UNITED STATES GOVERNMENT PRINTING OFFICE
BOARD OF CONTRACT APPEALS
Appeal of Cloverleaf Enterprises, Inc.
Decision dated May 9, 1980
JAY E. EISEN, Chairman
JEFFREY L. BOWMAN, Member
JOHN D. BENNETT, Member
Panel 20-79
I. Introduction
This decision concerns an appeal filed on September 10, 1979 by
Cloverleaf Enterprises, Incorporated, 5819 Seminary Road, Baileys
Crossroads, Virginia, 22041, hereafter referred to as the
contractor, under the disputes clause of the contract, Article
29, United States Government Printing Office, Contract Terms No.
1, dated July 1, 1943 revised July 15, 1970.
The appeal came before the Board on February 13, 1980, following
a decision by the Contracting Officer on August 16, 1979, after
the Contracting Officer and the Contractor were unable to agree
on the amount of termination costs, subsequent to the termination
of the contract by the Government Printing Office for the
convenience of the Government. The appellant submitted its
notice of appeal by letter dated September 10, 1979. The
appellant requested an informal hearing in accordance with
Paragraph 13, Government Printing Office Instruction 110.10, June
6, 1979. (Board of Contract Appeals Rules of Practice and
Procedure). Accordingly, no verbatim transcript was prepared.
W. McCauley Arnold, Esquire and Laurie L. Dolson, Esquire
appeared as the appellant's counsel. Mr. Joseph Laws, President
of Cloverleaf Enterprises was present. James Lane, Esq., Office
of General Counsel, GPO, appeared for the Contracting Officer,
Mr. Raymond A. Hartman, who also was present at the hearing.
II. Issue Presented
(a) This is an appeal from an unilateral determination by the
contracting officer of the amount of settlement upon termination
of contract for the convenience of the Government.
(b) The contractor submitted a claim at the informal hearing for
damages in the amount of approximately $84,100 against the
Government representing net profit based on the estimated cost of
production for one year based on breach of contract.
III. Finding of Fact
1. On November 1, 1976, Cloverleaf Enterprises, Incorporated
was swarded by the U.S. Government Printing Office, Regional
Procurement Office, Navy Yard, Washington, D.C. a requirement
type contract for the production of Tech Reports under the title
of the Published Search Program 1345-S, Purchase Order D-2761
for the Department of Commerce/NTIS, 5285 Port Royal Road,
Springfield, Virginia. Program 1345-S, a term contract covered
the period beginning November 1, 1976, and ending October 31,
1977, at an estimated cost of $841,009.35.
2. The contract under "Specifications" contained a section
relating to frequency of print orders which reads as follows:
"FREQUENCY OF ISSUE: No guarantee can be made, but it is
anticipated that there will be 11 orders per day (during each
working day of the year) for Tech Reports, 6 total orders for
Tech Report covers (1 order every 2 months) and 6 total orders (1
order every 2 months) for Inserts.
* NOTE: Covers for Tech Reports will be ordered 6 times per year
with an average of 10,000 copies per order" (Exhibit 2)
3. The specification provided that GPO Form 198, U.S. Government
Printing Office Contract Terms No. 1 approved July 1, 1943 (Rev.
7-15-70) is incorporated by reference as part of the contract.
4. Article 16. Contract Terms No. 1, Termination, convenience of
the Government provides the following:
'The contract may be terminated by the Government, even though
the contractor be not in default, by a notice in writing relative
thereto from the contracting officer to the contractor. In case
such notice be given the contractor, the contract shall terminate
ipso facto with the giving of said notice. Upon such termination
the contractor shall forthwith upon the call, deliver to the
Government, in their then state of completion, all articles or
materials not previously delivered, and all work in process, and
the Government shall pay the contractor all amounts, if any,
remaining due and unpaid under the contract for those articles
completed, delivered, and accepted by the Government; and the
Government shall also pay the contractor for all partially
completed articles, materials, work in process, and things to be
so delivered upon acceptance by the Government of the
contractor's proposal for settlement on Form R-2227, or at the
option of the Government by an audit conducted by or for the
Government or by change order issued by the contracting officer.
The amount of settlement on the basis of audit, when so
determined, will be computed as follows:
'(a) There shall be determined by an audit, the total net cost of
all partially completed work performed under the contract.
'(b) The contractor and the contracting officer, based on the
foregoing audit, shall agree upon an amount representing the
total net cost to the contractor for the entire contract.
