UNITED STATES GOVERNMENT PRINTING OFFICE CONTRACT APPEALS BOARD Appeal of Norm Hodges & Associates, Inc. Appeal dated October 5, 1981 Decision dated April 12, 1982 Panel 82-2 THOMAS O. MAGNETTI, Chairman MICHAEL P. BELLESKY, Member BRIAN T. MORRISSEY, Member Preliminary Statement This is a decision on a timely appeal filed by Norm Hodges & Associates, Inc. (hereinafter referred to as the contractor). The contracts at issue (Programs 24-S and 154-M) required the contractor to produce microfiche for the Government Printing Office (GPO). The GPO Contracting Officer terminated these contracts for default because the contractor abandoned its plant without informing the GPO. The contractor disputes this final decision to terminate the contracts for default. The appeal is taken in accordance with Article 2-3 (the"Disputes" clause) of the GPO Contract Terms No. 1, GPO Publication 310.2, revised October 1, 1980. 1/ 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 to Contract Terms No. 1, supra. This decision of the Board is based solely on the record which consists of the exhibits within the Appeal File and the oral argument before the Board held on March 11, 1982. Statement of Facts On August 1, 1980, in accordance with standard GPO contract award procedures, Purchase Order 14771 for the contract Program 24-S was awarded to the contractor. This contract required the contractor to produce silver halide master microfiche from three categories of Government furnished material: source documents, or print image tapes, or text data base magnetic tapes. Exhibit 6, Appeal File (hereafter A.F.). According to the specifications, the production and delivery of silver .halide archival quality camera microfiche were to adhere to the performance schedule established in the specifications. Paragraph 2.21, Exhibit 3, A.F. On October 10, 1980 the contractor was awarded a second contract (Program 154-M) by Purchase Order 16083. Exhibit 11, A.F. This multiple award contract required the contractor to produce and deliver microfiche from Government furnished camera copy source documents and silver halide microfiche. Exhibit 8, A.F. In placing work under this multiple contract, noncompliance with the shipping and/or delivery schedule could be cause for the Government to withhold further orders until the contractor was judged by the Government to have established adequate procedures to fulfill the delivery requirements. On August 4, 1981, the contractor was notified by letter that the Government would withhold further print orders under Program 154- M because it had been late in delivering 40% of the print orders submitted during the month of July. The contractor was directed to establish production controls that would ensure future compliance with the performance schedule. By letter dated August 7, 1981, the contractor attempted to explain its delinquent performance on four print orders. Exhibit 13, A.F. The letter further informed the Government that the contractor had closed its doors for a 30 day period to restructure its finances and management. Following receipt of this notification, the Government apparently placed no further orders under Program 154- M with the contractor. However during this same time period, two print orders under Program 24-S were placed with the contractor. Exhibits 18, 19, A.F. The GPO was informed on August 26, 1981, that the contractor had been evicted for nonpayment of rent from the plant it leased in Fairfax, Virginia. Exhibits 14, 15, A.F. As a consequence of this eviction, the premises and its contents were in the control of the Sheriff's Office of Fairfax County. Several employees of the GPO visited the site in the hope of recovering GPO property. Visual inspection revealed that the contractor had removed all of its production equipment. These employees reported back that no production could take place at the plant. Exhibit 15, A.F.; see also, Exhibit 20, A.F. During the next week, the GPO made several unsuccessful attempts to contact the contractor. Exhibit 22, A.F. Based on the fact that the contractor had abandoned its plant without notifying the GPO of the move and without leaving any forwarding address, the GPO terminated both contracts for default. Exhibits 20, 21, A.F. The reason provided in the termination notice for the default action was "because of the close of [its] business." Id. The contractor appealed the Contracting Officer's final decision by letter to the Public Printer dated October 5, 1982. Exhibit 1, A.F. On December 14, 1981, the contractor requested an informal hearing which was scheduled for 9:30 a.m. on March 11, 1982. The contractor was notified of this hearing date by a letter from the Administrator, GPO Contract Appeals Board and one from the Chairman of the GPO Contract Appeals Board Panel dated January 26 and January 29, 1982, respectively. The January 26th letter contained the hearing time. The certified return receipts indicated that the contractor received both of these letters. The hearing was convened at 9:45 on March 11, 1982, however neither the contractor nor any of its representatives were present. One of the contractor's employees called during the hearing, but provided no reasonable excuse for its absence. As