BOARD OF CONTRACT APPEALS
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON, DC 20401
In the Matter of )
)
the Appeal of )
)
THE STANDARD REGISTER ) Docket No. GPOBCA 25-94
COMPANY, INC. )
Jacket No. 573-927 )
Purchase Order M-2925 )
For the Appellant: The Standard Register Company, Inc., Vienna,
Virginia, by Anthony W. Hawks, Esq., Alexandria, Virginia.
For the Respondent: Joyce B. Harris, Esq., Assistant General
Counsel, U.S. Government Printing Office.
Before BERGER, Ad Hoc Chairman.
DECISION AND ORDER
By notice of appeal received on July 5, 1994, The Standard
Register Company, Inc. (Appellant), 8607 Westwood Center Drive,
Vienna, Virginia, timely appealed the June 8, 1994, final
decision of Government Printing Office (GPO or Respondent)
Contracting Officer Raymond Macdonald terminating the Appellant's
contract (Purchase Order M-2925, Jacket 573-927) for default.
For the reasons set forth herein, the Contracting Officer's
decision is REVERSED and the appeal is GRANTED.
I. BACKGROUND
1. On December 29, 1993, the Appellant was awarded a contract
to produce and deliver three (3) million perforated cut sheet
forms with adhesive strips for use as non-impact printed,
pressure sealed data mailers known as "Z" fold data mailers. The
specifications described the required paper stock ("White, OCR
Ledger, basis size 17 x 22", sub. 24 per 500 sheets, equal to JCP
Code 025") and stated that the stock "must be suitable for use on
a Xerox Model 4090 non-impact Printer, a Moore Model 8158 Folder-
Nester, and a Moore Model 4800 Speedisealer." The specifications
also required that "[p]ressure activated adhesive . . . be
applied to 10 areas on face and back of form," and that the
adhesive "be appropriate for use on Moore Model 4800
Speedisealer." Rule 4 File, Tab A.1 (Emphasis in original.)
2. The original contract delivery date was February 11, 1994.
That date was changed to February 18 at the Appellant's request
because of "weather considerations." HT-1 22-23.2
3. On February 15, 1994, the Appellant brought approximately
2,000 forms to the customer agency, the Defense Finance and
Accounting Service (DFAS), for pre-delivery testing.
No problems were noted as a result of that testing. HT-2 7-9.
4. The Appellant shipped 1,632,000 forms on February 16; the
remaining 1,398,000 forms were shipped on March 4.
5. On March 7 DFAS experienced paper jamming problems while
trying to run the Appellant's forms through the DFAS printers,
with DFAS reporting to the Respondent that the paper "will not
run through our printers without jamming" and that "[w]e cannot
use this paper, as it slows our production to a standstill."
Rule 4 File, Tab B.
6. On March 23 representatives of the Appellant and the
Respondent conducted a test run on quantities of forms from the
February 16 shipment. These forms jammed at the start of the
test runs. The problem was alleviated when forms from the
previous supplier were placed at the top of the input tray or
when less paper was placed in the input tray. HT-2 121.
7. On March 24 test runs were conducted on forms from the March
4 shipment. No significant problems were encountered. As a
result, the Contracting Officer proposed that GPO pay full price
for the second shipment if no future problems developed and a
discounted price for the first shipment. HT-1 117-18.
8. On April 5, during a production run using forms from the
March 4 shipment, DFAS "experienced paper jamming on all of the
printers." This jamming occurred approximately 2-1/2 hours after
the run had started in two areas of the printers: "com[ing] out
of the trays, [and] in the flat part on the bottom of the
printers." Rule 4 File, Tab D.
9. On April 18, the Contracting Officer informed the Appellant
that "the Government cannot accept forms that continually have
run problems," that a discount for the first shipment was "no
longer an option," and that he was considering rejecting the
entire order. Rule 4 File, Tab E.
10. In late April the Appellant requested an opportunity to be
present for the next production run. The Contracting Officer,
after consultation with DFAS, denied the request because
it would be a waste of Government time and personnel and because
DFAS was no longer going to try to run the Appellant's forms.
Rule 4 File, Tab F.
11. On May 3 the Contracting Officer proposed to the
Respondent's Contract Review Board that the contract be
terminated for default.3 Approval was given on May 10. Rule 4
File, Tab H.
12. On May 19, DFAS wrote a letter to the Contracting Officer
formally advising that the forms were defective, that it had been
unable to "get through a single production run without
considerable delays caused by the . . . jamming," and that it
did not want a reorder. It described the situation as follows:
The paper was used to print time sensitive military pay
statements. Use of the Standard Register paper resulted in
excessive jamming of printers and slowed production. We
typically have seven days from the time printing begins to the
time the member must have their pay statement in hand. Because
of this short window, excessive delays caused by paper jams are
not acceptable. The jamming appears to be caused by the paper
adhesive heating up during production. The Standard Register
paper works fine for the first few thousand statements, but
begins to jam as the printers heat up. Our production run
consist[s] of more than 430,000 statements. It is not feasible
to stop production to let the printers cool down. With our
former paper supplier . . . paper jamming was not
a problem. We used their paper for almost two years with no
similar problems.
Rule 4 File, Tab D. The Contracting Officer was also informed of
the following from the shift supervisor who was present when the
problems arose:
Once we went into a full blown run [with the Appellant's forms]
we began to encounter problems with fumes caused by the glue on
the forms passing over the heat rollers on the 4090's. This
turned out to be the least of our problems as we soon discovered
that we were getting multiple jams . . . . We found that the
Standard Register forms ran fine for about two hours or until the
machines began to warm up from the heavy processing and then our
problems with the fumes and constant jamming would begin.
