U.S. Government Printing Office
Contract Appeals Board
Appeal of Electronic Composition, Inc.
December 22, 1978
Jay E. Eisen, Chairman
Drew Spalding, Member
Samuel Soopper, Member
Panel 76-19
This timely appeal of Electronic Composition, Inc. (ECI or appellant), 7315 Wisconsin Avenue, NW.,
Washington, D.C. 20014, comes before the Board following a decision of the Contracting Officer on
November 29, 1976, to terminate for default Contract No. 8682. The decision of the Board is based
upon information contained in the Appeal File, the transcript of a hearing which was held during
July 21 - 22, 1977, and post-hearing submissions of both of the parties. Lisa Anderson, Esq. and
O.S. Hiestand, Jr., Esq., of Morgan, Lewis and Bockius, appeared for the appellant and James Lane,
Esq., Office of General Counsel, was the attorney for the Government.
Summary
Contract 8682 required the appellant to install and license a computer software program known as
the Electronic Typography System (ETS), grant a license for the exclusive use of ETS and provide
other related services to the Government Printing Office (GPO). ETS was an automated page
composition system which would work on GPO's IBM 360/370 computers under DOS (disc operated
system). The second phase of the contract required the conversion from DOS to OS (Operating
System). For the installation of ETS under DOS, GPO was to pay $30,000. The cost of the
conversion to OS was $25,000, for a combined total consideration of $55,000. Because of the
default termination referenced above, no money was paid to appellant.
A Cure Notice issued to appellant on October 22, 1976, maintained that ECI had failed to abide by
the contract in that it failed to provide operating instructions for all programs by August 13,
1976, and failed to pass acceptance tests for the VideoComp 500 and Linotron 1010. The Cure Notice
also asserted that the ETS did not produce pages at an adequate speed, did not have any restart
capability or any multi-volume (reel) input or output capability. After what appeared to GPO to be
a failure to remedy these discrepancies a Show Cause Notice was issued on November 5, 1976, which
was followed by an oral stop work order on November 17, 1976. A telegram dated November 29, 1976,
formally terminated the contract in its entirety pursuant to the Default provision. (Para. No. 11)
of the contract. Appellant appealed this decision in a letter dated December 29, 1976.
For its part, appellant maintains that it performed all of the contractual requirements and in a
timely manner. It claims that the items which were cited as discrepancies in the Cure Notice were
either performed, or alternatively, were cured by subsequent actions of ECI. Moreover, the
appellant maintains that the additional alleged deficiencies of inadequate processing time, lack of
restart and multi-volume capability, and other miscellaneous problems with the program were either
not required by the contract or were successfully demonstrated during the benchmark tests which it
produced. Appellant points to the contract provision which allowed for the purchase of
"enhancements" to the basic ETS and claims the capabilities GPO desired of ETS could have been
provided in return for the payment of additional consideration to ECI.
Appellant also argues that the GPO defaulted this contract because of a post facto realization that
ETS would not perform as anticipated, and that GPO's only response has been to mechanically default
this contract, rather than acknowledge these errors and take a more proper course of action.
Having concluded that the default was improper, we grant the appeal. By stipulation of the
parties, quantum issues were not considered by the Board and are remanded to the parties for the
purposes of negotiation, with the appellant having a right of appeal to the Board in the event of a
disagreement.
FINDINGS OF FACT
In 1967, GPO had acquired a computer software package, known as the Master Typography Program (MTP)
which was used to prepare text data for photocomposition on GPO's Linotron 1010 Electronic
Composing Systems. While the MTP was developed primarily to process larger quantities of tabular
data for photocomposition, it also had the capability of processing conventional text matter. The
demands made on the MTP for the processing of text matter increased and MTP's limitations in this
area became more critical to the GPO. The primary limitation was that the program would not have
enough typesetting algorithms or logic unique to the various functions required to be able to
produce larger publications such as the United States Code, Federal Register, or the Code of
Federal Regulations. (Tr. II-233; Appeal File ("AF") - Tab D-9) These publications were described
as "massive'' by one Government witness, with the U.S. Code being 25,000 pages, the Code of Federal
Regulations approximately 75,000 pages and the Federal register a couple of hundred pages per day.
(Tr. II-233)
As a result of GPO's commitment to automate (computerize) the production of these larger
publications, GPO entered into negotiations with the appellant's representatives in the early
months of 1976. The principal participants in these negotiations were Elmo L. Wood, Superintendent
of the Electronic Photocomposition Division (EPD), and Mr. Donald Rollert, a Printing Specialist in
the Office of the Superintendent of EPD (and later Project Officer for the subject contract) for
the GPO; and Merle A. Coe, Vice-President, and James L. Leithauser, Typographical Designer and
Systems Specialist, for ECI. These negotiations concerned the possible acquisition by GPO of a
software program which ECI had developed and owned which used the same locator concept as the MTP.
The concrete results of the negotiations were a series of proposals written by ECI personnel and
presented to representatives of the GPO. ((AF) Tab O-1, 2, 3: Tr. I-142) In at least one instance,
GPO's technical representative (Rollert) insisted upon a change in the proposal which ECI then
implemented. (Tr. II-271)
It is clear from the record that GPO was primarily interested in the ECI program because it had
evolved out of the MTP system which was resident at GPO. Also, part of the confidence that GPO had
in the ETS was due to a long-standing professional relationship between Rollert and Leithauser,
both of whom had worked together on the MTP when it was being developed by Mergenthaler Linotype
for the GPO. (Tr. II-236-7) The record also amply demonstrates the particular reliance placed
upon Mr. Rollert's judgement and opinions by the GPO Contracting Officer, Mr. Samuel Story. In
fact, Mr. Rollert apparently wrote the contract's technical specifications (Tr. II-124), even
though he acknowledged he did not know anything about contracts. (Tr. II-235, 268) As will be
seen later, several communications from Mr. Story to the appellant use Mr. Rollert's language
verbatim and Mr. Story testified that since he could not make technical judgments about the
appellant's software program, he relied on his technical advisors. (Tr. II-157-157, 160; See also
testimony of Mr. Wood, regarding Mr. Rollert's role during contract performance. (Tr. II-147, 149)
The discussions between ECI and GPO personnel resulted in a final proposal submitted by ECI, dated
March 31, 1976. (AF, Tab A-4) This proposal claimed that the installation of ETS for GPO's
exclusive use would achieve the following objectives: (quoting in part)
"1. Standardize the Linotron 1010 and VideoComp 500 operation.
