BOARD OF CONTRACT APPEALS U.S. GOVERNMENT PRINTING OFFICE WASHINGTON, DC 20401 In the Matter of ) ) the Appeal of ) VATEX AMERICA ) Docket No. GPOBCA 08-96 Jacket No. 790-836 ) Purchase Order R-6130 ) For the Appellant: VATEX America, Richmond, Virginia, by Anthony W. Hawks, Esq., Alexandria, Virginia. For the Government: Thomas Kelly, Esq., Assistant General Counsel, U.S. Government Printing Office. Before BERGER, Ad Hoc Chairman. DECISION AND ORDER1 VATEX America (Appellant), 2395 Hermitage Road, Richmond, Virginia, appeals the final decision of U.S. Government Printing Office Contracting Officer David Goldberg terminating VATEX's contract (Jacket 790-836, Purchase Order R-6130) for default. For the reasons which follow, the Contracting Officer's decision is REVERSED and the appeal is GRANTED. I. BACKGROUND 1. The contract, calling for the production of 20,000 etched- image lapel pins for the Bureau of Land Management (BLM), Department of the Interior, was awarded to VATEX under small purchase procedures on December 8, 1995, by GPO's Seattle Regional Printing Procurement Office at a price of $13,400. Rule 4 File, Tab B.2 Although a press sheet inspection was not required by the original solicitation, Rule 4 File, Tab A, the purchase order included that requirement. Pre-production samples were also required to be furnished to BLM; these were to be held for 1 day. Delivery was required by January 12, 1996. 2. VATEX sent pre-production samples to BLM which BLM received on December 14 and 18, 1995. Joint Stipulation of Facts,3 ¶ 4. On January 8, 1996,4 BLM rejected the samples as unacceptable, essentially because they were not etched as required by the specifications. Rule 4 File, Tab F; Stipulation, ¶¶ 8, 9. 3. On January 11, GPO sent VATEX by facsimile transmission a Cure Notice which stated that VATEX's failure to provide "an etched metal product of the thickness range specified" was considered "a condition that is endangering performance of the contract ...." The Notice afforded VATEX 3 days to present, in writing, "the measures adopted which have cured such condition," and warned that unless the condition was cured a termination for default might result. Rule 4 File, Tab G; Stipulation, ¶¶ 10, 11. 4. On that same date VATEX sent a reply by facsimile transmission. In the reply VATEX stated that the etching process required by BLM "is no longer done in the United States" for environmental reasons, but is done in Taiwan. VATEX stated that it had tried to produce the items in the United States because that is what BLM wanted. VATEX further stated that it was prepared to complete the job at its quoted price through production in Taiwan, with approximately 10 to 14 days required for furnishing pre-production proofs and another 3 weeks for delivery after proof approval. Rule 4 File, Tab H; Stipulation, ¶ 13. 5. On January 16 the Contracting Officer requested the concurrence of GPO's Contract Review Board (CRB) to terminate the contract for default. The Contracting Officer noted that VATEX, in its response to the Cure Notice, stated that it could do the job but "would need five more weeks." The Contracting Officer also noted VATEX's statement about BLM's request for production in the United States, but pointed out that the specifications did not impose that requirement and that GPO had not directed the contractor to produce the order domestically. The CRB concurred with the request. Rule 4 File, Tab I. 6. On January 17, the Respondent terminated the contract for default "because of [VATEX's] failure to produce the preproduction samples as per specifications." Rule 4 File, Tab J. 7. A reprocurement contract subsequently was awarded at a price of $17,800. The reprocurement contract required partial delivery of 4,000 pins by February 9 and the remainder by March 8, 1996. GPO recovered the $4,400 of excess reprocurement costs through offset against other contract funds owed to VATEX. Stipulation, ¶¶ 15, 16, 18. II. DISCUSSION The outcome of this case depends upon the proper application of the rules governing use of the contract's default clause to the facts set forth above. GPO asserts that the default was proper because the Appellant twice submitted nonconforming samples, while the Appellant asserts that, notwithstanding the nonconforming samples, it was entitled to an extension of the delivery date and to an opportunity to deliver conforming samples and the production quantity of lapel pins by the extended delivery date. The "Default" clause of the contract, GPO Contract Terms, Solicitation