Rule 4 File, Tab D.
13. On June 8 the Contracting Officer terminated the contract
for default "because the forms provided did not run
satisfactorily on the specified equipment and the Government no
longer has a requirement for these forms." Rule 4 File, Tab H.
II. POSITIONS OF THE PARTIES
A. The Appellant
The Appellant challenges the default termination on both
procedural and substantive grounds. First, the Appellant argues
that the default notice was defective because it did not provide
for a 10-day cure period. Second, the Appellant asserts that
GPO had accepted the forms and paid for them so that its right to
terminate for default was "foreclosed." Third, the Appellant
states that the Respondent cannot rely on the contract "Warranty"
clause, which provides a 120-day warranty that the supplies
furnished are free from defects and comply with all requirements,
see GPO Contract Terms, Solicitation Provisions, Supplemental
Specifications, and Contract Clauses, GPO Publication 310.2 (Rev.
9-88) (hereafter GPO Contract Terms), Contract Clauses, ¶ 20,
because the Respondent gave no notice of breach of warranty and
allowed no cure period. Substantively, the Appellant asserts
that there has been no showing that the forms furnished by the
Appellant failed to meet any specification requirement. In this
regard, the Appellant states that the paper used met all specific
design requirements set out in the contract specifications and
met the requirement that the paper be "suitable for use on a
Xerox Model 4090 non-impact printer" because the paper met the
paper specifications recommended for that printer. The Appellant
further states that the Respondent in any event could not
properly base a default termination on the "suitable for use"
language because the contract contained no standards by which to
judge compliance with that requirement. The Appellant also
argues that the Respondent, by refusing to allow it to try to
resolve the production run jamming problem, breached its duty to
cooperate with it. Finally, the Appellant argues that the real
reason for the default was that the Government no longer needed
the forms and that the default termination was simply a "pre-
text" for a termination for convenience.
B. The Respondent
The Respondent argues that the default was proper
because the Appellant failed to deliver a satisfactory
product, evidenced by the excessive jamming problems
encountered which prevented DFAS from ever completing a
successful production run with the Appellant's forms.
In this respect, the Respondent asserts that the
contract contained primarily performance specifications
and therefore it need establish only that the
Appellant's forms did not function when used on the
equipment specified in the contract. The Respondent
further argues that, because the Appellant did not make
timely delivery and in fact delivered a product with a
major defect, no cure notice was required. The
Respondent also asserts that it never "accepted" the
forms but that even if it did, the latent nature of the
defect in the forms precluded finality of that
acceptance. Finally, the Respondent, while conceding
that there would be no future need for the forms,
argues that the termination was legitimately one for
default and not for convenience because it was based on
the Appellant's failure to furnish acceptable forms
that the Government had every intention of buying and
using.
III. ISSUES PRESENTED
1. Was the default termination procedurally defective?
2. Did the Respondent properly default the Appellant's contract
because the forms produced by the Appellant failed to satisfy the
contract specifications?
3. Did the Contracting Officer terminate the contract for
default because the forms were no longer needed?
IV. DISCUSSION4
The Appellant's contract allows the Respondent to terminate the
contract for default. One of the three bases for default set
forth in the "Default" clause is the failure to deliver on time.
GPO Contract Terms, Contract Clauses, ¶ 20 ("Default"). Failure
to make timely delivery under the "Default" clause encompasses
both a failure to meet the contract delivery schedule and a
failure to deliver, in accordance with that schedule, a product
that conforms to the specifications. Daff v. United States, 78
F.3d 1566 (Fed. Cir. 1996); Radiation Technology v. United
States, 366 F.2d 1003 (Ct. Cl. 1966); Nash Metalware Co., Inc. v.
General Servs. Admin., GSBCA 11951, 94-2 BCA ¶ 26,780; Big Red
Enterprises, GPOBCA 07-93 (August 30, 1996), slip op. at 27 n.26,
1996 WL 812960. Although a "cure" notice, informing a contractor
of a performance problem and allowing a period of time for
correction of the problem, is required prior to a default
termination for either of the other two bases for default set
forth in the clause, there is no requirement for a cure notice
when a termination for default is based on the failure to timely
deliver. De Vito v. United States, 413 F.2d 1147 (Ct. Cl. 1969);
Artisan Printing Inc., GPOBCA 15-93 (February 6, 1998), slip op.
at 11, 1998 WL ______. While a contract generally cannot be
terminated for default after the Government has accepted a
contractor's tendered goods, K Square Corp., IBCA 959-3-72, 73-3
BCA ¶ 10,363, in light of the "Inspection and Tests" clause, GPO
Contract Terms, Contract Clauses, ¶ 14, which provides that
acceptance is conclusive except for "latent defects, fraud, gross
mistakes amounting to fraud, or as otherwise provided," the
Respondent is not precluded from revoking acceptance and
ultimately terminating a contract for default in cases of latent
defects and gross mistake. Spandome Corp. v. United States, 32
Fed. Cl. 626 (1995); Triad Inc., ENGBCA 5882, 95-1 BCA ¶ 27,290;
Sentell Bros., Inc., DOTCAB 1824, 89-3 BCA ¶ 21,904, recon.
denied, 89-3 BCA ¶ 22219; Jo-Bar Mfg. Corp., ASBCA 17774, 73-2
BCA ¶ 10,311; Catalytic Eng'g & Mfg. Corp., ASBCA 15257, 72-1 BCA
¶ 9342, recon. denied, 72-2 BCA ¶ 9518; Cross Aero Corp., ASBCA
15,092, 71-2 BCA ¶ 9076.