'(c) The total net cost of the entire contract as agreed upon
will be subtracted from the total contract price. The difference
will furnish the margin of profit had the contract been
completed. The percentage of the partially completed work will
be determined and such percentage will be used to compute the
additional amount to be added to the net cost of partially
completed work in settlement.
'The amount of settlement on the basis of a change order issued
by the contracting officer will be determined as follows: Review
will be made by the contracting officer of the cost of the
completed work. The contracting officer and the contractor will
agree as to the proper compensation for the work performed in
full and final settlement of all rights arising from the
contract. This change order will show the exact amount to be
paid to the contractor and will be the basis for submitting his
billing to the Government Printing Office for the work involved.
'Upon the making of said payments all obligations of the
government to make further payments or to carry out other
undertakings hereunder shall cease forthwith and forever. except
that all rights and obligations of the respective parties under
the articles, if any, of this contract applicable to patents
shall remain in full force and effect."
5. Article 29. Contract Terms No. 1, Disputes provides the
following:
"Except as otherwise provided in this contract, any dispute
concerning a question of fact arising under this contract which
is not disposed of by agreement shall be decided by the
Contracting Officer, who shall reduce his decision to writing and
mail or otherwise furnish a copy thereof to the Contractor. The
decision of the contracting Officer shall be final and conclusive
unless, within 30 days from the date of receipt of such copy, the
Contractor ails or otherwise furnishes to the contracting Officer
a written appeal addressed to the Public Printer. The decision
of the Public Printer or his duly authorized representative for
the determination of such appeals shall be final and conclusive
unless determined by a court of competent jurisdiction to have
been fraudulent, or capricious, or arbitrary, or so grossly
erroneous as necessarily to imply bad faith, or not supported by
substantial evidence. In connection with any appeal proceeding
under this clause, the Contractor shall be afforded an
opportunity to be heard and to offer evidence in support of its
appeal. Pending final decision of a dispute hereunder, the
contractor shall proceed diligently with the performance of the
contract and in accordance with the Contracting Officer's
decision.
'(a) This 'Disputes' clause does not preclude consideration of
law questions in connection with decisions provided for in the
paragraph above: Provided, That nothing in this contract shall
be construed as making final the decision of any administrative
official, representative, or board on a question of law."
6. The Department of Commerce, on November 22, 1976 requested
that Program 1345-S, Published Search Program be cancelled,
because the contract price is more than three times what they
were paying for the same publication produced.at Springfield,
Virginia, National Technical Information Service. The Department
supported their request by data and computations that concluded
that the contract cost of a book amounted to $14.07 in comparison
to their cost of $4.07. The request for cancellation of the
contract was made prior to the order of any of the items called
for in the contract. Based on the difference in the cost of a
completed book, the National Technical Information Service,
Department of Commerce elected not to use the services of the
contractor and to produce the job in their own authorized
printing plant. (Exhibit 4)
7. The contracting officer, at the GPO, Regional Printing
Office, on December 13, 1976, recommended to the GPO Contract
Review Board that Program 1345-S be terminated for the
convenience of the Government. He supplied estimates that
indicated that the average individual order of 184 pages, 21
copies, would cost $294.40 on the contract, and that the
estimated cost of the same order would cost $200.53 if produced
at the GPO, Departmental Service Office, Navy Yard, Washington,
D.C. the Contract Review Board concurred in the contracting
officers recommendation. The contracting officer notified the
contractor on December 13, 1976 that Program 1345-S, Purchase
Order D-2761 was to be terminated for the convenience and in the
best interests of the Government. (Exhibits 5, 6)
8. Under the date of December 26, 1978, after prior
correspondence by appellant's counsel, the appellant prepared and
submitted to the contracting officer a settlement proposal which
called for the payment of $94,705.00. This total was made up of
the following items:
Purchase by Cloverleaf on November 8, 1976 of binding machine $
1,795.50
Anticipated Profits for six months 42,910.00
Fixed overhead costs for six months 50,000.00
$ 94,705.00
(Exhibit 7E)
9. The parties were unable to arrive at any amount for settlement
and under the date, June 15, 1979, the contractor submitted a
revised claim as a settlement proposal which called for the
payment of $41,051.97 to the appellant. This total was made up
of the following items:
1. Machinery (Bindfast #2, Serial No. 76042566) $
1,795.50
2. Business Losses from July 1, 1976 through June 30, 1977
37,256.47
3. Attorney's Fees 2,000.00
$ 41,051.97
(Exhibit 7J)
10. The parties were unable to agree on a settlement under
Article 16 o: the contract, "Termination, convenience of the
Government", and the contracting officer accordingly made a
unilateral determination of the amount due in his final decision
on August 31, 1979 which called for the payment of $460 to the
appellant made up of the following items:
1. Depreciation of equipment for a year and administrative
expenses
in purchase of the equipment $ 180
2. Allowance for depreciation of equipment for two months 30
3. Attorney's Fees 250
$ 460
(Exhibit 7M)
11. Mr. Joseph Laws, stated that he is the surviving officer of
the Cloverleaf Enterprises, Incorporated, a Virginia Corporation,
which was dissolved during June 1977 pursuant to Virginia
statute; he stated that he assumed the assets and liabilities
after buying the shares in the corporation previously held by Mr.
