Harry Hoffman & Sons Printing GPO BCA 7-86 April 20, 1987 Michael F. DiMario, Administrative Law Judge Opinion This appeal, timely filed by Harry Hoffman & Sons Printing, 903 Jefferson Avenue, Buffalo, NY 14204 (hereinafter "Appellant"), is from the November 17, 1986, final decision of George W. Watson, Contracting Officer, on behalf of the United States Government Printing Office (hereinafter "Respondent"), allowing only $5,197.49 of $11,200 in claimed additional costs incurred by Appellant in accelerating the production and shipment of a certain printed product entitled "United States Naval Academy Catalog 1986-1987." The appeal is granted for the reasons set forth hereinbelow. Background Respondent, by Purchase Order 62296 dated January 15, 1986, awarded Appellant a fixed price contract, Jacket No. 486-842, in the amount of $158,259.50 for the production and distribution of a publication entitled "United States Naval Academy Catalog 1986-1987." The contract required Appellant to furnish and bear the costs for "all materials and operations" except for certain base art and camera copy materials to be furnished by Respondent. Some 35,000 of the catalogs were to be produced with tear cards for removal and use in applying to the Academy. The furnished materials were to be available for pick up by Appellant by January 24, 1986, with the completed job to be shipped on or before April 11, 1986. On January 16, 1986, the Navy Department requested that the quantity be increased to 100,762; the additional 12,000 copies to be without tear cards. This increased the contract amount by $17,892 based upon Appellant's quoted added rate of $1,491 per thousand copies. The additional copies were also to be shipped on the original ship date of April 11th. Contract Modification 0737 dated January 23, 1986, reflecting these changes was issued as a Supplemental Agreement to the original contract. The furnished materials (artwork and camera copy) were not made available to Respondent until February 27, 1986. Since this delay was caused by the Government the ship date was automatically adjusted in accordance with the terms of the contract from April 11, 1986 to May 19, 1986. In the meantime, however, the Navy Department (hereinafter "the Department") by memorandum dated February 26, 1986, requested that Respondent accelerate delivery of 35,000 copies with tear cards to a mailing contractor in Sussex, DE by April 25, 1986, in order for the catalogs to be sent to high schools throughout the nation prior to their summer closing. They also requested that the balance of their order (65,000 copies without tear cards) be delivered to.the Academy itself not later than May 1, 1986. (See Appeal File, hereinafter "R4 File," Tab G.) Appellant's Jerry Kenny, in response to a telephone query from Respondent's Ron Cully, advised Cully by return call of March 11, 1986, that it's price for meeting such accelerated delivery was $11,200. This price was telephonically approved by the Navy on March 12, 1986, with the proviso that the proposed delivery dates must be met. Contract Modification 0925 dated March 17, 1986, was then prepared by Respondent to reflect this proposed change in contract terms. The modification in pertinent part states: The agreed upon amount of $11,200 is your estimate of the cost for such acceleration. Payment will be made not to exceed $11,200 and only for the actual additional expense incurred by you in accordance with the provisions contained in GPO Pub. 310.2, Part II, ¶ 2-25. 1/ The modification bears the signatures of J. G. Marken, 3/20/86, Contracting Officer for the Public Printer (i.e., Respondent), and Gregory M. Clemons April 1, the person authorized to sign "Contractor's Agreement/Acknowledgment" on behalf of Appellant. (R4 File, Tab O) (Documents in the appeal file identity Mr. Clemons as Appellant's Production Coordinator.) Thereafter, Appellant began production on the product. Book blues and Kodalines were due in GPO from Appellant by March 31. When they were not received, Respondent's Cully contacted Clemons by telephone advising him that he "was concerned that [Appellant's] proposed schedule was slipping." According to Cully, Clemons assured him "that he was aware of slippage and that they were doing everything they could to expedite job, and that they are dedicated to making agreed upon ship dates." At that time Cully and Clemons also set the press sheet inspection date for April 11, 1986. (R4 File, Tab Q) A series of telephone notes by JGM (Jack G. Marken) in the R4 file then indicate problem events as they transpired during the press sheet inspection. Among these are findings by Mr. Walter Burroughs, Respondent's press sheet inspector, of "poor paper & ink. Covers would not register. 