With this in mind, the Board need not spend much time on the
Appellant's procedural objections to the default. The first
objection, the absence of a cure notice, is premised on the
Appellant's assertion that the default was not based on a failure
to timely deliver because "[t]here is no issue concerning a
failure to deliver," App. Pr. Brf. at 9; App. Brf. at 13, and
because GPO "waived strict compliance with the delivery
schedule." App. R.Brf. at 13. The default action here, however,
is not based on a failure to physically deliver by a certain
date; it is based on the perceived unacceptability of what was
delivered. As stated above, a failure to deliver conforming
products is also encompassed by a failure to timely deliver.
Thus, regardless of whether the Respondent waived the original
delivery date, the basis for the default here is one that does
not require a cure notice. The second objection, that a default
termination is precluded because the Respondent accepted and
paid5 for the forms, is also unavailing since it is clear on this
record that if there is a defect in the forms furnished by the
Appellant it is a latent one.6 Finally, the "Warranty" clause
argument is irrelevant here because the Respondent did not seek
the remedies provided by the clause or otherwise rely on it.
The substantive merits of this appeal require somewhat more
discussion. As this Board has often stated, a termination for
default is a drastic action which may be taken only for good
cause and on the basis of solid evidence, with the Government
having the burden of proving the basis for default. Artisan
Printing Inc., supra, at 7; Venture, Ltd., GPOBCA 01-96
(September 26, 1997), slip op. at 13-14, 1997 WL 742427; Big Red
Enterprises, supra, at 24-25, and cases cited therein. In this
case, that means the Respondent must show, by reliable evidence,
that the forms furnished by the Appellant failed to meet the
requirements of the contract.
The contract specifications imposed two kinds of requirements.
First, there were specific design requirements: the paper was to
be "White, OCR Ledger, . . . equal to JCP Code 025." Second,
there was the requirement that the paper stock "be suitable for
use on a Xerox Model 4090 non-impact Printer . . . ." The
Respondent does not assert that the Appellant's forms failed to
meet the detailed design requirements; its position, in essence,
is that the Appellant furnished forms that did not run
satisfactorily on the specified equipment and therefore that it
did not meet the specification requirement to deliver a product
that was suitable for use on its Xerox 4090 printers. As it has
done before, the Respondent says, in effect, that the forms
didn't work, so they must be defective. See Professional
Printing of Kansas, Inc., GPOBCA 28-93 (September 16, 1997), slip
op. at 24, 1997 WL 742498.
Whether the Respondent can satisfy its burden simply by
establishing the failure of the forms to work on the specified
printers depends initially upon the nature of the specifications,
that is, whether they are design specifications or performance
specifications. Design specifications set forth precise
measurements and other specific information that describe and
limit exactly how the contract is to be performed, while
performance specifications set forth operational requirements or
end results to be achieved, with the contractor having the
responsibility and flexibility to choose the means for
accomplishing those results. Stuyvesant Dredging Co. v. United
States, 834 F.2d 1576 (Fed. Cir. 1987); Neal & Co. v. United
States, 19 Cl. Ct. 463 (1990), aff'd, 945 F.2d 385 (Fed. Cir.
1991); Professional Printing of Kansas, Inc., supra, at 27-28.
Where a design specification is used, the Government impliedly
warrants that if the specifications are followed the results will
be acceptable, which means that the Government bears the
responsibility for nonperformance if an item produced in
accordance with the Government's specifications does not work.
United States v. Spearin, 248 U.S. 132 (1918); Hol-Gar Mfg. Corp.
v. United States, 360 F.2d 634 (Ct. Cl. 1966); Professional
Printing of Kansas, Inc., supra, at 25; Colorgraphics Corp.,
GPOBCA 16-87 (March 31, 1989), slip op. at 23-24, 1989 WL 384970.
A performance specification, however, carries with it no such
warranty because it leaves to the contractor's judgment,
ingenuity and expertise the determination of how to achieve the
stated objective. Professional Printing of Kansas, Inc., supra,
at 27, 28, 41-42; Professional Printing of Kansas, Inc., GPOBCA
02-93 (May 19, 1995), slip op. at 57-58, 1995 WL 488488
(hereafter Professional Printing I). If the objective is not
achieved, the
failure "must be laid at [the contractor's] doorstep."
Professional Printing of Kansas, Inc., supra, at 41; see Aleutian
Constructors v. United States, 24 Cl. Ct. 372 (1991).
The Appellant argues that the contract should be read as
containing only design specifications. It states that the
contract language relied on by the Respondent-that the paper
stock must be "suitable for use" on the Xerox 4090 printer-is
ambiguous, but "can reasonably be interpreted as [a design
specification] requiring only that the product meet the paper
specifications recommended for Xerox Model 4090 printers in
general."7 App. Brf. at 16. It asserts that its reading of the
"suitable for use" provision as a design requirement should
prevail in light of the well-established rule of contract
interpretation that ambiguous language is to be construed against
the drafter.
The Board is not persuaded, however, that the provision in
question was ambiguous or, if it was, that the ambiguity played a
meaningful role here. First, the testimony of the Appellant's
witnesses falls short of establishing that the Appellant had
adopted the interpretation for which it now argues. The
Appellant's Washington Metropolitan Area sales manager testified
that he understood the term "suitable for use" to mean that the
paper stock was recommended for the specified printer. HT-2 99.