Charles R. Armstrong, who was president of the corporation. Mr.
Armstrong's signature appears on the bid which was accepted by
the Government on November 4, 1976. While Mr. Laws appeared
before the Board of Contract Appeals, he revised his claim to
read as follows:
1. Overhead expenses: idle time of employees, rent etc. $
10,986.69
2. Cost of binding machine 1,795.00
3. Business loss (anticipated business) 37,023.00
4. Other lost profits 10,524.79
$ 60,329.48
No data was presented to support the above items except for
cancelled checks for the cost of the binding machine.
5. In addition, the appellant has filed claims for attorney fees
as follows:
(a) Douglas E. Congdon at $40 per hour x 24.2 hours = $
968.00
(b) W. McCauley Arnold $65 per hour x 31.9 hours = 2,073.50
(c) Laurie L. Dolson $50 per hour x 55.40 hours = 2,775.00
(d) William D. Cremins $65 per hour x 4 hours = 260.00
$ 6,076.50
(Exhibit 7U, V, W)
IV. Opinion
The initial issue raised by the contractor is based on breach of
contract wherein the appellant claims that he is entitled to the
full contract price. The Board therefore was confronted at the
outset with the task of deciding the motion made by the
respondent alleging that the disputes clause of the contract
excludes breach of contract claims from its coverage, and that
the Board lacks jurisdiction to consider the issue. Our
jurisdiction under the Disputes Clause, Article 29, GPO Contract
Terms No. 1 provides:
"Except as otherwise provided in this contract, any dispute
concerning a question of fact arising under this contract which
is not disposed of by agreement shall be decided by the
Contracting Officer, who shall reduce his decision to writing and
mail or otherwise furnish a copy thereof to the Contractor. The
decision of the contracting Officer shall be final and conclusive
unless, within 30 days from the date of receipt of such copy, the
Contractor mails or otherwise furnishes to the contracting
Officer s written appeal addressed to the Public Printer. The
decision of the Public Printer or his duly authorized
representative for the determination of such appeals shall be
final and conclusive unless determined by a court of competent
jurisdiction to have been fraudulent, or capricious, or
arbitrary, or so grossly erroneous as necessarily to imply bad
faith, or not supported by substantial evidence. In connection
with any appeal proceeding under this clause, the Contractor
shall be afforded an opportunity to be heard and to offer
evidence in support of its appeal. Pending final decision of a
dispute hereunder, the contractor shall proceed diligently with
the performance of the contract and in accordance with the
Contracting Officer's decision.
'(a) This 'Disputes' clause does not preclude consideration of
law questions in connection with decisions provided for in the
paragraph above: Provided, That nothing in this contract shall
be construed as making final the decision of any administrative
official, representative, or board on a question of law."
Therefore, it is the conclusion of the Board that our
jurisdiction is limited to the consideration of factual issues in
disputes "arising under this contract." In U.S. v. Utah
Construction and Mining Co., 384 U.S. 394 (1966) the Court
states:
". . . the settled construction of the disputes clause excludes
breach of contract claims from its coverage . . .."
The following cases decided by Boards of Contract Appeals found
that breach of contract claims were beyond the jurisdiction of
the Board;
Jack Clark (1957) ASBCA No. 3672, 57-2 BCA ¶ 1402;
Alco Lumber Co., Inc. (1964) ASBCA No. 9461, 1964 BCA ¶ 4349;
E. & E. J. Pfotzer (1965) Eng. BCA No. 2656, 65-2 BCA ¶ 5144.
Again, it is our opinion, as stated at the informal hearing on
February 13, 1980, upon sustaining respondent's motion, that the
appellant has presented a legal issue to the Board namely, breach
of contract, and we have no jurisdiction to hear it. Accordingly
the Board's ruling stands on that issue.