. . .
2. Typeset MTP-Formatted [sic] Data File on either the Linotron 1010 or VideoComp 500.
The ability to use data in the existing MTP format means that the GPO will not need to issue new
data format specifications or retrain the various user agencies. ETS will enable GPO to run the
user agencies' work on either the Linotron 1010 or VideoComp 500. GPO control over operations will
be simplified because neither additional data formats nor separate conversion computer runs will be
required.
3. Provide VideoComp 500 Pagination Drive Capability at the GPO.
The ETS has been thoroughly proven under production conditions on the VideoComp 500 at U.S. News
and World Report here in Washington, D.C.
4. Provide Locator Capability on the VideoComp 500.
. . .
5. Enhance Page Makeup Capability on Both the Linotron 1010 and VideoComp 500.
ETS provides footnote, automatic headings (first/last, continued, running, overlap), multiple
column text and footnotes (1 to 9 columns), single column floating graphic reserve, advanced page
splitting and justification and folio capacity. . . .
6. Provide Enanced [sic] Hyphenation on Both the Linotron 1010 and VideoComp 500.
ETS uses the IBM 360 Hyphenation program. The quality of the hyphenation provided by the program
has enabled ECI to fulfill the hyphenation requirements of a wide range of government agencies
during the past several years. The hyphenation dictionary feature of the system will enable GPO
staff to add new words which hyphenate improperly, to the dictionary as they are encountered.
Perfect high speed hyphenation is thus available because only words which hyphenate improperly
using logic need be added to the system by the designer." (AF, Tab A-4)
The proposal continued:
"ETS presently runs on either an IBM 360/30 or IBM 360/40 under IBM DOS. The programs require 128K
core, 5 tape units, one 2314 (or larger) disk, reader/punch, and printer. Depending upon page
complexity and density, the running time averages 36 - 50 seconds per page. The present 2314 disks
at GPO will meet system disk requirements." (Emphasis added.) (AF, Tab A-4)
ECI proposed a three step acceptance benchmark test in order to demonstrate the system's
acceptability using the GPO's computer center, VideoComp 500 and Linotron 1010. Also, ECI would
install the computer programs on GPO's computer, help design locator and grid cards, assist in
running the programs and supply a Coast Pilot test file. Mr. James Leithauser was designated as
ECI's Project Manager.
During the test period, according to the proposal, GPO would (1) supply grid information and
keypunch the grid cards with design assistance from ECI staff, (2) design and keypunch the format
parameter cards, (3) supply the test data files for the "Bill" format and the GPO designed test,
(4) provide computer software systems support on the GPO computer, including hardware system
assignment and Job Control Language and cataloguing assistance, and (5) operate the GPO computer
during compilations and test runs. After the system was successfully demonstrated, ECI would
license the ETS system to the GPO for its exclusive use. The fee for this license and other
associated tasks was proposed at $30,000. The proposal also offered to convert the existing DOS
ETS Program to OS, once the original benchmark tests had been completed, at a cost of $25,000.
Included with the proposal was a schedule which indicated the times that certain tasks would have
to be performed. This schedule shows that once the GPO had finished its preparation of the grids,
data and locators, ECI would begin to install the program. The benchmark test for the installation
of ETS on the VideoComp would be performed and finished during the fifth week after ECI commenced
work. After that point, ECI would begin the installation of the ETS on the Linotron and the
benchmark test for this aspect of the program would be completed during the ninth week. The
conversion to OS from DOS would be accomplished from the 10th to the 19th weeks. (AF, Tab A-4)
The proposal made no reference to automatic restart capability or automatic multi-volume
capability, and while the proposal did contain a reference to the production capabilities of ETS at
U.S. News and World Report, no representation was made that ETS would be able to process jobs
''economically" or that it would be capable of handling any particular publication produced at the
GPO. In this regard, the testimony of the GPO Project Officer, Mr. Rollert, was that GPO did not
buy ETS to produce only the U.S. Code. (Tr. II-273) Mr. Rollert also testified that during the
negotiation stage (February - April 1976), no explicit references were made by the parties
concerning restart or multi-volume capability. (Tr. II-274)
In the latter part of May, 1976, Mr. Rollert had the opportunity to visit ECl's operation. At that
time, he toured ECI and observed how data was keyed, however, he did not actually observe the
system operating because he declined to go to another plant (Montgomery Data) and watch the ETS
system run on the computer system there. (Tr. I-184; II-236) Mr. Rollert also acknowledged a
failure to fully investigate and inquire into ETS's capabilities. Specifically, he testified:
"[T]he ETS has evolved from the IBM 360 MTP that is presently resident at GPO. This had great
appeal to us, and we entered into fairly lengthy discussions with Merle Coe and Jim Leithauser.
