Harry Hoffman & Sons Printing
GPO BCA 7-86
April 20, 1987
Michael F. DiMario, Administrative Law Judge
Opinion
This appeal, timely filed by Harry Hoffman & Sons Printing,
903 Jefferson Avenue, Buffalo, NY 14204 (hereinafter
"Appellant"), is from the November 17, 1986, final decision
of George W. Watson, Contracting Officer, on behalf of the
United States Government Printing Office (hereinafter
"Respondent"), allowing only $5,197.49 of $11,200 in claimed
additional costs incurred by Appellant in accelerating the
production and shipment of a certain printed product
entitled "United States Naval Academy Catalog 1986-1987."
The appeal is granted for the reasons set forth hereinbelow.
Background
Respondent, by Purchase Order 62296 dated January 15, 1986,
awarded Appellant a fixed price contract, Jacket No.
486-842, in the amount of $158,259.50 for the production and
distribution of a publication entitled "United States Naval
Academy Catalog 1986-1987." The contract required Appellant
to furnish and bear the costs for "all materials and
operations" except for certain base art and camera copy
materials to be furnished by Respondent. Some 35,000 of the
catalogs were to be produced with tear cards for removal and
use in applying to the Academy. The furnished materials were
to be available for pick up by Appellant by January 24,
1986, with the completed job to be shipped on or before
April 11, 1986.
On January 16, 1986, the Navy Department requested that the
quantity be increased to 100,762; the additional 12,000
copies to be without tear cards. This increased the contract
amount by $17,892 based upon Appellant's quoted added rate
of $1,491 per thousand copies. The additional copies were
also to be shipped on the original ship date of April 11th.
Contract Modification 0737 dated January 23, 1986,
reflecting these changes was issued as a Supplemental
Agreement to the original contract.
The furnished materials (artwork and camera copy) were not
made available to Respondent until February 27, 1986. Since
this delay was caused by the Government the ship date was
automatically adjusted in accordance with the terms of the
contract from April 11, 1986 to May 19, 1986. In the
meantime, however, the Navy Department (hereinafter "the
Department") by memorandum dated February 26, 1986,
requested that Respondent accelerate delivery of 35,000
copies with tear cards to a mailing contractor in Sussex, DE
by April 25, 1986, in order for the catalogs to be sent to
high schools throughout the nation prior to their summer
closing. They also requested that the balance of their order
(65,000 copies without tear cards) be delivered to.the
Academy itself not later than May 1, 1986. (See Appeal File,
hereinafter "R4 File," Tab G.)
Appellant's Jerry Kenny, in response to a telephone query
from Respondent's Ron Cully, advised Cully by return call of
March 11, 1986, that it's price for meeting such accelerated
delivery was $11,200. This price was telephonically approved
by the Navy on March 12, 1986, with the proviso that the
proposed delivery dates must be met.
Contract Modification 0925 dated March 17, 1986, was then
prepared by Respondent to reflect this proposed change in
contract terms. The modification in pertinent part states:
The agreed upon amount of $11,200 is your estimate of the cost
for such acceleration.
Payment will be made not to exceed $11,200 and only for the
actual additional expense incurred by you in accordance with
the provisions contained in GPO Pub. 310.2, Part II, ΒΆ 2-25.
1/
The modification bears the signatures of J. G. Marken,
3/20/86, Contracting Officer for the Public Printer (i.e.,
Respondent), and Gregory M. Clemons April 1, the person
authorized to sign "Contractor's Agreement/Acknowledgment"
on behalf of Appellant. (R4 File, Tab O) (Documents in the
appeal file identity Mr. Clemons as Appellant's Production
Coordinator.)
Thereafter, Appellant began production on the product.
Book blues and Kodalines were due in GPO from Appellant
by March 31. When they were not received, Respondent's
Cully contacted Clemons by telephone advising him that he
"was concerned that [Appellant's] proposed schedule was
slipping." According to Cully, Clemons assured him "that
he was aware of slippage and that they were doing
everything they could to expedite job, and that they are
dedicated to making agreed upon ship dates." At that time
Cully and Clemons also set the press sheet inspection
date for April 11, 1986. (R4 File, Tab Q)
A series of telephone notes by JGM (Jack G. Marken) in the
R4 file then indicate problem events as they transpired
during the press sheet inspection. Among these are findings
by Mr. Walter Burroughs, Respondent's press sheet inspector,
of "poor paper & ink. Covers would not register. 2-7 forms
on another job being run. 220 illus rejected not reshot."