Provisions, Supplemental Specifications, and Contract Clauses, GPO Pub. 310.2, effective December 1, 1987 (Rev. 9-88) (hereafter GPO Contract Terms), Contract Clauses, ¶ 20, provides that the Respondent, by written notice to the contractor, may terminate a contract for default in whole or in part if the contractor fails to (1) deliver the supplies or perform the required services within the time specified or any extensions thereof; (2) make progress, so as to endanger performance; or (3) perform any other contract provision. However, because the clause provides that the Government "may" terminate for default when one of the specified grounds for default is present, a default termination is a discretionary act subject to challenge as an abuse of discretion. Darwin Constr. Co. v. United States, 811 F.2d 593 (Fed. Cir. 1987); Schlesinger v. United States, 390 F.2d 702 (Ct. Cl. 1968); Artisan Printing Inc., GPOBCA 15-93 (February 6, 1998), slip op. at 8, 1998 WL 149001; Rose Printing, Inc., GPOBCA 32-95 (December 16, 1996), slip op. at 21, 1996 WL 812880. GPO's regulations set forth various factors that its contracting officers are to consider in determining whether to terminate for default. Among these factors are the "specific failure of the contractor and the excuses ... made by the contractor for such failure" and "the urgency of the need ... and the period of time which would be required to obtain sources as compared with the time in which delivery could be obtained from the delinquent contractor." Printing Procurement Regulation (hereafter PPR), GPO Pub. 305.3 (Rev. 10-90), Chap. XIV, Sec. 1, ¶ 3.c.(3) Under the "Default" clause, a failure to timely deliver conforming supplies may result in an immediate termination for default. The Standard Register Co., Inc., GPOBCA 25-94 (March 23, 1998), slip op. at 8, 1998 WL 350448; Artisan Printing Inc., supra at 8. A failure to deliver acceptable preproduction items, however, is not a failure to deliver "supplies" since that term is understood to refer to the end items required by the contract. Bailey Specialized Bldgs., Inc. v. United States, 404 F.2d 355 (Ct. Cl. 1968); see John Cibinic. Jr. & Ralph C. Nash, Jr., Administration of Government Contracts 928-9 (Third ed. 1995). Rather, it is typically viewed as a failure to make progress, thereby endangering ultimate performance, i.e., delivery of an acceptable product by the required date. System Dev. Corp., VABCA 1976, 87-2 BCA ¶ 19,946. Before a contract may be terminated for default for a failure to make progress, in most cases the Respondent must notify the contractor of the failure and allow a reasonable period for the contractor to cure the failure.5 Artisan Printing Inc., supra, at 8. The notification is made through a "Cure Notice" which allows for a 10-day cure period or for a shorter period that the contracting officer determines to be reasonable. GPO Contract Terms, Contract Clauses, ¶ 20; PPR, Chap. XIV, Sec. 1, ¶ 3.c.(2). A default termination properly may ensue after expiration of the cure period if the contractor fails to respond to the "Cure Notice," or provides less than adequate assurances that the problem has been or is in the process of being cured so that performance is no longer endangered and that the work will be completed on time. Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987); Composite Laminates, Inc. v. United States, 27 Fed. Cl. 310 (1992); Lopez Machine Works, Inc., ASBCA 45509, 97-1 BCA ¶ 28,622; John F. Lehnertz, AGBCA 77-132, 78-1 BCA ¶ 12,895; Dozie I. Rienne, ENGBCA 5711, 91-1 BCA ¶ 23,432; RFI Shields- Rooms, ASBCA 17374, 77-2 BCA ¶ 12,714. In this case the Appellant responded almost immediately to the Contracting Officer's "Cure Notice." In that response the Appellant explained that (1) the etching process required is not done in the United States, (2) nevertheless the Appellant had tried to produce the items in the United States because BLM "requested it," (3) now that it had been determined that satisfactory production could not take place in the United States VATEX, which "does this type of job very often" and "suppl[ies] other [government] agencies with etched metal products on the average of once a month," was prepared to have it done overseas, and (4) the time frame for production would require 10 to 14 days for submission of new preproduction samples and three weeks from proof approval to final delivery. The Contracting Officer reacted to this explanation by seeking CRB concurrence in a default termination, explaining to the CRB only