U.S. Government Printing Office Contract Appeals Board Appeal of Timsco, Inc. Contract No. B-1829, Jacket No. 707-168 C.A. 78-10 July 24, 1979 Vincent T. McCarthy, Chairman Jay E. Eisen, Member Lawrence W. Kennelly, Member This matter was brought before the Contract Appeals Board as a result of an appeal dated August 15, 1978, by Timsco, Inc., hereinafter called the Company or Appellant. The Company appealed of a termination of contract it had with the United States Government Printing Office (GPO) for the printing of 230,000 + 1% Marine Camouflage Bumper Stickers. I. Facts The GPO invited bids for bumper stickers that were entitled Marine Camouflage Bumper Stickers. Invitations for bids were sent out by the procuring activity, U.S. Government Printing Office Regional Printing Procurement Office, Philadelphia, Pennsylvania (RPPO, Phila.), to 20 firms including the Company. Bids were received from 7 companies and the Appellant was the lowest bidder. An award was made to the Company by the issuance of Purchase Order No. B-1829 dated October 17, 1977, with a required shipping date of December 13, 1977. Shipment of the product was made, and when it was received by the Department of the Navy, it was rejected by that Department for the following reasons: a. Serious misregistration of inks throughout run. b. Image size was reduced from supplied negative image size. c. Trim size was reduced from specified size. d. Cartons were not properly packed. Approximately two-thirds of the inside of each carton was not filled. The Department of the Navy requested that the Appellant be required to reprint the entire job in accordance with the original specifications and ship on or before April 4, 1978. The Contracting Officer and other RPPO, Phila. personnel inspected the samples and material furnished and confirmed the findings of the Department of the Navy. A meeting was held in Philadelphia on March 9, 1978, with the Contracting Officer, the President of Timsco, and the Director, Printing Procurement Division, Department of the Navy. As a result of this conference, the President of Timsco, Mr. Walter Prichard, wrote a letter to the Contracting Officer dated March 10, 1978, in which he confirmed a proposal made on March 9, 1978, that he would be willing to reduce the cost 50 percent, from $17,900 to $8,900, in order to compensate for the discrepancies in the "Marine" Bumper Stickers. In a letter dated March 14, 1978, from the Department of the Navy to the Contracting Officer, the price reduction was rejected. On March 20, 1989, the Appellant sent a letter to the Contracting Officer giving three arguments that should be considered in attempting to negotiate a reasonable settlement: "1. The workmanship on the Bumper Stickers is of good quality. Although some stickers do not exactly meet the Contract Specifications, the margin of error is so small that rejection of the entire lot is arbitrary, capricious, and unreasonable. By any reasonable A.Q.L. Standard, the shipment should be acceptable. "2. The stickers that do not meet Specifications are certainly fit for the intended purpose. Consider that a bumper sticker used to encourage enlistment in the Marines is not going to be examined under a microscope by a prospective enlistee to determine whether or not he should enlist. At any distance, the error is not detectable. "3. We have substantially performed under the terms of the contract. To continue 'nit-picking' at our product is extremely non- productive and costly for both of us. We are not going to relent and accept the entire shipment as a reject." On March 29, 1978, the Contracting Officer sent a letter to the Appellant in which he confirmed a telephone conversation that took place on March 28, 1978, between him and Mr. Prichard. In this telephone conversation, Mr. Prichard was informed that the entire order of Bumper Stickers were rejected. The following reasons for rejection were stated in the letter: a. Serious misregistration of inks throughout the entire order. b. Image size was reduced from supplied negatives. c. Trim size was smaller than specified size. The March 29, 1978 letter went on to say that the Company is required to reprint the entire order in accordance with the contract specifications and to ship no later than April 28, 1978. On June 29, 1978, the Director of the Printing Procurement Department, NPPSO 4ND, Philadelphia, Pennsylvania, wrote to the Manager of the Regional Printing Procurement Office , GPO, in Philadelphia, Pennsylvania, and reported: 1. Timsco picked up the subject material for reprinting. 2. It was redelivered with no improvement in quality. 