Obviously, with 20-20 hindsight you know, there are many questions which I wish I had asked them;
but I didn't. There are many pieces of information which especially Leithauser had at his
fingertips, and knowing me, and knowing my basic approach on things, I'm sorry he did not volunteer
it, but that is water under the dam. Certain things in the system, such as, does it justify lines,
can it vary type face [sic], do all these things? These were never discussed, because possibly too
much familiarity breeds contempt." (Tr.II-234-5)
On June 14, 1976, the Superintendent of EPD directed a memorandum to the GPO Director of Materials
Management Service in which he sought "sole source" justification for the acquisition of the ETS
Software Program. In that memorandum, Mr. Wood specifically mentioned the need to enhance the MTP
so that the U.S. Code, Congressional Bills and Code of Federal Regulations could be produced. He
also stated "it [ETS] contains the features required to completely automate the publications
mentioned above as well as many others." (AF, Tab D-9) Mr. Wood had earlier stated, in another
internal memorandum to the GPO Committee for the Modernization of Machinery and Equipment, that
"the program [ETS] is operational and has all the features of our MTP plus all the additional
capabilities listed on page 2 [of the same memorandum]." (AF Tab U-1, p.3) On page 2, the future
plans of GPO and of the EPD were discussed and the cost to GPO of adding the enhancements that were
needed to the then existing MTP was estimated at $125,600. GPO estimated the cost savings in the
first year, if GPO were to license ETS from ECI, at $43,300. (AF, Tab U-2)
On June 29, 1976, Carlton Combs, Jr., President of ECI, came to GPO and signed a copy of Standard
Form 33, "Solicitation Offer and Award," No. 18330, which had been prepared by the GPO based on.the
ECI proposal and the attendant discussions. That same day, Mr. Combs, accompanied by Mr. Merle
Coe, picked up Attachments A and B to the Solicitation and signed a receipt therefore. (AF, Tab S)
Attachment A was a seven-page document entitled "Specifications for Test Tape Functions and
Characters". The first page of this Attachment contains twelve numbered paragraphs each of which
were directions for the implementation of ETS. Pages 2-7 begin with a page entitled "A list of
locators and how they are used in the mark-up of the U.S. Code". (AF, Tab Q) Attachment B was a
reel of magnetic tape which was intended to be used as a test tape during the performance of the
contract. On June 29, 1976, Mr. Coe and Mr. Combs left GPO with a copy of the contract and
Attachment B. (Tr. 1-116) The test tape had been prepared by GPO, in the words of Mr. Coe, to
ensure that GPO could "put all of the features on the test tape and into Attachment A, that they
were going to require, and since they were going to be in control of doing all that, that they
would have a real firm handle on what ETS would do. To be sure that ETS then would meet their
requirements." (Tr. 1-152)
After the appellant had signed the solicitation, GPO began its own internal procedures to get
approval for awarding the contract. Award was formally made on August 6, 1976, when Purchase Order
No. 8682 was executed and the original solicitation was signed by the Contracting Officer. (AF,
Tab A-3) Testimony at the hearing established that the appellant, through Mr. Combs and Mr. Coe,
actually picked up the purchase order and contract from Mr. Story on Monday, August 9, 1976, after
receiving a telephone call on Friday advising them of the award. (Tr. I-105-106, 133-134, 156; AF,
Tab O-4,5)
The contract contains the following provisions which are relevant to this appeal:
"SCHEDULE
Page No. 8
SECTION A - SUPPLIES / SERVICES
ITEM
No. DESCRIPTION QUANTITY UNIT AMOUNT
1. The Contractor shall provide and install the 1 Lot $30,000
Electronic Typography System (ETS) and
grant the Government Printing Office a license
for exclusive use at the U.S. Government
Printing Office. This will also include the cost
of the Object Computer Programs, user
documentation and twenty hours of
2. The contractor shall convert the system 1 Lot $25,000
specified in item 1 above to operate
under IBM OS and in accordance with the
terms and conditions of this contract.
TOTAL $55,000
SECTION B - DESCRIPTION / SPECIFICATIONS (FOR ITEMS 1 & 2)
The Contractor shall license, install, and convert to OS usage, the (ECl) Electronic Typography
System (ETS) for exclusive use at the Government Printing Office and shall accomplish the
following:
The Automated Page Composition System shall have the capability of producing driver tapes for the
Linotron 1010 and the VideoComp 500 containing fully made up pages in accordance with the format
design specifications (attachment A) from the input tape containing the test data (attachment B).
. . .
The system installation plan shall consist of the following tasks which will be performed by the
contractor to the schedule specified.
(Schedule in weeks after date of contract)
SECTION B - DESCRIPTION / SPECIFICATIONS (CONT.)
Page No. 9
Completion
Date Task
1. One Week Assist G.P.O. personnel, as required, in the preparation of
VideoComp grid (character width) tables.
2. One Week Deliver operating instructions for all programs to be
installed.
. . .
7. Six Weeks Perform acceptance tests for VideoComp 500 output by
using test tape (attachment B) as input.
. . .
10. Nine Weeks Perform acceptance test for Linotron 1010 output by using
test tape (attachment B) as input.
. . .
15. Fifteen Weeks Install Hyphenation Dictionary Routine (written under
IBM OS).
. . .
19. Nineteen Weeks Perform acceptance tests for Linotron 1010 output by
operating the system installed under IBM OS. The test tape
(attachment B) will be used as input.
. . .
Page No. 10
SECTION F - PERFORMANCE SCHEDULE
The Contractor shall commence work not later than five days after receiving written notification
from the Contracting Officer after contract award.
. . .
The Contractor shall complete all services no later than 19 weeks after award including the
correction of any deficiencies discovered during the acceptance testing period specified in Section
I -Acceptance Testing.
. . .
Page No. 11
SECTION I - ACCEPTANCE TESTING
After the program requirements have been completed by the Contractor and presented to GPO for
acceptance, GPO shall require 10 consecutive work days in which to review each document. The
Contractor shall correct all errors or changes within a maximum of 10 working days. The Government
shall require 15 calendar days to test all programming deliverables. The Contractor shall have 15
calendar days to correct any error under the terms of the specifications set forth in this
contract. These deficiencies will be corrected during the 15 consecutive calendar days immediately
following the 15 day test period.
Page No. 13
. . .
The Government may purchase additional training and/or additional Systems Analyst / Information
Specialist or other professional services from the contractor at prevailing contractor billing
rates (e.g. GSA BOA)". (Specifications for contract 8682, hereinafter Specifications, AF, Tab A-3)
The format design specifications, Attachment A to the contract, contain the following relevant
paragraphs:
"5. Leadering multi-column tabular material shall be leadered from the same Y reference point
rather than independently within columns.
. . .
10. Continued Heads and Repeated Heads. Continued heads shall be functionally processed as page
continued heads and shall be positioned in fixed X and Y locations specified for odd pages and even
pages." (AF, Tab Q)
No reference was made within the contract to the final ECI proposal dated March 31, 1976. The
Contracting Officer testified that while he considered the proposal part of the contract, it was
not incorporated by reference nor did the parties discuss incorporating the proposal during the
contract negotiations. (Tr. II-164(a)) He indicated that failure to incorporate the proposal was
an oversight on his part, since he had been requested to do so by the personnel in EPD. (Tr.
