BOARD OF CONTRACT APPEALS
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON, DC 20401
In the Matter of )
)
the Appeal of )
)
NEW SOUTH PRESS & ASSOC., INC. ) Docket No. GPO BCA 14-92
Program D278-S )
Purchase Order 90483 )
Print Order 40000 )
DECISION AND ORDER
I. STATEMENT OF THE CASE
This appeal, timely filed by New South Press (Appellant or
Contractor), 3885 North Palafox Street, Pensacola, Florida
32505, is from the final decision of Contracting Officer
Richard Weiss, of the U.S. Government Printing Office's
(Respondent or GPO or Government) Printing Procurement
Department, Washington, DC 20401, dated January 8, 1992,
rejecting two settlement claims submitted by the Contractor
totaling $29,367.49, after the convenience termination of its
contract identified as Program D278-S, Purchase Order 90483,
Print Order 40000, and allowing only total charges of
$2,749.28 (R4 File, Tabs M, N and T).1 An evidentiary hearing
in the appeal was conducted by the Board on March 1, 1994, at
which both parties were represented by counsel, who,
thereafter, filed timely briefs on the issues involved.2
Board Rules, Rules 17 through 24, 26 and 27. Based on the
record in this case, the Contracting Officer's decision
disposing of the Appellant's termination claims is MODIFIED,
and the matter is REMANDED to the Contracting Officer for
further action in accordance with this opinion.
II. BACKGROUND
A. The Termination Action
1. This dispute arises from a single-award "requirements"
contract for the production and distribution of the Department
of Health and Human Services, National Institutes of Health
(NIH or customer-agency), Telephone and Service Directories
(hereinafter referred as Directory (singular) or Directories
(plural)), for a term beginning October 1, 1990 and ending
September 30, 1991 (R4 File, Tab A, pp. 1, 5).3 As
structured, the contract was a "direct-deal" arrangement under
which the NIH would issue the print orders (R4 File, Tab A, p.
5). See Printing Procurement Regulation, GPO Publication
305.3 (Rev. 10-90), Chap. XII, Sec. 1, ¶ 2 (hereinafter PPR).
2. Among other things, the specifications stated that the
contract would be governed by the applicable articles of GPO
Contract Terms, Solicitation Provisions, Supplemental
Specifications, and Contract Clauses, GPO Publication 310.2,
Effective December 1, 987 (Rev. 9-88) (hereinafter GPO
Contract Terms) (R4 File, Tab A, p. 2). Insofar as is
relevant to this case, GPO Contract Terms contains a
"Termination for Convenience" clause which provides, in
pertinent part:
(a) The Government may terminate performance of work in
whole or in part if the Contracting Officer determines that
a termination is in the Government's interest. The
Contracting Officer shall terminate by delivering to the
contractor a Notice of Termination specifying the extent of
termination and the effective date.
* * * * * * * * * *
(c) After termination, the contractor shall submit a
final termination settlement proposal promptly, but no
later than 3 months from the effective date of termination,
unless extended in writing by the Contracting Officer upon
written request of the contractor within this 3-month
period. . . .
(d) Subject to paragraph (c) above, the contractor and the
Contracting Officer may agree upon the whole or any part
of the amount to be paid because of the termination. The
amount may include a reasonable allowance for profit on
work done. However, the agreed amount, whether under this
paragraph (d) or paragraph (e) below, exclusive of costs
shown in subparagraph (e)(3) below, may not exceed the
total contract price as reduced by (1) the amount of
payments previously made, and (2) the contract price of
work not terminated. The contract shall be amended and
the contractor paid the agreed amount. Paragraph (e)
below shall not limit, restrict, or affect the amount that
may be agreed upon to be paid under this paragraph.
(e) If the contractor and the Contracting Officer fail to
agree on the whole amount to be paid because of the
termination of work, the Contracting Officer shall pay the
contractor the amounts determined by the Contracting
Officer as follows, but without duplication of any amounts
agreed on under paragraph (d) above:
(1) The contract price for completed supplies or
services accepted by the Government . . . not
previously paid for, adjusted for any savings of
freight and other charges.
(2) The total of-
(i) The costs incurred in the performance of the
work terminated, including initial costs and
preparatory expenses allocable thereto, but
excluding any costs attributable to supplies or
services paid or to be paid under subparagraph (e)
(1) above;
(ii) The cost of settling and paying termination
settlement proposals under terminated subcontracts
that are properly chargeable to the terminated
portion if not included in subdivision (i) above;
and
(iii) A sum, as profit on subdivision (i) above,
determined by the Contracting Officer to be fair and
reasonable; however, if it appears that the contractor
would have sustained a loss on the entire work had it
been completed, the contracting Officer shall allow no
profit under this subdivision (iii) and shall reduce
the settlement to reflect the indicated rate of loss.
* * * * * * * * * *
(g) The cost principles and procedures of article 45,
Contract Clauses in effect on the date of this contract,
shall govern all costs claimed, agreed to, or determined
under this clause.4
(h) The contractor shall have the right of appeal, under
article 5 "Disputes" from any determination made by the
Contracting Officer under paragraph (c), (e), or (j),
except that if the contractor failed to submit the
termination settlement proposal within the time provided in
paragraph (c) or (j), and failed to request a time
extension, there is no right of appeal. If the Contracting
Officer has made a determination of the amount due under
paragraph (c), (e), or (j), the Government shall pay the
contractor (1) the amount determined by the Contracting
Officer if there is no right of appeal or if no timely
appeal has been taken, or (2) the amount finally determined
on an appeal.
* * * * * * * * * *
(k)(1) The Government may, under the terms and conditions
it prescribes, make partial payments and payments against
costs incurred by the contractor for the terminated
portion, if the Contracting Officer believes the total of
these payments will not exceed the amount to which the
contractor will be entitled.
(2) If the total payments exceed the amount finally
determined to be due, the contractor shall repay the excess
to the Government upon demand, together with interest
computed at the rate established by the Secretary of the
Treasury under 50 U.S.C. App. 1215(b)(2). . . .
See GPO Contract Terms, Contract Clauses, ¶ 19 (Termination for
the Convenience of the Government). See also PPR, Chap. XIV,
Sec. 2, ¶¶ 1-3.q(4). The Board has previously observed that the
above-quoted language is essentially a verbatim adoption of the
"long-form" clause in the Federal Acquisition Regulation
(hereinafter FAR), 41 C.F.R. 1.000 et seq. (1994), relating to
convenience terminations of fixed-price contracts.5 See R.C.
Swanson Printing and Typesetting Co., GPO BCA 15-90, Supplemental
Decision (July 1, 1993), slip op. at 18, 1993 WL 526638 (citing
FAR, 52.249-2) (hereinafter R.C. Swanson).
3. Because the "Termination for Convenience" clause
incorporates by reference the "Contract Cost Principles and
Procedures" clause of GPO Contract Terms, see GPO Contract
Terms, Contract Clauses, ¶¶ 19(g), 45, the contract is also
subject to relevant provisions of the GPO Cost Directive.6 In
that regard, two such provisions of Section 3 of the GPO Cost
Directive are particularly pertinent to this dispute-the
instructions for idle facilities and idle capacity costs (¶
25) and the directions relating to termination costs (¶ 49).
Insofar as relevant here, the GPO Cost Directive provides:
25. Idle facilities and idle capacity costs.
(a) "Costs of idle facilities or idle capacity," as
used in this subsection, means costs such as
maintenance, repair, housing, rent, and other related
costs; e.g., property taxes, insurance, and
depreciation.
"Facilities," as used in this subsection, means plant
or any portion thereof (including land integral to
the operation), equipment, individually or
collectively, or any other tangible capital asset,
wherever located, and whether owned or leased by the
contractor.
"Idle capacity," as used in this subsection, means
the unused capacity of partially used facilities. It
is the difference between that which a facility could
achieve under 100 percent operating time on a one-
shift basis, less operating interruptions resulting
from time lost for repairs, setups, unsatisfactory
materials, and other normal delays, and the extent to
which the facility was actually used to meet demands
during the accounting period. A multiple-shift basis
may be used in the calculation instead of a one-shift
basis if it can be shown that this amount of usage
could normally be expected for the type of facility
involved.
"Idle facilities," as used in this subsection, means
completely unused facilities that are excess to the
contractor's current needs.
(b) The costs of idle facilities are unallowable
unless the facilities-
(1) Are necessary to meet fluctuations in
workload; or
(2) Were necessary when acquired and are now
idle because of changes in requirements,
production economies, reorganization,
termination, or other causes which could not
have been reasonably foreseen. (Costs of idle
facilities are allowable for a reasonable
period, ordinarily not to exceed 1 year,
depending upon the initiative taken to use,
lease, or dispose of the idle facilities (but
see 3.49)).
(c) Costs of idle capacity are costs of doing
business and are a factor in the normal fluctuations
of usage or overhead rates from period to period.
Such costs are allowable provided the capacity is
necessary or was originally reasonable and is not
subject to reduction or elimination by subletting,
renting, or sale, in accordance with sound business,
economics, or security practices. Widespread idle
capacity throughout an entire plant or among a group
of assets having substantially the same function may
be idle facilities.
(d) Any costs to be paid directly by the Government
for idle facilities or idle capacity reserved for
defense mobilization production shall be the subject
of a separate agreement.
* * * * * * * * * *
49. Termination costs.
Contract terminations generally give rise to the
incurrence of costs or the need for special treatment
of costs that would not have arisen had the contract
not been terminated. The following cost principles
peculiar to termination situations are to be used in
conjunction with the other cost principles in this
section:
(a) Common items. The costs of items reasonably
usable on the contractor's other work shall not be
allowable unless the contractor submits evidence that
the items could not be retained at cost without
sustaining a loss. The contracting officer should
consider the contractor's plans and orders for
current and planned production when determining if
items can reasonably be used on other work of the
contractor. Contemporaneous purchases of common
items by the contractor shall be regarded as evidence
that such items are reasonably usable on the
contractor's other work. Any acceptance of common
items as allocable to the terminated portion of the
contract should be limited to the extent that the
quantities of such items on hand, in transit, and on
order are in excess of the reasonable quantitative
requirements of other work.
(b) Costs continuing after termination. Despite all
reasonable efforts by the contractor, costs which
cannot be discontinued immediately after the
effective date of termination are generally
allowable. However, any costs continuing after the
effective date of the termination due to the
negligent or willful failure of the contractor to
discontinue the costs shall be unallowable.
(c) Initial costs. Initial costs, including
starting load and preparatory costs, are allowable as
follows:
(1) Starting load costs not fully absorbed
because of termination are nonrecurring labor,
material, and related overhead costs incurred
in the early part of production and result from
factors such as-
(i) Excessive spoilage due to inexperienced
labor;
(ii) Idle time and subnormal production due to
testing and changing production methods;
(iii) Training; and
(iv) Lack of familiarity or experience with the
product, materials, or manufacturing processes.
(2) Preparatory costs incurred in preparing to
perform the terminated contract include such costs
as those incurred for initial plant rearrangement
and alterations, management and personnel
organization, and production planning. They do
not include special machinery and equipment and
starting load costs. . . . .
(d) Loss of useful value. Loss of useful value of
special tooling, and special machinery and equipment
is generally allowable, provided-
(1) The special tooling, or special machinery and
equipment is not reasonably capable of use in the
other work of the contractor;
(2) The Government's interest is protected by
transfer of title or by other means deemed
appropriate by the contracting officer; and
(3) The loss of useful value for any one
terminated contract is limited to that portion of
the acquisition cost which bears the same ratio to
the total acquisition cost as the terminated
portion of the contract bears to the entire
terminated contract and other Government contracts
for which the special tooling, or special
machinery and equipment was acquired.
* * * * * * * * *
(g) Settlement expenses. (1) Settlement expenses,
including the following, are generally allowable:
(i) Accounting, legal, clerical, an similar costs
reasonably necessary for-
(A) The preparation and presentation,
including supporting data, of settlement
claims to the contracting officer; and
(B) The termination and settlement of
contracts.
(ii) Reasonable costs for the storage,
transportation, protection, and disposition of
property acquired or produced for the contract.
(iii) Indirect costs related to salary and wages
incurred as settlement expenses in (i) and (ii);
normally, such indirect costs shall be limited to
payroll taxes, fringe benefits, occupancy costs,
and immediate supervision costs.
* * * * * * * * * *
See GPO Cost Directive, Sec. 3, ¶¶ 25(b),(c), 49.
4. The Appellant was awarded the contract on October 5,
1990, at a price of $156,678.77 ($159,876.30 less a two (2)
percent discount) (R4 File, Tabs C and D).7 Approximately
three and one-half months later, on January 23, 1991, the NIH
issued the first print order under the contract-Print Order
40000-which the Contractor received the following day (Tr. 10,
15, 77; R4 File, Tabs E and O). The Print Order required the
production of 19,000 copies of the Directory for shipment to
the customer-agency by February 15, 1991 (Tr. 11; R4 File,
Tabs E and O).8 The Government furnished material (GFM) to
produce the books was given to the Contractor at the same time
as the print order (Tr. 15).
5. The Appellant originally figured that Print Order 40000
was worth $54,792,81, including a profit of $4,981.16 (R4
File, Tab O, Cost Analysis).9 However, on receiving the print
order the Contractor noticed that the contract specifications
which had formed the basis for its bid contained an error
which would have increased its production costs and the time
required to perform the work. See Report of Prehearing
Telephone Conference, dated March 26, 1993, pp. 2-3
(hereinafter RPTC-1); Complaint, ¶ 9. Specifically, the
contract's "Determination of Award" figures for Items III(a),
(b), and (c) indicate that an estimated 16,188,000 leaves of
text paper would be needed to complete all work under the
contract (R4 File, Tab A, p. 10; Appellant's Complaint, dated
June 17, 1992, ¶ 2 (hereinafter Complaint); Respondent's
Answer, dated July 17, 1992, ¶ 2 (hereinafter Answer)).
Furthermore, the contract provided that three (3) orders a
year (Winter, Spring and Fall) could be expected, with each
order consisting of approximately 3,017 copies of an Item 1
book containing 252 pages, and approximately 16,000 copies of
an Item 2 book containing 312 pages. See Complaint, ¶ 3;
Answer, ¶ 3. Comparing the contract's figures for the
anticipated orders with the "Determination of Award" numbers,
the Appellant concluded that the latter were "vastly in excess
of the requirements under the contract, being approximately
double what the contract actually required."10 See Complaint,
¶ 4. Consequently, the Contractor estimated that its loss
from this discrepancy would amount to approximately $20,000.00
(roughly the difference between its expected price of
$54,792,81 and the actual price of $33,253.09 for the first
print order) (R4 File, Tab F, Attachment, Tab O, Cost
Analysis; Complaint, ¶ 14, Exhibit A (Memorandum, dated
January 25, 1991, from Gerald Goldstein, the Appellant's
President, to the Contracting Officer)).11
6. On January 25, 1991, the Appellant telephoned the
Respondent to discuss the problem.12 See RPTC-1, p. 3;
Complaint, Exhibit A. Later that same day, the Contractor
sent the Contracting Officer a facsimile message which, inter
alia, confirmed the understandings reached on the telephone,
and stated, in pertinent part:
. . . GPO authorizes New South Press to continue with Print
Order 4000 [sic] and bill at the current price. New South
Press is then to submit a claim for the difference between
the current amount and what would be a fair price for Print
Order 4000 [sic]. GPO will send auditors to New South
Press to determine a fair amount for Print Order 4000 [sic]
considering our costs and a fair profit margin.
