BOARD OF CONTRACT APPEALS
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON, DC 20401
In the Matter of )
)
the Appeal of )
)
PRINTGRAPHICS ) Docket No. GPOBCA 04-97
Jacket No. 794-074 )
Purchase Order R-8232 )
For the Appellant: Printgraphics, Vandalia, Ohio, by Steve
Kistler, pro se.
For the Government: Kerry L. Miller, Esq., Associate General
Counsel, U.S. Government Printing Office.
Before BERGER, Ad Hoc Chairman.
DECISION AND ORDER1
Printgraphics (Appellant), 1170 Industrial Park Drive,
Vandalia, Ohio, appeals the assessment of excess reprocurement
costs following the termination for default of its contract
identified as Jacket 794-074, Purchase Order R-8232. For the
reasons that follow, the appeal is GRANTED.
I. BACKGROUND
1. On September 10, 1996 the contract, for the production of
46,000 sets of a "Pay Advice Mailer," was awarded to the
Appellant at a price of $1,931.54. Rule 4 File, Tab E.2
2. On December 10, the contract was terminated for default
after the Appellant twice was unable to produce an acceptable
product. Rule 4 File, Tab I.
3. The Contracting Officer conducted a reprocurement by
soliciting quotations from potential vendors, with delivery
required by December 16. Two responses were received. Moore
Business Forms, the only other competitor on the original
competition, submitted a quotation for the same
price-$2,195.58-it had quoted originally. However, it offered
a delivery date of December 27. The other vendor, Specialized
Printed Forms, Inc., quoted a price of $4,997. Rule 4 File,
Tab M. That vendor, during preaward conversations with GPO,
subsequently informed GPO that it could deliver only a portion
of the items by December 16, and would need until December 23
to deliver the rest. When Moore Business Forms, in response
to a GPO inquiry, indicated that it could not deliver a
partial quantity by December 16, GPO contacted the customer
agency to determine if its needs warranted paying the higher
price for a partial delivery by December 16. The agency
responded that it was almost out of the mailers and would need
the partial delivery to meet a December 20 pay day.
Declaration of GPO Contracting Officer Michael J. Atkins
(hereafter Atkins Declaration). A purchase order was then
issued to Specialized Printed Forms, Inc., calling for
delivery of four cartons by December 16 and the remainder by
December 23. Rule 4 File, Tab N.
4. Excess reprocurement costs in the amount of $3,065.46,
representing the difference between the original contract
price and the reprocurement purchase order price of $4,997,
were then assessed against the Appellant. Rule 4 File, Tab O.
II. DISCUSSION
The Appellant does not challenge the termination of its
contract for default; it seeks relief only for what it views
as "excessive charges" for the reprocurement.
The "Default" clause of the contract, GPO Contract Terms,
Solicitation Provisions, Supplemental Specifications, and
Contract Clauses, Contract Clauses, ¶ 20, GPO Pub. 310.2,
effective December 1, 1987 (Rev. 9-88), provides that the
Government, upon terminating a contract for default, "may
acquire, under the terms and in the manner the Contracting
Officer considers appropriate, supplies or services similar to
those terminated, and the contractor will be liable to the
Government for any excess costs for those supplies or
services." The Government has a duty to mitigate the
defaulted contractor's liability, however, and it is therefore
the Government's burden to demonstrate the propriety of the
repurchase and its entitlement to the amount claimed as excess
reprocurement costs. K.C. Printing Co., GPOBCA 2-91 (February
22, 1995), slip op. at 18, 1995 WL 488531. To meet this
burden, the Government must show that (a) the reprocurement
contract was performed under substantially the same terms and
conditions as the original contract; (b) it acted within a
reasonable time following default to reprocure; (c) it
employed a reprocurement method that would maximize
competition under the circumstances; (d) it obtained the
lowest reasonable price; and (e) the work has been completed
and final payment made so that the excess cost assessment is
based upon liability for a sum certain. Gold Country Litho,
GPOBCA 22-93 (September 30, 1996), slip op. at 26, 1996 WL
812956 (quoting from K.C. Printing Co., supra, at 18-19),
aff'd in part and vacated in part, GPOBCA 22-93 (March 17,
1997), slip op., 1997 WL 742506; Univex International, GPOBCA
23-90 (July 5, 1996), slip op. at 4, 1996 WL 812959; Asa L.