II-170; AF, Tab T)
The contract does not contain any other performance requirements (other than those contained in
Attachment A) or details of the technological capabilities that would be included as part of the
software program. More specifically, it makes no mention of automatic restart capability,
automatic multi-volume capability or processing times that must be achieved once ETS was installed.
After receipt of the purchase order on August 9, 1976, ECI actually began work on August 16, 1976,
which was five working days after they had picked up the purchase order. (AF, Tab O-6, 17; Tr.
I-133)
The first acceptance test was run on the VideoComp 500 under DOS on September 10, 1976, five weeks
after the date of the purchase order. (AF, Tab B-6) During this test, ECI used the test tape,
Attachment B, and grid locator cards which had been prepared by the GPO. (AF, Tab O-23; Tr.
II-207) The test tape was not the original tape picked up on June 29, 1976, which had been
returned by ECI representatives to the possession of GPO for storage and for the correction of
certain errors. The tape that was actually used to perform the benchmark test was marked with the
date August 23, 1976, and was included in the Appeal File during the hearing at Tab R. The
testimony of the Project Officer for GPO, Mr. Rollert, was that the original tape was probably
scratched and that the GPO had done the correcting without obtaining the explicit permission of
ECI. (Tr. II-262)
After the VideoComp 500 benchmark test was performed, Mr. Coe of ECI addressed a letter to Mr.
Rollert, dated September 17, 1976, in which he reported that "no program errors" were discovered in
the benchmark test run on September 10, 1976. The letter also offered the services of Mr.
Leithauser to review the test results "in detail with your staff to help ensure the camera copy is
rigorously proofed." (AF, Tab B-6)
In a memorandum, also dated September 17, 1976, Mr. Leithauser (of ECI) tells Mr. Rollert as
follows:
"The U.S. Code Benchmark test has been inspected by your staff and the errors categorized as
follows:
1. Input file errors
2. Parameter / grid errors
3. Program errors
4. VideoComp machine errors
5. Miscellaneous (enhancements necessary to correct)
No program errors were detected and only one machine error was detected.
All other errors can be attributed to either category 1, 2 or 5." (AF, Tab O-8)
Only errors which fell into category Number 3 would be attributable to problems with ETS. (Tr.
II-53-54, 229)
At this time the GPO did not inform ECI that there were errors attributable to ETS, nor did it
provide ECI with the acceptance test results, except for the proofreader's marks contained on the
hard copy printout. (AF, Tab O-7, 10)
The benchmark test on the Linotron 1010, also using the test tape dated August 23, 1976, was
performed on October 15, 1976, and the results were presented to the GPO. (AF, Tab O-10, 11) As
with the benchmark test for the VideoComp 500, Mr. Coe wrote a transmittal letter (dated October
15, 1976) to Mr. Rollert, in which he indicated that ECI was submitting the camera pages for the
DOS Linotron 1010 benchmark. This letter continued:
"We [ECI] believe that test results demonstrate that ETS passed the contractual requirement for the
DOS Linotron 1010 benchmark on schedule. We believe the attached Linotron 1010 pages and the
VideoComp 500 pages, submitted September 10, 1976 . . . demonstrate that ECI has completed, within
schedule, the requirements specified in Contract 18330 for the initial license payment.
Jim Leithauser will review the test results in detail with your staff to help ensure the camera
copy is rigorously proofed." (AF, Tab B-4)
The first indication in the Appeal File that GPO was not satisfied with the contract is on October
22, 1976, the date of a memorandum from Mr. Rollert to the Contracting Officer. Rollert indicated
therein that the contract required the operating instructions for all programs to be installed by
August 13, 1976, the acceptance test for the VideoComp 500 to be performed by September 17, 1976,
and for the Linotron 1010 to be performed on October 8, 1976 and that, to date, ECI had not passed
the acceptance test for either the Linotron 1010 or the VideoComp 500. Mr. Rollert also wrote:
"All copy which has been reviewed by GPO has contained errors traceable to deficiencies in the
composition system (ETS). We have not received operating instructions for any of the programs."
Mr. Rollert also noted that the ETS system required over a minute on the IBM 360/50 to produce a
page and that ETS had several "serious deficiencies" which were:
"1. No restart capability - it is customary for GPO to process large jobs which may require a run
of several hours on the computer. In a production environment it is often necessary to stop a job
before its completion and then start it up and complete it at a later time. This is common
practice in the industry and any system should be designed so as to take advantage of the check
point restart features of the IBM DOS system.
2. No multi volume (reel) input or output capability - many GPO jobs require more than one reel of
tape to contain the input data. Most GPO jobs produce more than one reel of Linotron or VideoComp
drive tape on output.
Not having either of the above capabilities makes it very difficult, if not impossible, for GPO to
process jobs economically with the ETS system." (AF, Tab D-8)
On October 22, 1976, a Cure Notice was sent to ECI by the Contracting Officer, most of which was in
the same language as Mr. Rollert's.memorandum referenced above. (Compare AF, Tab F with Tab D-8)
In addition to what was indicated by the Rollert memorandum as "deficiencies" in the ETS, the Cure
Notice read:
"You [ECI] are hereby notified that the government considers your failure to perform the contract
in accordance with its terms a condition that is endangering performance thereof. Therefore,
unless such condition is cured within ten days from date of receipt of this notice, the government
may terminate the subject contract for default under General Provision number 11 (Default)". (AF,
Tab F)
The specific errors traceable to the ETS were not specified in the Cure Notice. The Contracting
Officer testified that ECI was not advised prior to October 22, 1976, that GPO could not accept the
benchmark test results. (Tr. II-162-163) Mr. Rollert testified that he "never formally advised
them [ECI] that they failed to pass the benchmark test . . .." (Tr. II-254)
Shortly after the date of the Cure Notice, October 29, 1976, a meeting was held which included
representatives of the appellant company and the GPO, including the Contracting Officer. At this
time the contractor delivered the operating instructions to Mr. Rollert as called for in the
Notice, along with a letter from Mr. Combs to the Contracting Officer, dated October 29, 1976,
which responded specifically to the items in the Cure Notice. (AF,B-4) This letter explained that
the operating instructions were not delivered earlier to GPO because the ECI staff had been
operating the ETS computer runs and the instructions had not been required by GPO computer
operators. Secondly, the contractor maintained that the VideoComp 500 and Linotron 1010 acceptance
tests had been completed within schedule and that no errors were traceable to ETS. It did
acknowledge that there were numerous errors traceable to GPO test data and offered to provide
assistance to the GPO Technical Officer (Rollert) to correct those errors contained on the GPO
furnished test tape. ECI also offered to rerun the acceptance test specified in the contract with
the corrected test tape as input.
