United States Government Printing Office Contract Appeals Board Appeal of Graphic Communications, Inc. Appeal dated June 24, 1983 Hearing held on October 19, 1983 Decision dated October 25, 1983 CAB Panel 83-5 Thomas O. Magnetti, Chairman John M. Baker, Richard R. Heroux, Members Douglas MacBride, U.S. Government Printing Office Contracting Officer represented by James C. Lane, Esquire Graphic Communications, Inc. represented by Charles A. Sullins, Esquire Preliminary Statement Graphic Communications, Inc. (hereafter the contractor) appeals the denial by the Contracting Officer of certain costs submitted for payment under a multiple award term contract (Program 1498-M). A multiple award term contract contemplates the issuance of purchase orders to all responsive, responsible contractors who have bid on the contract. The contractors' names are arranged in sequence on a list from the lowest to the highest abstracted bid for the type of work to be performed on each individual print order. Print orders are then offered to the contractor who has submitted the lowest bid for the type of work that is required by the specific print order. That contractor has the right to refuse the print order if it can not meet the delivery schedule set out in the print order. If the print order is refused, the GPO then offers the work to the next lowest bidder. This process continues until the print order is accepted by a contractor on the list. In the instant case, there is a dispute as to the proper interpretation of certain provisions of the contract specifications. Because the U.S Government Printing Office (the GPO) interpreted the contractor's bid on hidden hinge covers in a manner different from what the contractor intended by its bid, the GPO believed the contractor to be the lowest bidder for that operation and offered almost all of the print orders originating under this contract to the contractor. The contractor, billing the GPO in accordance with its own interpretation of this contract provision, was paid according to its own interpretation not the Government's. Believing that it was billing in the appropriate manner, the contractor continued to accept work under the contract. The GPO discovered the discrepancy after eleven months and withheld $55,000 from the contractor to compensate the Government for the alleged overbilling. In June 1983 the Contracting Officer issued a final decision withholding approximately $27,500. The contractor appealed this decision in accordance with the "Disputes'' clause of the the contract. Article 2-3, Contract Terms No. 1, GPO Publication 310.2, revised October 1, 1980. The jurisdiction of the GPO Contract Appeals Board over this appeal is established by GPO Instruction 110.10B, entitled "Board of Contract Appeals Rules of Practice and Procedure" and by Contact Terms No. 1, supra. This decision is based solely on the record which consists of the 22 exhibits within the Appeal File and the testimony provided at a hearing held on October 19, 1983. Issues to be Resolved 1.) Is the contract provision at issue ambiguous? 2.) If the provision is ambiguous, how should it be interpreted? 3.) If the contractor's interpretation of the disputed provision is reasonable, what is the appropriate remedy for the contractor? Findings of Fact 1.) Invitations for Bids for Program 1498-M were mailed to prospective bidders on May 12, 1982. This multiple award term contract was to run from July 1, 1982 to June 30, 1983. Exhibit 3. The contract specifications required the production of Navy technical and training manuals. Operations necessary for producing these manuals included printing, binding, packing and shipment. It was estimated that 75% of the print orders would require the production of hidden hinge covers. Print orders requiring hidden hinge covers would generally call for the production of between 200 and 300 manuals. Therefore, each such print order would require the same number of sets of covers as number of manuals requested. Each complete set of covers consisted of four pages. Id. 2.) Interested contractors were to provide a bid for the makeready and/or setup charges for printing and binding each complete set of hidden hinge covers and a separate bid for the cost for running 100 copies of each set of the covers. Id., p. 14, I.4.(b). The contract provision at issue in this appeal reads, in part, as follows:. Makeready and/or Running Charges Set up Charges Per 100 Copies Trim Size Trim Size Inches Inches OVER OVER 6 x 9-1/4 6 x 9-1/4 THRU THRU I.PRINTING AND BINDING SINGLE PAGE 8-1/2 x ll 8-1/2 x ll (TEXT OR COVER): (2) (5) 4. Looseleaf Products- (a) Printing in a single ink color, including binding ..........................each page... $_____ $_____ (b) Hidden-hinge covers (Print- ing 1 or 2 sides in a single ink color), including binding ..................per complete set.. $_____ $_____ Exhibit 3, p. 14. Although the prices quoted in this provision had to include the entire cost for the production and construction of the covers, the contract did not specify which of the operating costs had to be factored into the makeready and/or set up charge and which costs had to be included in the running charge. 