However, he then elaborated as follows:
. . . the stock that we provided was suitable for that printer.
The specification indicated you were looking for 24 pound paper.
That was the paper we provided. So, in my understanding, that
would be suitable for the printer.
HT-2 99. It is not completely clear what the witness intended
by this statement, but he appears to believe that complying with
the recommended weight satisfied the "suitable for use"
requirement. Regardless of what the witness meant, the value of
his testimony is questionable as he admitted to a very limited
role in the preparation of the Appellant's bid and in contract
performance-he testified that while he oversaw the bidding
process and supervised the individual who was directly
responsible for bid preparation, he did not get involved in the
"intimate details of every order," did not sign bids, and was not
involved in contract performance until he was informed that
problems had arisen. HT-2 88-93. On the other hand, the
employee responsible for preparing and signing the Appellant's
bid testified that he reviewed the specifications "very closely"
and that he thought they meant that the Government "want[ed] the
product to perform on the [specified] equipment." HT-2 34-35.
Another employee of the Appellant, the manager of Materials
Testing and Quality Control, did testify that the Champion paper
selected for this contract conformed to the requirements of JCP
Code 025 and that Champion identifies this paper as intended for
use on the Xerox 4090, HT-2 159-60, but also stated:
In looking at the proper paper, and glue, and process, and
designing a form and everything, we . . . have to look at . . .
what equipment it's going to be used on, if it's a laser printer
. . . and how the form's going to be used . . . .
We have to make sure that . . . our design is compatible with the
use . . . .
The testimony of these latter two witnesses does not support the
Appellant's position, but rather suggests that the Appellant had
a broader view of what the specification language meant than what
is now being urged upon the Board. In short, the testimony
overall is simply insufficient to establish that the Appellant
based its bid and performance on its asserted narrow
interpretation of the "suitable for use" language. The Appellant
therefore is not entitled to rely on that interpretation now.
MCSD Constr. Co., Inc., ASBCA 37226, 37239, 91-2 BCA ¶ 23,986.
Second, the Board has recently ruled that language nearly
identical to that at issue here is by its very nature a
performance and not a design specification. In Professional
Printing of Kansas, Inc., supra, also involving a contract for
cut forms for use by DFAS, the Board considered the word
"suitable" in two different specification provisions. One
provision, relating to packing, required the contractor to "[p]
ack suitable per shipping container"; the other, following (as in
this case) weight, size, and other specific design requirements,
stated that the paper "must be suitable for use on a Xerox 4050
or 4090 printer . . . ." The Board considered both provisions to
be performance specifications. Id. at 35, 43. The Board sees no
reason to reach a different conclusion here.
The Board is aware that while compliance with design or other
stated requirements generally will not excuse a failure to meet a
specific performance requirement, see, e.g., Costello Indus.,
Inc., ASBCA 28731, 89-3 BCA ¶ 22,090; Professional Printing of
Kansas, Inc., supra, at 35; Ahern Painting Contractors, Inc.,
DOTCAB 67-7, 68-1 BCA ¶ 6949; Inlet Co., ASBCA 9095, 1964 BCA
4093, in some cases where a contract contained both design and
performance specifications the contractor was held to have
satisfied the performance specification through its compliance
with the other contract requirements. For example, in Metal
Bldg. Specialties, Inc., ASBCA 8651, 1963 BCA ¶ 3,943, a
contractor was held to have satisfied a performance specification
when it passed the tests specified in the contract, even though
there was a subsequent unexplained operational failure, while in
Datametrics, Inc., ASBCA 16086, 74-2 BCA ¶ 10,742, a contractor
who fabricated a product out of the components and in the manner
specified in the contract was held to have satisfied the
performance specification because it was understood that if the
contractor obtained the specified parts and arranged them in the
pattern and sequence specified, the "operational or performance
characteristics would automatically follow." These holdings
resulted from the particular wording of the specification
provisions and contract terms involved.
Here, the specifications, which are simple and direct, permit no
such interpretation. After imposing weight, size and various
other design requirements for the paper, they state: "Further,
stock must be suitable for use on a Xerox Model 4090 . . . ."
(Emphasis added.) The word "further" clearly reflects an
intention to impose a requirement that is additional to the
requirements already set forth. There is also nothing else in
the specifications or the contract suggesting that the "suitable
for use" performance requirement would be automatically satisfied
by compliance with the design specifications. Accordingly, the
Appellant's compliance with the design requirements of the
specifications is not enough. It must also meet the contract
performance requirement to furnish stock suitable for use on the
Xerox 4090 printer.
As stated above, the Respondent attempts to meet its burden of
proving that the Appellant failed to meet this contract
requirement by establishing that the Appellant's forms jammed on
the printers during attempted production runs and that a
production run was never successfully concluded with those forms.
In so doing, the Respondent does not seek to establish why the
jamming occurred.8 HT-1 73, 237, 281; Resp. Brf. at 10. It
believes that because a performance specification is involved, it
is entitled to rely on the fact that the jamming occurred as
sufficient evidence of the Appellant's noncompliance with that
specification.
In the abstract there are two potential difficulties with that
position. First, the cause of the jamming may not be
attributable to the Appellant. Second, jamming is a relatively
common occurrence 9 ("You have jamming with all forms." HT-1 at
278), so that the fact that some jamming
occurs generally cannot, in the absence of some standard of
nonacceptability, be the basis for a default termination.
There are obviously many potential reasons for paper to jam in a
printer for which a contractor could not be held responsible.
