstract but must be deferred
until the presentation of factual evidence by the parties.
ORDER
The Board has reviewed the transcript of the hearing and
Appellant's submission respecting its "Motion For A Protective
Order" and finds no basis whatsoever upon which to grant such
Motion. This Board follows the discovery rules of the Federal
Rules of Civil Procedure, FRCP 26-37, which serve as a device
to narrow and clarify the basic issues and as a device for
ascertaining the facts or information as to the existence or
whereabouts of facts relative to these issues. Respondent has
the right to obtain the fullest possible knowledge of the
facts relating to the issues before trial limited only by
privilege and relevancy standards. Hickman v. Taylor, 329
U.S. 495, 67 S. Ct. 385 (1947). These discovery provisions
are to be broadly and liberally construed to effect their
purpose of adequately informing the litigants. Schlagenhauf
v. Holder, 379 U.S. 104, 85 S. Ct. 234 (1964); Herbert v.
Lando, 441 U.S. 153, 99 S. Ct. 1635 (1979).
FRCP 26(b)(1) sets forth the general rule that the parties may
obtain discovery regarding any matter not privileged which is
relevant to the subject matter involved. The requirement of
relevancy must be const rued liberally with common sense.
Discovery should be allowed unless it is clear that the
information sought can have no possible bearing on the subject
matter. La Chemise Lacoste v. Alligator Co., (1973 DC Del.), 60
FRD 164. Rule 26(b)(1) has been construed broadly to encompass
any matter that bears on or reasonably could lead to other
matters that could bear on, any issue that is or maybe in a case.
Oppenhimer Fund, Inc. v. Sanders, 437 U.S. 340, 98 S. Ct. 2380
(1978).
An objection on the grounds of undue burden is seldom
sustained where the information sought lies wholly within the
knowledge of one party and will not be revealed at all unless
that party bears the burden of disclosing it. United States
v. 216 Bottles, (1965, ED NY), 36 FRD 695; King v. Georgia
Power Co., (1970, ND Ga.), 50 FRD 134; Kainz v. Anhueser
Busch, Inc., (1954, DC Ill.), 15 FRD 242; Kerr-McGee Corp. v.
Texas Oklahoma Express, Inc., (1967, WD Okla.), 43 FRD 336.
A party cannot simply state that interrogatories are
burdensome or oppressive. The Appellant must, and did not,
make a specific, concise showing of substantive reasons why
the interrogatories should not be answered. Claims of burden
that are wholly conclusionary should not prevail. Flanagan v.
Travelers Insurance Co., (1986, WD NY), 111 FRD 42; Trabon
Engineering Corp. v. Eaton Mfg. Co., (1964, ND OH), 37 FRD 51.
Resnick v. American Dental Association, (1981, ND Ill.), 90 FRD
530.
In determining whether discovery is unduly burdensome, courts
take into account the needs of the case, the amount in
controversy, and the importance of the issues at stake. FRCP
26(a), 26(b)(1)(iii). Courts weigh the burden to the
producing party against the need of the party seeking the
information. Halder v. International Tel. & Tel. Co., (1977,
ED NY), 75 FRP 657; Marshall v. S. K. Williams Co., (1978, ED
Wisc.), 462 F. Supp. 722. The fact that interrogatories
require a degree of work, research, and expense do not
automatically render them objectionable. A party cannot
complain merely because in order to answer interrogatories it
must compile information within its control or consult
documents. Rogers v. Tri-State Materials Corp., (1970, ND
W.Va.) , 51 FRD 234; Erone Corp. v. Skouras Theatres Corp.,
(1958, SD NY), 22 FRD 494. Respondent must have the
information requested in order to answer Appellant's
Complaint. It is the Board's opinion that the information
requested, with the exception of Interrogatory 12(c), is
wholly within the knowledge of Appellant and will not be known
to Respondent unless Appellant bears the burden. The amount
in controversy is substantial and the issues are numerous.
Upon disclosure by Appellant, it may be necessary for
Respondent to file an amended Answer.
The information requested is not overly broad in scope or
period of time. Respondent has limited its requests to basic
and relevant information which bears directly on the issues in
this subject appeal. Appellant must, and did not, make a
specific, concise showing of which request(s) in Interrogatory
1 were overbroad. Conclusions, again, should not prevail.
Further, discovery may be limited to matters encompassed by a
stated period of time. In Schenker v. Pepperidge Farm, Inc.,
(1963, SD NY), 7 F Serv 2nd 684, the court permitted discovery
of matters encompassed by a time period beginning two years
before the period of statutory limitation. Respondent's time
frame is not unreasonable given the circumstances and issues
involved in this appeal.
Accordingly, this Board denies Appellant's "Motion For A
Protective Order" and grants Respondent's "Motion to Compel,"
with the single exception that Appellant need not comply with
Interrogatory 12(c).
IT IS SO ORDERED.
_______________
lSee generally 1 B. Nash & J. Cibinic, Federal Procurement
Law, 71-91 (Finality and Estoppel) (1980); Id. Vol. 2, Chapter
23, 1586-1597 (Inspection, Acceptance, and Warranties).
2The contract provides under Program B154-S, page 2 of the
specifications, that the contractor must: [P]rovide and
maintain, within his own organization, an independent quality
assurance organization of sufficient size and expertise to
monitor the operations performed and inspect the products of
each operation to a degree and extent that will insure the
Government 's quality assurance, inspection, and acceptance
provisions herein are [met]. The contractor shall perform or
have performed the process controls, inspections and tests
required to substantiate that the supplies provided under the
contract conform to the specifications and contract
requirements.
3The contract provides under GPO "Contract Terms No. 1,"
Article 2-12 (c) that: [F]ailure to inspect and accept or
reject the supplies shall neither relieve the contractor from
responsibility for such supplies as are not in accordance with
the contract requirements nor impose liability on the
Government therefor."
4The contract provides under GPO "Contract Terms No. 1,"
Article 2-2, that: "The Contracting Officer may at any time
by a written order, and without notice to the sureties, make
changes, within the general scope of the contract in any one
of the following: (i) drawings, designs, or specifications;
(ii) method of shipment or packing; and (iii) place of
delivery."
5The contract provides under GPO "Contract Terms No. 1,"
Article 2-13, that: (a) "Notwithstanding inspection and
acceptance by the Government, acceptance by the Government
implied at law, payment, or any provision of the contract
regarding the conclusiveness thereof, the contractor warrants
for a period of 120 days from the date of the check tendered
as final payment that: (i) all supplies furnished under the
contract are free from defect in material and workmanship and
conform to the specifications and all other requirements of
the contract; . . . ."