in any case of unexcused absence of one of the parties, the Panel proceeded with the hearing and the contractor's case was considered to be submitted on the record within the Appeal File. This procedure is in accordance with Paragraph 13(d) of the aforementioned GPO Instruction 110.10B. 3 Discussion The Government's right to default a contractor is derived from Article 2-18 2/, entitled "Default." This provision reads in part as follows: 2-18. Default (a) The Government may, subject to the provisions of paragraph (c) of this article, by written notice of default to the contractor, terminate the whole or any part of the contract in any one of the following circumstances: (1) If the contractor fails to make delivery of the supplies or to perform the services within the time specified herein or any extension thereof; or (2) If the contractor fails to perform any of the other provisions of the contract, or so fails to make progress as to endanger performance of the contract in accordance with its terms, and in either of these two circumstances does not cure such failure within a period of 10 days (or such other period as the Contracting Officer may determine to be reasonable and authorize in writing) after receipt of notice from the Contracting Officer specifying such failure. This clause gives the Government the right to default the contract without prior notice only in cases where the contractor has failed to deliver supplies within the schedule specified in the contract or within any extensions thereof. Art. 2-18(a)(l). If the Government wishes to default because of some other action or inaction by the contractor the Government must notify the contractor of the problem and must afford the contractor a period of 10 days to resolve the problem to the satisfaction of the Contracting Officer. Art. 2-18(a)(2). Regardless of which provision the Government invokes, it was the burden of proving that it acted properly in terminating a contract. In the instant case, the ostensible reason provided by the Government for the default action was the apparent closing of the contractor's business. Exhibit 21, A.F. Since this justification for default does not necessarily include failure to deliver, a default for this reason alone would only be permissible under Article 2-18(a)(2). This is because closing one's business would give rise to the presumption that the contractor had failed to make progress so as to endanger the performance of the contract in accordance with its terms. As stated above, under this provision the Government must provide the contractor a 10 day cure notice before terminating the contract for default. Failure to provide the appropriate notice renders the default invalid. Kisco Co. v. United States, 610 F.2d 742 (Ct. Cl. 1979); Bailey Specialized Buildings, Inc. v. United States, 404 F.2d 355 (Ct. Cl. 1968). The record here reveals that no such cure notice was provided to the contractor. The Government argued however at the hearing that the default action was taken under Article 2-18(a)(l) because the contractor failed to deliver microfiche ordered within the shipment periods established in the contract specifications and the individual print orders. This nondelivery presumably arose under Print Orders 99, 104 and 105 which had shipping dates of August 19, 26 and 27, 1981, respectively. Exhibits 17, 18, 19, A.F. Since the default notice terminating the three print orders was dated September 9, 1981, and the contractor has not offered any evidence that it did deliver the work in a timely fashion, the Board concludes that there was no delivery of these three orders at the time of termination. The contract terms permit immediate termination action for failure to deliver goods at the appropriate time. Kan-Du Tool and Instrument Corp., ASBCA No. 23466, 79-2 BCA ¶ 13,907; Technical Publishing Services, Inc., GPO CAB 1-81, January 20, 1982. Termination for failure to deliver has been upheld even if based upon improper grounds if a proper ground for default termination existed at the time of termination. Pots Unlimited, LTD. v. United States, 600 F.2d 790 (Ct. Cl. 1979), and the cases cited therein; Cross Aero Corp., ASBCA 14801, 71-2 BCA ¶ 9075. Therefore, in a case such as this, where the termination is based on default in delivery, any assertion that the termination notice contained an invalid reason or was invalid because of the reason contained therein does not void the action provided that at the time of termination a valid ground does in fact exist. See also, Royal Lumber Co., Inc., ASBCA No. 2847 (1955). It is the ruling of this Board that given the facts of this case the Government could not default the contractor for nondelivery on Print Orders 99, 104 and 105. Ordinarily, the Government is entitled to strict compliance with its contract specifications. Red Circle Corp. v. United States, 185 Ct. Cl. 1, 8 (1968); Associated Graphics, GPO CAB 76-12, January 12, 1981. However, the record indicates that the Government waived its right to receive delivery in strict accordance with the specifications. In cases where the Courts or the Boards have found this kind of waiver, the determining factor has been a finding that the contractor relied to its