See R4 File, Tab O; Complaint, Exhibit A.13 Based on this
understanding, the Appellant continued the pre-press work on
Print Order 40000, and on January 28, 1991, sent the blueline
proofs to NIH (Tr. 22, 45).14
7. Thereafter, on January 28, 1991, the Appellant sent a
follow up letter to the Respondent (Tr. 46; R4 File, Tab F).
In its correspondence, the Contractor said, in pertinent part:
. . . There exists and has been acknowledged in the
determination of award, calculation of determination of
award are vastly inflated with regard to the number of
leaves needed to produce the contract. The result of this
over inflated figure and the actual production of what we
received on [Print Order] 40000 amounts to approximately
[a] $20,000.00 difference.
A copy of our cost analysis to actually produce this book
is being forwarded via fax as well as a copy of line item
charges. You can see there is a significant difference
between these two prices. In accordance with your
instructions, this job has been put on hold pending the
result of this information.
Program 278-S[,] Print Order 40000 requires 1.4 million
impressions; these hours cannot be filled with such short
notice and would adversely affect the financial well being
of New South Press and compensation must be considered if
we are not to produce this job. You are further notified
that paper amounting to an excess of $18,000.00 would
require no less than a 25% restocking fee or purchase from
New South Press plus a reasonable profit. . . .
The severity of this situation requires immediate attention
as we expected to go to press no later than January 31. In
addition the delivery date must be altered to a negotiated
delivery date.
See R4 File, Tab F; Complaint, Exhibit B.
8. On January 29, 1991, confirming a telephone conversation
with the Appellant on the previous day, Jack Scott, Assistant
Superintendent of the Respondent's Term Contracts Division,
sent a letter by facsimile transmission to the Contractor,
which stated, in pertinent part:
In our conversation you informed me that as a result of the
Determination of Award figures in the contract being wrong,
that you could not produce the order for your bid prices.
My response was that I directed you to produce the order at
your bid prices and then file a claim with the Contracting
Officer, Mr. Richard Weiss, for any additional monies you
feel entitled to. Or, if you refuse to produce this order,
send it back to me and we would then terminate the
contract. After much discussion you stated that you
intended to produce the order and then file a claim.
In addition, since the order was on hold from January 24,
199115 to January 28, 1991, the following new schedule was
agreed to:
Submit Dylux proofs by February 4, 1991.
Proofs will be available for pickup by February 6,
1991.
Complete production and delivery by February 25,
1991.16
See R4 File, Tabs G and O.
9. On receiving Scott's letter, the Appellant saw a need to
clarify the understandings reached on January 28, 1991 (Tr.
83-84). Therefore, the Contractor immediately replied:
. . . [Y]ou have accurately depicted the situation in
reference to program D278-S, Print Order 40000, except I
think it is important to state your intent to terminate the
contract under the default provision if we do not proceed.
It is because of that provision that New South Press will
proceed as well as tremendous losses the Government would
incur through loss of press time, paper and loss of
profits. Finally we agreed upon a ship date of February
25, not a delivery date.17
See R4 File, Tabs H and O); Complaint, Exhibit C. [Emphasis
added.]
10. While the above exchange of correspondence was taking
place, GPO contacted the NIH about the proposed shipping date
of February 25, 1991, and was informed by the customer-agency
that it was unacceptable (R4 File, Tab I, pp. 1, 2). Instead,
the NIH demanded delivery of 40 to 50 percent of the
Directories by February 20, 1991, with the balance by February
25, 1991, and told the Respondent that if the Appellant could
not meet that schedule it wanted the contract canceled so that
the books could be reprocured elsewhere (R4 File, Tab I, pp.
1, 2). When advised of the NIH's position, the Contractor
said that it might be able to meet the customer-agency's date
if the Government would waive the contract's 50 percent waste
requirement, since its supplier had not yet delivered the
white offset paper stock (R4 File, Tab I, p. 1). However, the
Contracting Officer refused to waive the waste requirement,
and asked the Appellant to tell him by February 3, 1991,
whether or not it could meet the delivery schedule of February
20, 1991 (R4 File, Tab I, p. 1).
11. On January 30, 1991, around 8:00 a.m., the Contracting
Officer talked to the Contractor again about performing the
contract (R4 File, Tab I, p. 3). The Contracting Officer told
the Appellant that if it could not meet the delivery date of
February 20, 1991, he would be compelled to terminate the
contract because the NIH needed the Directories (R4 File, Tab
I, p. 3). When the Contracting Officer asked if the
Contractor could deliver 40 percent of the job by that date,
the Contractor said that it could not meet that schedule (R4
File, Tab I, p. 3).
12. Accordingly, later that morning, at approximately 9:30
a.m., the Contracting Officer telephoned the Appellant to say
that he was going to terminate the contract for the
convenience of the Government because the delivery date could
not be met (R4 File, Tab I, p. 4).18 The Contracting Officer
confirmed his decision by letter dated the same day, which
also instructed the Appellant to: (a) discontinue all work on
Print Order No. 40000; and (b) return the GFM to the
Respondent (R4 File, Tab J).
13. Also on January 30, 1991, the Contracting Officer, as
required by the Respondent's procurement regulation, sought
the approval of GPO's Contract Review Board (CRB) for the
proposed convenience termination action (R4 File, Tab K). See
PPR, Chap. XIV, Sec. 2, ¶ 3.(a)(1). In his memorandum, after
reciting the relevant contract history, the Contracting
Officer told the CRB that he believed it was "in the best
interest of the Government to terminate [P]rint [O]rder 40000
and the balance of the contract due to the erroneous
determination of award regarding the running rate and
paper[.]" (R4 File, Tab K). By January 31, 1991, all members
of the CRB had given their approval to the Contracting Officer
to terminate the Appellant's contract for the convenience of
the Government (R4 File, Tab K).
14. By letter dated January 31, 1991, expressly entitled
"Notice of Termination (Termination for Convenience of the
Government) (hereinafter Notice)," the Respondent officially
notified the Appellant that Print Order 40000, and the balance
of its contract, was terminated for the convenience of the
Government, effective that date (R4 File, Tab L). See GPO
Contract Terms, Contract Clauses, ¶ 19(a). Among other
things, the Notice instructed the Contractor to submit its
settlement proposal to the Respondent on GPO Form 911, which
was enclosed, and "take such other action as may be required
by the Contracting Officer or under the termination clause
contained in your contract[.]" (R4 File, Tab L, p. 2, ¶ f).
See GPO Contract Terms, Contract Clauses, ¶ 19(c); PPR, Chap.
XIV, Sec. 2, ¶¶ 3.c.(viii),(x).
B. The Termination Claim
1. By letter dated January 30, 1991, the Appellant filed a
partial claim for $4,697.37 for the pre-press work performed
on Print Order 40000 up to the date of termination (Tr. 16,
17, 27; R4 File, Tabs M and O; App. Exh. No. 2). The claim
was comprised of six (6) line items:
1. Film: 344 pages @ $5.10= $1,754.00
(as per contract)
2. Stripping 84 flats @ $9.50= 798.1219
3. Bluelines (2 copies)
572 pages @ $3.50= 2,002.00
4. Federal Express charges for
receipt of original documents 65.00
5. UPS second day shipping of
bluelines to customer= 7.00
6. Federal Express charges for
return of originals to GPO
71.25
See R4 File, Tabs M and O, p. 1; App. Exh. No. 2, p. 1).20 The
Contractor's letter also told the Contracting Officer, in
pertinent part:
. . . there were charges . . . for the down time and idling
of our plant. These charges will be worked up in a
separate settlement proposal. Fortunately New South Press
was able to save the GPO by cancelling [sic] in excess of
$18,000.00 worth of paper and a minimum of 25% restocking
fee or a 15% markup on paper. Unfortunately, we are not
able to fill the press or bindery time due [to] the short
notice of your cancellation.
See R4 File, Tabs M and O, pp. 1-2, App. Exh. No. 2, pp. 1-2.21
2. Thereafter, by letter dated February 4, 1991, the
Contractor submitted a claim for an additional $24,670.13, to
cover its losses resulting from the convenience cancellation
of the contract (Tr. 26, 57-58; R4 File, Tabs N and O).22 The
reason for the claim, as explained by the Appellant, was:
Due to the enormity of this printing project and the
inability to fill manufacturing time on such short notice,
we find it necessary to bill the government for the lost
production time."
See R4 File, Tab N. The Contractor also noted that it was asking
reimbursement only for its costs, and that no profit was included
in its claim (R4 File, Tab N).
3. The February 4, 1991, claim consisted of two (2) parts:
(a) extra charges for makeready work; and (b) the projected
costs for producing the Directories, including running time
for the presses, the folding machines, hand collating, binding
and trimming (Tr. 26-27; R4 File, Tabs N and O, Attachment).
In summary, the breakdown of the claim was as follows:
MAKEREADY: Calculated at 1/2 hour for two unit plate hang,
register and run to color. For the two Directories covered
by the Print Order, the Appellant stated that a total of 72
makeready's, at 1/2 hour each, or 36 total makeready
hours, was necessary. At a budgeted hourly rate (BHR) of
$90.04, the total makeready cost was $3,241.44.23
RUNNING: Calculated at an effective running rate of 6,500
impressions per hour, including loading and unloading
tasks. Counting both Directories, the Contractor figured
that it would have taken 115 hours at the effective running
rate to print the 747,500 total impressions required by the
Print Order. At a BHR of $90.04, the total running cost
was $10,353.60, which yielded total press costs (makeready
and running) of $13,596.04.24
FOLDING: Calculated at a machine rate of 8,500 sheets an
hour. The Appellant indicated that it would have taken 88
hours to fold 747,500 sheets. At a BHR of $44.25, the
total folding cost was $3,891.40.
COLLATING: Calculated at a hand collating rate of two (2)
books per minute, or 120 per hour. To collate 19,000
books, the Contractor allowed 158 hours at a BHR of $24.13,
for a total cost of $3,820.58.
PERFECT BINDING: Calculated at a rate of 250 books per
hour. The Appellant claims that it would have taken 76
hours to bind the 19,000 Directories, at a BHR of $24.13,
for a total binding cost of $1,833.88.
TRIMMING: Calculated at a rate of 300 sheets an hour for
trimming three (3) sides. The Contractor said that it
would take 63 hours to trim the 19,000 books, at a BHR of
$24.13, for a total trimming cost of $1,528.23, yielding
total binder costs (folding, collating, perfect binding,
and trimming) of $11,074.09.
See R4 File, Tab N, Attachment.25 Subsequently, by letters dated
March 12, 1991, and March 13, 1991, respectively, the Appellant
transmitted additional supporting information, and certified its
claim (R4 File, Tabs O and P).26
4. On February 28, 1991, the Contracting Officer asked GPO's
Office of the Inspector General (OIG) to evaluate the
Appellant's claim (Tr. 119, 122, 133; R4 File, Tab Q). The
record indicates that, on May 20, 1991, in response to an OIG
request, the Appellant sent additional supporting information
to the assigned auditors, including all of its original
estimates and the cost summaries for its printing operations
(Tr. 137-38; GPOBCA Exh. No. 1).
5. On January 3, 1992, the OIG issued its audit report on
the Appellant's claim (R4 File, Tab R). In its analysis of
the Contractor's first (January 30, 1991) claim, the OIG
approved all film costs and return costs for the GFM
($1,754.00 and $143.00, respectively), but questioned most of
the stripping claim (only $76.00 of the $798.00 claim was
allowed), and all of the blueline claim ($2,002.00); i.e.,
overall 42 percent of the claim ($1,973.00) was allowed and 58
percent ($2,724.00) was questioned (Tr. 134, 136; R4 File, Tab
R, Attachment D).27 As for the second (February 4, 1991)
claim, the OIG questioned the entire $24,670.13 as contrary to
the cost principles governing GPO contracts, especially the
provisions relating to the recovery of idle capacity and idle
facilities (Tr. 129, 133-34; R4 File, Tab R, Attachment E).
See GPO Cost Directive, Sec. 3, ¶¶ 25(b),(c). Noting that
those costs principles state that "[c]osts of idle capacity
are costs of doing business and are a factor in the normal
fluctuations of usage or overhead rates from period to
period[.]," the auditors concluded that the Appellant's lost
production time claim was not peculiar to the contract, but
rather those "costs should be included in New South Press'
overhead from prior years[.]" (R4 File, Tab R, Attachment E,
fn. 1, citing GPO Cost Directive, Sec. 3, ¶ 25(c)).
6. Although the Contracting Officer reviewed the audit
report and relied heavily on it in making his final decision
on the claim, the record also indicates that he did not
completely agree with the OIG's findings (Tr. 117-19, 122,
128, 130; R4 File, Tab S). Therefore, using the audit
findings as a base, Weiss made his own calculations which
allowed an additional recovery of nearly all of the stripping
charges and some blueline costs (R4 File, Tab S). Thus, the
Contracting Officer believed the Appellant was entitled to
total compensation of $2,749.28 computed as follows: (a)
$1,754.00 for the film work; (b) $852.28 for the stripping and
bluelines; and (c) $143.00 for Federal Express charges (Tr.
117, 124; R4 File, Tab S, p. 2).28 While there was no set
procedure for pricing the contract in this case, the record
clearly shows that the guiding principle followed by the
Contracting Officer was that the Contractor was entitled to be
paid only for the work actually performed (Tr. 119, 121).29
7. The Appellant rejected the Contracting Officer's offer to
settle the matter for $2,749.28 (R4 File, Tab T, p. 1).
Therefore, on January 8, 1992, the Contracting Officer issued
his final decision on the claim, stating in pertinent part:
. . . [I]t is the decision of the Contracting Officer that
the charges for the 344 films produced are in accordance
with the contract schedule of prices and allowable. The
stripping and blueline charges totalling $2800.00 are not
covered in the contract schedule of prices and are not
allowable. An average per page cost for bluelines was done
on 38 contractor [sic] performing on the A814-S Program.
This cost came to $1.49 per page. This figure multiplied
by 572 pages comes to [$]852.28. The shipping charges
totaling $143.00 are allowable.
The total of allowable charges comes to $2749.28.
See R4 File, Tab T, p. 1.30 The final decision letter did not
specifically address the claim for lost production time, but
clearly the Contracting Officer rejected it by implication.
8. By letter dated April 6, 1992, the Appellant timely
appealed the Contracting Officer's decision to the Board.
Board Rules, Rule 1(a).
9. At the hearing on March 1, 1994, the Appellant's
evidence, almost exclusively, concerned its idle press time
claim.31 Aside from the documentary evidence already referred
to in this opinion, the Contractor also introduced: (a) a
listing of the machine and employee hours lost because of
downtime on the Miller Press for the month of February 1991,
along with the supporting shop logs;32 (b) a summary analysis
of its idle time based on the 112 hours of actual press time
which could not be filled, and calculated at a utilization
rate of 80 percent;33 and (c) financial statements for the
months of January, February, and March 1991 (Tr. 42, 44,
52-53, 60, 61, 67-68, 70-71, 80; App. Exh. Nos. 5, 6, 7, 8,
and 9).34 Moreover, during the hearing the Appellant also
revised and lowered its unabsorbed overhead claim to
$14,460.04 to account for the actual number of unfilled hours
of press time-a reduction of nearly 41 percent from its
original idle time claim ($24,670.13) ((Tr. 60, 74-5; R4 File,
Tabs N and O; App. Exh. No. 6; App. Brf., p. 1).35 To
summarize, relying on the documentation it submitted at the
hearing, as revised by oral testimony,36 the Contractor now
seeks termination compensation as follows:
MAKEREADY AND RUNNING: The Appellant originally calculated
that the job would take 36 hours of makeready and 115 hours
of running time to print all of the 747,500 sheets required
for both Directories, or 151 total hours. However, the
Contractor has reduced its combined claim for makeready and
running to a total of 112 hours, figured at a BHR of $56.68
(70 percent utilization) for a total of $6,348.16.37
PRESS HELPER: The Appellant omitted the cost of the press
helper on the Miller Press, who was idled by the
termination of the contract, from its initial claim. The
press helper is compensated at the rate of $9.45 an hour.