3. The shipment totalled 151,000 copies and was approximately 78,000 copies short. The June 29, 1978 memo, requested the GPO to ascertain if the company did in fact reprint as directed. The fact is that there had been no reprinting, but a sorting was done by the Appellant and the stickers that were not up to standard as far as the Appellant was concerned were discarded and the balance of 151,000 were reshipped to the Department of the Navy. A meeting was held in the Washington Office of the GPO on June 28, 1978, between representatives of the Department of the Navy and GPO officials to discuss the proposal of the Appellant for a 50 percent discount. The Department of the Navy representatives agreed to weigh all of the facts and render a final decision. The Department of the Navy officials decided to continue to reject the stickers. The Contracting Officer recommended to the Contract Review Board that the Company be defaulted and the order readvertised. On July 20, 1978, a letter was sent to the Appellant in which it was notified the contract was terminated for default because the product furnished did not meet the "Workmanship" clause requirements to the contract. The Appellant was also informed that the item could be reprocured against the Appellant's account. The Appellant was advised of the right to appeal within 30 days. On August 15, 1978, a letter of appeal was addressed to the Public Printer by the President of Timsco, Inc., saying: "This appeal is based on our belief that the 'Marine' bumper stickers supplied by us under this contract do meet the 'Workmanship' clause requirements of the contract and further are in substantial compliance with the quality provisions of the purchase order and the furnished proofs. "The workmanship on the bumper stickers is of good quality and they are certainly fit for their intended purpose. Where error does exists, it is so small, that to reject the entire lot appears arbitrary and unreasonable." The hearing convened on November 28, November 29, 1978, March 20 and 21, 1979. II. Arguments of Appellant A. 1. The Company argued that the Government's subjective standards were applied in an arbitrary and capricious manner and that it was impossible for a competent printer doing a quality production job to achieve the level of precision required by the Government. 2. The Company argued that the basic difficulty in this case has arisen because the Government has insisted, without advance warning to bidders, on a higher standard of quality than is economically feasible on a low cost mass production printing on flexible vinyl material. On the basis of these two arguments, the Company claims performance under the contract was impossible. B. The Company claims that the bumper stickers meet the lawful requirements of the contract. 1. The argument set forth was, while the specifications called for "appropriate registration" in this context, it really meant "suitable" registration. The Company argued when the stickers were read at a distance there would be no notice of the misregistration. 2. The Company states that the image size was approved. Before production was begun, the Company supplied samples of the reduced image size and they were approved. Thus, any reduction was with the express approval of the Government. 3. Trim size - The Company argues that in some instances the bumper stickers it supplied were about 1/4" narrower or shorter than the specifications demanded. However, this had no effect on the usefulness of the bumper stickers and should not be grounds for rejection. The Company states that the Government should not require exact perfection on a run of 230,000 bumper stickers costing about 8 cents each. C. The Appellant argues that it substantially performed its contract. 1. It delivered 151,000 stickers that were clearly acceptable and the other one-third could have been reprinted if the first two- thirds had been accepted. To combat the Government's argument that there is no substantial performance doctrine in Government supply contracts, the Appellant cites Radiation Technology v. U. S., 177 Ct. Cl. 227, in which the Court held that a contractor [which] had delivered goods in substantial compliance with contract specifications was entitled to a reasonable time in which to cure nonconformities. D. The Appellant argues that the Government assessment of excess costs was improper. 1. The Government was required to mitigate damages, and when it refused to accept the 151,000 bumper stickers that were reshipped to the agency, it was not doing so. 2. The Government failed to prove payment of excess costs and performance by the reprocurement contractor. The Government had not furnished a payment voucher or copy of payment check. III. Arguments of GPO The Government argued that the Appellant has presented no credible evidence to warrant overturning the termination for default and the resultant assessment of excess costs. 1. Substantial Performance The Government states that the doctrine of substantial performance ordinarily is invoked in construction contracts and has no applicability to other types of contracts. It should not be carried to the point where a nondefaulting party is compelled to accept a measure of performance less than had been bargained for. The Government cites Franklin E. Perry Co. v. United States, 524 F.2d 668 (1975). In addition, the Appellee states that, even if the doctrine was applicable, the Appellant's refusal to replace about one-third of admitted "bad" bumper stickers falls far short of substantial compliance with the contract requirements. 