As for the processing time problems mentioned in the Cure Notice, ECI disavowed any specified
processing time as having been called for by the contract and claimed that restart and multi-volume
capability were not contract requirements. ECI did however offer to provide these "enhancements"
to the GPO for the additional consideration of approximately $10,000. (AF, Tab B-4, plus
attachments)
ECI performed the additional tests using the corrected test tape. Mr. Rollert stated in two
separate memoranda included in the Appeal File that the tests for the VideoComp 500 were completed
on November 2, 1976 and on November 5, 1976 for the Linotron 1010. Moreover, they were
"satisfactorily completed" and "acceptable" at that time. (AF, Tab D-1, 3) (The results of these
tests are included in the Appeal File at Tabs O-15 and O-16.) Additionally, Mr. Rollert testified
at the hearing that the benchmark tests were passed and were producing satisfactory output at that
time. (Tr. II-253)
Despite this, Mr. Rollert refused to approve the benchmark test results, and at the hearing he made
the following statement:
". . . passing a benchmark test is not the only thing necessary before you can buy off a system.
There are more things that the system has to do than to pass a benchmark test. For example, I was
not about to do anything until I saw that hyphenation in there. I was not about to do anything
until I had an exact, absolute agreement on what they were going to do in the OS system. Because
this system as it stood, if I had to keep on using it - contract notwithstanding - I could not use
it; and it would be a waste of government money to proceed any further with it." (Tr. II-253)
Both Mr. Rollert and Mr. Burkey Boggs (a GPO Printing Specialist who had reviewed the test results
with Mr. Leithauser) testified that there were problems with hyphenation. Additionally, they
claimed the hyphenation dictionary had not been installed at the time of the Cure Notice. (Tr.
II-244) We note, however, that the hyphenation dictionary was not to be installed except under OS
and during the 15th week of the contract. The Cure Notice was issued during the eleventh week
after the date of the Purchase Order. (See Specifications, Schedule, Section B, reproduced above.)
In the early part of November 1976, there was a rash of correspondence and meetings between the
representatives of both parties. From these letters (AF, Tab B-2, 3, Tab C-3,4,5), it appears that
ECI offered to perform additional benchmark tests and to review each error detected to determine
the source of that particular error. While it is not clear from the correspondence whether this
was ever done, there is nothing, either in the hearing testimony or Appeal File, which specifically
described what errors were attributable to the ETS Program. A review of the Appeal File and the
hearing testimony of Mr. Wood, Superintendent of EPD, Mr. Story, the Contracting Officer, Mr.
Burkey Boggs, Printing Specialist in EPD and Mr Rollert, Project Officer and Technical Advisor to
the Contracting Officer, does not reveal specifically where the ETS programs responsible for the
errors which were discovered in the benchmark tests. (Tr. II, 108-155; 157-177; 206-231, 231-275)
In spite of the opinion of the GPO Project Officer that both benchmark tests were satisfactorily
completed by November 5, the Contracting Officer indicated in a letter to ECI, dated November 5,
1976, that the acceptance tests had not been satisfactorily completed. (AF, Tab C-5) The
Contracting Officer, in another letter dated November 5, 1976, stated that ETS did not properly
perform "telephone leadering" and "continued heads." Mr. Story also mentioned that "bugs" (not
defined) had been observed in the handling of footnotes by ETS, and, "[u]ntil the above mentioned
features [were] working properly, the benchmark tests [would not] be approved." (AF, Tab C-3) This
letter also reiterated the GPO requirement that ETS have restart and multi-volume capability. It
claimed that in a system which is "completely operational", these capabilities are essential and
rejected the contractor's proposed OS installation plan because it did not incorporate these
features. As with the Cure Notice, this letter to ECI used much of the same language that was
contained in an internal memorandum prepared by Mr. Rollert for Mr. Story. (Compare AF, Tab D-4
with Tab C-3, p. 2)
Also, on November 5, 1976, the Contracting Officer issued a Show Cause Notice which stated in
relevant part:
"Since you have failed to perform contract No. 8682 within the time required by the terms thereof,
failed to pass the acceptance test within the time specified in the contract, and failed to correct
the conditions endangering performance under contract No. 8682 as described to you in the
Government's telegram dated October 22, 1976 [Cure Notice] with the exception of providing
operating instructions, the Government is considering terminating said contract pursuant to General
Provision No. 11 'Default'." (AF, Tab G-L)
The Show Cause Notice provided ECI the opportunity to make responsive comments in writing to the
Contracting Officer within ten days after receipt of the notice.
ECI responded by letter from Carlton Combs dated November 12, 1976. (AF, Tab B-l) This letter
repeated ECI's assertion that none of the errors detected in the benchmark runs were attributable
to ETS and offered to review the benchmark tests and the two additional tests performed with the
updated test tape to locate any problems and resolve any questions. With regard to telephone
leadering, ECI represented that ETS performs fixed point leadering as required by the contract, and
that telephone leadering was not even included as a test item on the GPO prepared benchmark data
tape. However, ECI did offer to submit a proposal for adding telephone leadering to ETS.