For example, there may be a technical or other problem with the
printer itself, or there may be operator error in the placement
of the paper on the printer. There could also be a problem with
the paper, such as curling or an inappropriate moisture content,
that developed after delivery because of improper Government
handling and storage of the paper. See Professional Printing of
Kansas, Inc., supra (where the paper-caused jamming was held to
be not the Government's fault but the contractor's responsibility
because it did not comply with a requirement to pack the forms in
a manner suitable for preservation and storage). Thus, the
Government's reliance on the "it doesn't work so it's the
contractor's fault" approach carries with it the risk that "it
doesn't work" will not itself establish that the contractor in
fact defaulted on its performance obligations.
Although no specific reason for the jamming has been
authoritatively established, the Board is convinced by the
testimony and record evidence that the jamming was caused by the
forms as they were furnished by the Appellant and not by any
other possible cause. In this regard, the testimony establishes
that (1) the printers on which the forms were used had been
routinely maintained, HT-1 260, and, other than when the
Appellant's forms were used, operated properly, and (2) the paper
was not subject to any unusual or improper storage or other
handling by the Government and was handled and stored in the same
manner as was the paper provided by the previous supplier. HT-1
147-49, 153-54, 219-20. There is also no suggestion that
operator error was a cause of the jamming. Thus, notwithstanding
the abstract concern, the Respondent's position that the forms
furnished by the Appellant were somehow at fault is a reasonable
one warranted by the facts and circumstances of this case.
The other abstract difficulty is more problematic, however. It
is not disputed that the Appellant's forms, to some degree, did
work on the printers. After jamming on March 7 and some initial
jamming during the March 23 test run, the forms ran without
difficulty during the March 24 test run, and ran for
approximately 2 to 2-1/2 hours during the April 5 production run,
with approximately 50,000 forms processed successfully, before
jamming started. HT-1 74, 76, 144; HT-2 102. They would also
run again if the printers were allowed to cool down for about 20
minutes. HT-1 272. This was unacceptable to the DFAS because it
was using the forms in a large, time-sensitive production run
(430,000 forms) that didn't permit stopping production to allow
the printers to cool. Rule 4 File, Tab D. The Appellant's
contract, however, did not specify that the forms had to work on
the 4090 printers in a non-stop mode until 430,000 or any other
number of forms were processed. The contract stated only that
the paper was to be "suitable for use" on those printers. The
contract provided no clue as to how "suitable" was to be judged
or, in the words of the Contracting Officer's termination letter,
how "run satisfactorily on the specified equipment" was to be
determined.
One of the predecessor panels10 to this Board faced this type of
situation in Elgin Business Forms, Inc., GPOCAB 10-84 (October
19, 1984), slip op., 1984 WL 148108, a case heavily relied on by
the Appellant. Elgin had been awarded a contract for 270,000 6-
part marginally punched continuous forms. The contract
identified the printer on which the forms would be used and
stated that the forms produced had to be "suitable for their
intended use" and "ensure satisfactory continuous operation over
makes, kinds of equipment, and usage specified." The customer
agency reported that all 540 cartons of forms were unacceptable
for reasons that included misalignment of the carbon which caused
the paper to jam in the printer. A subsequent inspection,
involving two cartons of forms, revealed that the paper holes did
not line up with the carbon holes. In two subsequent tests, each
also involving two cartons, jamming because of that misalignment
occurred three times, zero times, four times, and two times,
respectively. The panel overturned the ensuing termination for
default, stating that the specifications were deficient because
they did not contain a precise statement of the Respondent's
performance requirements and "how it would test to determine
conformity with those requirements." Id. at 5. The panel noted
that it was "unaware of any product which runs continuously
without ever stopping" and that the term "satisfactory" in the
specifications "implied . . . a contemplated standard of
operation which expects some stoppages." Id. at 7. The panel
held that the inspection of two cartons out of 540 and the
testing on two occasions of two cartons did not provide a proper
basis for default because of the sample size (the panel heard
testimony that 13 cartons would have been the appropriate test
sample) and the absence from the specifications of any
performance level the forms were required to meet, i.e., "how
many stoppages constitute satisfactory?" Id. at 7.
This Board has also previously been called upon to deal with the
absence of standards in connection with a performance
specification. In Professional Printing I, supra, the contractor
was required to deliver 600,000 "Security Prescription Form"
pads. The specifications required the forms to be manufactured
in such a way that the word "void" would appear three times on
any electrostatically reproduced copy of the form. Before
shipping, the contractor successfully tested the forms on its own
copying equipment as well as on several other machines. However,
after delivery the customer agency complained that the forms did
"not void," and when GPO tested the forms "void" failed to
appear on the copies made on three different copy machines. GPO
rejected the initial shipment and ordered the forms to be
reprinted. The Board, endorsing the holding in Elgin, held that
GPO improperly rejected the forms because the contract provided
no standards by which to judge the acceptability of the forms
with respect to the "void" requirement. The Board, noting that
in subsequent testing success was achieved on all nine copiers
used by the contractor but on only one of five used by GPO,
pointed out that differences in the machines, rather than any
defect in the forms, could have produced that result. The Board
stated that "[i]f the Respondent intended the 'VOID' pantograph
to reproduce on all photocopiers, it should have expressly told
the Contractor so. . . . On the other hand, if the Respondent .
. . meant to indicate that product acceptability could be
something less than total success with respect to copying, then
it had an obligation to make that clear to the Contractor; e.g.,
identify which brand of photocopiers or range of machines would
be used, or establish a failure rate for copying . . . ."