(R4 File, Tab U)
One note reflecting a conversation with Ralph Hutton,
Appellant's Production Manager, states: "Mr. Hoffman
[Appellant's President - Mel Hoffman] will be back this
afternoon or tomorrow morning with a production plan." (R4
File, Tab U)
Another such note, the same day, reflects a telephone
discussion between Hutton and Marken, wherein Marken asked
"for a prod plan and . . . why our job had been lifted. He
[Hutton] will work on the plan and have Mr. Hoffman call
me." (R4 File, Tab U)
A subsequent note that same day reflecting another
conversation between Hutton and Marken states: "Covers OK'ed
Forms 14-27 running now 10 are done 4 of the bal they may
run partials Will be back to press Thur 4-24 Will run
partials on the lst 14 to meet the schedule." (R4 File, Tab
U)
A 4-21 note by Cully reflects that he instructed Clemons by
telephone "to ship 50 of the 35,000 copies to" the Public
Affairs office, U.S. Naval Academy "no later than 4-25-86."
(R4 File, Tab V)
On April 30, 1986, note (R4 File, Tab W), subject "late
delivery" recommending that a "show cause letter be sent" to
Appellant states:
- order scheduled to ship 4/11/86, adjusted to 4/25/86 partial
@ destination and 5/1/86 complete @ destination
- per Greg Clemons @ Hoffman - order to deliver complete
5/6/86
- K cites mechanical problems with subcontractor for binding
as reason for late delivery
- approximately 33,568 books completed before breakdown
- subcontractor had to order new motor
- subcontractor expects to complete binding 5/5/86 and deliver
5/6/86
- recommend show cause letter be sent
Tab W also reflects the decision of Marken dated 5/1/86 not
to send such letter. A note by Cully of a telephone
conversation with Clemons dated May 14 shows the following
shipments by Appellant:
26,880 No T/C [tearcards] 4-29
28,160 No T/C 5-2
9,999 No T/C 5-5
1,710 No T/C 5-13
35,000 W/ TC 4-24
Shipped
The note also reflects a 1% shortage of 1,528 copies from what
the Appellant's invoice showed it actually shipped with the
question of whether this shortage was "OK/?" and a notation
showing "No D.H.." A further notation states "will ship final
5-14 ( )" (R4 File, Tab X) DH is identified in the notes as Dave
Haddock of the Department of the Navy with a note of 5-15
reflecting that "Dept. needs shortage by 5-30." Subsequently on
5-19 the Department and the GPO agreed to the short shipment.
On 5-27 Cully advised Appellant's Hoffman that "GPO was
paying basic contract price plus increased qty. price minus
shortage. Told K to submit itemized claim for add'l payment
for AA's and labor records clearly substantiating actual
add'l exp. for acceleration [sic] of scheduled delivery."
(R4 File, Tab AA)
By letter of May 27, 1986 (R4 File, Tab BB), Appellant
furnished GPO with itemized total overtime costs in the
amount of $17,915.17 to support its claim for payment of its
$11,200 estimated additional costs for acceleration of
shipping dates. Upon receipt of such information Cully
called Clemons and questioned the basis for certain press
charges. He was advised that the figures represented
standard hourly charges for such work. It was pointed out by
Cully that the original bid price contained the normal
hourly charge and Appellant was only entitled to overtime
charges.
By letter of June 5, 1986 (R4 File, Tab FF), Respondent's
Marken advised Appellant that:
The Government is anxious to reimburse you for this additional
work; however, to comply with the contract terms, the Government
must be able to determine the real additional cost. . . . Article
2-25, . . . of U.S. Government Printing Office Contract Terms No.
1, which states: . . . .
If the actual expense incurred is less than the authorized
maximum amount, GPO's liability shall extend to that lesser
amount only.
You are requested to present a complete breakdown, supported
by documentation such as payroll and production records, that
will clearly enable the Government to determine the actual
additional expenses incurred.
Appellant responded by letter of June 10, 1986 (R4 File, Tab
GG), enclosing their job cost analysis. In addition
Appellant in pertinent part stated:
You will note from the total, we had considerably more overtime
charges than that which has been stated in your modification
order. In addition, you will please note, we used over nine
thousand pounds of additional paper for the split run which
amounted to $4,566.72. Our outside vendor, who did the perfect
binding, charged an additional $898.00 for the split run and also
as a result of the split run, we had to remake twelve plates at
$42.00 each, a total of $505.00. If we add these various items,
the total additional charges amount to $24,995.61, for which the
only charge made to the Government Printing Office is $11,200.00.
Also, realize that our total cost on this job was $214,350.35 and
the recovery in our billing only amounts to $185,853.31, or a
loss of $28,497.04 plus freight costs which do not appear on this
analysis.