Therefore the cost to the Contractor for the press helper's
downtime is $1,058.40 (112 hours times $9.45).38
FOLDING: The Appellant originally estimated that at a
machine rate of 8,500 sheets, folding would take 88 hours
to complete. As revised, the Contractor has reduced its
claim to 46.88 hours computed at a BHR of $45.72, or a
total cost of $2,143.35.
COLLATING: The Appellant initially calculated that
collating would take 158 hours, accomplished in part by
hand labor. The revised claim deletes the hand collating
charge, and narrows the Contractor's request to
compensation for the unfilled machine time of the
Collator.39 In that regard, the Contractor calculated that
it would take 30.5 hours to collate both Directories, which
at a BHR of $44.47, yielded a collating cost of $1,356.34.
PERFECT BINDING: The Appellant still estimates that it
would have taken 76 hours to bind both Directories.
However, the Contractor now computes that operation at a
BHR of $34.20, for a total binding cost of $2,599.20.
TRIMMING: The Appellant figures that it would have taken 63
hours to trim both Directories. However, the Contractor
now calculates that task at a BHR of $31.09, for a total
trimming cost of $1,958.67.
See Tr. 60-63, 74-75; App. Exh. No. 6.
III. ISSUES PRESENTED
Based on the record as a whole, including the prehearing
conference discussions, the evidence presented at the
hearing, and the briefs of the parties, this appeal
presents three issues for the Board's consideration:
1. Did the Contracting Officer err by using another GPO
contract-Program A814-M-to determine that the Appellant's
stripping and blueline claim was too high, and to develop a
new per page rate for those costs?
2. Was the Contracting Officer correct in denying all of
the Appellant's claim for post-termination downtime costs
based on the OIG's interpretation of GPO Cost Directive,
Sec. 3, ¶ 25(c) contained in the audit report? Stated
otherwise, what is the proper cost basis for considering
the Appellant's unabsorbed overhead claim in this case?
3. Is the Appellant entitled to any recovery for post-
termination costs under the circumstances of this case, and
if so, how much?
III. POSITIONS OF THE PARTIES
A. The Appellant's Argument
The Appellant presents the Board with two different claims-a
small claim for the pre-press work which it actually performed
prior to termination, and a large unabsorbed overhead claim,
consisting primarily of idle press time costs resulting from
the termination action itself. With respect to the pre-press
claim, the Appellant asserts that its charges were reasonable
and normal for the work in question, and thus it is entitled
to full payment for those costs under the express terms of the
contract (App. Brf., p. 2, citing GPO Contract Terms, Contract
Clauses, ¶¶ 19(e)(2)(i),(iii)). The Contractor also contends
that the Respondent erred in denying the claim on the ground
that the contract's schedule of bid prices lacked a line item
for stripping and bluelines. Id. Furthermore, the Appellant
says that the Contracting Officer wrongfully relied on the
line item structure of another GPO contract-Program A814-M-to
establish the prices for stripping and bluelines because: (1)
the low rates in Program A814-M are the result of the
extremely high volume of work called for under that contract
and involves multiple orders throughout the year; and (2) line
item prices usually reflect the contractor's belief that he or
she will be producing a finished product, not just a portion
of it (App. Brf., pp. 2-3). Consequently, to apply Program
A814-M prices to just the pre-press work on the smaller
contract in this case is "grossly unfair" (App. Brf., p. 3).
Finally, the Contractor observes that GPO's interpretation
could damage many contractors who bid pre-press production
functions at "no charge," and include those costs elsewhere in
the job, only to find when the contract is subsequently
terminated that such work would not be compensated at all-a
result contrary to the provisions of GPO Contract Terms. Id.
Accordingly, the Appellant urges the Board to find that its
charges for the pre-press work actually performed prior to
termination were reasonable, and that it is entitled to the
full amount of its claim ($4,697.37) (App. Brf., pp. 3, 7).
As for its downtime claim, the Contractor does acknowledge the
general rule which says that such indirect costs incurred
after a termination for convenience are not recoverable (App.
Brf., pp. 3, 5, 7, citing Chamberlain Manufacturing Corp.,
ASBCA No. 16877, 73-2 BCA ¶ 10,139; Sun Electric Corp., ASBCA
No. 13031, 70-2 BCA ¶ 8371). However, the Appellant also
points out that in a few cases post-termination idle
facilities and idle capacity costs have been allowed when
there is a "particular showing" that the termination was
simply more than routine (App. Brf., pp. 4-5, citing Raquette
River Construction, ASBCA No. 26486, 82-1 BCA ¶ 15769;
Southland Manufacturing Corp., ASBCA No. 16830, 75-1 BCA ¶
10,994, reconsid. denied, 75-1 BCA ¶ 11,272). See also
RPTC-1, p. 6. The Contractor believes that it has made such a
showing in this case by demonstrating that the contract was
canceled one day before the job went to press, and at a time
when a major portion of the work was already in progress (App.
Brf., p. 5; App. Exh. No. 5).
On the other hand, the Appellant argues that since the source
of the general rule is found in decisions of contract appeals
boards and courts interpreting the FAR, and specific
convenience termination clauses of other agencies, while these
decisions are instructive, they are not binding on the Board
in GPO procurements (App. Brf., pp. 3, 4). Instead, the
Contractor believes that the Board must look to the
"Termination for the Convenience of the Government" clause in
GPO Contract Terms and the GPO Cost Directive for guidance in
deciding the issues in this case (App. Brf., pp. 3-4, citing
GPO Contract Terms, Contract Clauses, ¶ 19; GPO Cost
Directive, Sec. 3, ¶ 25 (Idle facilities and idle capacity
costs), ¶ 49 (Termination costs)). In that regard, the
Appellant contends that since nothing in GPO Contract Terms or
the GPO Cost Directive requires the disallowance of downtime
costs upon a termination for convenience,40 the solution to
this controversy primarily lies in the GPO Cost Directive,
since the termination clause is silent on the matter. First,
the Contractor notes that recovery for idle facilities and
idle capacity costs is expressly covered by GPO Cost
Directive, Sec. 3, ¶ 25, and also points out that
reimbursement for idle capacity costs in particular, is
allowed under certain circumstances; i.e., the capacity was
necessary or originally reasonable to the production of work,
and are not otherwise subject to a reduction by rent or sale,
in accordance with sound business practices (App. Brf., p. 4).
See GPO Cost Directive, Sec. 3, ¶ 25(c). Second, the
Appellant says that while the provisions of the GPO Cost
Directive expressly dealing with termination costs do not
address recovery of unabsorbed overhead one way or the other,
it does incorporate the idle facilities and idle capacity
rules by reference (App. Brf., p. 4). See GPO Cost Directive,
Sec. 3, ¶ 49. Furthermore, although it does not describe such
costs with particularity, the termination provisions of the
GPO Cost Directive state that a contractor can recover costs
which were incurred after termination that could be
immediately discontinued through reasonable efforts (App.
Brf., p. 4). See GPO Cost Directive, Sec. 3, ¶ 49(b).
Finally, relying on the works of several authors on the
subject of cost accounting for Government contracts, the
Appellant contends that the Board should allow the post-
termination unabsorbed overhead claim because that is the only
fair and equitable means of compensation for its costs in this
case (App. Brf., pp. 5-6, citing A. Joseph & N. O'Donnell,
Termination of Government Contracts, at X-36 to X-41 (Fed.
Pub. 1987) (hereinafter Joseph & O'Donnell); J. Bedingfield
and L. Rosen, Government Contract Accounting, at 15-16 to
15-20 (1st ed. 1984); P. Trueger, Accounting Guide for
Government Contracts, at 745-760 (8th ed. 1985) (hereinafter
Trueger)). The Contractor anchors this argument for
reimbursement of idle facilities and capacity costs in
commonplace notions of fairness and justice, and criticizes
the majority of cases applying the general rule against
recovery of unabsorbed overhead as mere rigid adherence to
prior decisions (App. Brf., p. 6).41 Where, as here, an
actual downtime loss results from a convenience termination,
says the Appellant, case law which denies recovery of these
costs is clearly inequitable or unjust. Thus, the Contractor
urges the Board to follow the path suggested by these
enlightened commentators, and allow the reimbursement in the
interest of providing adequate and fair compensation to the
contractor (App. Brf., p. 6). Accordingly, for these reasons,
the Appellant asks the Board to rule that it is entitled to
recover post-termination unabsorbed overhead costs in the
amount of $14,460.04, particularly since it has shown the
requisite "unusual circumstances" (App. Brf., pp. 6-7).42
B. The Respondent's Argument
Contrary to the Appellant, the Respondent believes that the
Contracting Officer was correct in only partially allowing the
Contractor's claim for pre-press costs, while denying the
unabsorbed overhead claim in its entirety. The Government
does not dispute that the Appellant was entitled to recover
certain direct costs incurred in beginning production on the
first print order as part of the termination settlement (R.
Brf., p. 7). Rather, the issue dividing the parties concerns
whether the stripping and blueline costs submitted by the
Contractor were reasonable-all other charges were allowed by
the Government in the amounts claimed (R. Brf., pp. 7-8). In
that regard, the Respondent says that when the Contracting
Officer compared the Appellant's stripping and blueline claim
with GPO's charges and the prices of other commercial
printers, he concluded that they were too high (R. Brf., p. 8,
citing Tr. 126-127). Consequently, to arrive at a reasonable
price for stripping and bluelines in the absence of individual
line items for those costs in the contract (they were included
in the contract price for films), the Contracting Officer
referred to a multiple award, general usage GPO contract-
Program A814-M-and averaged the blueline prices of 38 printing
contractors in order to estimate a fair and reasonable price
for the those operations in this case (R. Brf., p. 8, citing
Tr. 117-18; R4 File, Tab A, p. 11).43 The result was a price
of $1.49 per page, or $852.28 total, which the Contracting
Officer allowed against the Appellant's claim of $2,800.12 for
stripping and bluelines (R. Brf., p. 8). The Respondent not
only sees this approach as justified under the circumstances,
but also contends that the Appellant, who had the burden of
proof, failed to prove its stripping and blueline costs were
reasonable (R. Brf., p. 8). Instead, the Government contends
that the Appellant's own testimony at the hearing shows that
its claim was based on its standard retail charges rather than
its actual costs (R. Brf., p. 8, citing Tr. 24, 89).
Accordingly, since the Contractor has not met its burden with
respect to its pre-press claim, the Contracting Officer's
decision should be allowed to stand (R. Brf., p. 8).
Unlike the pre-press claim in which the only question is one
of reasonableness, the unabsorbed overhead claim concerns the
threshold issue of entitlement. The Respondent has
steadfastly maintained that the Appellant is not legally
entitled to recover unabsorbed overhead costs following a
termination for convenience (R. Brf., p. 3). The reason that
such costs in the form of idle press time are generally not
allowed, according to the Government, is that they are
indirect costs representing the cost of doing business (R.
Brf., pp. 3-4, citing Nolan Brothers, Inc. v. United States,
194 Ct. Cl. 1 at 34-35, 437 F.2d 1371 (1971); Chamberlain
Manufacturing Corp., supra; Pioneer Recovery Systems, ASBCA
No. 24658; 81-1 BCA ¶ 15,059; Melvin Rishe, Government
Contract Costs 23-29 (1983)).
The Respondent contends that the precedents of courts and
other contract appeals boards preclude a contractor from
recovering any costs beyond actual costs incurred, plus a
reasonable profit on work performed (R. Brf., pp. 4-5, citing
William Green Construction Co., Inc. et al. v. United States,
201 Ct. Cl. 616 (1978)). As explained by GPO, unabsorbed
overhead costs are not incurred as a result of contract work
performed, are not directly related to the termination, and
are not recognized continuing costs of the terminated
contract, and thus they are unallowable (R. Brf., p. 5, citing
Hewitt Contracting Co., ENGBCA No. 4596, 83-2 BCA ¶ 16,816;
Technology, Inc., ASBCA No. 14083, 71-2 BCA ¶ 8,956; reconsid.
denied, 72-1 BCA ¶ 9281; Fairchild Stratos Inc., ASBCA No.
9169, 67-1 BCA ¶ 6,225; reconsid. denied, 68-1 BCA ¶ 7,053;
Chamberlain Manufacturing Corp., supra; Pioneer Recovery
Systems, supra). Furthermore, the Respondent points out that
other contract appeals boards have considered, and rejected,
contractor claims that the general rule is unfair or
inequitable, primarily on the grounds that: (1) overhead
continues as long as the contractor exists as a ongoing
organization; (2) the risk of unabsorbed overhead in
termination cases is essentially no different than cases of a
contractor's failure to obtain other anticipated business
during the accounting period; and (3) paying such overhead
costs without receiving any benefit for doing so would, in
practical effect, amount to a Government guarantee of a
contractor's overhead costs, more or less as a penalty for
exercising its contractual rights (R. Brf., pp. 5-7, quoting
Chamberlain Manufacturing Corp., supra, 73-2 BCA at 47,678-79;
Pioneer Recovery Systems, supra, 81-1 BCA at 74,494).
Finally, the Respondent contends that the Appellant's reliance
on certain provisions of the GPO Cost Directive is misplaced
(R. Brf., p. 3; RPTC-1, p. 7). The Government notes that the
GPO Cost Directive is simply the agency's FAR Part 31, 48
C.F.R. 31.000 et seq. (1994), and both regulations establish
contract cost principles and procedures to be utilized in
determining what costs are allowable under Federal contracts
(R. Brf., p. 3). However, it also believes that the GPO Cost
Directive is not particularly relevant in the context of this
appeal, but rather the central focus should be on the factors
considered by the Contracting Officer in his decision,
including the OIG's recommendations to disallow the claim for
unabsorbed overhead costs. RPTC-2, p. 3; RPTC-1, p. 7.
Regardless, the Respondent contends that the Appellant
mistakenly relies on GPO Cost Directive, sec. 3, ¶ 25 to
support its claim for idle facilities and idle capital costs,
because that provision only applies to Federal cost
reimbursement contracts (R. Brf., p. 3). GPO says that the
Contractor has ignored the appropriate provision of the
instruction-GPO Cost Directive, sec. 3, ¶ 49-which
specifically defines those costs which are allowable in a
termination for convenience claim (R. Brf., p. 3). The
Respondent believes that the Appellant's exclusive remedy in
this case is provided by the termination for convenience
articles of GPO Contract Terms and the GPO Cost Directive (R.
Brf., pp. 3-4, citing GPO Contract Terms, Contract Clauses, ¶
19; GPO Cost Directive, sec. 3, ¶ 49). ). Accordingly, for
all of these reasons, but especially the weight of case
authority, GPO submits that the Board should affirm the
Contracting Officer's denial of the Appellant's entire
$14,460.20 claim for unabsorbed overhead costs (R. Brf., pp.
7, 9).
IV. DECISION44
The Appellant believes that the main issue in this case, which
tests the validity of its claim for post-termination
unabsorbed overhead costs, is a matter of first impression for
the Board (App. Brf., p. 7). While perhaps that precise
question has never been presented before, the Board is
certainly no stranger to termination for convenience problems.
