The Standard Register Company
GPO BCA 4-86
October 28, 1987
Michael F. DiMario, Administrative Law Judge
Opinion
This appeal, timely filed by The Standard Register Company,
8500 Leesburg Pike,Suite 401, Vienna, VA 22180 (hereinafter
"Appellant"), is from the final decision of James L.
Leonard, Contracting Officer (hereinafter "C.O."), United
States Government Printing Office, Washington, DC 20401
(hereinafter "Respondent" or "GPO"), dated February 10,
1986, reaffirming its January 13, 1986 termination for the
convenience of the Government of GPO contract Purchase Order
60547, Jacket No. 449-410, dated June 18, 1985. (Rule 4
File, hereinafter "R4 File," Tab D.) The decision of the
C.O. is affirmed for the reasons set forth hereinbelow.
Background
On May 28, 1985, Respondent, upon Requisition No. 4-10362 of
the Library of Congress, issued an Invitation for Bids
(hereinafter "IFB") to some 28 printing firms for the
production of 500,000 +/- 25,000 sets of a certain 9 1/2
inch by 5 inch, 6 part, marginally punched, continuous form.
The IFB specified that each part of such form was to be
printed on "chemical transfer" paper of individually
specified color. In addition, Part I was to have affixed to
its face a "chemical self-imaging" backing sheet upon which
was to be mounted a white, uncoated, pressure sensitive
label with a permanent adhesive coating on its reverse side
capable of adhering to paper and paper by-products. The
backing sheet itself was to be capable of retaining a
readable image of all information to be printed upon the
label by the user of the form. Lastly, each set was to be
joined in the left and right hand margins by crimping. The
IFB also specified that the Government was to furnish copy
to the Contractor by June 13, 1985, for the production of
proofs. Submitted proofs were to be subject to an 8 working
day hold period in GPO with production by the contractor not
to commence until receipt of an "OK to print" from GPO.
Thereafter, the contractor was to furnish 1,025 sample sets
to GPO (25 for GPO technical testing and 1,000 for
operational testing by the Library of Congress on its own
computer printers) "prior to the commencement of production
of the contract production quantity." The Government was
then to "approve, conditionally approve, or disapprove the
samples within 8 workdays of the receipt thereof."
"Manufacture of the final product prior to approval of the
sample . . . [was to be] at the contractor's risk." The
"ship complete" date for the entire job was to be on or
before August 5, 1985. (Id. at Tab B, page 3 of 4.)
The contract, in the amount of $43,000, was competitively
awarded to Appellant by Purchase Order 60547 dated June 18,
1985, in strict accordance with Appellant's telephone bid of
June 5, 1985, and Respondent's specifications. (Id. at Tab
D.) In so doing, the bid of another firm was disregarded,
although lower than Appellant's, because of an error which
was substantiated by a Contracting Officer's "Determination
and Findings" approved by Respondent's General Counsel. (Id.
at Tab C.)
After award, the required copy was furnished to Appellant
some 4 days later than specified in the IFB. Accordingly,
the "ship complete" date was adjusted to August 14, 1985,
pursuant to GPO's "government delay" adjustment formula.
Thereafter, the due date for proofs was established as July
9, 1985. (Id. at Tab F.) However, this date was not met.
Appellant then promised to submit the proofs by July 15th.
When this date was also missed, the "promised" date was
changed to July 22nd. Again, the date was missed. Appellant
was then contacted and promised delivery of the proofs by
July 25th. (Id. at Tab F.) On July 25th when proofs were
still not received, Appellant was again contacted. Once
again delivery was promised for that day.
Then, because this delay (when coupled with Appellant's
right to hold proofs 8 days and to hold preproduction
samples 8 days) was endangering the "ship complete" date,
Appellant was sent a telegraphic "cure notice" on July 26,
1985, advising that failure to cure this defect could result
in "default" termination of the contract. (Id. at Tab G.)
In response, Appellant, by letter of August 1, 1985, advised
that it had indeed shipped the proofs by Federal Express on
July 25, 1985, and again (apparently because of nonreceipt)
on July 29, 1985. Appellant also advised that between the
date of the letter and August 14th, it would "of course ship
the required pre-production samples . . . ." (Id. at Tab H.)
Respondent did in fact receive 3 sets of proofs and copy on
July 29th and forwarded the same to the Library of Congress
that day. The proofs were scheduled to be returned to the
contractor by August 8, 1985. (Id. at Tab F.)