Shipman's Sons, Ltd., GPOBCA 06-95 (August 29, 1995), slip op.
at 28, 1995 WL 818784; Sterling Printing, Inc., GPOBCA 20-89
(March 28, 1994), slip op. at 52-53, 1994 WL 275104, recon.
denied, GPOBCA 20-89 (July 5, 1994), slip op., 1994 WL 377592.
There is no question at all on this record with respect to the
Respondent's satisfying criteria (b), (c), and (e). The
record establishes that the reprocurement was conducted
virtually simultaneously with the default3 and on a
competitive basis, with the requirement publicly advertised
and the reprocurement solicitation sent by fax to four
printers believed to be able to perform the work and meet the
delivery schedule, including Moore Business Forms, the only
other responding vendor on the initial procurement. Atkins
Declaration. There is also no question that the reprocurement
contractor delivered the forms and was paid a specific sum, as
set forth in a Declaration of Philip L. Jones, GPO's Chief,
Examination and Billing Branch, Procurement Accounting
Division, Office of the Comptroller.
As for criterion (a), the original and reprocurement contracts
are virtually identical. The only difference is in the
required delivery time. The original contract imposed a 15-
day4 delivery requirement. Rule 4 File, Tab E. The
reprocurement contract, as advertised, imposed a 10-day
delivery requirement, Rule 4 File, Tab M, although as awarded
four cartons were to be delivered within 7 days with the
balance of the mailers to be delivered within 14 days. Rule 4
File, Tab N. Although an expedited delivery schedule can
result in a higher price, such a delivery schedule may become
necessary as a result of the defaulted contractor's
delinquencies. Mattatuck Mfg. Co., GSBCA 4847, 80-1 BCA ¶
14,349; Roger James, ASBCA 18605, 75-1 BCA ¶ 11,054. Because
both the original mailers and reprinted ones furnished by the
Appellant on December 2 were defective, the customer agency
found itself without sufficient forms for its December 20 pay
date; thus, there was a need for delivery of satisfactory
forms before that date, and that need was the direct result of
the Appellant's inability to deliver such forms despite its
two attempts to do so. Under such circumstances, the shorter
delivery requirement in the reprocurement contract was
reasonable and not a material deviation from the original
contract that would defeat the Government's right to the
excess costs of reprocurement. United States v. Warsaw
Elevator Corp., 213 F.2d 517 (2d Cir. 1954); Mattatuck Mfg.
Co., supra; Roger James, supra.
The Respondent's excess cost assessment founders, however, on
the remaining factor, the reasonableness of the reprocurement
price. Although the reprocurement contract was awarded at a
price in excess of 2-1/2 times the defaulted contract price,
the record is devoid of any indication that the Contracting
officer made a reasonable effort to determine the
reasonableness of the reprocurement price offered by
Specialized Printed Forms.
The Board is well aware that a reprocurement price
significantly higher than the original contract price does not
automatically render the reprocurement price unreasonable.
The Government's obligation is to act prudently to obtain the
lowest reasonable price for the Government under the
circumstances, and where it does so, exercising due care and
diligence, a substantially higher reprocurement price may be
considered reasonable. See Gold Country Litho, at 33-34; KC
Printing Co., supra, at 23; Sterling Printing, Inc., supra, at
74. For example, where the next low bidder or offeror on a
procurement is awarded a reprocurement contract at its
original price, in most cases a simple showing of that fact
will satisfy the Government's obligation since the Government
will have acted prudently in accepting such an offer. See,
e.g., Gold Country Litho, supra (reprocurement price 35
percent more than defaulted contract price); Asa L. Shipman's
Sons, Ltd., supra (reprocurement price 39 percent higher than
defaulted contract price).