Professional Printing I at 75. (Emphasis in original.)
These two decisions reflect the established rule that before the
Government may reject a contractor's product, it must first
establish specific, quantifiable, objective, and firm criteria
indicating the level of quality which the product is expected to
meet. Custom Printing Co., GPOBCA 28-94 (March 12, 1997), slip
op. at 70, 1997 WL 128720, recon. denied, July 10, 1997, 1997 WL
742505; A & E Copy Center, GPOBCA 38-92 (September 25, 1996),
slip op. at 19, 1996 WL 812881. In the absence of such criteria,
Government agencies will not be permitted to reject a
contractor's deliverables on the basis of some subjective
determination of unacceptability or noncompliance since it
obviously would be unfair to "leave a contractor 'in the dark'
with respect to the quality standards it is expected to strive
toward, and then rely on unclear, subjective, or indefinite
standards to reject a product." A & E Copy Center, supra, at
19-20; Professional Printing I at 69. Thus, in cases where the
necessary criteria were missing, boards of contract appeals have
unhesitatingly overturned contracting officer decisions to reject
(1) discolored freeze dehydrated pears, Wornick Family Foods Co.,
ASBCA 41317, 41318, 41389, 94-2 BCA ¶ 26, 808 (no contract
provision for rejecting fruit for discoloration); (2) contractor-
provided briefings, John L. Hall dba Taiga Resource Consultants,
AGBCA 92-217-1, 93-3 BCA ¶ 26,212 (contract criteria not specific
enough to support a deduction for a failure to provide
sufficiently thorough briefings); (3) a contractor's source of
rock, Shirley Contracting Corp. and ATEC Contracting Corp.,
ENGBCA 4650, 85-3 BCA ¶ 18,214 (no objective performance criteria
combined with use of standards exceeding those prevailing and
accepted in industry); (4) grave liners for failure to prevent
sinkage in graves, Chandler-Wilbert Vault Co., VACAB 1444, 80-2
BCA ¶ 14,682 (no specified test or standard in the contract for
sunken graves); (5) an electrical harness first article because
of too many air bubbles, Mid-American Eng'g & Mfg., ASBCA 20939,
78-1 BCA ¶ 12,870 (criterion that there be no or almost no
bubbles too indefinite); and (6) a printed manual because of the
presence of binding stubs, Custom Printing Co., supra (no
contract provision or quality standard prohibiting the stubs).
See also A & E Copy Center, supra (product could not be rejected
because of poor quality where no quality standard was specified).
As stated above, nothing in the contract explicitly establishes a
standard or criterion for determining the degree of paper-caused
jamming that would be acceptable. Neither can the Board find a
relevant criterion in the Respondent's Quality Assurance Through
Attributes Program (QATAP), GPO Publication 310.1 (revised
November 1989), incorporated by reference into the contract.
Rule 4 File, Tab A, p. 5. There is also no evidence of an
industry standard. See Professional Printing of Kansas, Inc.,
supra, at 47 (where a contract fails to establish acceptance
criteria, the standard against which contract work is measured is
"the standard customary within the industry.") Of course, the
Board, even in the absence of the needed criteria, will not
interpret the contract in a way that produces an "unreasonable
and bizarre" result. Professional Printing I at 51.
Accordingly, under the circumstances here, if the forms did not
run on the DFAS printers at all the Board would have no
hesitation in finding that contract requirements were not met
since the contract clearly required forms that would run on the
specified printers. In other words, had the forms continually
jammed up at the outset of the production run the Appellant would
have been hard put to establish that the forms were not
defective. The jamming that led to the default termination,
however, did not occur at the outset of the production run. It
occurred after thousands of forms had been processed. While DFAS
clearly wanted and expected to receive forms that would not
unduly jam in the midst of its production runs, an eminently
reasonable position, the contract did not establish any specific
large production run requirements and the record is devoid of any
indication that the Appellant, furnishing these forms to DFAS for
the first time, HT-1 20-21, 174, otherwise knew or should have
known of that requirement. That is, there is no testimony or
other evidence establishing, for example, that all DFAS
requirements or DFAS requirements for Z-fold forms were known to
involve only large, continuous production runs, or that the
specified printer is used only for such runs. In fact, the
testimony indicates the opposite: one of the Respondent's own
witnesses, a DFAS employee, testified that there came a time when
"we knew we wouldn't need [the forms] for our big production
runs. Our plans were to use those for other smaller jobs that we
had until we used up the stock."11 HT-1 235.
In essence, what we have here is a customer agency with a need
for forms that do not jam during high-volume production runs and
a contractor that was told on what equipment the forms would be
used but not of the nature or extent of the production runs for
which the forms would be used and not of any minimum performance
requirement regarding jamming. In this regard, the Board has
noted that perfection is a standard that is not often achieved,
so that allowance must be made for some "acceptable level of
imperfect performance," a point recognized in both the
Respondent's QATAP and the general rule that performance
specifications are not as strictly enforced as design
specifications. Professional Printing I at 53. The Contracting
Officer testified that he was not expecting "absolute
perfection," but that "the vast majority of forms, almost the
entirety of the forms would be expected to run." HT-1 at 65.
Since there was no apparent single production requirement for the
use of all 3 million forms furnished under the contract, the
Board assumes that this statement means that the Contracting
Officer expected that the forms needed for each production run
would run with only minimal jamming. And that, of course,
illustrates the problem here-the anticipated size of the
production runs and the expectation that "almost the entirety of
the forms" would run without difficulty regardless of the size of
the runs was not communicated to the Appellant; the expectation
is also too vague and indefinite to be a meaningful standard.