2-7 forms on another job being run. 220 illus rejected not reshot." (R4 File, Tab U) One note reflecting a conversation with Ralph Hutton, Appellant's Production Manager, states: "Mr. Hoffman [Appellant's President - Mel Hoffman] will be back this afternoon or tomorrow morning with a production plan." (R4 File, Tab U) Another such note, the same day, reflects a telephone discussion between Hutton and Marken, wherein Marken asked "for a prod plan and . . . why our job had been lifted. He [Hutton] will work on the plan and have Mr. Hoffman call me." (R4 File, Tab U) A subsequent note that same day reflecting another conversation between Hutton and Marken states: "Covers OK'ed Forms 14-27 running now 10 are done 4 of the bal they may run partials Will be back to press Thur 4-24 Will run partials on the lst 14 to meet the schedule." (R4 File, Tab U) A 4-21 note by Cully reflects that he instructed Clemons by telephone "to ship 50 of the 35,000 copies to" the Public Affairs office, U.S. Naval Academy "no later than 4-25-86." (R4 File, Tab V) On April 30, 1986, note (R4 File, Tab W), subject "late delivery" recommending that a "show cause letter be sent" to Appellant states: - order scheduled to ship 4/11/86, adjusted to 4/25/86 partial @ destination and 5/1/86 complete @ destination - per Greg Clemons @ Hoffman - order to deliver complete 5/6/86 - K cites mechanical problems with subcontractor for binding as reason for late delivery - approximately 33,568 books completed before breakdown - subcontractor had to order new motor - subcontractor expects to complete binding 5/5/86 and deliver 5/6/86 - recommend show cause letter be sent Tab W also reflects the decision of Marken dated 5/1/86 not to send such letter. A note by Cully of a telephone conversation with Clemons dated May 14 shows the following shipments by Appellant: 26,880 No T/C [tearcards] 4-29 28,160 No T/C 5-2 9,999 No T/C 5-5 1,710 No T/C 5-13 35,000 W/ TC 4-24 Shipped The note also reflects a 1% shortage of 1,528 copies from what the Appellant's invoice showed it actually shipped with the question of whether this shortage was "OK/?" and a notation showing "No D.H.." A further notation states "will ship final 5-14 ( )" (R4 File, Tab X) DH is identified in the notes as Dave Haddock of the Department of the Navy with a note of 5-15 reflecting that "Dept. needs shortage by 5-30." Subsequently on 5-19 the Department and the GPO agreed to the short shipment. On 5-27 Cully advised Appellant's Hoffman that "GPO was paying basic contract price plus increased qty. price minus shortage. Told K to submit itemized claim for add'l payment for AA's and labor records clearly substantiating actual add'l exp. for acceleration [sic] of scheduled delivery." (R4 File, Tab AA) By letter of May 27, 1986 (R4 File, Tab BB), Appellant furnished GPO with itemized total overtime costs in the amount of $17,915.17 to support its claim for payment of its $11,200 estimated additional costs for acceleration of shipping dates. Upon receipt of such information Cully called Clemons and questioned the basis for certain press charges. He was advised that the figures represented standard hourly charges for such work. It was pointed out by Cully that the original bid price contained the normal hourly charge and Appellant was only entitled to overtime charges. By letter of June 5, 1986 (R4 File, Tab FF), Respondent's Marken advised Appellant that: The Government is anxious to reimburse you for this additional work; however, to comply with the contract terms, the Government must be able to determine the real additional cost. . . . Article 2-25, . . . of U.S. Government Printing Office Contract Terms No. 1, which states: . . . . If the actual expense incurred is less than the authorized maximum amount, GPO's liability shall extend to that lesser amount only. You are requested to present a complete breakdown, supported by documentation such as payroll and production records, that will clearly enable the Government to determine the actual additional expenses incurred. Appellant responded by letter of June 10, 1986 (R4 File, Tab GG), enclosing their job cost analysis. In addition Appellant in pertinent part stated: You will note from the total, we had considerably more overtime charges than that which has been stated in your modification order. In addition, you will please note, we used over nine thousand pounds of additional paper for the split run which amounted to $4,566.72. Our outside vendor, who did the perfect binding, charged an additional $898.00 for the split run and also as a result of the split run, we had to remake twelve plates at $42.00 each, a total of $505.00. If we add these various items, the total additional charges amount to $24,995.61, for which the only charge made to the Government Printing Office is $11,200.00. Also, realize that our total cost on this job was $214,350.35 and the recovery in our billing only amounts to $185,853.31, or a loss of $28,497.04 plus freight costs which do not appear on this analysis. Thereafter, Respondent's George M. Watson, by letter of June 16, 1986 (R4 File, Tab LL), issued the Final Decision of the Contracting Officer which in pertinent part stated: All aspects of your claim have been carefully reviewed. An examination of the cost analysis sheets you submitted reveals that you failed to subtract the straight time from the overtime rate. This straight time was included in your original bid and does not represent an actual additional expense to expedite the order. According to our calculations the actual additional expense incurred was $3,394.32. Regarding your claim of incurring additional costs because of a split run, it should be noted that the need for a split run became necessary due to start up problems