UNITED STATES GOVERNMENT PRINTING OFFICE CONTRACT APPEALS BOARD APPEAL OF INTERNATIONAL LITHOGRAPHING Contractor's Appeal dated April 12, 1984. Decision dated March 22, 1985. CAB Panel No. 84-15 Kerry L. Miller, Chairman James K. Mehan, Oliver E. Hassell, Members International Lithographing (hereinafter the contractor) has filed a timely appeal from the decision of the Contracting Officer to assess a 25% reduction in the cost of Print Order 2, Program 1761-S, Jacket 769-048, Purchase Order K-0890. The contractor appealed this decision in accordance with the "Disputes" clause of the contract. Article 2-3, Contract Terms No. 1, GPO Publication 310.2, revised October 1, 1980. The jurisdiction of the GPO Contract Appeals Board over this appeal is established pursuant to GPO Instruction 110.10B, entitled "Board of Contract Appeals Rules of Practice and Procedure," and pursuant to Contract Terms No. 1, supra. As the contractor was given the opportunity to have its appeal heard at an informal hearing, but did not so request, this decision is based solely on the record, an appeal file containing ten (10) exhibits. 1/ STATEMENT OF FACTS 1. A contract to print four quarterly issues of Air Defense Artillery Magazine, was awarded to the contractor by the GPO. Exhibit 6. The contract called for the production of approximately 12,000 copies of each issue of a 64-page self- cover, saddle-stitched magazine, printed in two colors. Exhibit 7, p. 5. Section 1 of the contract specifications noted that "any contract which results from this Invitation for Bid will be subject to all terms and conditions of "GPO Contract Terms No. 1, supra and the GPO Quality Assurance Through Attributes.Program (QATAP), GPO Publication 310.1, revised June 1981. Exhibit 7, p. 2. 2. The quality for printing and finishing the Air Defense Artillery Magazine had to meet with the standard for level III of the QATAP. Exhibit 7, p. 3. 3. Print Order No. 2 dated January 3, 1984, was issued to contractor, and called for printing of 12,000 copies of the winter issue of Air Defense Artillery Magazine with a shipping date of January 25, 1984. The print order also required the contractor to send 15 advance copies to ADA Magazine, Fort Bliss, Texas by courier. Exhibit 6 4. After receiving a complaint from the customer agency that there was a loss of text the Contracting Officer requested a random selection of 32 magazines and determined that the text loss was consistent throughout the 32 samples. Exhibit 10. 5. By letter dated March 19, 1984, the Contracting Officer informed contractor that "the magazines received by our customer agency suffered seven typelines of image loss on page 43." The Contracting Officer decided that because the magazines were time-dated publications, they would be accepted, however, a 25% reduction in the cost of the print order was assessed "to protect the interest of the Government for accepting the defective magazines." Exhibit 3. 6. A contract modification was issued pursuant to Article 2-13, Contract Terms No. 1, reducing the cost of the print order from $8,246.00 to $6,184.50. Exhibits 2, 4. 7. By letter dated April 12, 1984, the contractor appealed the contract modification. The contractor did not dispute the fact that the contractor had made an error in printing, however, he stated "It is our feeling that we should not be penalized so heavily for a first time error made while carrying out our part of the contract in the time frame allotted." Exhibit 1. DECISION The Contractor does not dispute that the finished product submitted to the customer agency had 7 typelines of text missing from page 43. See Exhibit 5. Neither does the contractor dispute the fact that the loss of text results in a significant loss of information to the reader of the publication. Instead the contractor argues that he should not be penalized so heavily because his error was a result of the short time limitation contained in the contract. Contractor claims that extensive changes were required by the agency after the agency received the blueline and that this resulted in the need to reshoot 15 pages. Contractor states that normally when this many changes occur the contractor submits a second blueline to the agency for final approval, however, because the contract called for the magazine to be shipped within 5 days of receipt of the blueline, the contractor did not have time to submit a second proof for approval. Contractor's argument is unavailing. Contractor appears to be arguing that the loss of text would.not have occurred if he had time to send another blueline to the agency for its approval, because the agency would have caught the mistake. However, this argument overlooks the fact that is the contractor's obligation to ensure that the product he produces meets the quality specifications set forth in the contract. This the contractor clearly failed to do. The contractor's other argument centers on the amount of the reduction in costs. The contractor contends that a 25% reduction was too severe "for a first time error." Exhibit 1. The solicitation for Program 1761-S, Jacket 769-048, states that any contract resulting from the invitation for bid is subject to the terms and conditions of both U.S. GPO Contract Terms No. 1, revised October 1980 (GPO Pub. 310.2) and Quality Assurance Through Attributes Program (QATAP), revised June 1981 (GPO Pub. 310.1). The solicitation also states that the printing and finishing attributes are to be performed in accordance with level III product quality level. Exhibit 7, p. 2. According to QATAP any loss of information in the publication is classified as a critical defect. A loss of information is defined "as any omission of or damage to the printed image which impairs the transmission of the intended information." QATAP, p. 38. The Contracting Officer had 32 copies of the magazine randomly selected and determined that all 32 samples suffered text loss. In accordance with Appendix A to QATAP, since each of the 32 sample copies contained the one critical defect, for a total of 32 critical defects, the appropriate reduction in the contract price is 25%. QATAP, p. 42. This Board has ruled that this method of adjusting the contract price using the QATAP operates as a liquidated damage clause. Appeal of Edward Brothers, Inc., GPO CAB 3-83, May 3, 1984. In order to have an enforceable liquidated damage clause, the clause must fix damages that are reasonable compensation for the harm caused by the contractor's failure to perform. Priebe & Sons v. United States, 332 U.S. 407 (1947). Although liquidated damage clauses are used where damages are difficult to estimate at the time the contract is awarded, the liquidated damages assessed must bear some rational relation to the actual damages suffered by the Government. Graybar Electric Company, Inc., ICBA No. 773-4-69, 70-1 BCA ΒΆ 8121. In the instant case, the printing defect caused a significant information loss. The defective magazines were accepted by the customer agency because they were time-dated. Thus, the Government and the readers of the magazine were damaged by the loss of information. Accordingly, the 25% reduction bears a rational relation to the actual damages suffered by the Government. Under the terms of GPO Contract Terms No. 1, the contractor warranted that all supplies furnished under the contract are free from defects in material and workmanship and conform to the specifications and all other requirements of the contract. In the event that the contractor breaches this warranty, the Government, at its option, may either require the contractor to correct the defect or "retain the supplies or parts thereof which do not conform to the requirements of the contract . . . without correction or replacement, in which event the contract price shall be reduced by the amount which is specified by the contract or, if not specified, by an amount which is equitable under the circumstances." GPO Contract Terms 2-13(c). The action taken by the Contracting Officer to reduce the contract price by 25% was lawful, proper, in accordance with the terms of the contract, and bears some rational relation to the actual damages suffered by the Government. Accordingly, the Board denies contractor's appeal. _______________ 1/ The appeal file originally contained eight exhibits. By letter dated August 17, 1984 the Board requested the GPO to submit further evidence. The response to that request has been designated as Exhibit 9. By letter dated January 24, 1985 the Board made an additional request of the GPO for further evidence. The response to that request has been designated as Exhibit 10.