Turning now to the claims of the appellant as to the issue of
entitlements, of damages and costs incurred, including lost
profits, business loss, cost of equipment and attorney's fees,
resulting from the termination for convenience provision of the
contract.
This provision stated among other things as follows:
"The contract may be terminated by the Government, even though
the contractor be not in default, by a notice in writing relative
thereto from the contracting officer to the contractor. In case
such notice be given the contractor, the contract shall terminate
ipso facto with the giving of said notice. . . ."
In their negotiations the appellant and the contracting officer
were unable to agree on the amount due appellant for expenses
incurred in preparing to receive print orders under the
requirement contract. The Government invoked the termination
clause for a justifiable cause, when it found that it could
secure the ordered publications at a cost of about one third in
comparison to the amount priced by the contractor. No orders
were issued by the Government under the requirement contract to
the contractor. It has been held that the Government's right to
terminate the performance of work for the convenience of the
Government may be exercised at any time after the execution of
the contract and need not wait until some work has actually been
performed under the contract. (Librach et al. v. United States,
147 Ct. Cl. 605 (1959)).
"The Court held in Librach (supra) . . . [that the contracting
officer knew of the better price elsewhere when he awarded the
contract to plaintiff - in the absence of some proof of malice or
conspiracy against the plaintiff - means only that the contract
was awarded improvidently and does not narrow the right to
terminate (Emphasis added.)"
The termination of convenience provision may be utilized whenever
the contracting officer shall determine that it is in the best
interests of the Government. The broad reach of that phrase
comprehends termination in a host of variable and unspecified
situations calling for the ending of the agreement. In this case
it was not for a decrease of the needs of the product, but
because of the disparity in the costs of the publication when
printed by the Department of Commerce in contrast to the price
recited by the contractor. The basis for the costs were based on
a computation submitted by the customer agency. Under the all
inclusive termination clause the Government has the right to
terminate at will. Davis Sewing Machine Co. v. United States,
60 Ct. Cl. 201 (1925) Aff'd 273 U.S. 324; Librach v. U.S.,
(supra). Also see Colonial Metals Co. v. United States, 494 F.2d
1355, 204 Ct. Cl. 320 (1974)
There does not appear to be any evidence of bad faith or abuse of
discretion on the part of the contracting officer in this case,
and in the absence of such evidence, the contracting officer's
election to terminate is conclusive. Line Construction Co. v.
United States, 109 Ct. Cl. 154 (1947). Any analysis of a
question of Governmental bad faith must begin with the
presumption that public officials act conscientiously in the
discharge of their duties, Knotts v. United States, 128 Ct. Cl.
489 (1954)
Under the termination clause, the appellant would be entitled in
general to the unreimbursed costs of performance for those items
completed or partially completed but since no print orders were
ever issued to him, there does not appear to be any unreimbursed
costs of performance. The termination clause does not refer to
anticipated unearned profits and therefore the appellant would
have no claim to such anticipated profits as presented by him.
G. L. Christian and Associates v. United States, 312 F.2d 418.
cert denied 375 U.S. 954 (1963). The appellant's principal
claims are for the profit he would have made if all of the
Government orders under the contract had been routed to him
during the viability of the contract and business losses incurred
as s result of the appellant dropping other customers. Those are
types of recovery to which he is not entitled on a convenience
termination, and accordingly to which he now has no right. It is
well established that such claims are not a recoverable adjunct
to a termination for convenience settlement and, in this
instance, are non-recoverable since there is an absence of any
provision in the contract between the parties that provides the
basis for such a claim. Nolan Brothers, Incorporated v. United
States, 186 Ct. Cl. 602, Keijidosha Hanabai K. K., ASBCA, 73-1
BCA ¶ 9982; Donald Goodnight, ASBCA, 78-1, BCA ¶ 13,192.
Appellant's claim for anticipated profits and loss of business
therefore is denied.
With respect to the Appellant's claim for attorney's fees, the
contract as expressed in Article 16. GPO Contract Terms No. 1
does not expressly authorize attorney's fees, however Board of
Contract Appeals as indicated in Kalvar Corp. v. United States,
543 F.2d 1298 (1976) will allow legal fees to the extent
reasonably necessary for the preparation and presentation of
settlement proposals. However, attorney's fees for prosecuting
disputes before administrative boards have been held to be not
recoverable because they were not incurred in performance of the
contr*ct. Dale Constr. Co. v. United States, 168 Ct. Cl. 692.