which were not caused by the Government. Therefore, the total allocable actual additional expenses substantiated are $3,394.32. Thereafter, by letter of June 19, 1986, Appellant sent its Notice of Appeal to the Public Printer. The Notice in turn was received and docketed by this Board on June 30, 1986. The letter, addressing Mr. Watson's letter of June 16, supra, in pertinent part states: You have calculated the difference between the straight time and the overtime that was involved in producing this job. The amount that you have reached was taken from our production records and is a raw cost that does not take into consideration the normal profit that printers will make. Our normal markup would be an additional 10% to the cost for overhead and an additional 10% for profit. That figure should be $4,107.13 in place of the $3,394.32. Your third paragraph in which you make mention of the split run is completely wrong. The startup [sic] problem never entered into these figures because our commitment of delivery would have been accomplished despite the delays caused by start up [sic] problems, most of which were the result of an arbitrary approval. We were requested by the Government Printing Office representative to accelerate the delivery of this job and the only way that could be accomplished was to make a split run. I must emphasize that the normal delivery under the contract terms could have been easily accomplished by us. Therefore, the split run was necessary to make the delivery required by the Government Printing Office and covered under your contract modification #62295. Therefore, the additional amount of paper that was used for the split run of $4,566.72 should be paid. The additional charge for the split run perfect binding of $898.00 should be paid, and the $505.00 for additional plates should be paid. The shipping costs were increased by $569.00 in order to make the split run delivery instead of delivery of the entire job at the same time. Therefore we feel that we should be entitled to no less than the $10,645.85. I also call attention of the contract officer to the fact that this matter has been extended and delayed and the money involved has been paid for materials and labor. We should also be getting a service charge. Therefore, your prompt attention to this appeal will be greatly appreciated. Subsequently, by letter of July 23, 1986 (R4 File, Tab UU), Watson advised Appellant in pertinent part that: In a continuing effort to settle this dispute, we request that you furnish us whatever documentation in your possession in support of your claim. For example, in your letter of June 10, 1986 and also in your appeal, you indicate many costs incurred, however, you have only submitted a computer printout as justification. This in itself is not sufficient. In order for us to evaluate your costs, each one must be fully validated as how to it occurred and all supporting documentation must be submitted including the identification of operation numbers. Further, concerning the "split run," please reiterate why and when the splits occurred, how many copies were run per split, and supply any records that would verify the additional use of stock and plates. Finally, based on the shipping documents supplied with your billing, at least a part of this job was delivered after the agreed-upon accelerated dates in the contract modification. This will have to be a factor in these negotiations. Thereafter, by letter of August 13, 1986 (Official File, Tab 15), Appellant advised Watson that: In response to your letter of July 23rd, enclosed you will find proof of the additional costs that were incurred as a result of the GPO requesting a split run on the Naval Academy catalog. You will find an invoice from Riverside Bindery which indicates the additional cost of the perfect binding. You will find operation record cards used by our personnel in our pressroom in order to accommodate the split run. You will find an invoice for additional amounts of paper to take care of the spoilage encountered in the startup of the additional makereadies for the split run. You will also find a letter memo which relates to the supposed late delivery and also freight documents to support our additional freight charges. In the final conclusion, I must make this statement. When we are requested to quote on various projects for the GPO and are the successful bidder, at no time are we asked to justify our total selling price. This I assume to be a GPO procedure. I want to know why in good faith we present your representative a quotation for a split run per their request, receive their approval for same and accomplish same, and following the delivery of the split run, receive a modification of the original purchase order which contains language other than that was on the original quotation for the split run. Subsequently, by letter .of September 17, 1986 (Official File, Tab 8), this Board advised Appellant that: "Pursuant to GPO Instruction 110.12 dated September 17, 1984, Rule 6.