On the other hand, in other circumstances the Contracting
Officer is expected to make an appropriate effort, typically
through price analysis or negotiation techniques, to determine
if a reprocurement price, whether obtained through
competition or on a sole source basis, is reasonable. See
Solar Labs., Inc., ASBCA 19957, 76-2 BCA ¶ 12,115; Wise
Instrumentation & Control, Inc., NASABCA 1072-12, 75-2 BCA ¶
11,478, recon. denied, 76-1 BCA ¶ 11,641 (rejecting Government
rationale that reprocurement price was reasonable because
unless it paid that price it was faced with not being able to
obtain needed supplies in absence of give-and-take
negotiations or price analysis). Thus, although reprocurement
on a competitive basis typically will produce a reasonable
price, the low bid or offer is not presumptively reasonable,
and the contracting officer is not free to blindly accept the
low offer--some inquiry must be made to establish that the
offered price is in fact reasonable. T.M. Indus., ASBCA
21026, 77-1 BCA ¶ 12,451, recon. denied, 77-2 BCA ¶ 12,756
("The special obligation of respondent to mitigate costs ...
mandates a more thorough consideration of the reasonableness
of bid prices than the easy assumption that the minimal
'competition' between two bidders with widely disparate bid
prices assures a reasonable price."); K.C. Printing Co.,
supra, at 24; Sterling Printing, Inc., supra, at 76-77. In
the absence of such an inquiry, the assessment of excess costs
cannot stand. See Sterling Printing, Inc., supra (appeal of
assessment of excess costs granted where, among other things,
contracting officer accepted low bid on competition for
reprocurement without making any inquiry as to its
reasonableness); K.C. Printing, supra (appeal of excess cost
assessment denied where contracting officer accepted low bid
on reprocurement competition but, in response to appeal,
rescinded assessment of $13,640 based on that bid and changed
it to $4,201, the difference between the defaulted contract
price and the price of the next acceptable bid under the
original procurement).
Here, although Moore Business Forms, the runner-up on the
original procurement, offered its same price on the
reprocurement, the Contracting Officer did not issue a
purchase order to that company because Moore could not meet
the delivery requirements. Instead, the Contracting Officer
issued a purchase order to the only other company that
responded to the reprocurement solicitation at a price that
was not only more than 2-1/2 times the defaulted contract
price but also more than twice the price offered by Moore.
The record does not show, however, that the Contracting
Officer attempted to determine the basis for Specialized
Printed Form's significantly higher price, or, despite
discussing that company's intended delivery schedule,
attempted to even discuss its price or negotiate for a lower
price. The record establishes only that the Contracting
Officer sought guidance from the customer agency as to its
delivery needs and willingness to pay the higher price. As
indicated above, the Contracting Officer was not free to rely
on the fact that he conducted a competition or that a refusal
to pay Specialized Printed Forms its quoted price could mean
he would not be able to obtain the mailers when needed. Wise
Instrumentation & Control, Inc., supra; T.M. Indus., supra.
For purposes of the mitigation rule, he was required to make
some sort of inquiry to ensure that the reprocurement price
was a reasonable one under the circumstances. Not only did he
fail to do so, but that failure is particularly troublesome in
light of the fact that the reprocurement contractor, while
submitting a quotation that on its face met GPO's delivery
requirements, backed away from those delivery terms and as a
result received a purchase order that, except for four cartons
of mailers, allowed the contractor a longer delivery period
without any change in the price quoted. The Respondent offers
no explanation as to why it considered the quoted price based
on a specified delivery requirement to be reasonable for
modified delivery terms that overall were less stringent than
the specified requirement.5
The Board notes that on the abstract of quotations for the
reprocurement, Rule 4 File, Tab M, someone has written "price
fair & reasonable, based on prev. unit rate of $.10/set." The
Respondent has provided no information regarding such a
previous procurement. Thus, the Board is unable to determine
when the prior procurement took place, what quantity of forms
was involved, what the delivery terms were, and whether other
terms and conditions were identical or similar to or
significantly different from those in the reprocurement
contract. In short, this vague reference to a prior
procurement falls far short of establishing the reasonableness
of the reprocurement price.