Meanwhile, on August 5, 1985, Appellant was again notified
that the "ship complete" date was being endangered. In
response, Appellant's Greg Corcoran implied they would still
be able to meet the date, since someone (unidentified) at
the Library of Congress allegedly had assured him that there
would be no changes (resulting from the Library's review of
the proofs). He also stated that both the prior to
production samples and the final product had been printed
already. He was cautioned by Respondent's representative
that under the circumstances Appellant was taking a
substantial risk with the job. (Id. at Tab H-1.)
The following day Corcoran advised Respondent that the prior
to production samples would be submitted that date or the
next, August 7th. Once again the conversation focused on the
fact that the final shipping date was still being
endangered. Again Corcoran advised that he had been told by
someone (unidentified) at the Library of Congress that the
Library would test the samples on the same day it received
them and immediately thereafter notify Respondent of the
test results. Corcoran was then told to call Respondent if
the promised date was not met. (Id. at Tab H-1.)
The prior to production samples were in fact received by
Respondent on August 9th and forwarded by Printing
Specialist, Tyler H. Davidson, to the Library on August 12,
1985. (Id. at Tab F.) Twenty-five preproduction samples were
also sent to GPO's own testing unit on August 12th with a
"due at contr[actor]" date of August 21st. (Id. at Tab F.)
On August 14, 1985, Davidson received an "approval"
notification from the Library's Mary Ann Leonard dated
August 9, 1985. (The notification document is captioned
"GENERAL AND COMPOSITION PROOFS" and has clear references to
"proofs" throughout its text. It is also check marked "OK to
print/repro (no corrections or changes)" which printed
wording is followed by the handwritten notation "pre-
production sample." Attached to the notification is a note
addressed to "Mary Ann" and signed "Lynn" which states "I am
okaying format of form - not the label until testing is
complete." (Id. at Tab I-1.)
However, on August 20, 1985, a report by GPO's Quality
Control and Testing Department was issued showing that the
samples tested were "not equal to specifications" in that
the adhesive was not permanent.
Upon receiving the report Davidson, on August 22, 1985,
telephonically advised Corcoran that the samples were equal
to specifications, except for the lack of permanent adhesive
on the labels, and that no further samples would be required
if Corcoran would give his oral assurance that the defect
would be corrected. Respondent's written confirmation of
this telephone conversation followed that same day. However,
the following day Davidson telephonically rescinded this
action. (Id. at Tab J, page 2.)
Davidson's notes concerning the rescission reflect that he
told Corcoran that the preproduction samples in fact had not
been approved by the Library of Congress. He said that he
mistakenly had thought the "OK to print" received on August
14th was for the prior to production samples furnished the
Library on August 12th, when in fact the "OK" was of the
proofs sent on July 29th. Thus, when the GPO report was
received on August 22nd, he called Corcoran with the results
and followed up with the confirmation letter as indicated
above. He discovered his mistake the following day upon
notification that the prior to production samples, when run
through the Library's printer, were not printing on the
reverse side. He also was informed at that time that the
entire production quantity had already been delivered to the
Library. Corcoran then reportedly verified that he had
indeed told Davidson on August 5th that the job had already
been printed. He claimed, however, that he did not know
whether the job had been shipped prior to Davidson's August
22nd telephone call. He also advised that Appellant usually
used the trucking firm "Overnite Transportation Co." for its
deliveries. He gave his assurance that Appellant would work
to make the forms usable to the Library. (Id. at Tabs K-1
and T.)
On September 12, 1985, Respondent's William Rose, Tyler
Davidson, and various Library of Congress personnel met at
the Library with Corcoran and Appellant's James Crawford,
District Sales Manager. They advised that the forms were not
producing to the Library's satisfaction on Parts 5 and 6. No
better results were obtained after trying various settings
on the printer. It was therefore agreed that Appellant would
send its engineer to the Library on September 18th for
further testing. According to Davidson's notes, the Library
of Congress representatives also indicated that had the
preproduction samples been acceptable, they would have asked
that the contract be amended to require gluing rather than
crimping of the margins. Appellant's representatives
apparently also admitted to shipping the full product prior
to receiving the premature "approval" call on August 22nd,
but alleged that they instructed their trucker to hold the
shipment until further notice to ship. They purportedly gave
such notice after receiving GPO's erroneous "approval"
telephone call, supra. 1/
Apparently, the further testing by Appellant's engineers,
was unsuccessful, or at least not to the satisfaction of the
Library of Congress officials, since by letter to Respondent
of November 5, 1985, they advised that they deemed the
product to be unacceptable and not usable at any discounted
price. They claimed that:
[T]he samples do not meet the specs in two critical areas: all
copies are not legible, particularly the 6th, and the various
parts are not fastened securely on the stub - whether crimped or
glued the stub must hold all parts securely until being
deliberately separated in the various stages of processing.