In his letter of November 12, 1976, Combs agreed with the GPO assertion that the March 31, 1976
proposal was an integral part of the contract. At the hearing, however, Mr. Combs maintained that
this sentence in the letter did not mean that he meant that the proposal was incorporated by
reference. More specifically he said:
"We're very careful about that [incorporating a proposal as part of the contract] because we do a
lot of business with the Government, and in some instances the Government says that the proposal is
part of the agreement, very clear, and some instances they do not . . . I didn't sign a contract
which incorporated by reference, the March 31st proposal. The only thing it incorporated was
Attachment A and Attachment B." (Tr. L-128)
Mr. Combs also stated that the proposal's claim of production speed was merely a representation of
what ETS had achieved on other production systems. He stated at the hearing, and in his letter,
that no representations were ever made regarding specific processing speeds. ECI offered, on the
other hand, through enhancements to the ETS system, to increase the per page processing speed on
the GPO computers. Finally, he offered to install a step restart and manual multi-volume
capability as they became available through development within ECI. As with the previous offer,
these additional features would be in return for the payment of additional consideration by GPO.
(AF, Tab B-L)
The November 12, 1976 letter was presented to GPO at a meeting on November 15,, 1976. The GPO
representatives responded by expressing concern with the system's speed and stated that it needed
to have the multi-volume and restart capabilities, without an increase in the contract price. (AF,
Tab E-4)
Another meeting of the parties was held on November 17, 1976, at which point ECI explained that
multi-reel and check point restarting were feasible, but they were not available at that time
within the system. According to notes taken by the Contracting Officer and included in the Appeal
File under Tab E, ECI indicated that ETS would have telephone leadering, continuous heading, check
point restart and a multi-reel capability by February 1977.
Later, while ECI personnel were out of the room, GPO representatives discussed the contract
problems and decided to proceed with a termination for default. According to the notes, it was a
feeling of the "technical people, that termination for default be instituted immediately."
Thereafter the representatives of ECI were recalled into the room and were advised to stop work
immediately as of noon on November 17, 1976. (AF, Tab E-2)
Following the oral stop work order there was another meeting between the representatives of GPO and
ECI on November 19, 1976. Again according to the handwritten notes of Mr. Story, Mr. Rollert
indicated to ECI that the DOS System passed "benchmark from a typographic standpoint about November
15, however they were still deficiencies such as not running with running heads and not having
telephone leadering." The memorandum continues indicating that GPO had a requirement for usable
galley system by December 1, and a page system with all features by February 1. (AF, Tab E-l)
In response to this, ECI proposed to make the galley driver system (under OS) operational in two
weeks (December 14, 1976) without check-point restart, but with telephone leadering and multi-reel
in and multi-reel out capabilities. ECI would not commit to a specific estimate of speed or page
production until they had "run the program upstairs." For this, ECI requested an additional
compensation in the amount of $10,000 and 200 hours additional of computer time. At the close of
this meeting GPO informed ECI representatives that they would be notified by phone of GPO's
decision by November 22, 1976. (AF, Tab E-1; Tr. I-43-44)
Instead of being telephoned, ECI received a telegram dated November 22, 1976, in which GPO rejected
the proposal made by ECI during the meeting held on November 19, 1976. (AF, Tab C-2) On November
29, 1976, the Contracting Officer terminated the contract for default in its entirety. (AF, Tab I)
ECI appealed this decision in a letter written by counsel, dated December 29, 1977. (AF, Tab L)
DISCUSSION AND CONCLUSIONS
Having recited the operative facts in this case, the Board now focuses on the question of the
propriety of the decision to terminate Contract No. 8682 for default.
Appellant's arguments are summarized in its post-hearing brief on pages 1-3. Briefly restating the
points made there, appellant argues that the acceptance tests required by the contract were
satisfactorily performed prior to the scheduled dates for both the VideoComp 500 and the Linotron
1010; that any failure to perform such tests was waived by GPO in that additional tests were
performed subsequent to the Cure Notice and these tests were also satisfactorily performed prior to
the date of the default action; that GPO failed to provide a notice of the alleged deficiencies in
the test, and therefore is barred from subsequently using failures in these tests as a basis for
default; that the contract only required ECI to install the ETS system as it then existed, and
acceptance was to be based upon satisfactory performance of the program on the benchmark tests.
Since the contract specifications did not require ETS to have automatic restart capability,
automatic multi-volume capability or telephone leadering, ECI argues additionally, it was improper
to terminate based on these "deficiencies." Finally, appellant asserts there was no requirement
within the contract for specific page processing times. Even if the proposal dated March 31, 1976,
is considered part of the contract, a conclusion which the appellant vigorously disputes, it only
offered average processing times as experienced by ECI with ETS in its own production facilities.
Therefore, it concludes, it is unwarranted to interpret this statement as a guarantee of any
processing time for ETS at GPO.
For these reasons, as elaborated upon in its brief, appellant requests the Board to convert the
termination of default to a Termination for the Convenience of the Government under subparagraph
(e) of the default clause (Paragraph 11, "Default" of the general provisions of the contract) and
Paragraph 24, (Termination for Convenience of the Government) of the subject contract.
The Government begins its analysis by stating that ECI made an unsolicited offer to furnish its
software system and represented to GPO that ETS was a fully operational production system, and in
reliance upon these representations, GPO procured the ECI software system. However, when time came
to actually test the system in the production environment, ETS was found to have serious
deficiencies which could not be abided given GPO's production needs. GPO also argues that it
relied heavily on the representations and assurances of the contractor because ETS was a
proprietary system, and therefore the contractor must be held to assume the risk of any failure to
meet performance requirements. In this regard, GPO points to the appellant's extensive experience
in performing Government contracts and their specific background and knowledge regarding this
particular software package, and concludes that ECI was in a superior position vis-a-vis the
Government. Finally, it contends ECI could not have expected acceptance of their system absent a
showing that it would be useful and productive in the GPO environment.
We begin with the proposition that a default termination, as a species of forfeiture, is considered
a drastic sanction and is to be strictly construed. H. N. Bailey and Associates v. United States,
196 Ct. Cl. 156, 163-65, 449 F.2d 387, 391 (Ct. Cl., 1971); DeVito v. United States, 188 Ct. Cl.
979, 990, 413 F.2d 1147, 1153 (1969); J. D. Hedin Construction Co. v. United States, 187 Ct. Cl.