3.) The contractor bid $4.00 for the makeready and/or set up charge for producing each complete set of hidden hinge covers and $ .75 as its cost for running 100 copies of the covers. Exhibit 5. Prior to the award of the contract, the contractor was contacted by the Atlanta Regional Printing Procurement Office in order to confirm its prices. Testimony of Mr. MacBride and Mr. Core; Exhibit 8. The record indicates that the contractor was questioned only concerning its costs for running the hidden hinge covers. Testimony of Mr. Core. This testimony was unrebutted by the Contracting Officer. Testimony of Mr. MacBride. The contractor sent the Atlanta office a letter dated June 21, 1982, confirming its prices but specifically mentioning only the running cost item. Exhibit 6. There is nothing in the record that would indicate that the contractor was questioned concerning its bid on the makeready and/or set up charge for hidden hinge covers. The record does, however, indicate that after the controversy arose in May 1983 the GPO believed that there was either a possible bidding error constituting a post- award error in bid or a possible mutual mistake. See Exhibit 14, p. 2 and 3. 4.) Following receipt of contractor's letter confirming its prices, the contractor's bid on the contract was deemed by the Contracting Officer to be responsive. Exhibit 7. The contractor was issued a Purchase Order on June 30, 1982. Exhibit 9. Because the contractor was placed at the top of the list for receiving print orders containing hidden hinge covers, it received the bulk of the print orders requiring this work. 5.) The contractor interpreted the contract language and its bid to signify that its price for the makeready and/or set up charge for each set of covers was $4.00 and $.75 for running 100 covers. Testimony of Mr. Core. This witness asserted at the hearing that, given the hand operations required to produce these hidden hinge covers, there were 300 separate makeready and/or set up charges for each complete set of 300 covers. Id. There was no testimony presented by the GPO that rebutted that testimony. Testimony of Mr. MacBride. The contractor's interpretation of the contract language and its bid results in a charge of $1202.25 for each print order containing 300 sets of covers. 6.) The Contracting Officer maintained that the contract language governing the bid for hidden hinge covers contemplated the contractor bidding the makeready and/or set up charge as a one-time charge with any costs associated with the production of an individual set of covers factored into the running cost. Testimony of Mr. MacBride. He also testified that the industry practice for bidding makeready and/or set up charges was to bid it as an initial one-time charge representing the initial cost of setting up a printing or a binding operation. Id. This general testimony regarding industry practice did not specifically relate to the makeready and/or set up charges for individual hand operations such as those required by the production of hidden hinge covers. Therefore, it does not rebut the testimony of Mr. Core relating to the contractor's specific makeready and/or set up costs for this operation. 7.) The GPO's interpretation of the bid would allow the contractor a payment of $6.25 for the production of 300 sets of covers. The Contracting Officer testified that this amount would be an "exceedingly low" price for this operation. Testimony of Mr. MacBride. Comparison of this charge ($6.25) with other contractor's bids for this operation indicates that this amount was almost three times lower than the next lowest bidder. Exhibit 7. Furthermore, in stark contrast to this amount, the Contracting Officer's estimate of the contractor's cost in producing 300 sets of these covers was $530. Exhibit 16. 8.) The Contracting Officer testified that the contract provision at issue needed "clarification". Testimony of Mr. MacBride. In addition, there is an admission by the GPO in the record that there appeared to be an ambiguity in the specifications. See Exhibit 14, p. 3. Also of note is the modification of this provision that was promulgated prior to the award of the 1983-1984 contract. The modification read as follows: "Only one make-ready charge will be allowed for each page and/or per complete cover set." Exhibit 22. The ostensible purpose of this modification was to avoid the controversy that occurred with this contractor over the contract language. Testimony of Mr. MacBride. 