that the contractor had not been required to produce the items in the United States, and that the contractor now wanted an additional five weeks. As the Board has stated on many occasions, a default termination is a drastic action which may be taken only for good cause and on the basis of solid evidence, with the Respondent having the burden of proving the basis for default. Artisan Printing Inc., supra, at 7; K.C. Printing Co., GPOBCA 2-91 (February 22, 1995), slip op. at 10, 1995 WL 488531; Sterling Printing, Inc., GPOBCA 20-89 (March 28, 1994), slip op. at 32-33, 1994 WL 275104. The record adequately establishes that the Appellant, by virtue of its effort to manufacture pins in the United States, could not have delivered acceptable lapel pins by the contract delivery date of January 12, 1996-the Appellant's response to the January 11, 1996 "Cure Notice" indicated that it needed an additional 4-1/2 to 5 weeks from when it learned of the rejection of its samples to provide new samples and deliver the production quantity. Thus, assuming that the same additional time also would have been required had the Appellant been notified of the sample rejection on December 18, 1995, when the second sample was received by BLM, it is apparent that the Appellant could not have delivered an acceptable product by January 12. The problem for GPO here, however, is that the January 12 date lost the significance that was attached to it initially as the contract delivery date. First, the issuance of the "Cure Notice" on January 11 with its 3-day cure period indicated that the Contracting Officer no longer considered January 12 to be a viable delivery date, since cure notices are not to be issued if the time remaining for contract performance is insufficient to permit a realistic cure period. PPR, Chap. XIV, Sec.1, ¶ 3.c.(2); Graphics Image, Inc., supra. Second, the Government's delay in notifying the Appellant that the preproduction samples were unacceptable automatically extended the contract delivery date. The purchase order stated that the Government would hold the sample 1 workday. GPO's "Notice of Compliance With Schedules" clause, GPO Contract Terms, Contract Clauses, ¶ 12, incorporated by reference into the contract, provides that in the event of a Government delay the delivery schedule "will be extended automatically by the total number of workdays that work was delayed PLUS 1 workday for each day of delay; such period of grace for any schedule will not exceed 3 workdays."6 Under this clause contract delivery dates are automatically extended for Government delays in furnishing Government material to the contractor, providing "OK to print" authorizations, and responding to proofs and preproduction samples. See, e.g., Graphics Image, supra; Pennsylvania Printed Products Co., Inc., GPOBCA 29-87 (January 22, 1990), slip op., 1990 WL 454977, recon. denied, GPOBCA 29-87 (June 7, 1990), slip op., 1990 WL 454985; American Drafting & Laminating Co., GPOBCA 6-85 (April 15, 1986), slip op., 1985 WL 181459; Printing Corp. of the Americas, Inc., GPOBCA 14-84 (January 28, 1985), slip op., 1985 WL 154851; see also IPI Graphics, GPOBCA 04-96 (April 9, 1998), slip op., 1998 WL 350490; The George Marr Co., GPOBCA 31-94 (April 23, 1996), slip op., 1996 WL 273662. Thus, the delivery date for this contract was automatically extended from January 12, 1996 to a later date, which by the Board's calculations was February 8.7 While February 8 was less than 5 weeks-the maximum time the Appellant said it needed to provide acceptable lapel pins-from January 11, it was only 3-7 days prior to the Appellant's proposed delivery date. Nothing in the record establishes that the Contracting Officer took that into account in determining that termination for default and reprocurement were appropriate. This is particularly significant in light of the regulatory requirement that the Contracting Officer take into account, before deciding to terminate, "[t]he urgency of the need for the supplies or services and the period of time which would be required to obtain sources as compared with the time in which delivery could be obtained from the delinquent contractor." PPR, Chap. XIV, Sec. 1,¶ 3.c.