2. The Appellee answered the argument of the Company - that in other instances, the Government waived the standards of performance. The Government states that argument does not constitute proof and there was no proof of waiver. In addition, even if the Government had granted a waiver to other contractors, this did not free the Appellant from its obligation to perform under the terms of the contract. The Government cites Security Parachute Co., ASBCA No. 20334, 76-1 BCA ¶ 11,722. The Government states that there was no showing that in recording the deficiencies, the department representatives applied a stricter or different standard than other representatives who were assigned to inspect similar work. In addition, the Contracting Officer and his assistant personally observed the deficiencies. It is argued by the Appellee that the Government is entitled to performance in strict compliance with the specifications, and in this case had the right to insist upon the quality of performance called for. In this case the specifications called for bumper stickers free from errors. Noncompliance with these requirements would subject the contractor to the sanction of default termination. In answer to the Appellant's argument that the bumper stickers were suitable for the intended use and, therefore, should have been accepted by the Government, the Appellee states: "The Government has a right to insist upon strict compliance of supplies with contract specifications. It does not have to accept supplies that are 'slightly' defective or in substantial compliance with the specifications because that would permit a contractor to, in effect, modify the specifications unilaterally. Farwell Co. v. U.S., 137 Ct. Cl. 831 (1957); General Mills, Inc., ASBCA 9045, 1964 BCA ¶ 4064; Cherry Meat Packers, Inc., ASBCA 8974, 1963 BCA ¶ 9506. . . " The Government distinguishes the two cases cited by Appellant, Newark Fire Proofing Sash & Door Co. v. U.S., 107 Ct. Cl. 606 (1947); Precision Products, Inc., ASBCA 14,284, 70-2- BCA ¶ 8447, on the basis that these cases applied to a method of testing a product which is not an issue in this case. The Government also makes the point that under the "Default" clause of the contract, a default termination is excusable if the contractor can establish that his failure to complete his contract on time was due to causes beyond his control and without his fault or negligence. The Appellee argues that the contractor has failed in this appeal to carry the burden of establishing excusable causes for his failure to perform that the record indicates that failure to perform arose out of causes wholly within the control of the contractor. IV. Discussion We have a case before us of a contract made with the GPO for the printing o 230,000 +1% "Marine" Bumper Stickers. The specifications for the contract are clear as to what was to be performed. The date for delivery was specific. Invitations went out to the 20 firms including the Appellant, and it was the successful bidder. There is no question that the contract was not complied with. The 230,000 stickers were delivered 8 weeks late. When they were delivered, they were rejected because they did not meet the specifications. Under the terms of the contract, the Government had the right to request the job be reprinted to meet the specifications. The Appellant did not do this. It sorted out about two-thirds of the stickers and sent them back to the Government where they were again rejected. There was no evidence the Appellant was ever going to reprint the stickers, on the contrary, there is evidence that the Appellant had no intention to do so. Mr. Prichard testified to this when he was asked: Q. What was the purpose then of inspecting these? A. To reinspect them to select those that were acceptable, or would be acceptable under the contract. Q. What about the differences? A. We would negotiate that. Q. So it is fair to say that you never had any intention of reprinting this? A. Correct. Q. Did you make that intention known to the Contracting Officer in any way? A. Not in writing, and I haven't talked to him since - no. (Tr. 1-103.) It was the intention of the Appellant to have the Government accept two-thirds of the amount the contract called for and to negotiate with the Government over the balance. Mr. Prichard so testified when asked: Q. What about the difference? A. We would negotiate that. (Tr. 1-103.) It is clear, therefore, from the testimony that it would be necessary for the Government to obtain the additional stickers from another source, even if the two-thirds were acceptable. The Government said that they were not and did not meet the specifications. It is clear from the testimony that Mr. Prichard himself was aware that the 151,000 that were reshipped were not up to the specifications: Q. So taking the other side of the coin for a moment, then it is your testimony that they are not in technical compliance? What would you use to describe what I understand is your testimony, that you recognize that they don't really meet the specs? A. All of the 151,000 or 230,000 do not meet the exact specifications because they all don't measure 3-1/2 x 12. There is some off registration and that's why I can't say that they precisely meet the specifications. (Tr. 1-90, 91). Mr. Joseph Natoli, Vice President of Timsco, testified that the Company had no intention to run the job again: ". . . Timsco was in dire financial straits. It had lost $53,000 the year before because of a man we had that had since been released and . . . (cannot understand), and indicated that we had probably suffered a $4,000 or $5,000 loss on the initial job that we wouldn't run again because . . . (cannot understand) and to run it again would just simply be folly I