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  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).