However, it is also true that both in this forum, as well as
in the proceedings of the ad hoc panels which proceeded the
Board,45 termination for convenience cases are extremely
rare,46 probably because in most instances the parties are
able to reach an amicable settlement regarding termination
cost issues. See PPR, Chap. XIV, Sec. 2, ¶¶ 3.d(ii),(iii),
3.j(1). In that respect, the case history in GPO is no
different than the experience of other boards established to
hear contract appeals. See e.g., Pioneer Recovery Systems,
supra, 81-1 BCA at 74,494 (". . . convenience terminations are
relatively rare, . . ."). Regardless, the combined experience
of this agency's contract appeals forums, plus the precedents
of the Board's Executive Branch counterparts, provide ample
guidance by which to examine all of the issues in dispute.
Furthermore, it is clear to the Board that this appeal offers
a proper and convenient vehicle to revisit its Supplemental
Decision in R.C. Swanson, supra, and reiterate, explain and
clarify the standards which govern convenience termination
settlements for "requirements" contracts.47
At the outset, before addressing the specific issues raised by
the parties, a few words need to be said about the nature,
purpose, and philosophy behind terminations for convenience,
so that the Board's approach in this case can be better
understood. The principal treatise on Government contracts
describes the nature of terminations for convenience as
follows:
The Termination for Convenience of the Government clause is
one of the most unique provisions contained in Government
contracts. In no other area of contract law has one party
been given such complete authority to escape from
contractual obligations. This clause gives the Government
the broad right to terminate without cause and limits the
contractor's recovery to costs incurred, profit on work
done, and costs of preparing the termination settlement
proposal. Recovery of anticipated profit is
precluded. Thus, this mandatory provision confers a major
contract right on the Government with no commensurate
advantage to the contractor.
See John Cibinic, Jr., & Ralph C. Nash, Jr., Administration of
Government Contracts, 3d Ed., 1995, George Washington University,
National Law Center, Government Contracts Program, p. 1073
(hereinafter Cibinic & Nash).48 See also Tom Shaw, Inc., ENG BCA
Nos. 5540, 5541, 89-3 BCA ¶ 21,961 (the Government's right to
terminate a contract for its own convenience without suffering
the usual penalties for breach of contract, is an extraordinary
right with a commensurate responsibility to be entirely fair in
the exercise of the right). As the Armed Services Board of
Contract Appeals (ASBCA) has observed:
[A] termination for convenience is a risk by which, by dint
of the contractual relationship with the sovereign, is
reasonably foreseeable whenever a contractor signs a
Government contract. The contractor's recourse after such
a termination is spelled out in the termination clause and
the related regulations. If a contractor incurs losses
which do not fall within these parameters, it simply has no
contractual recourse.
See J.W. Cook & Sons, Inc., ASBCA No. 39691, 92-3 BCA ¶ 25,053,
at 124,865.
Because of the extraordinary powers vested in the Government
to terminate contracts for its convenience, the courts and
contract appeals boards have placed some limits on its
exercise. In the words of the United States Court of Appeals
for the Federal Circuit, the Government cannot use its
convenience termination authority to "dishonor [its]
contractual obligations." See Maxima Corp. v. United States,
847 F.2d 1549, 1553 (Fed. Cir. 1988); Torncello v. United
States, supra, 681 F.2d at 772.
The right to terminate a contract under the termination for
convenience clause is usually triggered by a contracting
officer's determination that the cancellation is in the
Government's best interest.49 See GPO Contract Terms,
Contract Clauses, ¶ 19(a); PPR, Chap. XIV, Sec. 2, ¶ 2. See
also American Drafting and Laminating Co., supra; Cloverleaf
Enterprises, Inc., supra. Furthermore, the contracting
officer's election to terminate is conclusive in the absence
of bad faith or a clear abuse of discretion.50 See Melvin R.
Kessler, PSBCA Nos. 2820, 2972, 92-2 BCA ¶ 24,857, at 123,996
(citing John Reiner v. United States, 325 F.2d 438, 442 (Ct.
Cl. 1963), cert. den. 377 U.S. 931 (1964)), mot. for reconsid.
denied 92-3 BCA ¶ 25,092; Salisbury Industries v. United
States, 905 F.2d 1518 (Fed. Cir. 1990)), mot. for reconsid.
denied 92-3 BCA ¶ 25,092. See also, Seaboard Lumber v. United
States, 19 Cl. Ct. 310 (1989); Robert K. Adams, ASBCA No.
34519, 92-3 BCA ¶ 25,165; Automated Services, Inc., DOTBCA No.
1753, 87-1 BCA ¶ 19,459; ITG Corp., ASBCA No. 27285, 85-1 BCA
¶ 17,935.51 As the Board has said on numerous occasions, an
allegation of bad faith must be established by "well-nigh
irrefragable" proof because there is a strong presumption that
Government officials properly and honestly carry out their
functions.52 See e.g., Asa L. Shipman's Sons, Ltd., GPO BCA
06-95 (August 29, 1995), slip op. at 12, fn. 16; Professional
Printing of Kansas, Inc., GPO BCA 02-93 (May 19, 1995), slip
op. at 43, fn. 58, 1995 WL 488488; Universal Printing Co.,
supra, slip op. at 24, fn. 24; Sterling Printing, Inc., GPO
BCA 20-89 (March 28, 1994), slip op. at 34-35, fn. 46, 1994 WL
275104; B. P. Printing and Office Supplies, GPO BCA 14-91
(August 10, 1992), slip op. at 16, 1992 WL 382917; The
Standard Register Co., supra, slip op. at 12-13. Accord Brill
Brothers, Inc., ASBCA No. 42573, 94-1 BCA ¶ 26,352; Karpak
Data and Design, IBCA No. 2944 et al., 93-1 BCA ¶ 25,360;
Local Contractors, Inc., ASBCA No. 37108, 92-1 BCA ¶ 24,491.
However, there are no "bad faith or a clear abuse of
discretion" issues in this appeal.53 Properly exercised, a
contracting officer's discretion to act pursuant to the
"Termination for Convenience" clause is very broad. See
Caldwell & Santmyer, Inc., supra, 94-2 BCA at 133,625 (citing
ARDCO Inc., AGBCA Nos. 94-101-1, 94-102-1, 94-103-1, 1994 WL
45000 (Feb. 16, 1994); Michael J. Earl, PSBCA No. 3332, 93-3
BCA ¶ 26,234). Thus, apart from the typical situation
involving a change in the Government's needs, see e.g., R.C.
Swanson, supra, Supplemental Decision, slip op. at 5 (contract
for the production of Department of Justice briefs from
manuscript copy was terminated for convenience because it
would not accommodate the customer-agency's additional
requirement that briefs be produced from electronically
transmitted data), a termination for convenience is also
appropriate to preserve the integrity of the procurement
system where it is determined that the Government's estimates
have not been realistic, see Special Waste, Inc., ASBCA No.
36775, 90-2 BCA ¶ 22,935, at 115,129-30, to reprocure the
contract if the contractor will not agree to a change in
schedule, see Melvin R. Kessler, supra, to relieve a
contractor of performance where its lack of success does not
arise from any fault or negligence on its part, see American
Drafting and Laminating Co., supra, or to end an improvident
procurement, especially before performance commences, see
Caldwell & Santmyer, Inc., supra, 94-2 BCA at 133,625 (citing
KAL M.E.I. Manufacturing and Trade, Ltd., ASBCA No. 40597,
92-1 BCA ¶ 24,411).54
The Respondent's "Termination for Convenience" clause contains
the general rule that once a contract is terminated, the
contractor is entitled to recover its incurred costs plus a
reasonable profit. See GPO Contract Terms, Contract Clauses,
¶ 19(d); PPR, Chap. XIV, Sec. 2, ¶ 3.n. See also R.C.
Swanson, supra, Supplemental Decision, slip. op. at 17-18
(citing Humphrey Logging Co., AGBCA Nos. 84-359-3, 85-204-3,
85-3 BCA ¶ 18,433); Graphic Litho Co., Inc., supra, slip. op.
at 10; Bay Ridge Press, supra, slip. at 3. Accord,
Youngstrand Surveying, AGBCA No. 90-150-1, 92-2 BCA ¶ 25,017,
at 124,694; Chamberlain Manufacturing Corp., supra, 73-2 BCA
at 47,678. Recovery of anticipated profits is not allowed.
See PPR, Chap. XIV, Sec. 2, ¶ 3.n. See also Bay Ridge Press,
supra, Supplemental Decision, slip op. at 3. Accord Plaza 70
Interiors, Ltd., supra, 95-2 BCA at 137,939 (citing FAR
49.202,; Steelcare, Inc., GSBCA No. 5491, 81-1 BCA ¶ 15,143,
at 74,901). See generally Cibinic & Nash, p. 1098 ("Perhaps
the major impact of the termination for convenience procedure
is that it relieves the Government from the obligation of
paying anticipated profits for unperformed work if terminates
the contractor's performance of the work." Citing Dairy Sales
Corp. v. United States, 219 Ct. Cl. 431, 593 F.2d 1002 (1979),
aff'g Dairy Sales Corp., ASBCA No. 20193, 75-2 BCA ¶ 11,613).
Similarly, where a contractor is in a loss position on the
terminated contract, it is not entitled to recovery of any
profit.55 See GPO Contract Terms, Contract Clauses, ¶ 19(e)
(2)(iii); PPR, Chap. XIV, Sec. 2, ¶ 3.o. See also Maitland
Brothers Co., supra, 93-3 BCA at 129,304; Tom Shaw, Inc., ENG
BCA Nos. 5540, 5541, 5620-5628, 93-2 BCA ¶ 25,742, at 128,082.
The terminated contractor has the burden of establishing both
that it actually incurred costs and the amount of its incurred
costs. See R.C. Swanson, supra, Supplemental Decision, slip.
op. at 19 (citing Building Maintenance Specialists, Inc., ENG
BCA No. 5654, 90-3 BCA ¶ 23,032). Accord Lisbon Contractors,
Inc. v. United States, 828 F.2d 759, 767 (Fed. Cir. 1987);
J.W. Cook & Sons, Inc., supra, 92-3 BCA at 124,863 (citing
Tubergen & Associates, Inc., ASBCA Nos. 34106, 34107, 90-3 BCA
¶ 23,058); Youngstrand Surveying, supra, 92-2 BCA at 124,694
(citing Roberts International Corp., ASBCA No. 15118, 71-1 BCA
¶ 8869). Indeed, actual incurrence of costs is a prerequisite
to recovery under a termination for convenience; i.e., if the
contractor has incurred no cost, there is no recovery. See
R.C. Swanson, supra, Supplemental Decision, slip. op. at 19
(citing Seiler Instrument and Manufacturing Co., Inc., ASBCA
No. 44380, 93-1 BCA ¶ 25,436). Accordingly, in these cases
the contractor's cost, not the value of the performance to the
Government, is the measure of recovery. See, e.g., Fil-Coil,
ASBCA No. 23,137, 79-1 BCA ¶ 13,618 (1978), mot. for reconsid.
denied, 79-1 BCA ¶ 13,683 (1979); Scope Electronics, Inc.,
ASBCA No. 20359, 77-1 BCA ¶ 12,404, mot. for reconsid. denied,
77-2 BCA ¶ 12,586 (1977); Arnold H. Leibowitz, GSBCA No.
CCR-1, 76-2 BCA ¶ 11,930 (1976). In short, the reimbursement
formula for convenience terminations permits the recovery of
allowable costs incurred, plus profit, subject to the overall
limitation of the contract price and the possible application
of the loss adjustment provisions. See Cibinic & Nash, p.
1098.
The conventional wisdom, often expressed in "boilerplate"
language in court and board decisions, is that when a fixed-
price contract is terminated for the convenience of the
Government, it is converted into a cost reimbursement
contract, which entitles the contractor to recover the
allowable costs incurred under the terminated contract, to the
extent that they are reasonable, allocable and not
specifically designated as unallowable by regulation. See
Richerson Construction, Inc., GSBCA Nos. 11161, 11263(11045)-
REIN, 11430, 93-1 BCA ¶ 25,239, at 125,704; Youngstrand
Surveying, supra, 92-2 BCA at 124,694; Raquette River
Construction, supra, 82-1 BCA at 78,051 (citing Paul E.
McCollum, ASBCA No. 23269, 81-2 BCA ¶ 15,311). See also
Riverport Industries, Inc., ASBCA No. 30888, 87-2 BCA ¶
19,876; Southland Manufacturing Corp., supra; International
Space Corp., ASBCA No. 13883, 70-2 BCA ¶ 8519; Caskel Forge,
Inc., supra. See generally Cibinic & Nash, p. 1098. While
this principal may be technically correct as a general
proposition, on closer examination the rule is not entirely
accurate.56 As the Corps of Engineers Board of Contract
Appeals (ENGBCA) has observed, in pertinent part:
. . . [M]any of the BCA cases refer to termination of a
fixed-price contract as tantamount to converting it to a
cost reimbursable contract. This is an oversimplification.
While the cost principles applicable to cost reimbursable
contracts do come into play in a termination for
convenience, the principles that the contract price serves
as a ceiling on recovery, that a profit allowance is
partially or totally eliminated on a loss contract, and
that recovery of actual costs may be reduced by a loss
factor, also come into play. These principles are not
consistent with treating the fixed-price contract as
actually converted to a cost reimbursable contract.
Of particular note is the fact that the contract price
ceiling is not at all related to the use of a Limitation of
Cost or similar clause in a cost reimbursable contract, . .
. . [T]he contract price as a ceiling is logically related
to the fact that payments under a fixed price contract
would amount to the contract price if the work were
completed. There is no automatic justification for paying
more than the contract price for doing less than fully
completing the work. A fixed-price contractor has not, in
incurring performance costs, relied to its detriment on the
fact that the Government, after performance has ended, has
made payments exceeding the contract price. There is even
less logic to an argument that making payments that exceed
the contract price is an act that totally forfeits or
waives any further ceiling on payments. Paragraph (j) of
GP-18 (Termination for the Convenience of the Government
(Construction) clause even provides for recapture of such
excess payments.
On the other hand, a cost reimbursable contractor largely
controls the rate of expenditures and the total costs of
its contract as the work proceeds, and is uniquely able to
warn the Government that actual expenditures are
approaching any preset funding limit, giving the Government
the option of continuing to fund additional work or ending
the contract. That is the primary purpose of a Limitation
of Costs clause. When such a warning has been given,
whether formally or constructively, the Limitation of Costs
clause has served its purpose. If the Government then
permits the work to continue, the cost reimbursable
contractor continues to incur costs in reliance that it
otherwise could have avoided, so the waiver theory has a
logical application. The case law on waiver of Limitation
of Costs and similar clauses deals strictly with cost
reimbursable contracts that are such from their inception.
A terminated fixed-price contract is not converted to a
true cost reimbursable contract, and there is no reasonable
basis to extend the waiver concept to this case.
See Tom Shaw, Inc., supra, 93-2 BCA ¶ 25,742, at 128,073.
[Original emphasis.]
Another immutable convenience termination rule is that the
"total contract price" sets the boundaries of the contractor's
recovery.57 See R.C. Swanson, supra, Supplemental Decision,
slip. op. at 19 (citing GPO Contract Terms, Contract Clauses,
¶ 19(d); FAR 52.249-2(e)). Accord Alta Construction Co.,
PSBCA Nos. 1463, 2820, 94-3 BCA ¶ 27,053, at 134,816; Tom
Shaw, Inc., supra, 93-2 BCA at 128,073. Apparently, the
theory is that the contractor should not receive more than the
contract price for doing less than the full amount of work
required by the contract. Id. The "total contract price"
concept encompasses three things: (1) it sets the maximum
amount a contractor may recover under a termination for
convenience; (2) it is important when considering the recovery
of costs continuing after termination; and (3) the rules for
setting the "total contract price" vary depending on the type
of contract terminated. See R.C. Swanson, supra, Supplemental
Decision, slip. op. at 19-20 (citing Nolan Brothers, Inc. v.