Id. at Tab L.
The letter also expressly rejected Library liability for all
quantities of forms produced and shipped in excess of the
preproduction samples.
On November 6, 1985, Respondent, despite receipt of this
letter, paid Appellant $43,000 in full payment of the
contract. The reasons for such demonstrably inappropriate
action were not disclosed in the record. (Id. at Tab Q.)
Nevertheless, Respondent, by letter of November 25, 1985,
proceeded to notify Appellant of the Library's findings and
rejection on November 25, 1985, indicating that more testing
would be conducted by GPO itself with Appellant to be
notified of the results.
In response, Appellant, by letter of December 3, 1985,
advised Respondent that it "feels this form functions
properly with a legible impression on all copies, and is
constructed per your bid specifications and subsequent
letter of preproduction sample approval." (Id. at Tab N.)
Then, by letter of January 14, 1986, Appellant was
officially notified by the Contracting Officer that the
contract was thereby "terminated subsequent to submission of
prior to production samples for the convenience of the
Government. . . . 1. You will not be reimbursed for any
printing cost incurred after prior to production samples."
The letter stated the effective date of the termination as
January 13, 1986. (Id. at Tab O.)
Appellant Corcoran responded by letter of February 2, 1986,
stating that Appellant:
[W]ishes to reiterate its statement of furnishing a quality
product. . . . . We have followed your specifications . . ., in
addition, we did not release the full quantity for delivery until
G.P.O. stated their approval via a phone call and letter. . . .
In addition to the above, Mr. Rich Brozowski [sic] (G.P.O.)
stated in a subsequent conversation that the quality of the
impressions were [sic] legible and that he saw no problem with
our product. 2/ Since the full quantity . . . has been delivered
and . . . [we] followed your specifications we must . . .
consider this order complete.
Id. at Tab P.
On February 3, 1986, the Contracting Officer directed GPO's
Financial Management Service to take the necessary steps to
recover the $43,000 from Appellant's account, because of the
prior erroneous payment, with the caveat that a contract
modification would be issued for settlement at a later date.
Appellant was telephonically advised of this action by
Davidson.
On February 10, 1986, a "Final Decision of the Contracting
Officer" letter was sent to Appellant stating:
All aspects of your claim have been carefully reviewed. The main
point of contention appears to be that you claim you followed our
specifications, when in fact you didn't. The specifications
called for prior to production samples to be furnished before the
production of the contract production quantity. Our contention is
the job was printed and shipped before we gave you instructions
concerning an okay to print on August 22, 1985, which was
rescinded on August 23, 1985. Our documents clearly indicate that
the job was printed and shipped before August 21, 1985. Contract
Terms No. 1 clearly states, that the Government has the right to
terminate for the convience [sic] of the Government when it is in
the best interest of the Government. In this case the product
failed to satisfy the needs of the ordering agency. The facts in
this matter have been re-examined and the original decision will
remain as previously stated.
Id. at Tab S.
The letter also advised Appellant of its right to appeal the
decision to this Board.
Appellant, by letter of May 9, 1986, appealed the decision
on the grounds that: (1) The product was in precise
conformance to the contract specifications; and (2) Full
production at the Appellant's risk was allowable under the
specifications. (Id. at Tab U.)
A general denial pursuant to Rule 6.(b) of GPO Instruction
110.12 dated September 17, 1984, was entered on behalf of
the Respondent on August 5, 1986.
Supporting materials for the appeal were received from
Appellant on October 8, 1986. Among the materials were
samples of the previous edition of the form, an impression
and samples of the instant finished product, and a current
impression from the Library of Congress computer prints. The
forwarding letter also advanced the additional argument that
in prior meetings, the Library of Congress had admitted that
the form impression was acceptable. Appellant also asserted
that the Library's real complaint was that the forms were
glued in the left margin even though such gluing was not
required by the specifications. (Id. at Tab B.)
A prehearing conference was held July 9, 1987. At such
conference Respondent entered into the record a revision to
the agency testing report of August 20, 1985. The new report
dated July 2, 1987, reversed the previous finding by holding
that the adhesive did in fact form a permanent bond and was
thus equal to the technical aspects of the specifications.