Unlike the quandary Justice Stewart faced over efforts to
establish a standard for judging obscene material ("I know it
when I see it." Jacobellis v. Ohio, 378 U.S. 184, 197 (1964)
(concurring opinion)), this is not a situation where a meaningful
standard could not have been articulated. The solicitation and
contract could have specified the production run levels
anticipated for the forms, thus putting the Appellant on notice
of the performance that would be required of the forms. The
solicitation and contract also could have established a specific
failure rate with respect to jamming. In this respect, the Board
notes that the General Services Administration, in a Commercial
Item Description (CID) (available for use by all federal
agencies) for paper used with copiers and laser printers, has
been doing just that for years. The CID specifies a performance
test on a specific type of machine-a high speed copier making
more than 85 copies per minute-and provides that "[t]here shall
be no more than one paper caused jam per 5000 copies with single
sided copying . . . ." CID A-A-1912C, April 8, 1994, ¶ 3.3.1.
(An earlier version of the CID, A-A-1912B, November 9, 1983,
contained the same requirement.) Other agencies have imposed
similar requirements. See Rohr-Plessey Corp., PSBCA 36, 76-2
BCA ¶ 11,995, where the functional requirements for a mail
sorting machine provided that "[m]achine caused jams shall not
exceed one minute for one slot [of 48] . . . for each 15 minutes
machine running time."
The Respondent seeks to distinguish Elgin and escape the
consequences of its holding by asserting that (1) "the paper
jamming which occurred was excessive, resulted in serious
production delays, and . . . Respondent was unable to complete a
single production run using Appellant's product," and (2) the
"characterization of [this] performance . . . as not satisfactory
was based upon the input, observations, and opinions of several
experienced and knowledgeable persons. Resp. Brf. at 7. The
Board is not persuaded by this argument. Since the contract
contained no standard for measuring the performance of the forms
and since a production run of approximately 50,000 was possible,
with additional forms processing possible after a 20-minute break
in production to allow the printers to cool down, the Board is
simply unable to conclude on this record that the jamming and
delay DFAS experienced prior to and during the April 5 production
run automatically leads to the conclusion that the contractually-
required performance was not satisfactory or that the forms
furnished were not suitable for use on the specified printers.
The Board also has some concern about the circumstances of the
default termination. It appears to the Board that the default
was motivated to some extent by the DFAS decision to discontinue
its in-house printing of the military pay statements and to
contract with commercial sources for that work. This changeover
had been planned for some time prior to the award of the contract
to the Appellant, and although there was an anticipated
implementation date in May or June of 1994, HT-1 80-82, 158-60,
the problems DFAS encountered with the Appellant's forms
"hastened
its decision to change over to the new system," HT-1 81, which
it did by mid-April, HT-1 159-60, or mid-May. HT-1 229.
Relying on these facts and on the Contracting Officer's
termination letter which stated that the contract was being
terminated "because the forms did not run satisfactorily . . .
and the Government no longer has a requirement for these forms,"
the Appellant asserts that the default termination was a "pre-
text" for an actual termination for convenience. The second part
of the quoted language is certainly susceptible to that
interpretation. The Contracting Officer, however, testified that
in using that language he was not specifying a separate basis for
default, but only that there would be no reprocurement with its
potential for reprocurement costs to be assessed against the
Appellant. HT-1 120-22. This explanation is consistent with the
Contracting Officer's May 3 memorandum to the Contract Review
Board proposing that the "contract be terminated for default with
no excess reprocurement costs assessed against the contractor as
the government no longer requires this item." Rule 4 File, Tab
G. The Board finds the Contracting Officer's testimony to be
credible.
Nonetheless, it is difficult to escape the conclusion that if the
need for the Z-fold forms had remained, DFAS and the Contracting
Officer would not have been quite so quick to give up on the
Appellant's forms. The Contracting Officer testified that he and
DFAS considered it a waste of time to give the Appellant an
opportunity to observe another run of its forms and to try to
determine the cause of the jamming problem because they
considered the matter to be a quality assurance problem of the
Appellant's, the correction of which would require having the
forms redone, and, in light of the new contracting out approach,
they were not sure that they would ever do another production
run, which would mean there would be no need for redone forms.
HT-1, 55-56, 101-109. Implicit in this explanation is that if
DFAS had continued with in-house production, there would have
been a need for the forms, and the Respondent, instead of
terminating the Appellant's contract for default, might have
provided the Appellant with an opportunity to determine the cause
of the jamming and to fix it, which might or might not have
involved redoing the forms. In this regard, the Contracting
Officer, when asked if it is GPO "policy or practice to try and
resolve problems that come up in the job," responded "Sure.
Certainly." HT-1 101. The contract's "Inspection and Tests"
clause, supra, in paragraph (f), also gives the Contracting
Officer the discretion to either reject or require correction of
nonconforming supplies. It appear to the Board that the
Contracting Officer allowed DFAS' unhappiness with the
Appellant's forms, along with DFAS' new contracting out approach,
to essentially take away that discretion and motivate him to
simply get rid of the Appellant. The Federal Circuit takes a dim
view of default terminations based on such motivations. See
Darwin Constr. Co. v. United States, 811 F.2d 593 (Fed. Cir.
1987). Also, while the fact that the Government no longer needs
the contracted for item cannot preclude an otherwise proper
default termination, Artisan Elecs. Corp., ASBCA 14154, 73-1 BCA
¶ 9,807, aff'd, 449 F.2d 606 (Ct. Cl. 1974), that fact by itself
is not a proper basis for a default termination, but rather for a
termination for convenience. See John Cibinic, Jr. and Ralph C.