United States, supra; Alta Construction Co., PSBCA No. 1463,
92-2 BCA ¶ 24,824; Celesco Industries, Inc., ASBCA No. 22460,
84-2 BCA ¶ 17,295; Pioneer Recovery Systems, Inc., supra; Okaw
Industries, Inc., ASBCA Nos. 17863, 17864, 77-2 BCA ¶ 12,793;
Chamberlain Manufacturing Corp., supra). Basically, the
"total contract price" establishes the value of the contract
(cost plus profit) for the purpose of compensating the
terminated contractor. See R.C. Swanson, supra, Supplemental
Decision, slip. op. at 20. GPO's "Termination for
Convenience" clause provides that the convenience termination
settlement may not generally exceed the "total contract price"
as reduced by: (1) the amount of payments previously made; and
(2) the contract price of work not terminated. See GPO
Contract Terms, Contract Clauses, ¶ 19(d).
Finally, a significant number of contract appeals forums
stress that the Government must not ignore the underlying
philosophy of the procedure when compensating a terminated
contractor. In that regard, contracting officers are
instructed that "fairness," rather than strict adherence to
principles of cost accounting, should guide their settlement
calculations. See Richerson Construction, Inc., supra;
Youngstrand Surveying, supra; Industrial Refrigeration
Service Corp., VABCA 2532, 91-3 BCA ¶ 24,093, at 120,595;
Arctic Corner, Inc., VABCA No. 2393, 86-3 BCA ¶ 19,278;
American Electric, Inc., ASBCA 16635, 76-2 BCA ¶ 12,151.
Thus, the General Services Administration Board of Contract
Appeals GSBCA) recently explained:
Under applicable Federal Acquisition Regulations (FAR), the
objective of a termination for convenience settlement is to
provide the contractor with "fair compensation" both for
the work that has been completed prior to termination and
for preparations made for terminated portions of the
contract, including a reasonable allowance for profit. FAR
49.201. . . . To this end, the cost standards of the FAR,
in part 31, are applied in accordance with principles of
business judgment and fairness, Codex Corp. v. United
States, 226 Ct. Cl. 693, 699 (1981), with the ultimate
objective of making the contractor "whole." See Industrial
Refrigeration Service Corp., VABCA 2532, 91-3 BCA ¶ 24,093,
at 120,595; American Electric, Inc., ASBCA 16635, 76-2 BCA
¶ 12,151.
See Richerson Construction, Inc., supra, 93-1 BCA at 125,704.
See also General Electric Co., ASBCA No. 24111, 82-1 BCA ¶
15,725, reconsid. denied 83-1 BCA ¶ 16,207. Furthermore, several
years ago, in Arctic Corner, Inc., the Veterans Administration
Board of Contract Appeals (VABCA), gave its view of the
"fairness" concept in extensive detail:
The FPR, in Subpart 1-8.3, also contained, "Additional
Principles" to be applied in settling fixed-price contracts
which had been terminated for the convenience of the
Government. The following Section, because of its
significance, is herein set forth in its entirety:
§ 1-8.301 General.
(a) A settlement should compensate the contractor
fairly for the work done and the preparations made
for the terminated portions of the contract,
including an allowance for profit thereon which is
reasonable under the circumstances. Fair
compensation is a matter of judgment and cannot be
measured exactly. In a given case, various
methods may be equally appropriate for arriving at
fair compensation. The application of standards
of business judgment, as distinguished from strict
accounting principles, is the heart of a
settlement.
(b) The primary objective is to negotiate a
settlement by agreement. The parties may agree
upon a total amount to be paid the contractor
without agreeing on or segregating the particular
elements of costs or profit comprising this
amount.
(c) Cost and account data may provide guides, but
are not rigid measures, for ascertaining
compensation. In appropriate cases, costs may be
estimated, differences compromised, and doubtful
questions settled by agreement. Other types of
data, criteria, or standards may furnish equally
reliable guides to fair compensation. The amount
of recordkeeping, reporting, and accounting, in
connection with the settlement of termination
claims, shall be kept to the minimum compatible
with the reasonable protection of the public
interest.
Section 1-15.104 of the FPR, makes it clear that the cost
principles and procedures set out in Subpart 1-15.4
"Construction and Architect-Engineer Contracts" are
mandatory and are incorporated by reference to such
contracts as the basis for, among other things, negotiating
or determining costs under terminated fixed-price
contracts. Subpart 1-15.4(b)(3) cross references the
following provision:
§ 1-8.213 Cost principles.
The cost principles and procedures set forth in
the applicable subpart of Part 1-15 shall, subject
to the general policies set forth in § 1-8.301(a),
be used in claiming, negotiating, or determining
costs relevant to termination settlements under
fixed-price and cost-reimbursement type contracts
with other than educational institutions; . . .
In a situation involving an identical Section 1-8.301 of
the Armed Services Procurement Regulation, the Court of
Claims, in Codex Corporation v. United States, 226 Ct. Cl.
693 at 698-699 (1981), issued its Order, while stating the
following:
The proper reconciliation of the strict standard
of allowable costs in section 15.205-30 and the
fairness concept in section 8.301 is a matter
primarily within the discretion of the Board of
Contract Appeals. The Board did not decide the
question. In its opinion on reconsideration, it
stated that it "expresses no opinion as to whether
the disputed costs concerned in this appeal would
or would not be allowable as a part of the
termination settlement if allowability were to be
governed by paragraph 8.301." 75-2 B.C.A. ¶
11,554, pp. 55,149-50. Our holding is not that
section 8.301 governs the plaintiff's claim for
the field case costs, but that the application of
the cost principles in part 2 of section 15 to
that claim must be made "subject to the general
policies set forth" in section 8.301.
We will likewise approach the various disputed cost
elements in this appeal with an eye toward fair
compensation rather than imposing strict accounting
principles upon the Appellant. . . .
See 86-3 BCA at 97,456-57. [Original emphasis.] See also
Industrial Refrigeration Service Corp., supra, 91-3 BCA ¶ 24,093,
at 120,594-95.
Although a convenience termination settlement should
compensate a contractor fairly, this is not to say that the
concept has no boundaries. Certainly, a contractor may not
use "fairness" as a "sword to dispense with its obligation to
prove its monetary claim," whether a termination claim, or an
equitable adjustment claim for that matter. See J.W. Cook &
Sons, Inc., supra, 92-3 BCA at 124,863. Moreover, in contrast
to the opinions expressed by other contract appeals boards,
the ASBCA takes a narrower view of "fairness" as a concept in
termination settlements:
. . . It is not our province to fashion equitable or
extracontractual relief on the grounds of fairness, or
otherwise. In this context, "fairness" to the parties is
the realization of the benefit of each party's bargain
through the contractual instrument they signed. We
exercise "fairness" through the reasonable interpretation
of that contractual instrument and the related regulations,
with due regard to all relevant circumstances.
Id., 92-3 BCA at 124,865.58
While the few convenience termination decisions issued by the
Board and the ad hoc panels have mentioned that a termination
settlement should compensate the contractor fairly, see e.g.,
R.C. Swanson, supra, Supplemental Decision, slip. op. at 19;
Bay Ridge Press, supra, slip op. at 3, none of them has
discussed the "fairness" concept, or given any indication as
to how it should be applied to terminations for convenience
taken by this agency. However, the Board notes that the GPO
Cost Directive provides the following guidance:
3. Fixed-price contracts.
The applicable paragraphs of this instruction shall be used
in the pricing of fixed-price contracts, subcontracts, and
modifications to contracts and subcontracts whenever (a)
costs analysis is performed, or (b) a fixed-price contract
clause requires the determination or negotiation of costs.
However, application of cost principles and subcontracts
shall not be construed as a requirement to negotiate
agreements on individual elements of cost in arriving at
agreement on the total price. The final price accepted by
the parties reflects agreement only on the total price.
Further, notwithstanding the mandatory use of cost
principles, the objective will continue to be to negotiate
prices that are fair and reasonable, cost and other factors
considered.
See GPO Cost Directive, Sec. 2, ¶ 3, p. 6. [Emphasis added.]
The underscored sentence is also found in the "Contract
Financing" chapter in GPO's printing procurement regulation:
3. Applicability
a. Fixed-prices contracts. Cost principles shall be used
(1) in pricing negotiated fixed-price contracts,
subcontracts, and modifications to contracts and
subcontracts for supplies or services whenever cost
analysis is performed, or (2) when a fixed-price contract
clause requires the determination or negotiation of costs.
However, application of cost principles to fix-priced
contracts and subcontracts shall not be construed as a
requirement to negotiate agreement on individual elements
of cost in arriving at agreement on the total price. The
final price accepted by the parties reflects agreement only
on the total price. Further, notwithstanding the mandatory
use of cost principles, the objective will continue to be
to negotiated prices that are fair and reasonable, cost and
other factors considered.
See PPR, Chap. VIII, Sec. 1, ¶ 3.a., p. 83. Indeed, except for
minor word differences in the first sentence in each of the
above-quoted paragraphs, they are identical.59
Furthermore, insofar as is relevant here, the GPO Cost
Directive states:
4. Contracts with commercial and other organizations.
* * * * * * * * * *
(b) In addition, the contracting officer shall
incorporate the cost principles and procedures in
section 3 [of the GPO Cost Directive] by reference in
contracts with organizations as the basis for-
* * * * * * * * * *
(3) Proposing, negotiating, or determining costs
under terminated contracts;
See GPO Cost Directive, Sec. 2, ¶ 4(b)(3), p. 6. Again, although
much briefer, the PPR tells Contracting Officers the same thing:
b. Additional. The Contracting Officer shall also use
the cost principles as a basis for:
(1) Proposing, negotiating, or determining costs
under terminated contracts; . . ."
See PPR, Chap. VIII, Sec. 1, ¶ 3.b., p. 83.60 See also R.C.
Swanson, supra, Supplemental Decision, slip. op. at 5, fn. 5.
Suffice it to say, that the last ingredient in the cost principle
mix for GPO contracts which are terminated for convenience, are
the implementing provisions in GPO Contract Terms, which
incorporate the GPO Cost Directive by reference. See GPO
Contract Terms, Contract Clauses, ¶¶ 19(g), 45.
As the Board reads the GPO scheme for using cost principles in
convenience termination cases, the overall philosophy appears
to be similar to and in harmony with the approach taken by the
Court of Claims in Codex Corp. v. United States, and adopted
by the GSBCA in Richerson Construction, Inc., and the VABCA in
Industrial Refrigeration Service Corp., and Arctic Corner,
Inc. In that regard, the above-quoted paragraphs from the GPO
Cost Directive and the PPR appear to be simply condensed
versions of the regulatory provisions at issue in Arctic
Corner, Inc., supra, 86-3 BCA at 97,456. The Board has said
several times in the past, that where GPO adopts the
regulatory language followed by other agencies as its own, in
this case the cost principal rules governing contracts which
are terminated for convenience, we must presume that the
uniform interpretation given to those words has also been
accepted. See Sterling Printing, Inc., GPO BCA 20-89,
Decision Denying Second Motion for Consideration (August 12,
1994), slip op. at 3 (procedural rules); Banta Co., GPO BCA
03-91 (November 15, 1993), slip op. at 34, 1993 WL 526843
("Changes" clause); McDonald & Eudy Printers, Inc., supra,
slip op. at 11-12 ("Requirements" clause); Shepard Printing,
supra, slip op. at 21-22 ("Requirements" clause).
Consequently, the Board will administer the cost principles in
the relevant regulations of this agency-the GPO Cost
Directive, the PPR, and the implementing provisions of GPO
Contract Terms-consistent with the meaning and philosophy of
the parallel provisions in the FAR, as interpreted by the
Claims Court, the GSBCA and the VABCA in the above cited
cases. Accordingly, the Board ". . . will likewise approach
the various disputed cost elements in this appeal with an eye
toward fair compensation rather than imposing strict
accounting principles upon the Appellant."61 See Industrial
Refrigeration Service Corp., supra, 91-3 at 120,594; Arctic
Corner, Inc., supra, 86-3 BCA at 97,457.
The Board has thoroughly examined the record, including the
testimony and exhibits presented at the hearing and the
parties' briefs, and has carefully weighed the evidence
against the termination for convenience principles set forth
above. From that review, it has reached the following
conclusions regarding the issues in this appeal:
A. Neither the Appellant's use of its standard stripping
and blueline charges, nor the Contracting Officer's
reliance on GPO Program A814-M to develop a new page rate
for such costs, was the appropriate method for calculating
those incurred and allowable direct costs. Therefore, the
Board shall determine the amount of recovery by use of the
"jury verdict" method.
The Contractor submitted two separate monetary claims
following the termination of its contract-one on January 30,
1991, in the amount of $4,697.37, for direct costs on work
actually performed on Print Order 40000 before the contract
was terminated, and the other on February 4, 1991, in the
amount of $24,670.13 (subsequently reduced to $14,460.04 at
the hearing) for indirect costs accounted for as unabsorbed
(idle time) following termination (R4 File, Tabs M, N and O).
The Board will address each claim seriatim.
It should be noted at the outset that since the propriety of
the termination for convenience is not an issue in this case,
the Appellant's recovery is limited to that available under
the contract's "Termination for Convenience" clause. See
Plaza 70 Interiors, Ltd., supra, 95-2 BCA at 137,939 (citing
Manuals, Inc., ASBCA No. 24123, 80-2 BCA ¶ 14,579). That
clause, as previously noted, entitles a terminated contractor
to recover its incurred costs plus a reasonable profit,
subject, of course, to the overall limitation of the contract
price. See GPO Contract Terms, Contract Clauses, ¶ 19(d); PPR,
Chap. XIV, Sec. 2, ¶ 3.n. See also R.C. Swanson Printing Co.,
supra, Supplemental Decision, slip. op. at 17-18; Graphic
Litho Co., Inc., supra, slip. op. at 10. Here, the Appellant
is asking only for costs, omitting any profit figure from its
claims. It seems apparent that the Contractor would not be
entitled to a profit allowance in any event, because, by its
own admission, it was in a loss position on Print Order 40000
by nearly $20,000.00 (R4 File, Tab F, Attachment, Tab O, Cost
Analysis; Complaint, ¶ 14, Exhibit A). See GPO Contract
Terms, Contract Clauses, ¶ 19(e)(2)(iii); PPR, Chap. XIV, Sec.
2, ¶ 3.o. Cf. Banta Co., supra, slip. op. at 26-28 (an
equitable adjustment cannot be used to convert a loss contract
into one for profit). Accord Maitland Bros. Co., supra.
That the Appellant incurred some costs under the contract is
not in dispute. Still, as previously mentioned, the
Contractor has a dual burden in this case. First, the
Appellant is responsible for showing the total amount of its
costs. See R.C. Swanson Printing Co., supra, Supplemental
Decision, slip. op. at 19. Accord Lisbon Contractors, Inc. v.
United States, supra, 828 F.2d at 767; J. W. Cook & Sons,
Inc., supra, 92-3 BCA at 124,863; Youngstrand Surveying,
supra, 92-2 BCA at 124,694. Also cf. Banta Co., supra, slip
op. at 43, fn. 53 (citing Lawrence D. Krause, AGBCA No.
76-118-4, 82-2 BCA ¶ 16,129, at 80,073; Onetta Boat Works,
Inc., ENGBCA No. 3733, 81-2 BCA ¶ 15,869; Click Co., Inc.,
GSBCA No. 3007, 70-1 BCA ¶ 8335; Campbell Co., General
Contractor, Inc., IBCA No. 722, 69-1 BCA ¶ 7574). Second, the
Contractor must demonstrate that its costs were reasonable.