Nevertheless, the Respondent reiterated its authority to
terminate the contract for the convenience of the
Government, because the contractor had in fact made its
shipment before the erroneous notification of August 22,
1985. The Appellant, on the other hand, contended that under
the terms of the contract, it did not matter whether or not
such shipment took place after preproduction sample approval
because of the clause which it contends allowed full
production at its own risk. In addition, Appellant alleged
that prior to submitting its bid, its representatives were
told by a Mr. Gore of the Library of Congress that parts 5
and 6 did not need to be as legible as other parts because
these parts would be retained by the Library when the forms
were used. Respondent pointed out that if such comments were
in fact made, they were without any force or effect since
only the Contracting Officer had authority to bind the
Government. The Board orally confirmed the validity of
Respondent's position on this point. There being no further
factual disputes, the parties agreed that additional hearing
of the matter would serve no legitimate purpose. As a final
note, Respondent's counsel suggested that the issue to be
decided is whether or not it is appropriate for a contractor
"to thwart GPO's right to terminate a contract, at a point
in performance after preproduction samples have been
produced but before quantity production, by producing the
entire product quantity at the same time the preproduction
samples were produced." (Prehearing Conference Report dated
July 17, 1987.) The appeal is thus before the Board in this
form for decision.
Discussion
The Government action under which the dispute arises is a
partial termination for the convenience of the Government
made pursuant to United States Government Printing Office
Contract Terms No. 1 (Id. at Tab S), which such publication
(GPO Publication 310.2 - Revised October 1, 1980) was
incorporated in and made a part of the contract by reference
(Id. at Tab B, Page 1 of 4 of specifications). Article 2-17
(a) of such contract provides that:
The performance of work under the contract may be terminated by
the Government in accordance with this article in whole or in
part, whenever the Contracting Officer determines that it is in
the best interest of the Government. Any such termination shall
be effected by delivery to the contractor of a Notice of
Termination, specifying the extent to which performance of work
under the contract is terminated and the date upon which such
termination becomes effective.
The Article 2-17 clause derives from standard language used
in most U.S. Government contracts the efficacy of which has
been frequently tested in the courts. The resultant case law
makes it clear that pursuant to such language, the
Contracting Officer has the "fullest of discretion to end
the work" in the interest of the Government. Nolan Bros.,
Inc. v. United States, 405 F.2d 1250, 1253 (Ct.Cl. 1969);
Schlesinger v. United States, 390 F.2d 702, 707 (Ct.Cl.
1968). Moreover, "[a]bsent bad faith . . . or some other
wrong to the plaintiff or illegal conduct . . . the
Government alone is the judge of its best interest in
terminating a contract for convenience . . .," Colonial
Metals Co. v. United States, 494 F.2d 1355, 1361 (Ct.Cl.
1974), although it "may not use the standard termination for
convenience clause to dishonor, with impunity, its
contractual obligations." Torncello v. United States, 681
F.2d 756, 772 (Ct.Cl. 1982).
In the case at hand, Appellant in effect alleges that the
termination was the result of the purported bad faith of the
Library of Congress personnel who wanted glue in the margins
of the product rather than crimping.
While Appellant is entitled to present evidence of bad faith
on the part of the Government, National Factors, Inc. v.
United States, 492 F.2d 1383, 1385-86 (Ct.Cl. 1974); see
also Allied Materials & Equipment Co. Inc. v. United States,
569 F.2d 562, 565 (Ct.Cl. 1978), such evidence must show a
specific intent to injure Appellant in order for it to be
considered by this Board or a court of law, Kalvar Corp. v.
United States, 543 F.2d 1298, 1302 (Ct.Cl. 1976), cert.
denied, 434 U.S. 830 (1977), since there is an inherent
presumption that public officials act in good faith. Knotts
v. United States, 121 F. Supp. 630, 631 (Ct.Cl. 1954).
Moreover, in the case at hand, there would have to have been
proven that employees of each of the two separate agencies
of Government acted in concert to achieve such specific
result. No such proof has been given. Indeed, no proof has
been given at all. Rather, Appellant has offered a bold
assertion to this Board which cannot be acted upon.
Going beyond the question of bad faith, however, is the
further question of whether or not the Contracting Officer
abused his discretion in terminating the contract for the
Government's convenience in light of the facts of the case,
since such question, if clearly established, can be a basis
for invalidating an improper termination, National Factors,
Inc., supra, without it being necessary to show a specific
intent to injure the Appellant. See National Helium Corp. v.
Morton, 455 F.2d. 650 (4th Cir. 1971). To do so, however,
Appellant would have to have proven by substantial evidence
that the termination was arbitrary and capricious. Gould,
Inc. v. Chafee, 450 F.2d. 663, 667 (D.C. Cir. 1971). The
Board does not believe Appellant has met this burden.