think on our part." (Tr. 11-70.) The Appellant alleges that the Government had insisted without advance warning to bidders on a higher standard of quality than is economically feasible on a low cost mass production printing on flexible vinyl material, evidence of other printings indicate that the Government had previously accepted production having much greater misprints than those of Timsco. There was no proof submitted that showed the Government accepted a lesser quality production than the specifications called for. In this particular case, the invitations went out to the various contractors and they were clear and unambiguous. If the Appellant was not capable of living up to them it should not have bid on the job. When the bid was made and accepted, then the only excuse for a delay in time would be for causes beyond the control of the contractor. In this instance, the failure to produce the product on time and up to specifications, were within the control of the Appellant. The Appellant also alleges that the word in the specifications "appropriate" means "suitable for the particular commodity and use to which the commodity is put." This is not so when a sample is submitted as was required and one in this case (see Tr. 105-106). The Uniform Commercial Code (which is not applicable here), states the principle rather clearly: "Any sample or model which is made part of the basis of the bargain create an express warranty that the whole of the goods shall conform to the sample or model." (U.C.C. 2-313(1)(c).) When the Appellant had the sample to work with, the end product had to conform to the sample. The Appellant also alleges that the Government failed to mitigate damages. It is apparent what the Appellant expected the Government to do is to use the 151,000 stickers that had been returned and reprint the other one-third. This would have reduced the damages substantially. What this would have required was an acceptance of a product that did not meet the specifications and this is not what the Government had contracted for. Therefore, this argument on mitigation must fail. In Franklin E. Perry v. U.S., 524 F.2d 668 at 677 it states: "While the purpose of the substantial performance doctrine is to avoid the harshness of a forfeiture, the doctrine should not be carried to the point where the nondefaulting party is compelled to accept a measure of performance fundamentally less than had been bargained for. "Substantial performance is never properly invoked unless the promisee had obtained to all intents and purposes all benefits which he reasonably anticipated receiving under the Contract. In re Kenney Aluminum Co., 78 F.Supp. 565 at 568." In Farwell Company, Inc. v. U.S., 137 Ct. Cl. 832, we had a case in which the Government specified copper pipe and the contractor used tubing. The court said: "The Government may have had many reasons for requiring pipe instead of tubing, but in any event, the specifications called for pipe and the Government had a right to expect that pipe would be used. In other words, why have a contract if either party could change the terms to suit his particular whim . . . . "This is just what contracts are meant to prevent and an added reason why they should be construed according to their terms as this court did in its decision on the cross-motions for summary judgment." We think that we have a similar situation in this case where the specifications were clear, and they were not lived up to. The Government had a right to obtain what it contracted for and it did not receive it. V. Reprocurement The Appellant contends that the Government's assessment of excess costs were improper. a. The Government had a duty to mitigate damages by reprocuring in a reasonable manner. b. The Government failed to prove payment of excess costs and performance by the reprocurement contractor. We must reject the arguments of the Appellant on these two subjects. When it was determined that the Appellant was in default, the Contracting Officer again sent out invitations to contractors to bid. The successful bidder was M & M Displays (Government Ex. 15). The contract was for 230,000 bumper stickers at the cost of $21,300. The difference was $3,400 between the Timsco contract and this. This was all testified to by the Contracting Officer who was called to the stand by the Appellant. The Appellant alleged that the Government should have used the 151,000 that had already been rejected. We do not think this was required. Mr. Stewart McKendry was called from Philadelphia to testify, and he did on the question of the acceptance of the reprocurement of M & M Displays. We we consider the question of payment, we have the testimony of Mr. Mario Bernazzoli, the Contracting Officer, that the reprocurement contractor was paid (Tr. 3-37). We also have Government Ex. 16, the purchase order that was required by the Contracting Officer and forwarded to the disbursing office for payment. Mr. Bernazzoli testified that he certified the billings for payment on November 29, 1978 (Tr. 3-73). Government Ex. 17 indicates that the excess costs were $3,400. VI. Conclusion In reviewing all of the evidence that has been presented and after considering all of the arguments, the Board finds: 1. The default termination was proper. 2. The cost of $3,400 is upheld. The appeal is denied.