Thereafter, Respondent's George M. Watson, by letter of June
16, 1986 (R4 File, Tab LL), issued the Final Decision of the
Contracting Officer which in pertinent part stated:
All aspects of your claim have been carefully reviewed. An
examination of the cost analysis sheets you submitted reveals
that you failed to subtract the straight time from the
overtime rate. This straight time was included in your
original bid and does not represent an actual additional
expense to expedite the order. According to our calculations
the actual additional expense incurred was $3,394.32.
Regarding your claim of incurring additional costs because of
a split run, it should be noted that the need for a split run
became necessary due to start up problems which were not
caused by the Government.
Therefore, the total allocable actual additional expenses
substantiated are $3,394.32.
Thereafter, by letter of June 19, 1986, Appellant sent its
Notice of Appeal to the Public Printer. The Notice in turn
was received and docketed by this Board on June 30, 1986.
The letter, addressing Mr. Watson's letter of June 16,
supra, in pertinent part states:
You have calculated the difference between the straight time
and the overtime that was involved in producing this job. The
amount that you have reached was taken from our production
records and is a raw cost that does not take into
consideration the normal profit that printers will make. Our
normal markup would be an additional 10% to the cost for
overhead and an additional 10% for profit. That figure should
be $4,107.13 in place of the $3,394.32.
Your third paragraph in which you make mention of the split
run is completely wrong. The startup [sic] problem never
entered into these figures because our commitment of delivery
would have been accomplished despite the delays caused by
start up [sic] problems, most of which were the result of an
arbitrary approval. We were requested by the Government
Printing Office representative to accelerate the delivery of
this job and the only way that could be accomplished was to
make a split run. I must emphasize that the normal delivery
under the contract terms could have been easily accomplished
by us. Therefore, the split run was necessary to make the
delivery required by the Government Printing Office and
covered under your contract modification #62295.
Therefore, the additional amount of paper that was used for
the split run of $4,566.72 should be paid. The additional
charge for the split run perfect binding of $898.00 should be
paid, and the $505.00 for additional plates should be paid.
The shipping costs were increased by $569.00 in order to make
the split run delivery instead of delivery of the entire job
at the same time.
Therefore we feel that we should be entitled to no less than
the $10,645.85. I also call attention of the contract officer
to the fact that this matter has been extended and delayed and
the money involved has been paid for materials and labor. We
should also be getting a service charge. Therefore, your
prompt attention to this appeal will be greatly appreciated.
Subsequently, by letter of July 23, 1986 (R4 File, Tab UU),
Watson advised Appellant in pertinent part that:
In a continuing effort to settle this dispute, we request that
you furnish us whatever documentation in your possession in
support of your claim. For example, in your letter of June 10,
1986 and also in your appeal, you indicate many costs
incurred, however, you have only submitted a computer printout
as justification. This in itself is not sufficient. In order
for us to evaluate your costs, each one must be fully
validated as how to it occurred and all supporting
documentation must be submitted including the identification
of operation numbers.
Further, concerning the "split run," please reiterate why and
when the splits occurred, how many copies were run per split,
and supply any records that would verify the additional use of
stock and plates.
Finally, based on the shipping documents supplied with your
billing, at least a part of this job was delivered after the
agreed-upon accelerated dates in the contract modification.
This will have to be a factor in these negotiations.
Thereafter, by letter of August 13, 1986 (Official File, Tab
15), Appellant advised Watson that:
In response to your letter of July 23rd, enclosed you will
find proof of the additional costs that were incurred as a
result of the GPO requesting a split run on the Naval Academy
catalog. You will find an invoice from Riverside Bindery which
indicates the additional cost of the perfect binding. You will
find operation record cards used by our personnel in our
pressroom in order to accommodate the split run. You will find
an invoice for additional amounts of paper to take care of the
spoilage encountered in the startup of the additional
makereadies for the split run. You will also find a letter
memo which relates to the supposed late delivery and also
freight documents to support our additional freight charges.
In the final conclusion, I must make this statement. When we
are requested to quote on various projects for the GPO and are
the successful bidder, at no time are we asked to justify our
total selling price. This I assume to be a GPO procedure. I
want to know why in good faith we present your representative
a quotation for a split run per their request, receive their
approval for same and accomplish same, and following the
delivery of the split run, receive a modification of the
original purchase order which contains language other than
that was on the original quotation for the split run.