detriment on Government action or inaction. DeVito v. United States, 413 F.2d 1147 (Ct. Cl. 1969); Clark Cable Corp., ASBCA No. 17090, 72-1 BCA ¶ 9463. This waiver may result from Government action prior to the due date indicating that time is not of the issue. Bailfield Industries, Division of A-T-O, Inc., ASBCA Nos. 14582, 14583, 72-2 BCA ¶ 9676. A waiver is binding not because of consideration, but because of principles of fair dealing or estoppel. Nash & Cibinic, Federal Procurement Law, Vol. II, 3rd Edition, 1980, p. 1687. In the instant case, the contractor notified the Government in a letter dated August 7, 1981, that it ''as "restructuring its financial and management area and [had] closed its doors for a 30-day period to overhaul these systems." Exhibit 13, A.F. The Government never commented on this action but in the next few weeks sent Print Orders 104 and 105 to the contractor. Exhibits 18 and 19, A.F. Since the Government had notice that the contractor's production had temporarily ceased for the month of August and it still continued to submit print orders, the inescapable conclusion is that the Government did not consider that it was necessary for the contractor to comply with the shipping dates on these two print orders (August 26 and 27, 1981) . The Government's inaction demonstrated that time was not of the essence and it is now estopped from arguing that it is. Although Print Order 99 was provided to the contractor in July 1981, prior to the closing of its plant, the aforementioned waiver would also include this print order. The Government was notified prior to the delivery date on Print Order 99 that the contractor's plant had closed. Exhibits 13, 17, A.F. The Government was given constructive notice that delivery on that print order was going to be delayed by the closure. It made no comment concerning this except to submit two more print orders (Print Orders 104 & 105). The inaction coupled with the submission of more print orders served to waive the delivery requirements for all of the print orders. Since the contractor continued to receive print orders while it was closed, it would have been reasonable for the contractor to rely on the fact that since the Government knew it had shut down its production during August, it was not necessary for the contractor to adhere strictly to the production schedule. If the contractor had been notified that its closing was unacceptable, it might not have continued a course of action that would have led it to default. As it was, the contractor was never given the opportunity. Therefore, because the Government allowed the contractor to continue its production shut down by not notifying it that this course of action was endangering the contractor's performance on the contract or that the Government expected the delivery dates of print orders to be adhered to, it waived any right to timely delivery. This Board holds that if the Government wanted to terminate Program 24-S under Article 2-18(a)(l), it should have reestablished its delivery schedule. DeVito v. United States, supra. If it wanted to terminate the contract under Article 2-18(a)(2), it should have provided a 10-day cure notice. Since it did neither, the termination was improper and invalid. The termination of Program 154-M was also improper. There is no indication in the record that there were any outstanding print orders under this contract that would have permitted the Government to default the contract due to late delivery as allowed under Article 2-18(a)(l). Therefore this default had to have been effected under Article 2-18(a)(2). As stated above, since there was no cure notice provided, any termination under this article would be invalid. In light of the fact that the GPO ascertained at the end of August that the contractor had moved from its premises and was incapable of production at that location, this decision may seem to exalt form over substance. However, it should be remembered 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, supra, J. D. Hedin Construction Co. v. United States, 187 Ct. Cl. 45, 57; 408 F.2d 424, 431 (1969). The Corps of Engineers Board of Contract Appeals, after citing this principle, held that: "[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." 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 ¶ 12,239. Since the Government has not strictly performed its contractual obligations regarding termination for default, the termination cannot be upheld. Conclusion Accordingly, the Board remands this appeal to the Contracting Officer for conversion of the default termination to one for convenience of the Government pursuant to Articles 2-17 and 2-18(e), Contract Terms No. 1, supra. In the event that negotiations regarding quantum should prove unsatisfactory to the contractor, it has the right to appeal this matter to the Board in accordance with the contract's aforementioned Disputes clause. _______________ 1/ This contract provision had been numbered as Article 3 in the previous version of the contract. See Contract Terms No. 1, GPO Publication 310.2, revised August 1, 1979. The language remains substantially unchanged. 2/ This clause is numbered Article 17 in the 1979 version of Contract Terms No. 1, supra.