Cf. Banta Co., supra, slip op. at 43 (citing Celesco
Industries, ASBCA No. 22251, 79-1 BCA ¶ 13,604; Triple "A"
Machine Shop, Inc., ASBCA No. 21561, 78-1 BCA ¶ 13,065 (1978);
Cal Constructors, ASBCA No. 21179, 78-1 BCA ¶ 12,992 (1977)).
See also Universal Printing Co., supra, slip op. at 40 (citing
Michael-Mark, Ltd., IBCA Nos. 2697, 2890, 2891, 2892, 2893,
2894, 2895, 94-1 BCA ¶ 26,453; Lemar Construction Co., ASBCA
Nos. 31161, 31719, 88-1 BCA ¶ 20,429; Lawrence D. Krause,
supra; Onetta Boat Works, Inc., supra; Globe Construction Co.,
ASBCA No. 21069, 78-2 BCA ¶ 13,337). Whether a contractor's
costs are reasonable is a question of fact depending on the
circumstances. See Universal Printing Co., supra, slip op. at
42 (citing Nager Electric Co., Inc. and Keystone Engineering
Corp. v. United States, 194 Ct. Cl. 835, 442 F.2d 936 (1971)
(hereinafter Nager Electric) ). In that regard, the
"reasonable cost" concept:
. . . includes both `objective' and `subjective' elements .
. . The objective focus is on the costs that would have
been incurred by a prudent businessman placed in a similar
overall competitive situation . . . However, unless it also
takes into account the subjective situation of the
contractor, a test of `reasonable cost' is incomplete.
See Nager Electric, supra, 194 Ct. Cl. at 851-53, 442 F.2d at
945-46.
The Appellant's direct cost claim is comprised of six (6) line
items-film costs, stripping charges, blueline costs, Federal
Express charges for receipt of original documents, and another
for the return of the originals, and UPS charges for sending
the blueline proofs to the NIH (R4 File, Tabs M and O; App.
Exh. No. 2, p. 1). Only two of those items-stripping and
blueline costs-are at issue here, since the Contracting
Officer has allowed the other charges in full.62 Furthermore,
the parties agree that the source of the problem is the fact
that stripping and blueline production costs were not separate
line items in the contract's schedule of prices, but rather
were part of the contract's line item for the makeready and/or
setup charges (Tr. 88, 117, 124; R4 File, Tab S, p. 1). Since
makeready and setup also included plate-making and setting up
the press, which were never performed, the conundrum facing
the parties when the contract was terminated was to figure out
how to isolate the costs of stripping and bluelines from the
price bid by the Appellant for makeready and/or setup ($11.82
per page) (R4 File, Tabs B, p. 3, and S, p. 1). The
Contractor's solution was simple-it merely applied its
standard charges for stripping ($9.50 per flat) and bluelines
($3.50 per page), to the operations in question, which
resulted in a bill for stripping costs of $798.12 and blueline
costs of $2,002.00, respectively, or a total claim of
$2,800.12 for these tasks ((Tr. 18-21, 24-25). The
Respondent, on the other hand, believing that the Appellant's
stripping and blueline charges were unreasonably high when
compared with the rates of other commercial printers,
calculated a wholly new price per page of $1.49 for both tasks
by averaging the bids of 38 printing contractors on an
unrelated GPO general use program-Program A814-M-in which
almost all prices were separate line items (Tr. 117-19, 122,
124, 126-28, 130, 134; R4 File, Tabs R, Attachment D, fns. 2
and 3 and S). The Government's price of $1.49 per page, when
multiplied by a total page count of 572 pages for both books,
yielded a recovery for the Appellant of $852.28 for these
items (Tr. 117, 124; R4 File, Tab S, p. 2). Thus, the amount
in controversy regarding stripping and blueline costs is only
$1,947.84 ($2,800.12 (Appellant's claim) [-] $852.28
(Government's settlement offer)). Since both parties believe
their respective approaches were reasonable under the
circumstances, while the other's was either unreasonable or
patently unfair, the Board is left to untie their Gordian
knot. In the Board's view, neither party's solution is
satisfactory.
On the one hand, the Appellant's simple expedient of merely
applying its standard charges for stripping and bluelines to
the operations in question, is analogous to figuring the costs
for those tasks on the basis of some arbitrary formula. The
Board has previously noted that claims prepared on such a
basis are uniformly rejected by boards of contract appeals.
See Universal Printing Co., supra, slip op. at 36 (citing
Ordnance Materials, Inc., ASBCA No. 32371, 88-3 BCA ¶ 20,910).
Rather, in order to avoid a windfall for either party, what is
usually required of a contractor is a showing of its actual
costs. See Universal Printing Co., supra, slip op. at 41
(citing Dawco Construction, Inc. v. United States, 930 F.2d
872, 882 (Fed. Cir. 1991), rev'g 18 Cl. Ct. 682 (1990); Cen-
Vi-Ro of Texas v. United States, 210 Ct. Cl. 684 (1976); Buck
Brown Contracting Co., IBCA No. 1119-7-76, 78-2 BCA ¶ 13,360;
Engineered Systems, Inc., DOTCAB No. 75-5, 76-2 BCA ¶ 12,211;
Bregman Construction Corp., ASBCA No. 15020, 72-1 BCA ¶
9,411). As a rule, actual costs are proved through the
introduction of the contractor's accounting records, which
will be accepted if they have been audited by the Government
and are unrebutted.63 Celesco Industries, supra, 79-1 BCA ¶
13,604. In this case, the OIG auditors found the Appellant's
records inadequate to support its stripping and blueline claim
(R4 File, Tab R, Attachment D, fns. 2 and 3). However, the
Board believes that for termination settlements, the
"reasonable cost" concept's subjective elements are merged
into the basic thrust of the "fairness concept," and the
contractor is not required to document each and every cost
item, so long as some credible evidence (whether documentary,
testimonial, or both) is presented to establish the validity
of the claimed costs, as well as assure that the Government is
not being charged for services or products which were not
provided. See Industrial Refrigeration Service Corp., supra,
91-3 BCA at 120,595.
On the other hand, the Board finds itself in agreement with
the Appellant's objection to the Respondent's use of the line
item structure of Program A814-M to establish the prices for
stripping and bluelines. The Government does not refute the
Contractor's contention that because Program A814-M
contemplates a high volume of work, averaging line item costs
for stripping and bluelines in that contract results in an
artificially low per page rate for such work in the context of
this agreement (App. Brf., p. 3).64 More importantly, Program
A814-M involves many contractors (at least 38), and there is
no proof that the Appellant is one of them. Without such
privity of contract, the Contractor cannot be bound by the
range of prices in Program A814-M.65 See Universal Printing
Co., supra, slip op. at 26, fn. 27 (citing Atlantic Electric
Co., GSBCA No. 6016, 83-1 BCA ¶ 16,484); Sterling Printing,
Inc., supra, slip op. at 8, 47, fns. 13, 35. See also RD
Printing Associates, Inc., supra, slip op. at 13, fn. 15
(revised pricing specification from the succeeding contract);
Merchant's Service Co., [No GPOCAB Docket Number] (February
11, 1980), slip. op. at 18-20, 1980 WL 81262. Certainly, if
the Board had been asked in the first instance to factor
Program A814-M into its decision in this case, it would not
have done so because its jurisdictional mandate bars
consideration of matters pertaining to contracts unrelated to
the one under review. See e.g., Universal Printing Co.,
supra, slip op. at 2, fn. 3; Shepard Printing, supra, slip.
op. at 9, fn. 8; RD Printing Associates, Inc., supra, slip op.
at 9, 13, fns. 9, 15; The Wessel Co., Inc., GPO BCA 8-90
(February 28, 1992), slip. op. at 32, 1992 WL 487877;
Automated Datatron, Inc., GPO BCA 20-87 (March 31, 1989), slip
op. at 4-5, 1989 WL 384973; Bay Printing, Inc., GPO BCA 16-85
(January 30, 1987) slip op. at 9, 1987 WL 228975; Peak
Printers, Inc., GPO BCA 12-85 (November 16, 1986), Sl. op. at
6, 1986 WL 181453. See generally Matthew S. Foss, U.S.
Government Printing Office Board of Contract Appeals: the
First Decade, 24 Pub. Cont. L. J. 579 (1995), at 584-86.
Under GPO Contract Terms, the GPO Cost Directive, and the PPR,
the Respondent's contracting officers have more latitude in
cases of this sort, except that their decisions are expected
to be fair and reasonable under the circumstances. In the
Board's view, the employment of Program A814-M as the
settlement baseline for stripping and blueline costs was
neither fair or reasonable.
Where, as here, the Board finds itself without a bench mark by
which to determine the reasonableness of the Contractor's
costs for performing the work, but nonetheless knows that some
cost impact is involved, it will resort to the "jury verdict"
method in order to arrive at a fair reimbursement. See
Universal Printing Co., supra, slip op. at 49; Banta Co.,
supra, slip. op. at 46-47. See also Maryland Composition, [No
GPOCAB Docket Number] (December 30, 1974), slip op. at 6
(citing, Johnson, Drake & Piper, Inc., ASBCA Nos. 9824, 10199,
65-2 BCA ¶ 4,868). Accord Industrial Refrigeration Service
Corp., supra, 91-3 BCA at 120,595. Under the "jury verdict"
technique, where a board or court finds entitlement to some
recovery clear but the evidence is incomplete, or the amount
cannot be determined with any degree of mathematical
precision, it may exercise its discretion to resolve
conflicting evidence concerning the claim and arrive at a fair
amount of compensation.66 See Assurance Co. v. United States,
813 F.2d 1202, 1205 (Fed. Cir. 1987); S.W. Electronics &
Manufacturing Corp. v. United States, 228 Ct. Cl. 333, 655
F.2d 1078 (1981); Electronic & Missile Facilities, Inc. v.
United States, 189 Ct. Cl. 237, 416 F.2d 1345, 1358 (1969).
See also Dawco Construction, Inc., ASBCA No. 42120, 92-2 BCA ¶
24,915; Gricoski Detective Agency, GSBCA Nos. 8901(7823),
8922(7824), 8923(7825), 8924(7826), 8925(7827), 8926(7828),
90-3 BCA ¶ 23,131; E.W. Eldridge, Inc., ENGBCA No. 5269, 90-3
BCA ¶ 23,080; Harvey C. Jones, Inc., IBCA Nos. 2070, 2150,
2151, 2152, 2153, 2467, 90-2 BCA ¶ 22,762. The key to the use
of the "jury verdict" method is the presence of sufficient
evidence to permit the determination of a fair and reasonable
approximation of damages.67 See J.E.T.S., Inc., ASBCA No.
28083, 88-2 BCA ¶ 20,540, at 103,859 (citing, Schuster
Engineering, Inc. ASBCA Nos. 28760, 29306, 30683, 87-3 BCA ¶
20,105). Thus, a trier of fact may allow recovery if it
determines that: (1) clear proof of injury exists; (2) there
is no more reliable method for computing damages; and (3)
there is sufficient evidence to make a fair and reasonable
approximation of damages. See Dawco Construction, Inc. v.
United States, supra, 930 F.2d at 880 (citing, WRB Corp. v.
United States, 183 Ct. Cl. 409, 425 (1968)). See also
Gricoski Detective Agency, supra; Harvey C. Jones, Inc.,
supra; J.E.T.S. Incorporated, supra; Lawrence D. Krause,
supra. In the Board's judgment, all of the elements necessary
for a "jury verdict" award are present with respect to the
Appellant's claim for direct costs on work actually performed
on Print Order 40000. Consequently, that approach is the
appropriate method for resolving this dispute. Universal
Printing Co., supra; Banta Co., supra; Maryland Composition,
supra. Accord Industrial Refrigeration Service Corp., supra.
While there are many "jury verdict" techniques, one well-
accepted device is simply to "split the difference" between
the amount claimed by each party. See Sentry Insurance, A
Mutual Company, VABCA No. 2617, 91-3 BCA ¶ 24,094 (50 percent
of the contractor's invoiced costs, plus 15 percent for
markup); Gricoski Detective Agency, supra (amount which was
midway between the contractor's original demand and the final
bargaining position of the agency); Parkdale Building
Maintenance, ENGBCA No. 5232, 90-1 BCA ¶ 22,319 (average of
the contractor's and Government's estimates); Second Growth
Forest Management, Inc., AGBCA No. 88-153-3, 89-1 BCA ¶ 21,569
(average of the contractor's and Governments production
rates); Delfour, Inc., VABCA Nos. 2049, 2215, 2539, 2540, 89-1
BCA ¶ 21,394 (50 percent of the amount claimed by the
contractor); The Morrison Co., ASBCA Nos. 26746, 26920, 26921,
83-1 BCA ¶ 16,417 (equitable adjustment was midway between the
amount which each party claimed). It seems to the Board that
a "jury verdict" which sets the Appellant's recovery for
stripping and bluelines midway between its claim for that work
and the amount offered by the Respondent for those tasks is
the best way to break the deadlock between the parties and
resolve this aspect of the termination dispute reasonably and
fairly. See Universal Printing Co., supra, slip op. at 53.
Accord Gricoski Detective Agency, supra, 90-3 BCA at
116,138-39; Parkdale Building Maintenance, supra, 90-1 BCA at
112,094; The Morrison Co., supra, 83-1 BCA at 81,675.
Therefore, the Board will allow the Appellant's claim for
stripping and bluelines to the extent of $1,826.20, calculated
as follows:
Appellant's total claim for stripping
and blueline costs $2,800.12
Government's settlement offer 852.28
$852.28
Difference between claim and offer 1,947.84
50 percent of difference $ 973.92
973.92
Total allowance for stripping and bluelines
$1,826.20
Thus, the overall recovery of the Appellant for the work actually
performed on Print Order 40000 before it was terminated is
$3,723.45, figured as follows:
Film costs $1,754.00
Federal Express and UPS charges 143.25
Stripping and bluelines 1,826.20
Total recovery $3,723.45
Although this compromise verdict awards the Appellant somewhat
less for its direct costs than the $4,697.37 claimed, but
somewhat more than the Respondent's offer of $2,749.28, see R4
File, Tabs M, O, S and T, the Board has no doubt that the
result is one which best satisfies its goal of approaching ".
. . the various disputed cost elements in this appeal with an
eye toward fair compensation rather than imposing strict
accounting principles upon the Appellant." See Industrial
Refrigeration Service Corp., supra, 91-3 at 120,594; Arctic
Corner, Inc., supra, 86-3 BCA at 97,457.
B. The Contracting Officer mistakenly denied the
Appellant's unabsorbed overhead claim based, in part, on
the OIG's erroneous interpretation of GPO Cost Directive,
Sec. 3, ¶ 25(c). The cost principles applicable in
convenience termination cases allow the recovery of certain
continuing costs following termination, including costs
resulting from idle capacity of tangible capital assets
such as plant machinery. Furthermore, where, as here, a
"requirements" contract is terminated for convenience, a
contractor is entitled to be reimbursed for certain costs
which cannot reasonably be discontinued immediately after
termination. See GPO Cost Directive, Sec. 3, ¶ 49(b).