45, 57; 408 F.2d 424, 431 (1969). A recent decision of the Corps of Engineers Board of Contract
Appeals, after citing the principle just noted, adds:
"[T]hey [default terminations] will be enforced only where the party seeking the forfeiture has
strictly performed his contractual obligations according to the letter; and they will not be
enforced against equity and good conscience.'' (citations omitted) Mountain State Construction
Co., Inc. ENG. BCA No. 3549, 76-2 BCA ¶ 12,197 at p. 58,725, See also Amecon Division Litton
System, Inc. ASBCA No. 19,687, 77-1 BCA ¶ 12,329 at 59,567.
As a second guiding principle in our analysis, we adopt the view that in interpreting contracts,
the intent of the parties which is not expressed in the contract specifications, cannot create an
obligation on the part of the contractor to comply with such intent. Dana Corporation v. United
States, 200 Ct. Cl. 200, 214, 470 F.2d 1032, 1041 (1972), John C. Kohler Co, v. United States, 204
Ct. Cl. 777, 787, 498 F.2d 1360, 1365 (1974). Elgin National Watch Co., ASBCA Nos. 1042, 10589,
10698, 10730, and 11721, 67-2 BCA ¶ 6400, at 29,668. More recently, the Court of Claims has
written that contract interpretation should be ''without twisted or strained out of context
analysis [and without] regard to the subjective unexpressed intent of one of the parties. . ." ITT
Arctic Service, Inc. v. United States, 207 Ct. Cl. 743, 524 F.2d 680, 684 (1975) (citations
omitted).
Also at this juncture, we restate the oft-cited rule of construction that a contractual ambiguity
is to be construed against the drafter of the contract. United States v. Seckinger, 397 U.S. 203,
216 (1969), Kenneth Reed Constr. Corp. v. United States, 201 Ct. Cl. 282, 288, 475 F.2d 583, 587
(Ct. Cl., 1973), Peter Kiewit Sons' Co. v. United States, 109 Ct. Cl. 390, 418 (1947), Tecon Corp.
v. United States, 188 Ct. Cl. 15, 411 F.2d 1262 (Ct.Cl. 1969); See also Fairchild Industries, Inc.,
ASBCA Nos. 16302, 16413, 74-1 BCA ¶ 10567 at 50,078. With these principles in mind, we turn to an
analysis of the fact situation at issue.
The Cure Notice, dated October 22, 1976, states that ECI had not passed the acceptance test for the
Linotron 1010 or the VideoComp 500 because the copy contained errors traceable to deficiencies in
the composition system. It also indicated that the operating instructions for the program had not
been received. While the record reveals that the operating instructions had not been delivered by
the time of the Cure Notice, this was timely cured by the appellant when they delivered the
operating instructions to the GPO representatives at the meeting held on October 29, 1976. The
fact that this item was cured is acknowledged by GPO in the Show Cause Notice which was issued on
November 5, 1976.
The acceptance tests had clearly been run once by ECI by the date of the Cure Notice. The
benchmark test for the VideoComp 500 was performed and copy was presented to the GPO by no later
than September 17, 1976, which was the completion date specified in the Cure Notice. The benchmark
test for the Linotron 1010 was also performed and the copy that resulted therefrom was presented to
the GPO by no later than October 15, 1976, which was prior to the date the Cure Notice was issued.
While it is clear that there were errors in the benchmark tests, there was no credible evidence
presented by the Government to establish that errors were the result of problems in the ETS
software package. On the contrary, testimony of the GPO Project Officer, Mr. Rollert, was to the
effect that the errors were probably the result of GPO's preparation of the test.tape and locator
cards. (Tr. II-247-49)
The Cure Notice also continues to claim that ETS is deficient because it does not achieve
sufficiently high speeds in terms of page production per minute. It claims that the contractor
guaranteed a per page running time of between 30 and 50 seconds in its proposal dated March 31,
1976, which GPO considered to be part of the contract. However, it is the final formal document
which controls the parties' rights and obligations. Dana Corp. v. United States, supra. The
proposal was not incorporated into the formal specifications (albeit inadvertently), and therefore,
is not a part of the contract. See Asiatic Petroleum Corporation, ASBCA No. 17765, 74-2 BCA ¶
10,833.
ECI representatives testified that they would be unwilling to make speed processing guarantees
unless they would be in complete control of all the production facilities. (Tr. I-63; 110) We have
closely examined their proposal dated March 31, 1976, and even assuming that it is part of the
contract, we are not persuaded that this language constitutes a guarantee of the speeds which would
be attained when ETS was installed at GPO. Rather, it seems to be merely a statement of what
speeds ECI has attained on a production system under its control and is made contingent upon the
complexity and density of the pages being processed.
The Cure Notice states that ETS is deficient as a "production" system because it does not have
restart capability, which is "common practice in the industry", and that "any system should be
designed so as to take advantage of the check-point restart features in the IBM DOS System." (AF,
Tab F)
Also, it states that because ETS does not have any multi-volume (reel) input or output
capability, required by GPO for it to process jobs "economically'', GPO was considering default.
(AF, Tab F)
It appears the basic objection the Government had with ETS was it was not performing as they
anticipated it would. This apparently stemmed from their belief that a "production" system would
perform "economically" within GPO, would have multi-reel input and output capability and would
produce pages at a certain rate per minute. That the Government's belief was not fully founded was
evidenced during the hearing testimony of Mr. Wood, Superintendent of EPD. After quoting directly
that portion of the March 31, 1976 proposal which described ECl's experience with ETS under
production conditions at U.S. News and World Report, Mr. Wood was asked by a Board member,
"[A]re you saying that the production conditions at U.S. News and World Report has automatic
restart?
Mr. Wood: It is a production system they can speak to, and a production system to me does have
these features. Without them, I just could not operate.
Board Member: Are you familiar with the production system at U.S. News and World Report?
Mr. Wood: I am not and I am not really pointing at that." (Tr. II-13)
Our review of the entire record shows that many of GPO's assertions of what a "production" system
must include are, at best, disputed propositions. (See Tr. I-135 and evidence submitted by
appellant, which showed that it produced other publications with ETS on a production basis, some of
which was for the GPO. (AF, Tab O-18, 19, 20) 1 If the Government felt these capacities were
critical to the successful incorporation into GPO of the advanced software system ECI offered, it
should have made these performance requirements of the contract. See Tecon Corp. v. United
States, supra.; L. Rosenman Corp. v. United States, 182 Ct. Cl. 586, 591, 390 F.2d. 711 (1968).