The contractor in filing a revised claim under date, June 15,
1979, claimed the sum of $2,000 for attorney fees. Attorneys W.
McCauley Arnold and Laurie L. Dolson submitted affidavits at the
hearing with attachments 1, and 2 for claims of attorney fees as
follows:
(1) Douglas E. Congdon, $40 per hour x 24.2 hours = $
968.00
(2) W. McCauley Arnold, $65 per hour x 31.9 hours = 2,073.50
(3) Laurie L. Dolson, $50 per hour x 55.40 hours = 2,775.00
(4) William D. Cremins, $65 per hour x 4 hours = 260.00
Total $ 6,076.50
Counsel for appellant in its closing summation dated March 12,
1980 assert that the legal fees incurred in attempting to settle
the claim amounts $5,000. It appears that a greater percentage
of the hourly items pertain to the prosecution of the appeal
hearing.
There is a suggestion that some of the work performed was
duplicitous because of a change of counsel during the settlement
negotiation stages most of which was conducted by an exchange of
correspondence. In considering the contractors' claim for
attorney's fees, it is necessary to consider the nature and form
of the legal activities such as its magnitude and complexity,
rather than the time listed by counsel. The record before us
indicates an expenditure in excess of 115 hours by four attorneys
for the preparation of the settlement claim. It is our opinion
that the expenditure of this time by the four attorneys was not
reasonably necessary for the preparation and presentation of the
claim to the contracting officer.
Accordingly, it appears that the amount offered by the
contracting officer, $250 for legal fees appears fair and
reasonable. Aerospace Electronics, Inc., ASBCA, No. 7955, Mar.
22, 1963, 1963 BCA ¶ 3698.
With respect to the Appellant's claim for the cost of an adhesive
binding machine (Bindfast #2, Serial No. 76042566) purchased at a
cost of $1,795.50 on November 8, 1976 in preparation for the
performance of the contract, Mr. Laws indicated that with the
dissolution of Cloverleaf Enterprises, Inc., he was unable to
sell the equipment. He advertised by word of mouth, without
success and indicated that there is no demand for this type of
equipment in the printing trade. No supporting evidence was
presented to show that it is obsolescent, or that there is no
ready market for the equipment. The contracting officer allowed
$180 based on a depreciation period of ten years plus 10%
allowance for administrative expenses. Considering that the
contract was awarded on November 1, 1976 and terminated on
December 13, 1976, the total allowance of $210 appears more than
fair and reasonable to indemnify the contractor as an expense in
connection with the purchase of the adhesive binding machine.-1/
The Board in arriving at its decision, in addition to considering
the contents in the file, and the matters presented at the
hearing, carefully reviewed the closing statement of the
appellant, particularly with regard to the legal authorities
cited therein. No closing statement or comment was furnished by
counsel for the Contracting Officer.
In reviewing Inland Container, Inc. v. United States, 512 F.2d
1073 (1975), we find it to be particularly apposite since it is a
breach of contract case, with damages to be determined under the
convenience termination clause in the particular contract. The
Court unable to compute the damages precisely measured the
damages under the convenience - termination clause. In our case
the Article 16 clause sets the limit to any possible recovery
under a disputed question of fact.
Decision
It is unfortunate that the contractor, as a result of the
Government terminating the contract for the convenience and in
the best interests of the Government, was deprived of an
opportunity to receive any print orders and complete the contract
and endeavor to make an expected profit. However, by agreeing to
include Article 16, Contract Terms No. 1, the contractor placed
in the hands of the Government the discretionary authority to
terminate the contract at will, and the appellant agreed that in
the event of such termination, their allowances should be
computed in accordance with the provisions of Article 16. In the
absence of any clear and convincing proof of bad faith on the
part of the Government, this Board concurs with the final
decision issued by the Contracting Officer.
Accordingly, in reviewing all of the evidence that presented, it
is the decision of this Board to deny the appeal of Cloverleaf
Enterprises, Incorporated.
_______________
1/ See Grimsrud and Carr, ASBCA No. 7961, Oct. 31, 1962, 1962 BCA
¶ 3562, a case of almost identical facts as relating to a
snowplow acquired by appellant at a cost of $4513. An
entitlement of $254.10 was allowed as depreciation for
availability during a 2 1/2 month contract period. S.M.S.
Industries, Inc., ASBCA No. 4114, 1952, 58-1 BCA ¶ 1682 is
distinguished in that the contract required the contractor to
maintain a state of readiness in equipment and personnel at all
times to service airplane engines.