The principal dispute in this case involves the Contractor's
claim for idle time costs following termination of the
contract, and nearly all of the evidence presented at the
hearing concerned this claim (R4 File, Tabs M, N and O). To
recapitulate, the Contractor is asking to be reimbursed for
the following idle time costs: (1) makeready and running costs
for the Miller Press (112 hours); (2) labor costs for the
press helper (112 hours); (3) folding charges (46.88 hours);
(4) collating costs (machine time only) (30.5 hours); (5)
perfect binding charges (76 hours); and (6) trimming costs (63
hours) (Tr. 60-63, 74-75; App. Exh. No. 6). These idle hours
were accumulated over 18 workdays in the month of February
1991 (App. Exh. No. 5).68 Furthermore, the Appellant's claim
only covers the performance period for Print Order 40000,
despite the fact that this "requirements" contract was not due
to expire until October 1991 (Tr. 66, 70, 72; R4 File, Tabs C,
D and L; App. Exh. No. 8). In that regard, the Contractor's
financial losses resulting from the termination of the
contract were confined to February 1991-its records show that
by March 1991, it had booked enough work for the Miller Press
to completely replace the NIH job and was once again operating
at a profit, thus mitigating the Government's potential
liability (Tr. 60-61, 66-68, 70-71; App. Exh. No. 9).
In disallowing the Appellant's claim for lost production time,
the Contracting Officer essentially concurred in the OIG's
findings that: (1) the claim was governed by GPO Cost
Directive, Sec. 3, ¶ 25(c) (Idle facilities and idle capacity
costs); and (2) that cost principle barred the claim on the
ground that the idle time in question was not peculiar to the
contract, but resulted from normal periodic fluctuations in
usage of equipment, and hence was simply a cost of doing
business which should be included in the Contractor's overhead
from prior years (Tr. 129, 133-34; R4 File, Tab R, Attachment
E, fn. 1, citing GPO Cost Directive, Sec. 3, ¶ 25(c)).
Furthermore, by obtaining the Contractor's admission at the
hearing that the Miller Press-the principal press set aside
for the NIH job-was about three years old when termination
occurred and was not acquired specifically for work on the
contract, Counsel for GPO was tacitly suggesting that recovery
for idle time was also barred because the Appellant's
machinery were "common items" and such costs are generally not
allowable under the termination accounting rules (Tr. 78-79,
107-08). See GPO Cost Directive, Sec. 3, ¶ 49(a). The Board
disagrees. In our view, the temporary downtime of the
Appellant's equipment following termination is more properly
seen as a continuing cost which could not be discontinued
immediately, and as such is allowable. See GPO Cost
Directive, Sec. 3, ¶ 49(b).
The Board has previously considered the "idle facilities and
idle capacity costs" provisions of the GPO Cost Directive in
equitable adjustment cases. See e.g., New South Press, GPO
BCA 45-92 (November 4, 1994), 1994 WL 837425; Banta Co.,
supra. See also Editors Press, Inc., GPO BCA 3-90 (September
4, 1991), 1991 WL 439271. This appeal represents the first
time that the Board has been asked to consider those
provisions in the context of a termination for convenience.
The Board's research, however, indicates that the Appellant is
entitled to recover certain downtime costs in this situation.
The Board begins its analysis by rejecting any suggestion that
the Appellant's press and other plant machinery should somehow
be deemed "common items" for the purposes of this contract.
In that regard, the relevant provision of the GPO Cost
Directive states:
(a) Common items. The costs of items reasonably usable on
the contractor's other work shall not be allowable unless
the contractor submits evidence that the items could not be
retained at cost without sustaining a loss. The
contracting officer should consider the contractor's plans
and orders for current and planned production when
determining if items can reasonably be used on other work
of the contractor. Contemporaneous purchases of common
items by the contractor shall be regarded as evidence that
such items are reasonably usable on the contractor's other
work. Any acceptance of common items as allocable to the
terminated portion of the contract should be limited to the
extent that the quantities of such items on hand, in
transit, and on order are in excess of the reasonable
quantitative requirements of other work.
See GPO Cost Directive, Sec. 3, ¶ 49(a).69 However, the
customary interpretation of "common items" for the purposes of
this provision is limited to supplies and other inventory items
associated with production which can be utilized by the
contractor in its other work. See Fiesta Leasing and Sales, Inc,
supra, 87-1 BCA at 99,286. Here, on the other hand, the
Appellant's production machinery are tangible capital assets and
not the kind of inventory to which the provision most
appropriately applies.70 See Anderson, § 13.03[4], p. 13-6.
Since the equipment in question are tangible capital assets,
post-termination costs associated with them are treated as
idle capacity costs.71 See GPO Cost Directive, Sec. 3, ¶
25(c). See also Fiesta Leasing and Sales, Inc, supra, 87-1
BCA at 99,287-88. Such costs include, inter alia, repair,
rent, property taxes, insurance, and depreciation, see GPO
Cost Directive, Sec. 3, ¶ 25(a)-all of which are cost factors
used by the Appellant in formulating the BHR for each piece of
machinery in its plant.72 While the Contracting Officer
rejected the Appellant's claim in reliance on the general rule
which considers idle capacity costs a normal cost of doing
business, the Board also observes that the relevant cost
principle also provides that such costs are allowable ". . .
provided the capacity is necessary or was originally
reasonable and is not subject to reduction or elimination by
subletting, renting, or sale, in accordance with sound
business, economics, or security practices." See GPO Cost
Directive, Sec. 3, ¶ 25(c). There is no dispute that the
Appellant had dedicated the Miller Press and its other
production machinery to the contract, and that the equipment
was clearly necessary for performance. Therefore, in the
Board's view, the Contractor's inability, despite its best
efforts, to completely eliminate the downtime which resulted
when the contract was terminated, entitles it to a recovery
for idle capacity costs for that portion of the time that the
machinery went unused. See Fiesta Leasing and Sales, Inc,
supra, 87-1 BCA at 99,288.
The Board believes that the result would be the same if the
downtime of the Appellant's tangible capital assets was
considered idle facilities costs. See GPO Cost Directive,
Sec. 3, ¶ 25(b). In that regard, the costs of idle
facilities, like idle capacity costs, are generally
unallowable. Id. However, such costs are allowable if the
tangible capital assets were necessary when acquired and are
now idle because of, inter alia, a ". . . termination,"
although only for a "reasonable period" (ordinarily not
exceeding one year, depending upon efforts taken by the
contractor to use, lease, or dispose of the idle facilities).
See GPO Cost Directive, Sec. 3, ¶ 25(b)(2). Nothing in the
language of this cost principle requires the contractor to
show that the equipment was purchased solely for performance
of the terminated contract; all that is needed is a showing
that the machinery was set aside especially for use in
performance. See Fiesta Leasing and Sales, Inc, supra, 87-1
BCA at 99,289. If the latter is the case, then certain costs
such as depreciation, insurance, repair, etc., are not
considered indirect costs or overhead items, and recovery is
allowed based on a finding that a clear connection exists
between the costs claimed and the terminated contract, and
that those costs, as will be discussed infra, could not be
reasonably immediately discontinued upon termination. Id
(citing, Metered Laundry Services, Inc., ASBCA No. 21573, 78-1
BCA ¶ 13,206; Bailfield Industries, Division of A-T-O, Inc.,
ASBCA No. 20006, 76-2 BCA ¶ 12,096).
Even more importantly in the context of this case, as the
Board has already observed, is the implication in the
Contracting Officer's rejection of the Contractor's idle time
claim that the regulations only entitled the Appellant to
reimbursement for work actually performed under Print Order
40000 (Tr. 119, 121; R4 File, Tab T, p. 1). Stated otherwise,
the Respondent's theory is tantamount to an argument that the
convenience termination of the Appellant's requirements
contract in effect converted it into a fixed price contract
(Print Order 40000) for termination settlement purposes. Such
a viewpoint, however, has already been rejected by the Board
because it deprives the parties of the benefit of their
bargain. See R.C. Swanson, supra, Supplemental Decision,
slip. op. at 21, 26. Accord Tom Shaw, Inc., supra, 93-2 BCA
at 128,073. Furthermore, the cases indicate that certain
features of a "requirements" contract can comprise the special
circumstances in convenience termination situations which the
Appellant says can overcome the general rule barring recovery
of unabsorbed overhead as a continuing cost (App. Brf., pp.
3-5). See Cloverleaf Enterprises, Inc., supra, slip op. at
16-17.73 Accord Albano Cleaners, Inc. v. United States, 197
Ct. Cl. 450, 455 F.2d 556 (1972); Aviation Specialists, Inc.,
supra. See also Henry Angelo & Co., ASBCA No. 43669, 94-1 BCA
¶ 26,484 (although not a termination for convenience case, the
board ruled that the Government's failure to order within 15
percent of estimated quantities under requirements contract
can lead to increased costs, entitling contractor to recover
both direct and indirect costs, including unabsorbed overhead.
Citing Les Killgore's Excavating, ASBCA No. 32261, 86-3 BCA ¶
19,117). See generally Cibinic & Nash, pp. 1130-31.
In R.C. Swanson, the Board adopted the reasoning of the DOTBCA
in Aviation Specialists, Inc., supra, in ruling that the
"total contract price" under GPO Contract Terms, Contract
Clauses, ¶ 19(d) for a terminated requirements contract is the
"estimated contract price," as established by the Government's
pre-award estimates of its requirements in the solicitation.
See R.C. Swanson, supra, Supplemental Decision, slip op. at
21-25 (citing, Aviation Specialists, Inc., supra, 91-1 BCA at
117,994). The proper formula for measuring "total contract
price" is not an issue in this appeal. However, the Board's
opinion also accepted the DOTBCA's rationale that the very
nature of a requirements contract authorizes recovery of
certain post-termination costs, including depreciation,
overhead and profit (where applicable), which is at the heart
of the Appellant's idle time claim.74 See R.C. Swanson,
supra, Supplemental Decision, slip op. at 26-27, fn. 22. See
Aviation Specialists, Inc., supra, 91-1 BCA at 117,992,
117,994.
Aviation Specialists, Inc. involved a one-year requirements
contract for use of a particular aircraft which was terminated
for convenience by the Federal Aviation Administration (FAA)
with six months remaining in the contract term. In ruling
that the contractor was entitled to recover its costs of
depreciation, insurance, maintenance, facilities capital,
advertising and overhead, as well as a measure of profit, for
the remainder of the contract period, the DOTBCA held that the
FAA's decision not to allow the contract to expire without any
further use of the aircraft or expense to the Government, but
to terminate it for convenience instead, changed the
relationship between the parties and triggered the provisions
of the "Termination for Convenience" clause.75 See Aviation
Specialists, Inc., supra, 91-1 BCA at 117,992. As explained
by the DOTBCA, depreciation, insurance, maintenance, overhead,
etc., continued to be incurred by the contractor despite its
reasonable efforts to sell the aircraft or otherwise mitigate
its costs, and the termination regulations clearly provide
that costs which cannot reasonably be immediately discontinued
upon termination of the contract are recoverable. See
Aviation Specialists, Inc., supra, 91-1 BCA at 117,992-93.
The DOTBCA reasoned, in pertinent part:
Upon termination of the contract [by means of the
"Termination for Convenience" clause] the rights and
obligations of both parties were altered. The parties
specifically provided by contract that in such an
eventuality appellant would receive payment for certain
costs, notwithstanding whether these costs would have been
reimbursed if the contract was fully performed. It is this
agreement of the parties which controls the payment, if
any, to be made to appellant, irrespective of the rights
and obligations of the parties prior to such termination.
* * * * * * * * * *
The provisions of the "Termination for Convenience" clause
are to be enforced in these circumstances even if the
resulting payments to Aviation Specialists are greater than
they might have been if the contract were not terminated.
See Albano Cleaners, Inc. v. United States [17 CCF ¶
81,144], 455 F.2d 556, 197 Ct. Cl. 450 (1972).
* * * * * * * * * *
. . The contract specified the type and amount of costs
which appellant could recover in the event of a
termination for convenience. Appellant has claimed its
continuing costs, those that it incurred subsequent to
termination. . . .
The "Termination for Convenience" clause of the contract
provided that the cost principles of Part 31 of the Federal
Acquisition Regulation would govern all costs claimed in
the event of such a termination. Part 31 provides that
costs which cannot be discontinued immediately after
termination are allowable. After termination, appellant
made reasonable, though unsuccessful, efforts to promptly
dispose of the plane. Aviation Specialists also acted
reasonably in attempting to mitigate damages. It was able
to lease the plane during some of the period and apply the
profits received from these operations against its
continuing costs. Thus, under the contract provisions,
Aviation Specialists is entitled to be reimbursed for its
continuing costs after termination.
* * * * * * * * * *
. . . We find that, . . . , Aviation Specialists is
entitled to recover its costs relating to the aircraft
which continued after the date of termination. These costs
are recoverable, pursuant to the plain language of the
contract including Part 31 of the Federal Acquisition
Regulation. The costs which appellant had claimed were
incurred as a direct result of obligation Aviation
Specialists undertook to perform the contract. These costs
could not reasonably be discontinued during the remaining
contract term. . . .
* * * * * * * * * *
In this case we find that appellant incurred expenses of
depreciation, insurance, maintenance, facilities capital,
overhead, and advertising following termination. These
costs are recoverable as continuing costs under the Federal
Acquisition Regulations since, as we have found, they could
not be reasonably discontinued immediately. . . .
* * * * * * * * * *
See Aviation Specialists, Inc., supra, 91-1 BCA at 117,991-93.76
The Board believes that the teachings of Aviation Specialists,
Inc. are as applicable to this appeal as they were in R.C.
Swanson. Like the FAA in Aviation Specialists, Inc., GPO did
not simply allow the contract to expire on its own. Nor did
the Respondent default the contract, as it apparently once
contemplated doing and discussed with the Appellant (Tr.
83-84; R4 File, Tabs G, H and O; Complaint, ¶ 21). See GPO
Contract Terms, Contract Terms, ¶ 20 (Default). Instead, the
Government invoked the "Termination for Convenience" clause,
which effectively changed the relationship between the
parties. See Aviation Specialists, Inc., supra, 91-1 BCA at
117,991. The Respondent is bound by that decision, and it is
the convenience termination clause which ". . . controls the
payment, if any, to be made to appellant, irrespective of the
rights and obligations of the parties prior to such
termination." Id. Furthermore, in our view, the DOTBCA's
comment that the cost principles of Part 31 of the FAR are
part and parcel of the convenience termination clause, see
Aviation Specialists, Inc., supra, 91-1 BCA at 117,992, is no
different from the Board's own observation that the standard
cost principles applicable to Government contracts apply to
GPO contracts which are also terminated for convenience, see
R.C. Swanson, supra, Supplemental Decision, slip op. at 5, 23,
fns. 5, 18. Stated otherwise, as the Respondent suggests, the
GPO Cost Directive and FAR Part 31 are mirror images of one
another, and they have the same purpose and effect (R. Brf.,
p. 3).77 Accordingly, the Board will look to the relevant
provisions of the GPO Cost Directive for a solution to this
dispute.
The key cost principles applicable to this case are not hidden
or ambiguous. They are contained in the GPO Cost Directive,
especially the provisions expressly denominated "Termination
costs." See GPO Cost Directive, Sec. 3, ¶ 49. Like Part 31
of the FAR, the GPO Cost Directive also allows the recovery of
costs which cannot be discontinued immediately after
termination despite all reasonable efforts by the contractor.