Indeed, the facts show that the Government acted reasonably
in the circumstances. The Government at the outset of
drafting the specifications was apparently unsure of whether
or not the product specified would satisfy its needs.
Accordingly, it provided for the two-phased production
scheme whereby substantial quantities of forms would
constitute preproduction samples "to be inspected and
tested." Moreover, it specified that such samples "must
comply with the specifications as to kind and quality of
materials, quality of reproduction, clarity, legibility,
intensity of carbon copies, and satisfactory processing on
the machine specified. (Id. at Tab B, page 3 of 4.) That
machine was specified to be a Texas Instruments 820 KSR
printer. (Id. at Tab 1, page 1 of 1.) Furthermore, the
Government cautioned the bidder that the "manufacture of the
final product prior to approval of the sample [was at] the
contractor's risk." (Id. at Tab B, page 3 of 4.) The
specifications also placed the bidder on notice that
"approval or conditional approval [of the samples] shall not
relieve the contractor from complying with the
specifications and all other terms and conditions of the
contract. (Id. at Tab B, page 3 of 4.) In addition, the
Notice on the face of page 1 of the specifications
incorporated by reference "all the terms and conditions of
Government Printing Office Contract Terms No. 1 (GPO Pub.
310.2) in effect on the date of the purchase order." Among
those terms and conditions are the provisions of paragraph
(c) of Article 12 which state: "Acceptance or rejection of
supplies shall be made as promptly as practicable after
delivery." (Emphasis added.)
Appellant admittedly manufactured the final product before
approval of the sample (including the erroneously given
approval) but now seeks to shield itself from the
consequences of such act by asserting that it caused the
shipment to be held until after it received the erroneous
notification of approval. This Board cannot be expected, in
good conscience, to condone such action especially when, as
here, the facts fly in the face of the assertion itself.
This is especially true since Boards of Contract Appeals, in
reviewing language similar or analogous to the paragraph (c)
Article 12, GPO Contract Terms No. 1 language, supra, have
uniformly held that "the Government is not estopped to
reject defective work at any time before final completion
and acceptance because of a prior erroneous 'approval' or
'acceptance' by one of its inspectors." W. L. Spruill & Co.,
ASBCA 14390, 71-2 BCA ΒΆ 8930 (1971).
Alternatively, the Appellant also asks that this Board
either substitute its judgment for Respondent's and find
that the product does indeed meet all of the requirements of
the specifications, despite the substantial evidence to the
contrary respecting operational testing in which the
Appellant participated; or accept as contractually binding
Appellant's assertion that before placing its bid, it was
told by someone other than the Contracting Officer that it
was not important to meet the specifications with respect to
parts 5 and 6. This Board respectfully declines to do so
inasmuch as either such action clearly would be "arbitrary
and capricious" and thus an abuse of this Board's
discretion.
Further, it is the unequivocal view of this Board that the
Respondent, in full recognition of the substantial efforts
and expenditures put forth by Appellant to perfect the
product and with full regard for its own less than perfect
performance, chose to terminate the contract for the
convenience of the Government rather than for default in
order to be as financially fair to the Appellant as
possible. 3/ "The contractor's protection on a convenience
termination is that he gets full reimbursement of his costs,
together with a measure of profits." Nolan Bros. Inc.,
supra, at 1253. The Board applauds the Contracting Officer
for handling the issue in this most equitable manner.
Accordingly, it is the decision of this Board that the
decision of the Contracting Officer be and same is hereby
affirmed.
_______________
1/ Copies of the original Overnite Transportation Co. packing
slips obtained from the Library of Congress by Davidson and made
a part of the R4 File show a shipping date of August 20, 1985.
Additionally, in response to a Mr. Tom Swartz of Overnite
Transportation Co., a telephonic inquiry on May 15, 1986,
reportedly stated that: (1) There was no government bill of
lading involved in the shipment; (2) The order was for line-haul
transportation only (pick up, through transport and direct
delivery); and that (3) No additional services were ordered by
the shipper or furnished by the carrier. (Id. at Tab T.)
2/ A file notation by Davidson dated February 10, 1986, indicates
that he contacted Brzozowski who had no recollection of telling
Corcoran the impressions were legible or that he saw no problem
with the product.
3/ "[T]he default article does not require the Government to
terminate on finding a bare default but merely gives the
procuring agency discretion to do so." Schlesinger v. United
States, supra, 390 F.2d 702 at 706, 707 (Ct.Cl. 1968).