(b), concerning an Answer to your Complaint in the above- captioned appeal, the Board enters a general denial on behalf of the Government." In response Appellant, by letter of September 25, 1986 (Official File, Tab 9), requested a formal hearing before this Board. Watson, in response to Appellant's August 13th letter, supra, then sent a letter to Appellant dated September 29, 1986, wherein he offered Appellant a sum of $5,197.49 to resolve the matter. Appellant, by letter of October 20, 1986 (Official File, Tab 10), rejected this offer. Thereafter, Respondent's Watson by letter of November 17, 1986 (Official File, Tab 12), issued his second final decision letter which in pertinent part stated: Since we have offered an increase in the allowable charges based on additional information supplied, we are rescinding the final decision dated June 16, 1986, and are issuing this new final decision. As stated in our letter of September 29, 1986, the additional information you supplied was carefully evaluated and we concluded that some expenditures were reimbursable as a result of the requested accelerated schedule. However, as pointed out in our letter of July 23, 1986, a significant fact is that you did not meet the accelerated schedule for some deliveries as required by Contract Modification No. 0925 dated March 17, 1986. The total sum of allowable charges are [sic] as follows: Previously allowed amount..................$3,394.32 Binding setup................... ........... 605.00 Eight additional plates (back to press)... . 336.00 Additional paper (Printing and Binding).. .. 230.88 Sub total..................................$4,565.90 10% Profit............................... 469.59 $5,022.49 Additional freight to Rochester.......... .. 175.00 Allowable Total $5,197.49 That same date this Board wrote to Appellant to set a prehearing conference date based upon the original appeal. Upon receipt of this notice Appellant telephonically advised this Board that as he indicated in his letter of October 20, supra, he desired to continue his original appeal and to go directly to hearing on the matter rather than to hold a prehearing conference. Accordingly, a hearing was set for and convened on January 6, 1987. Upon hearing the matter this Board determined that there were no factual disputes between the parties and that the principal question presented by the appeal, i.e., the extent of entitlement to compensation for accelerating delivery, was solely a matter of contract interpretation. As such, it is a legal question to be decided by the Board subject to the provisions of Article 2-3(b) U.S. Government Printing Office Contract Terms No. 1 (GPO Publication 310.2, Revised October 1, 1980) concerning finality. Discussion Since the question to be addressed is one of contract interpretation, we will focus our discussion on the contract itself. First, it is undisputed that originally the contract was for a fixed price; the Appellant having agreed to produce and deliver 88,762 copies of the Naval Academy catalog in consideration of its being paid $158,260. Page 1 of the Invitation for Bids/Specification (R4 File, Tab B) for such original contract stated in pertinent part respecting this dispute that the contractor was to furnish "all materials and operations other than those listed under 'Government to Furnish' necessary to produce the products in accordance with these specifications." The "Government to Furnish" list enumerated the following items and no others: Photoprints, transparencies, camera copy, a sample from a previous printing, one reproduction proof for shipping container labels, and a proof label. The contract further specified, among other things, technically described film negative, paper, production, and final product standards and provided for proof approval, press sheet inspection, sampling and testing to assure the attainment of certain specified quality attribute levels before final product acceptance. Type Quality and Uniformity, Halftone Match, Solid and Screen Tint Color match, and Process Color Match were all subject to being judged for conformance with the requisite attributes by the specified standard of "O.K. Press Sheets." The only conclusion which can reasonably be drawn from these provisions is that the basic contract required Appellant to provide all required paper, including that consumed as spoilage in the course of attempting to attain conformance with the specified standard of "O.K. Press Sheets" for the stated attributes, supra. It is equally clear that Contract Modification 0737 did not change these attributes, standards, or supply burden provisions, but simply increased volume and the concomitant fixed price in accordance with the previously agreed to added rate. Thus, up to this point in our analysis it is clear that Appellant was to produce 12,000 copies for the fixed price of $17,892 irrespective of how much makeready, platemaking, or paper spoilage was incurred. Turning now to the bargain between the parties for the acceleration of the delivery dates, we first examine Appellant's claim that its "quotation" was for a flat fee $11,200. Such "quotation" was telephonically given by Appellant's Jerry Kenny to Respondent's Ron Cully. The record and testimony was silent whether either party had the capacity to contractually bind his employer. But even if they had such capacity, the record shows that they did not even purport to make an agreement. Rather, Cully telephoned the proposed additional price