We have scrutinized the subject contract in vain for any stated requirements that ETS perform
"economically", or that it have multi-reel or automatic restart capability or that it should
produce pages at a specified rate. As we stated earlier, the contractor will not be bound by the
unexpressed intent of the Government. (See, Elgin National Watch Co. supra; ITT Arctic Services v.
United States, supra. )
Making the position of the Government even more untenable in our view, is its intransigence and
apparent unwillingness to either consider a termination for convenience, or as the contract itself
provided, ordering "enhancements" to the basic ETS through the GSA Basic Ordering Agreement which
was part of the contract. (Reference footnote to Contract Specifications, p. 13, quoted above)
Subsequent to the Cure Notice, the appellant delivered the operating instructions. But on the very
same day, November 5, 1978, that another test had been run which was "satisfactory" according to
the GPO Project Officer, the Contracting Officer sent a letter to the appellant which cited
additional discrepancies in the ETS System that had not been mentioned in the Cure Notice. These
were that ETS did not properly perform telephone leadering, continued heads and that there were
"bugs" in the handling of footnotes (AF, Tab C-3, letter of November 5, 1976).
The Government has not demonstrated that the "bugs" in the footnotes and problems with the
continued heads were the result of deficiencies in the ETS system. None of the Government
witnesses identified examples on the benchmark tests where ETS had improperly processed footnotes
or continued heading. On the other hand, Mr. Coe of ECI testified that he did not recall seeing
any continued heads being processed during the running of the test tape. (Tr. II-21-22)
Obviously, if there were no continued heads on the test tape, appellant could not be faulted for
improperly processing continued heads. Mr. Coe also testified that footnotes were handled
correctly by the program and this was not refuted by the Government witnesses.
With regard to the requirement for telephone leadering, the contract itself calls for fixed-point
leadering, rather than telephone leadering. The Specifications in Attachment A, paragraph 5 (AF,
Tab Q), call for leadering from the same "Y" reference point. While this reference to a "Y"
reference point is somewhat confusing (since normally a reference to an "X" reference would refer
to the horizontal direction and the Y axis to the vertical), Mr. Coe testified that in a discussion
about telephone leadering, he showed Mr. Rollert this provision of the specifications. At this
point, Mr. Coe claims Mr. Rollert said, "If I agreed to that, I made a terrible mistake, but we
have to have telephone leadering." (Tr. I-182) No denial of this statement was made by Mr.
Rollert during his testimony, even though he was present as the Contracting Officer's technical
representative during the hearing when Mr. Coe testified. Also, no other Government witness has
suggested any other interpretation be given this provision in the contract. Finally, a letter to
the Contracting Officer from Mr. Combs, dated November 12, 1978, indicates that telephone leadering
was not included as a test item on Attachment B which was prepared by GPO. (AF, B-I)
With regard to the Government's claim that it was somehow duped into this contract, we find this
proposition does not withstand scrutiny. Initially we note that both sides are presumed to have a
modicum of business acumen. Firestone Tire & Rubber Co. v. United States, 195 Ct. Cl. 21, 30, 444
F.2d. 547 (1971), The Franklin Co. v. United States, 180 Ct. CI. 666, 672, 381 F.2d. 416 (1967).
The contrary to GPO's proposition was true here in that it had extensive experience with the
sophisticated software system (MTP) that was already in place in EPD. Mr. Rollert had worked with
Mr. Leithauser to develop the MTP while at Bureau of National Affairs and was highly qualified to
assess and evaluate any software system that GPO was to consider. He testified that in retrospect
there were many questions about ETS which he wished he had asked before contract formation, but did
not. (Tr. II-234-5) It appears from the record that the GPO thought it knew what it was getting
with ETS and therefore did not need to specify requirements which would have been self-evident or
superfluous.
The record demonstrates that ECI did what the contract required, conforming to requirements
specified in the schedule developed by GPO. It performed the acceptance tests and reviewed the
results with GPO personnel. Not finding any ETS problems, it proceeded with performance until
suddenly, on October 22, 1976, it received the Cure Notice. This was fully five weeks after the
first benchmark test was presented to GPO for review and long after the acceptance testing deadline
of 10 consecutive workdays allotted by "Section I - Acceptance Testing" of the contract. In spite
of the lateness of this first notification from GPO, the correspondence from the appellant and the
Contracting Officer's notes of the meetings held between the parties demonstrate a continued
willingness on the part of appellant to accommodate GPO's wishes within the contract's
requirements. To this end, it performed additional tests as requested by GPO's representatives.
The record shows that at the time of default, the other performance requirements the GPO was
imposing on the appellant were also not part of the contract. Having failed to find contractual
support for the termination, we conclude it was improper and the appeal should be granted. See
Genisco Technology Corporation, NASA BCA No. 1068-18, 69-2 BCA ¶ 7802; Universal Engineered
Systems, Inc., IBCA No. 900-471, 72-1 BCA ¶ 9355; Production Supply Co. Inc., ASBCA No. 15359,
71-2 BCA ¶8952; American Quinine Co.; VACAB No. 535, 66-1 BCA ¶ 5600; Projection Optics Co. Inc.,
ASBCA No. 7337, 1964 BCA ¶ 4131, reconsideration denied, 1964 BCA ¶ 4236.
Accordingly, we remand the appeal to the Contracting Officer for conversion of the termination to
one for convenience of the Government pursuant to the general provision of the contract paragraph
Nos. ll(e) and 24. The appellant is granted the right of appeal to this Board as under the
Disputes clause of the contract, in the event negotiations regarding the quantum should prove
unsatisfactory.
_______________
1 The Government's statements (Cure Notice, Mr. Wood's testimony and Mr. Rollert's memoranda and
testimony) suggest the argument that the custom or practice in the photocomposition trade would
force the conclusion that the deficiencies cited by the Government would be part of any
"production" software system. This issue was not raised in the Government's brief and no
significant testimony or other evidence was proffered on the point during the hearing. Also, to
assert the proposition would require the proposal to be part of the contract, which we have found
it is not. Accordingly, we do not address the matter in our decision.