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).