Subsequently, by letter .of September 17, 1986 (Official
File, Tab 8), this Board advised Appellant that: "Pursuant
to GPO Instruction 110.12 dated September 17, 1984, Rule
6.(b), concerning an Answer to your Complaint in the above-
captioned appeal, the Board enters a general denial on
behalf of the Government."
In response Appellant, by letter of September 25, 1986
(Official File, Tab 9), requested a formal hearing before
this Board.
Watson, in response to Appellant's August 13th letter,
supra, then sent a letter to Appellant dated September 29,
1986, wherein he offered Appellant a sum of $5,197.49 to
resolve the matter.
Appellant, by letter of October 20, 1986 (Official File, Tab
10), rejected this offer. Thereafter, Respondent's Watson by
letter of November 17, 1986 (Official File, Tab 12), issued
his second final decision letter which in pertinent part
stated:
Since we have offered an increase in the allowable charges
based on additional information supplied, we are rescinding
the final decision dated June 16, 1986, and are issuing this
new final decision.
As stated in our letter of September 29, 1986, the additional
information you supplied was carefully evaluated and we
concluded that some expenditures were reimbursable as a result
of the requested accelerated schedule. However, as pointed out
in our letter of July 23, 1986, a significant fact is that you
did not meet the accelerated schedule for some deliveries as
required by Contract Modification No. 0925 dated March 17,
1986.
The total sum of allowable charges are [sic] as follows:
Previously allowed amount..................$3,394.32
Binding setup................... ........... 605.00
Eight additional plates (back to press)... . 336.00
Additional paper (Printing and Binding).. .. 230.88
Sub total..................................$4,565.90
10% Profit............................... 469.59
$5,022.49
Additional freight to Rochester.......... .. 175.00
Allowable Total $5,197.49
That same date this Board wrote to Appellant to set a
prehearing conference date based upon the original appeal.
Upon receipt of this notice Appellant telephonically advised
this Board that as he indicated in his letter of October 20,
supra, he desired to continue his original appeal and to go
directly to hearing on the matter rather than to hold a
prehearing conference. Accordingly, a hearing was set for
and convened on January 6, 1987.
Upon hearing the matter this Board determined that there
were no factual disputes between the parties and that the
principal question presented by the appeal, i.e., the extent
of entitlement to compensation for accelerating delivery,
was solely a matter of contract interpretation. As such, it
is a legal question to be decided by the Board subject to
the provisions of Article 2-3(b) U.S. Government Printing
Office Contract Terms No. 1 (GPO Publication 310.2, Revised
October 1, 1980) concerning finality.
Discussion
Since the question to be addressed is one of contract
interpretation, we will focus our discussion on the contract
itself.
First, it is undisputed that originally the contract was for
a fixed price; the Appellant having agreed to produce and
deliver 88,762 copies of the Naval Academy catalog in
consideration of its being paid $158,260. Page 1 of the
Invitation for Bids/Specification (R4 File, Tab B) for such
original contract stated in pertinent part respecting this
dispute that the contractor was to furnish "all materials
and operations other than those listed under 'Government to
Furnish' necessary to produce the products in accordance
with these specifications." The "Government to Furnish" list
enumerated the following items and no others: Photoprints,
transparencies, camera copy, a sample from a previous
printing, one reproduction proof for shipping container
labels, and a proof label.
The contract further specified, among other things,
technically described film negative, paper, production, and
final product standards and provided for proof approval,
press sheet inspection, sampling and testing to assure the
attainment of certain specified quality attribute levels
before final product acceptance. Type Quality and
Uniformity, Halftone Match, Solid and Screen Tint Color
match, and Process Color Match were all subject to being
judged for conformance with the requisite attributes by the
specified standard of "O.K. Press Sheets."
The only conclusion which can reasonably be drawn from these
provisions is that the basic contract required Appellant to
provide all required paper, including that consumed as
spoilage in the course of attempting to attain conformance
with the specified standard of "O.K. Press Sheets" for the
stated attributes, supra.
It is equally clear that Contract Modification 0737 did not
change these attributes, standards, or supply burden
provisions, but simply increased volume and the concomitant
fixed price in accordance with the previously agreed to
added rate. Thus, up to this point in our analysis it is
clear that Appellant was to produce 12,000 copies for the
fixed price of $17,892 irrespective of how much makeready,
platemaking, or paper spoilage was incurred.