9.) The contractor billed the first five print orders according to the GPO's interpretation outlined in paragraph 5, above. Exhibits 14 and 19. Mr. Core explained this by attributing the error to his billing clerk. Testimony of Mr. Core. After the error was discovered, the contractor billed in accordance with interpretation of the contract specifications and the contractor's bid set out in paragraph 4, above. Id. The contractor did not submit revised vouchers for these five print orders because more than ninety days had elapsed since these vouchers had been submitted. Id. However, all subsequent print orders were billed in accordance with the contractor's interpretation of the specifications. Despite the substantial increase in the billing costs, these vouchers were paid by the GPO for approximately eleven months without questioning the billing for the hidden hinge covers. Id.; testimony of Mr. MacBride. 10.) Sometime in May 1983, the GPO discovered that the contractor had billed and been paid a makeready and/or set up charge for each set of covers. Exhibit 20. To compensate the Government for the alleged overbilling, the GPO withheld $55,400 due and owing the contractor. Exhibits 13 and 14. After lengthy negotiations and a time study of the contractor's operations, the Contracting Officer issued a final decision that returned half that amount to the contractor, retaining the other portion due to the alleged overbilling. Exhibits 12 - 16. 11.) The contractor appealed this final decision by letter dated June 24, 1983, later requesting a hearing on the matter. Exhibit 1. A hearing was held at the contractor's request by conference call on October 19, 1983. Decision The record indicates that officials at the GPO believed that the contract provision at issue was indeed ambiguous. Exhibit 14. The Contracting Officer testified that the provision needed to be clarified. Testimony of Mr. MacBride. A modification of the contract was issued for the subsequent contract in order to avoid further confusion. ld.; Exhibit 22. The Board is dubious that the language of this modification does indeed accomplish the supposed aim of the drafters. In any case, given these admissions, the GPO has conceded that an ambiguity did exist permitting more than one interpretation for the contract provision. The finding that an ambiguity existed resolves the first issue raised by this appeal. In situations where ambiguities are deemed to exist, the doctrine of contra proferentum is applied and the contract is construed against the drafter of the ambiguous language. WPC Enterprises. Inc. v. United States, 163 Ct.Cl. 1 (1963). The essential elements of this doctrine are (1) that the contract specifications were authored by the Government, (2) that the language is susceptible of more than one interpretation, {3) the intention of the parties does not appear, and (4) that the contractor did actually and reasonably construe the specifications in accordance with its interpretation of the contract. Western Contracting Corporation v..United States, 144 Ct.Cl. 318 {1958). In the instant case, the specifications were authored by the Government, and the intention of the parties prior to award does not appear. The contractor did actually construe the specifications according to its interpretation once it discovered that a mistake in the billing had taken place. Testimony of Mr. Core. Any argument that, because the first five billings were mistakenly billed in accordance with the GPO's interpretation, the contractor did not actually construe the specifications according to its interpretation is militated against by the fact that the GPO paid the contractor according to its interpretation of the contract for eleven months without bringing the discrepancy to the attention of the contractor. In regard to the reasonableness of the contractor's interpretation of the provision, there is unrebutted testimony in the record to the effect that the contractor incurred an individual makeready and/or set up charge for the production of each set of covers. Testimony of Mr. Core. If this was indeed the case, then it would have been appropriate to place this cost under the makeready and/or set up charge column. Since the record does not rebut this testimony nor does it indicate what industry practice is for bidding the makeready and/or set up charge for this particular operation, the contractor's interpretation of the contract provision remains unchallenged and must be deemed reasonable. Since the Contracting Officer has admitted that the contract provision needed clarification and a modification of the provision was issued, the Board finds that the GPO has admitted that the contract provision was ambiguous. Therefore, the