Nash, Jr., Administration of Government Contracts 1076 (Third Ed.
1995).
V. ORDER
For the foregoing reasons, the Board concludes that the
termination for default of the Appellant's contract was improper.
The termination for default is converted to a termination for the
convenience of the Government and is remanded to the Contracting
Officer with instructions to negotiate an appropriate payment
settlement. See Graphics Image, Inc., GPOBCA 13-92 (August 31,
1992), slip op., 1992 WL 487875. In negotiating that settlement,
the Contracting Officer may consider any appropriate discounts to
which the Respondent would be entitled.
The Contracting Officer's final decision terminating the
Appellant's contract for default is REVERSED, the appeal is
GRANTED, and the matter is REMANDED to the Contracting Officer
for the negotiation of an appropriate termination for convenience
settlement.
It is so Ordered.
March 23, 1998 Ronald Berger
Ad Hoc Chairman
GPO Board of Contract Appeals
_______________
1 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 August 26, 1994. It is referred to
herein as the Rule 4 File, with an appropriate Tab letter also
indicated. The Rule 4 File consists of Tabs A through I.
2 A hearing was held in this matter on April 11 and 12, 1995.
There is a separate transcript for each day of the hearing. The
Board will refer to the transcripts as HT-1 and HT-2 with
appropriate page citations.
3 The Respondent's regulations require the contracting officer to
seek concurrence from the Contract Review Board before
terminating a contract for default. Printing Procurement
Regulation, GPO Pub. 305.3 (Rev. 10-90), Chap. I, Sec. 10, ¶
4.b.(i).
4 In addition to the Rule 4 File and the hearing transcripts,
this decision is based on: (a) the Appellant's letter of August
24, 1994 (Complaint); (b) the Respondent's Answer; (c)
Appellant's Prehearing Brief (App. Pr. Brf.); (d) Respondent's
Brief (Resp. Brf.); (e) Appellant's Post-Hearing Brief (App.
Brf.); (f) Respondent's Reply Brief (Resp. R.Brf.); and (g)
Appellant's Post-Trial Reply Brief (App. R.Brf.).
5 The Respondent paid the full contract price for the forms, and
subsequently recouped its payment through offsets against other
funds due the Appellant for other work. HT-1 at 72, 113-14; HT-2
at 87-88.
6 A latent defect is one that existed at time of acceptance but
could not have been discovered by observation or reasonable
inspection. ABM/Ansley Business Materials v. General Servs.
Admin., GSBCA 9367, 93-1 BCA ¶ 25,246. There is nothing in the
record suggesting that any defect was or would have been apparent
through a careful observation of the forms delivered by the
Appellant. While there was testimony that the Appellant's forms
were "lighter" or not as thick as the forms furnished by the
previous supplier, HT-1 at 286, 289-90, there is no evidence that
this physical difference indicated a defect that would cause the
forms to jam. See Norair Eng'g Corp., ENGBCA 5244, 92-2 BCA ¶
25,009 (where the Government knew that the contractor was using a
substitute material but didn't know that the substitute material
was defective). There was also no obligation on the part of the
Respondent to test the delivered forms. While the respondent had
the right to test under the "Inspection and Tests" clause, it was
not required to do so, and its non-exercise of its right to do so
did not relieve the Appellant of its responsibility to inspect
and to deliver "only supplies that have been inspected . . . and
have been found by the contractor to be in conformity with
contract requirements." See Wickham Contracting Co., ASBCA
32392, 88-2 BCA ¶ 20,559 (where the duty to inspect and test was
the contractor's and defects were not discernable through a
visual inspection).
7 The Appellant states that "[t]he Champion paper used by
Standard Register did in fact meet these recommended
specifications." App. Brf. at 16.
8 The customer agency believed the problem to be the reaction of
the adhesive on the forms to the heat generated by the printers,
Rule 4 File, Tab D; HT-1 at 286, as well as the relative thinness
of the Appellant's forms. HT-1 at 286, 289. However, when the
Appellant measured the thickness of its forms and of the forms
from the previous supplier, they were found to be "virtually
identical." HT-2 at 126. No testing was performed on the
adhesive and it has not been established on this record that the
adhesive was the source of the jamming problem.
9 The Government typically seeks to minimize the effects of paper
jamming rather than to completely eliminate it. See, e.g.,
Information Int'l, Inc., 59 Comp. Gen. 640 (1980), 80-2 CPD ¶ 100
(paper jams evaluated during benchmarking of scanning equipment);
A.B. Dick Co., B-220144, Nov. 26, 1985, 85-2 CPD ¶ 606 (agency
preferred printing equipment that came with a paper jamming
detection system).
10 Prior to the creation of this Board in 1984, ad hoc panels
heard and decided disputes between GPO and its contractors. The
Board cites the decisions of these panels as GPOCAB. While the
Board does not consider itself bound by the decisions of the ad
hoc panels, its policy is to follow the rulings where applicable
and appropriate. See Rose Printing, Inc., GPOBCA 32-95 (December
16, 1996), slip op. at 27 n.28, 1996 WL 812880.
11 That DFAS has small as well as large production runs is
reflected in Professional Printing of Kansas, Inc., supra, where
the appellant in that case complained that it "had no way of
knowing that the material was to be stored over a period of a
year or more, and used only at a rate of 50,000 or so per month,
as opposed to being used all on one job." Id. at 11.