(3)(iv). The reprocurement contract called for a partial delivery of 4,000 pins by February 9, but the remainder were not required until March 8. There is nothing in the record establishing why the Contracting Officer thought that delivery of 80 percent of the pins 3 weeks later than the Appellant offered to deliver them was advantageous to the Government; there is also nothing even suggesting that the Contracting Officer explored with the Appellant the possibility of a partial delivery by February 9. Although the Contracting Officer, in his memo to the CRB requesting concurrence in the proposed default action, stated that he gave "careful consideration" to the PPR regulatory factors to be taken into account prior to making a default termination, paying "mere lip service" to the factors is insufficient to insulate a default termination from appropriate scrutiny. National Medical Staffing, Inc., ASBCA 40391, 92-2 BCA ¶ 24837; Lafayette Coal Co., ASBCA 32174, 89-3 BCA ¶ 21,963. Where there is no evidence that a contracting officer considered how much time a delinquent contractor needs to complete the work or how long would be required for a replacement contractor to do the work, and the circumstances do not otherwise indicate that an ensuing termination for default represented a reasonable exercise of discretion, the default termination will be set aside. See D.W. Sandau Dredging, ENGBCA 5812, 96-1 BCA ¶ 28,064; Jamco Contractors, Inc., VABCA 3516T, 3271, 94-1 BCA ¶ 26,405, recon. denied, VABCA 3271R, 3516 TR, 94-2 BCA ¶ 26,792. Here, the circumstances do not indicate that the termination was otherwise a reasonable exercise of discretion. In fact, they indicate the contrary. Although the Respondent, in its brief, states that because of the Appellant's submission of two nonconforming samples it had no reason to believe that the Appellant would ever comply with contract requirements, the record does not provide a reasonable basis for that statement. In this regard, the Contracting Officer dismissed the Appellant's explanation for the defective samples-it had attempted to produce in this country lapel pins acceptable to BLM because that is what BLM wanted-simply by noting that neither he nor the contract required domestic production. However, the record contains a Declaration from the Appellant's Government Sales Manager stating that the day after quotes were due, he was called by GPO's Seattle office, advised that VATEX was the low quoter and that "BLM was very concerned about conducting a press sheet inspection ... although no press sheet inspection was specified in the solicitations ...," and requested to identify the location of the plant where the lapel pins would be manufactured. The Sales Manager further states that he responded that the pins "were normally manufactured in Taiwan, but that VATEX would attempt to produce a satisfactory product in Boca Raton and only resort to manufacturing in Taiwan if the preproduction proofs from Boca Raton were unsatisfactory to the BLM." Declaration of Robert Goode. Although the record contains a Declaration from the contract administrator that disputes other statements in Mr. Goode's Declaration, nothing in the record contradicts what is quoted above. These statements of Mr. Goode are also consistent with the Appellant's response to the "Cure Notice." Thus, the Board finds from this record that the Contracting Officer knew or should have known that the Appellant had adopted a manufacturing approach to facilitate BLM's desire for a press sheet inspection (reasonably considered to be far more practicable in Boca Raton than in Taiwan). That being so, the fact that the specifications and the Contracting Officer did not require manufacture in the United States is not a particularly persuasive basis for rejecting the Appellant's explanation for the nonconforming samples and failing to give serious consideration to the Appellant's ability to provide a conforming product and to do so within a time frame that only minimally went beyond the automatically-extended delivery date and, at least with respect to 80 percent of the pins, that was better by 3 weeks than what was available through a reprocurement. In cases where a contracting officer's decision to terminate a contract default notwithstanding the contractor's response to a cure notice is found to be a reasonable exercise of discretion, the contractor typically failed to address the contracting officer's concerns, see Hannon Elec. Co. v. United States, 31 Fed. Cl. 144 (1994), failed to provide sufficient information to convince the contracting officer of timely job completion, see Michigan Joint Sealing, Inc., ASBCA 41477, 93-3 BCA ¶ 26,011, failed to provide reasonable assurances in light of long history of failure, AIW-Alton, Inc., ASBCA 45032, 96-1 BCA ¶ 28,232, or failed to make any meaningful progress toward actual production. See Adaptive