consideration to the Navy Department for its approval. Thereafter, certain conditions were added by both the Department and Respondent's Contract Review Board before being communicated to Appellant in writing by Contract Modification 0925. This modification signed and dated March 20, 1986, by J. G. Marken, in his official capacity as Contracting Officer, either constituted a counteroffer of Appellant's oral quotation and as such was a rejection of it, or was an original offer by Respondent being delivered to Appellant. In either case, whether a counteroffer or original offer, Appellant by signature of Gregory M. Clemons on April 1, 1986, as the "person authorized to sign Contractor's Agreement/Acknowledgment" thereby accepted the terms expressed in the written modification. Thus, we conclude that the bargain reached by Appellant for the acceleration must be gleaned from the written contract modification itself. As noted supra, Modification 0925 limits payment to Appellant in two respects; i.e. (1) "actual additional expenses incurred" provided (2) that such payment shall not exceed $11,200. Moreover, as with Modification 0737, Contract Modification 0925 by its very terms is a modification of the existing agreement and must be read in that light. Reading the basic contract, Modification 0737 and Modification 0925 as the complete agreement between the parties, we can find nothing in Modification 0925 which alters Appellant's obligation under the basic contract and Modification 0737 to provide at its expense all materials, supplies, and services except those expressly required to be provided by Respondent under the "Government to Furnish" clause, supra. Accordingly, it is this Board's opinion that Contract Modification 0925 entitles Appellant to be paid only those additional costs incurred by it in meeting the accelerated delivery date. Verified paper spoilage, makeready, platemaking, labor, and delivery costs can only be considered by the Contracting Officer to be includable if they were in fact additional costs incurred by Appellant in meeting the accelerated delivery date to those costs which the Appellant was to bear under the basic contract and Modification 0737. In making such determination, however, the Contracting Officer may not apply any judgment as to whether or not a particular practice employed by Appellant was prudent, if in fact that practice was used and did result in additional costs to him. Examining the paper spoilage dispute in light of these rules, we find that the Contracting Officer in his discretion determined that (1) there was in fact an additional cost for paper spoilage incurred by Appellant in accelerating delivery, but (2) the amount of such cost was to be measured by the GPO in-plant rate resulting in a dollar sum of $230.88. We express no judgment with respect to finding No. 1 but believe finding No. 2 to be erroneous, since it ignores actual costs and instead applies a rate which does not take into account the actual practices employed by Appellant. Pursuant to Contract Modification 0925, actual costs should be paid once a determination is made that a cost is allowable. However, since it is not possible to determine actual additional paper spoilage for which Appellant is entitled to be paid under such modification from that spoilage which Appellant was to absorb under the basic fixed price contract, actual additional spoilage costs must be approximated. This can be done most easily by examining Appellant's paper invoices. In so doing, we find that on March 7, 1986, Appellant ordered a certain quantity of Sterling WEB Dull 260 paper basis weight 70 lbs. from WESTVACO in the total dollar amount of $84,753.71. This apparently represented the total amount of Sterling WEB Dull 260 paper which Appellant anticipated it would need to produce the Naval Academy catalog. However, on April 14, 1986, a date which coincides with the period in which the product was actually being run, Appellant ordered an additional quantity of the same paper from WESTVACO in the dollar amount of $5,689.44. It is such amount that Appellant claims as an additional cost in meeting the acceleration. In such circumstances, we believe, in equity, that the amount claimed by Appellant is the appropriate sum to be paid. Other costs must be examined by the Contracting Officer in the same light. Decision The appeal is granted and the case is remanded back to the Contracting Officer for processing in accordance with this Opinion. _______________ l/ GPO Publication 310.2, Part II, Paragraph 2-25 states: 2-25. Payment for Accelerated Delivery. Reimbursement to the contractor for any additional costs incurred for accelerated delivery authorized by the Contracting Officer, shall be paid upon approval by GPO of the actual net increase in manufacturing expense. A change order will be issued by the Contracting Officer authorizing a maximum amount reimbursable to the contractor. However, if the actual expense incurred is less than the authorized maximum amount, GPO's liability shall extend to that lesser amount only. In the determination of actual expenses incurred, the Contracting Officer may require the contractor to furnish labor records which will clearly substantiate the additional expense incurred.