Accordingly, the Board concludes that the Respondent has not
met its burden of showing that it obtained the lowest
reasonable reprocurement price, and the Respondent's excess
cost assessment must be rejected for that reason. There is no
question, however, that the Respondent incurred excess
reprocurement costs. In cases such as this, where the
Respondent fails in its burden to establish that the
reprocurement contract price represents a proper basis for
assessing costs against the defaulted contractor, the Board
has taken the position that the appropriate course of action
is to reduce the assessment, rather than eliminate it
entirely, if the record provides a fair basis for calculating
what the assessment should be. See Sterling Printing, Inc.,
supra, at 84. As the Board said in the cited case, "[w]here
... there is not enough evidence to determine if the winning
reprocurement bid was reasonable, the most common method used
for recalculating excess costs is simply to take the
difference between the original contract price and the second
low bid on the original contract." Id. at 84. That method is
appropriate here. Accordingly, the Respondent is entitled to
recover excess costs in the amount of $264.04, representing
the difference between the Appellant's contract price and the
price offered by Moore Business Forms both on the original
procurement and the reprocurement.
III. ORDER
The appeal is GRANTED. The matter is remanded to the
Contracting Officer for revision of the assessment of the
excess costs of reprocurement from $3,065.46 to $264.04.
It is so Ordered.
November 12, 1998 Ronald Berger
Ad Hoc Chairman
GPO Board of Contract Appeals
_______________
1 The 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 VATEX America, GPOBCA 08-96
(October 14, 1998), slip op. at 1 n.1, 1998 WL 750866; Daniels
Press, Inc., GPOBCA 18-95 (September 23, 1998), slip op. at 3
n.3, 1998 WL 750875; 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 19, 1997. It is referred to as the
Rule 4 File, with an appropriate Tab letter also indicated. The
Rule 4 File consists of 16 tabs identified as Tab A through Tab
P.
3 The Contracting Officer acted very expeditiously in
initiating and conducting the reprocurement after the decision
was made to terminate for default, soliciting quotations for the
reprocurement (on December 6, 1996) and issuing a purchase order
to the reprocurement contractor (on December 9) even before
formally issuing the terminating for default notice (on December
10). The Board has previously recognized the propriety of such a
time sequence. See Rose Printing, Inc., GPOBCA 32-95 (December
16, 1996), slip op. at 39-42, 1996 WL 812880.
4 For both the original and the reprocurement contracts the
Board computes the delivery times as running from the specified
date that Government material was to be furnished to the
contractor to the date delivery at destination was required.
5 There is also no evidence that the Contracting Officer
considered the possibility of awarding two reprocurement
contracts, one to satisfy its most urgent needs for the customer
agency's upcoming pay date and another for the remaining
quantity. In this regard, the delivery date offered by Moore
Business Forms was only a few days later than the date the
Respondent agreed to for the total quantity other than the four
cartons to be delivered on December 16, which suggests the
possibility that the customer agency's overall needs could have
been satisfied with one delivery from Specialized Printed Forms
for a relatively small quantity to satisfy its immediate needs
and another delivery a short time later from Moore Business Forms
for the remainder of the quantity for which the Respondent
originally contracted. While the Board is in no position to
state that Specialized Printed Forms would have agreed to deliver
only a relatively small quantity or that if it did so its price
would not have increased, the point is that the Contracting
Officer, as part of his obligation to mitigate reprocurement
costs, should have explored the possibility that splitting the
reprocurement quantity into two contracts would have been a less
costly approach. Although the Respondent may not routinely make
multiple awards for partial quantities of a one-time fixed
quantity requirement (as opposed to repetitive but less specific
requirements for which term contracts are awarded, see, e.g.,
Swanson Printing Co., GPOBCA 27-94, 27-94A (November 18, 1996),
slip op., 1996 WL 812958), the Respondent is not precluded from
doing so, particularly where, as here, it utilizes small purchase
procedures.