Concepts, Inc., ASBCA 43123, 96-1 BCA ¶ 28,248. This is not any of those cases. This is a case where a competent contractor made an effort to accommodate its customer and in doing so produced nonconforming samples. While the contractor must bear the risk associated with its decision to try a nonconforming manufacturing approach, the Contracting Officer must also act reasonably in determining what the appropriate consequences should be. A contracting officer's discretion always "must be exercised in a fair and reasonable manner, not arbitrary and capricious, and always in the best interest of the Government." Udis v. United States, 7 Cl. Ct. 379, 387 (1985). In Graphics Image, Inc., supra, the Board concluded that a decision to terminate a contract for default was arbitrary and capricious because the contracting officer failed to consider a delinquent contractor's explanation provided in response to a cure notice and the time frame necessary for a reprocurement as compared with allowing the contractor to continue. The Board reaches the same conclusion here. It is simply not established on this record that the decision to terminate the Appellant's contract for default was based on any reasoned consideration of the Appellant's explanation for the nonconforming samples and of its offer to produce conforming pins in Taiwan within a time frame that exceeded what the contract called for by only a few days and that overall was better than that available from a reprocurement. Accordingly, the Board concludes that the Contracting Officer failed to comply with the requirements of the PPR, failed to act in the best interest of the United States, and thereby abused his discretion in terminating the contract for default. III. ORDER The decision of the Contracting Officer is REVERSED and the appeal is GRANTED. The termination for default is converted to a termination for the convenience of the Government and the assessment of excess costs of reprocurement is reversed. The matter is remanded to the Contracting Officer for negotiation of an appropriate cost settlement. It is so Ordered. October 14, 1998 Ronald Berger Ad Hoc Chairman GPO Board of Contract Appeals _______________ 1The Appellant has elected to have its appeal decided pursuant to the Small Claims Procedure provided for by Rule 12.1 of the Board's Rules of Practice and Procedure. Under this procedure decisions are to be "brief," with "summary findings of facts and conclusions," and shall have no value as precedent and, in the absence of fraud, shall be final and conclusive and may not be appealed or set aside." See Daniels Press, Inc., GOBCA 18-95 (September 23, 1998), slip op. at 3 n.3, 1998 WL ______: Kennedy Graphics, GPOBCA 15-98 (August 21, 1998), slip op. at 1 n. 1, 1998 WL 640419. 2 The Contracting Officer's appeal file, assembled pursuant to Rule 4 of the Board's Rules of Practice and Procedure, was delivered to the Board on May 15, 1996. It is referred to as the Rule 4 File, with an appropriate Tab letter also indicated. The Rule 4 File consists of 11 tabs identified as Tab A through Tab K. 3 The parties submitted a Joint Stipulation of Facts on January 29, 1997. It will be referred to hereafter as Stipulation. 4 Although BLM was to hold the samples for only 1 work day, BLM, as part of a nationwide Government shutdown, closed on the afternoon of December 18, 1995 and remained closed until January 8, 1996. Stipulation, ¶ 7. 5 In certain cases, where there is no realistic time for a cure period, a cure notice is not required. Hurt's Printing Co., Inc., GPOBCA 27-92 (January 21, 1994), slip op. at 4 n.6, 1994 WL 275098; Graphics Image, Inc., GPOBCA 13-92 (August 31, 1992), slip op. at 16-17, 1992 WL 487875. 6 GPO defines "workday" as excluding "those days on which [GPO] is not open for the transaction of business, such as days of national mourning, hazardous weather, etc.," GPO Contract Terms, Contract Clauses, ¶ 3. The Board understands that despite the parties' reference to the "nationwide federal government shutdown" that led to BLM's closing, GPO in fact was open for stion. 7 From December 19, the date on which the Government should have returned the Appellant's second preproduction sample, to January 11, when the Appellant was advised that the sample was unacceptable, the Board counts 15 days excluding Saturdays and Sundays and the Christmas and New Year holidays. Extending the contract those 15 days, plus an additional 3 days, and taking the Martin Luther King, Jr. holiday into account, leads to a delivery date of February 8.