Turning now to the bargain between the parties for the
acceleration of the delivery dates, we first examine
Appellant's claim that its "quotation" was for a flat fee
$11,200. Such "quotation" was telephonically given by
Appellant's Jerry Kenny to Respondent's Ron Cully. The
record and testimony was silent whether either party had the
capacity to contractually bind his employer. But even if
they had such capacity, the record shows that they did not
even purport to make an agreement. Rather, Cully telephoned
the proposed additional price consideration to the Navy
Department for its approval. Thereafter, certain conditions
were added by both the Department and Respondent's Contract
Review Board before being communicated to Appellant in
writing by Contract Modification 0925. This modification
signed and dated March 20, 1986, by J. G. Marken, in his
official capacity as Contracting Officer, either constituted
a counteroffer of Appellant's oral quotation and as such was
a rejection of it, or was an original offer by Respondent
being delivered to Appellant. In either case, whether a
counteroffer or original offer, Appellant by signature of
Gregory M. Clemons on April 1, 1986, as the "person
authorized to sign Contractor's Agreement/Acknowledgment"
thereby accepted the terms expressed in the written
modification. Thus, we conclude that the bargain reached by
Appellant for the acceleration must be gleaned from the
written contract modification itself.
As noted supra, Modification 0925 limits payment to
Appellant in two respects; i.e. (1) "actual additional
expenses incurred" provided (2) that such payment shall not
exceed $11,200. Moreover, as with Modification 0737,
Contract Modification 0925 by its very terms is a
modification of the existing agreement and must be read in
that light.
Reading the basic contract, Modification 0737 and
Modification 0925 as the complete agreement between the
parties, we can find nothing in Modification 0925 which
alters Appellant's obligation under the basic contract and
Modification 0737 to provide at its expense all materials,
supplies, and services except those expressly required to be
provided by Respondent under the "Government to Furnish"
clause, supra. Accordingly, it is this Board's opinion that
Contract Modification 0925 entitles Appellant to be paid
only those additional costs incurred by it in meeting the
accelerated delivery date. Verified paper spoilage,
makeready, platemaking, labor, and delivery costs can only
be considered by the Contracting Officer to be includable if
they were in fact additional costs incurred by Appellant in
meeting the accelerated delivery date to those costs which
the Appellant was to bear under the basic contract and
Modification 0737. In making such determination, however,
the Contracting Officer may not apply any judgment as to
whether or not a particular practice employed by Appellant
was prudent, if in fact that practice was used and did
result in additional costs to him.
Examining the paper spoilage dispute in light of these
rules, we find that the Contracting Officer in his
discretion determined that (1) there was in fact an
additional cost for paper spoilage incurred by Appellant in
accelerating delivery, but (2) the amount of such cost was
to be measured by the GPO in-plant rate resulting in a
dollar sum of $230.88. We express no judgment with respect
to finding No. 1 but believe finding No. 2 to be erroneous,
since it ignores actual costs and instead applies a rate
which does not take into account the actual practices
employed by Appellant. Pursuant to Contract Modification
0925, actual costs should be paid once a determination is
made that a cost is allowable. However, since it is not
possible to determine actual additional paper spoilage for
which Appellant is entitled to be paid under such
modification from that spoilage which Appellant was to
absorb under the basic fixed price contract, actual
additional spoilage costs must be approximated. This can be
done most easily by examining Appellant's paper invoices. In
so doing, we find that on March 7, 1986, Appellant ordered a
certain quantity of Sterling WEB Dull 260 paper basis weight
70 lbs. from WESTVACO in the total dollar amount of
$84,753.71. This apparently represented the total amount of
Sterling WEB Dull 260 paper which Appellant anticipated it
would need to produce the Naval Academy catalog. However, on
April 14, 1986, a date which coincides with the period in
which the product was actually being run, Appellant ordered
an additional quantity of the same paper from WESTVACO in
the dollar amount of $5,689.44. It is such amount that
Appellant claims as an additional cost in meeting the
acceleration. In such circumstances, we believe, in equity,
that the amount claimed by Appellant is the appropriate sum
to be paid. Other costs must be examined by the Contracting
Officer in the same light.
Decision
The appeal is granted and the case is remanded back to the
Contracting Officer for processing in accordance with this
Opinion.
_______________
l/ GPO Publication 310.2, Part II, Paragraph 2-25 states: 2-25.
Payment for Accelerated Delivery. Reimbursement to the contractor
for any additional costs incurred for accelerated delivery
authorized by the Contracting Officer, shall be paid upon
approval by GPO of the actual net increase in manufacturing
expense. A change order will be issued by the Contracting Officer
authorizing a maximum amount reimbursable to the contractor.
However, if the actual expense incurred is less than the
authorized maximum amount, GPO's liability shall extend to that
lesser amount only. In the determination of actual expenses
incurred, the Contracting Officer may require the contractor to
furnish labor records which will clearly substantiate the
additional expense incurred.