provision is susceptible to more than one interpretation. All of the above-cited elements being present, the Board invokes the rule and holds that the provision must be construed in accordance with the contractor's interpretation. Therefore, the second issue must be resolved in favor of the contractor. Before the Board turns to the issue of the contractor's remedy, certain observations should be noted. This is not a case where the GPO has proven that the contractor made an error in bid. If there were such an error, the appropriate remedy for the post-award error in bid is to increase the contract price, not to exceed that of the next lowest acceptable bidder. GPO Printing Procurement Regulations, Chapter IV, Section 6, paragraph 4.b, p. 46. However, no clear and convincing evidence was presented at the hearing demonstrating that an error in bid was made. On the contrary, the contractor indicated that it intended its bid of $4.00 per each complete set of covers. Testimony of Mr. Core. The Contracting Officer is under a duty to advise the contractor of any mistake in bid apparent on its face. GPO Printing Procurement Regulations, Chapter IV, Section 6, paragraph 1, p. 45. Although the record does indicate that the contractor was contacted to verify its running charge, as there was no testimony or evidence to indicate that the contractor was questioned specifically about the $4.00 makeready and/or set up charge, the Board must find that this price was not specifically questioned by the GPO. Testimony of Mr. Core and Mr. MacBride; Exhibit 6. The Contracting Officer admitted that, under the GPO's interpretation of the contract provision, the contractor's bid for hinged covers ($6.25) was extremely low. Testimony of Mr. MacBride. This extremely low price for the hidden hinge cover operation should have alerted the GPO of the necessity to attempt to reconfirm not just the running charge but also the makeready and/or set up charge prior to issuance of the Purchase Order. If this had occurred, the GPO would have become aware of the contractor's interpretation and could have taken the appropriate action to find an error in bid or to issue the print orders to another contractor. Given the nature of this multiple award term contract, this failure to verify both prices for production of the hidden hinge cover, worked a hardship on the contractor. Due to the GPO's interpretation of the contractor's bid, the contractor was placed at the top of the sequence of contractors to receive print orders. Most of the print orders issued under this contract were placed with this contractor. Because the contractor was being paid in accordance with its interpretation of the contract, it accepted work. It never would have accepted the work if it had been alerted prior to the issuance of the contract of the GPO's interpretation. Testimony of Mr. Core. The GPO contends that it would not have placed any work with the contractor if it had been aware of the contractor's interpretation. Testimony of Mr. MacBride. However, the GPO had constructive notice of the contractor's interpretation since, over an eleven month period, it received the contractor's vouchers and paid for work that was billed with a separate makeready and/or set up charge for each set of covers. Because, during the term of the contract, the GPO paid the contractor in accordance with the contractor's interpretation, again the opportunity was lost to alert the contractor that its interpretation was believed to be mistaken. Instead, the contractor continued to accept work without knowledge that there was a misunderstanding as to the contract provision. The ineluctable conclusion that must be drawn from the record is that there is clear evidence of poor contract administration. Given this fact and the paucity of the GPO's case regarding its interpretation of the contract provision at issue, as presented at the hearing, the Board is left no recourse but to find for the contractor on all issues. Although the Board is well aware that the contractor's actual costs for the disputed operation range somewhere between $500 and $800, the Board will not rewrite the contract to allow a remedy different from that which is represented by the contractor's interpretation of the disputed contract provision. Having found that an ambiguity existed and that the contractor's interpretation was reasonable, the Board will go no further than to reverse the final decision of the Contracting Officer and remand the appeal to the Contracting Officer for a decision consonant with this Board's decision. In the event that negotiations regarding the contractor's recovery should prove unsatisfactory to the contractor, it has the right to appeal the matter to the Board pursuant to the "Disputes" clause of the contract.