See GPO Cost Directive, Sec. 3, ¶ 49(b). Furthermore, it is
significant in the context of this dispute that the very first
paragraph of the provisions relating to termination costs
states that the "cost principles peculiar to termination
situations are to be used in conjunction with the other cost
principles in [Section 3][.]" See GPO Cost Directive, Sec. 3,
¶ 49. Thus, even though the Board has said that an
independent basis exists to support the Appellant's recovery
of certain post-termination costs under the "idle facilities
and idle capacity costs" provisions of the GPO Cost Directive,
this language, at the very least, is broad enough to encompass
some of those idle time precepts by reference, including,
inter alia, the rules that: (1) idle capacity costs are
allowable if the original capacity was necessary or reasonable
and not subject to reduction or elimination by following sound
business, economic or security practices; and (2) idle
facilities costs are allowable if they were incurred, inter
alia, by changes in requirements, termination, or other causes
which could not have been reasonably foreseen, see GPO Cost
Directive, Sec. 3, ¶¶ 25(b)(2),(c).78
It is uncontroverted that following termination the Appellant
bid on other Government and private sector work in an effort
to reduce its downtime claim, and indeed, succeeded in
mitigating its losses by 30 percent (of the 160 hours press
hours available in February 1991, the Contractor was able to
fill 48 hours with other work) (Tr. 45, 50, 54, 61, 66, 110,
114; App. Exh. No. 5). Furthermore, as previously mentioned,
by its efforts the Appellant was not only able to reduce the
amount of idle time, but also limit the extent; i.e., the time
period over which its downtime costs were incurred is confined
to 18 workdays in February 1991-by March 1991, the Appellant
had completely replaced the terminated job with enough other
work to again be running at a profit (Tr. 60-61, 66-68, 70-72;
App. Exh. Nos. 5, 8 and 9). Thus, in the Board's view, the
record amply supports the conclusion that after termination,
the Contractor acted reasonably in attempting to mitigate
damages. Consequently, under the plain language of the
contract including GPO Cost Directive, Sec. 3, ¶ 49(b), the
Appellant is entitled to be reimbursed for its indirect costs
which continued after termination through the end of February
1991.79 See Aviation Specialists, Inc., supra, 91-1 BCA at
117,992. Also cf. J.W. Cook & Sons, Inc., supra, 92-3 BCA at
124,863 (the Government was not liable for the terminated
contractor's fixed general and administrative (G&A) expenses
where the contractor admitted that it could have bid on other
jobs, but failed to do so, because it is well settled that a
contractor must show that the fixed G&A expenses could not
have been reasonably absorbed by other work. Citing CBC
Enterprises, Inc. v. United States, 24 Cl. Ct. 187 (1991);
Charles G. Williams Construction, Inc., ASBCA No. 42592, 92-1
BCA ¶ 24,635). Specifically, such costs as maintenance,
repair, rent, and other related costs, such as property taxes,
insurance, and depreciation are recoverable as continuing
costs under the GPO Cost Directive, since it seems clear that
they could not have been totally discontinued immediately upon
termination. Id., 91-1 BCA at 117,993.
Finally, although the Respondent will probably disagree, the
Board believes that its entitlement decision in this case is
not inconsistent with the general rule that unabsorbed
overhead expenses are considered a "cost of doing business"
and are not recoverable under a termination settlement. See
Nolan Brothers v. United States, supra; J.W. Cook & Sons,
Inc., supra; Chamberlain Manufacturing Corp., supra;
Technology, Inc., supra. In the first place, construction
contracts aside (Nolan Brothers, Inc. v. United States, supra;
William Green Construction Co., Inc. et al. v. United States,
supra; Hewitt Contracting Co., supra), all of the cases cited
to the Board by the Respondent in support of its position
involve some variation of a fixed price contract, see
Chamberlain Manufacturing Corp., supra (fixed price incentive
manufacturing contract); Pioneer Recovery Systems, supra
(fixed price supply contract); Technology, Inc., supra (cost
plus fixed fee contract); Fairchild Stratos Corp., supra
(fixed price supply contract). A "requirements" contract was
not involved in any of the cases. Secondly, one of the
principal reasons given by the ASBCA in Chamberlain
Manufacturing for the general rule, namely that if unabsorbed
overhead claims were allowed "the Government would be
guaranteeing a contractor's overhead costs, without receiving
any benefit therefore, as a `penalty' for exercising its
contractual rights," see Chamberlain Manufacturing Corp.,
supra, 73-2 BCA at 47,679, was expressly rejected by the
DOTBCA in Aviation Specialists, see Aviation Specialists,
Inc., supra, 91-1 BCA at 117,991 ("The FAA alleges that it
should not be penalized for terminating the contract for
convenience. [¶] While this argument has initial appeal, the
argument also has flaws. . . ."). To the extent that Aviation
Specialists represents a difference in philosophy with the
ASBCA's ruling in Chamberlain Manufacturing Corp., the Board
favors the DOTBCA's thinking because it better harmonizes with
the "fairness" concept in termination cases involving
requirements contracts. Accord Industrial Refrigeration
Service Corp., supra, 91-3 at 120,594; Arctic Corner, Inc.,
supra, 86-3 BCA at 97,457. Third, even in Chamberlain
Manufacturing, the ASBCA recognized that despite the general
rule, certain specific indirect costs might be allowable in
termination cases, see Chamberlain Manufacturing Corp., supra,
73-2 BCA at 47,679, and indeed, in Fairchild Stratos, the case
which foreshadowed its holding in Technology, Inc., the ASBCA
indicated that ". . . there may be instances where allowance
of unearned or unabsorbed dollar overhead would be
appropriate[,]" especially unabsorbed overhead directly
related to the performance of the contract; e.g., involving
the specific plant and equipment set aside for performance of
the contract, see Fairchild Stratos Corp., supra, 67-1 BCA at
28,798. In short, it seems clear the real problem with
unabsorbed overhead concerns its allocability and difficulties
in separating risks of a business continuing to obtain
business or fill a void when the Government exercises its
contractual right to terminate a contract for convenience.
See Southland Manufacturing Corp., supra, 75-1 BCA at 52,360.
However, such matters are appropriate for resolution in this
case by applying the general principles set forth in GPO
Contract Terms and the GPO Cost Directive to the facts, while
being mindful that the goal is fair compensation rather than
the imposition of strict accounting rules. See Industrial
Refrigeration Service Corp., supra, 91-3 at 120,594; Arctic
Corner, Inc., supra, 86-3 BCA at 97,457.
Accordingly, for all of these reasons, the Board concludes
that the Appellant's termination claim for idle time costs was
erroneously denied by the Contracting Officer, who relied, in
part, on the OIG's incorrect interpretation of GPO Cost
Directive, Sec. 3, ¶ 25(c). Furthermore, the Board finds,
contrary to the Respondent's view, that the applicable cost
principles allow the Appellant to recover certain of its
continuing costs which cannot reasonably be immediately
discontinued for a limited period of time following the
termination. See GPO Cost Directive, Sec. 3, ¶¶ 25(c), 49(b).
C. Applying the "jury verdict" method to the Appellant's
idle time claim, the Board concludes that the Contractor is
entitled to recover post-termination costs of $7,683.62 as
fair compensation under the circumstances of this case.
The Board has found that the Appellant is entitled to be
reimbursed for its post-termination idle time costs through
the end of February 1991. That the Contractor temporarily
incurred such costs as a result of the termination of its
contract is not in dispute. Therefore, the last task
confronting the Board is to decide what amount of recovery
will fairly compensate the Contractor under the circumstances
of this case.
Looking at the six parts of the Appellant's claim for post-
termination costs, it is apparent that only one-the press
helper claim-involves personnel costs, while the remaining
five concern machinery downtime. There is no doubt that the
Miller Press was temporarily shut down because the Respondent
terminated the NIH contract, and as a result the press helper,
Larson, was idled (Tr. 80-81, 99). Therefore, the Contractor
now seeks compensation of $1,058.40, calculated at a labor
rate of $9.45 an hour multiplied by 112 hours of unfilled time
for the Miller Press. This claim is easily disposed of. As a
rule, employee idle time charged to a termination claim is
generally allowable. See Hugo Auchter GmbH, ASBCA No. 39642,
91-1 BCA ¶ 23,645 at 118,443 (citing Edward v. Campbell, LBCA
No. 82-BCA-4, 84-3 BCA ¶ 17,657 at 88,011; American Electric,
Inc., ASBCA No. 16635, 76-2 BCA ¶ 12,151). The theory is that
the wages and salaries of idle employees are considered in the
nature of preparatory costs which are allocable, inter alia,
to terminated work. See Hugo Auchter GmbH, supra, 91-1 BCA at
118,443 (citing Teague Industries & Technical Services Co.,
ASBCA Nos. 29230, 29642, 86-2 BCA ¶ 18,790). See also Arctic
Corner, Inc., supra, 86-3 BCA at 97,458-59. The only problem
with the Appellant's labor claim in this instance is a minor
one-during the hearing doubts were raised about whether or not
the press helper was in fact idle and unpaid on February 1,
1991, the first day of downtime for the Miller Press following
the termination of the contract, or whether he was gainfully
employed elsewhere in the plant (Tr. 82-83, 100-01).
Consequently, since the Contractor has failed to show that it
actually incurred idle time labor costs for that one day, the
Board will deduct eight (8) hours, or $75.60 from the
Appellant's press helper claim. Accordingly, the Appellant's
press helper claim is allowed to the extent of 104 hours at
the labor rate of $9.45 an hour, or a total of $982.80.
Considered as a whole, the remaining five items predicated on
machinery downtime-makeready and running costs for the Miller
Press; (3) folding charges; (4) collating costs; (5) perfect
binding charges; and (6) trimming costs-which amount to
$13,401.64 of the $14,460.04 claim, present an entirely
different problem. Each of those claims is based on the
number of unfilled machine hours times the Appellant's
standard charges, or BHR, for the machine involved (Miller
Press, MBO Folder, Collator, Perfect Binder, Wollenberg
Cutter). However, the Board has already rejected the BHR as a
basis for resolving the Appellant's direct cost claim in this
case on the ground that it would tantamount to applying an
arbitrary formula. See Universal Printing Co., supra, slip
op. at 36 (citing Ordnance Materials, Inc., ASBCA No. 32371,
88-3 BCA ¶ 20,910). Likewise, the BHR is not a valid basis
for resolving the Contractor's claim for indirect costs.
Although the Board could remand the matter to the Contracting
Officer for reconsideration in light of the rule of Aviation
Specialists, Inc., which the Board has adopts for this forum,
see R.C. Swanson, supra, slip op. at 25-26,80 it believes that
it has a responsibility to put an end to this controversy, see
Universal Printing Co., supra, slip op. at 37; Banta Co.,
supra, slip op. at 24. See also Lawrence D. Krause, supra,
82-2 BCA at 80,073; Johnson, Drake & Piper, Inc., supra, 65-2
BCA at 23,073. Therefore, the Board will also apply the "jury
verdict" technique to determine a fair and reasonable recovery
for the Contractor's post-termination idle time costs since
all of the elements necessary for such an award are present.
See Universal Printing Co., supra, slip op. at 49; Banta Co.,
supra, slip. op. at 46-47. Accord Industrial Refrigeration
Service Corp., supra, 91-3 BCA at 120,595. Furthermore, for
the sake of consistency, the amount of reimbursement will be
determined on the same "split the difference" basis used to
calculate the Appellant's reimbursement for the work it
performed on Print Order 40000 prior to termination. See
Universal Printing Co., supra, slip op. at 53. Accord
Gricoski Detective Agency, supra, 90-3 BCA at 116,138-39;
Parkdale Building Maintenance, supra, 90-1 BCA at 112,094;
Delfour, Inc., supra, 89-1 BCA at 107,862; The Morrison Co.,
supra, 83-1 BCA at 81,675. Accordingly, the Board will allow
the Appellant's claim for machinery downtime to the extent of
$6,700.82, calculated as follows:
Appellant's claim for machinery
downtime $13,401.64
Government's settlement offer -0-
Difference between claim and offer 13,401.64
50 percent of difference $ 6,700.82
Consequently, the Appellant is due a total recovery for its
post-termination costs of $7,683.62; i.e., press helper claim
of $982.80 and machinery downtime of $6,700.82. Overall, the
Contractor is entitled to a total reimbursement of $11,407.07
(pre-termination costs of $3,723.45 plus post-termination
costs of $7,683.62). Again, the Board is firmly convinced
that this compromise verdict best satisfies its goal of
awarding fair compensation rather than imposing strict
accounting principles. See Industrial Refrigeration Service
Corp., supra, 91-3 at 120,594; Arctic Corner, Inc., supra,
86-3 BCA at 97,457.
V. CONCLUSION
For the above reasons, the Board finds and concludes that: (1)
both the Appellant and the Respondent used erroneous methods
for calculating the appropriate recovery due the Contractor
for work performed under the contract prior to its
termination; (2) both the OIG and the Contracting Officer
misinterpreted GPO Cost Directive, Sec. 3, ¶ 25(c) in
disallowing the Appellant's claim for post-termination idle
time costs; (3) properly applying the relevant cost principles
in this case, the Appellant is entitled to reimbursement for
certain costs, such as depreciation and overhead, which cannot
reasonably be discontinued after termination, see GPO Cost
Directive, Sec. 3, ¶¶ 25(c), 49(b); (4) the "jury verdict"
technique is the best method for determining fair compensation
for the Contractor's costs resulting from the Government's
convenience termination of the contract; (5) applying the
"jury verdict" method to the Appellant's claim for work
performed under the contract before it was terminated, the
Contractor is entitled to an additional $973.92 above the
Contracting Officer's offer of $852.28 for stripping and
blueline costs, for a total recovery on those items of
$1,826.20-all other elements of the pre-termination claim are
approved as determined by the Contracting Officer, so that
Appellant's pre-termination claim is allowed in the amount of
$3,723.45; (6) applying the "jury verdict" technique to the
Contractor's claim for post-termination costs, the Appellant
is entitled to reimbursement in the amount of $982.80 in press
helper costs and $6,700.82 in machinery downtime costs, for a
total recovery of $7,683.62; and (7) overall, the Contractor
is entitled recover costs in the amount of $11,407.07 as fair
and reasonable compensation for the convenience termination of
its contract by the Government. THEREFORE, the Board MODIFIES
the Contracting Officer's decision and REMANDS the case with
instructions that appropriate arrangements be made to pay the
Contractor in accordance with this opinion. See Universal
Printing Co., supra, slip op. at 56; Banta Co., supra, slip.
op. at 62.
It is so Ordered.
January 31, 1996 STUART M. FOSS
Administrative Judge
_______________
1 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 21, 1992. GPO Instruction
110.12, Subject: Board of Contract Appeals Rules of Practice
and Procedure, dated September 17, 1984, Rule 4(a) (Board
Rules). It will be referred to hereafter as the R4 File,
with an appropriate tab letter also indicated. The R4 File,
consists of twenty-one (21) documents identified as Tabs A
through T, including a tab labeled "Mc."
2 The court reporter's transcript shall be referred to
hereinafter as "Tr." with an appropriate page number
thereafter. The Respondent's brief will be referred to
hereinafter as "R. Brf.," with an appropriate page citation
thereafter. The Appellant's brief will be cited as "App.
Brf." with an appropriate page number thereafter.
Furthermore, at the hearing
the Contractor introduced additional documentary evidence. The
Appellant's exhibits shall be referred to as "App. Exh. No.,"
with an appropriate number thereafter. In addition, the Board
introduced an exhibit which shall be referred to as "GPOBCA Exh.
No. 1."
3 The contract identifies two types of Directories, one with
a "Yellow Pages" section (an Item 2 book) and one without
(an Item 1 book) (R4 File, Tab A, p. 6).
4 Article 45 simply provides: "When required, contracts
shall be subject to section 3 of Procurement Directive
306.2, Contract Cost Principles and Procedures, dated April
1, 1988." See GPO Contract Terms, Contract Clauses, ¶ 45
(Contract Cost Principles and Procedures). Procurement
Directive 306.2 shall hereinafter be referred to as the GPO
Cost Directive.
5 Unlike the FAR, GPO Contract Clauses does not contain a
"short-form" convenience termination clause. See FAR
52.249-4. The "short-form" clause limits recovery in
convenience terminations to the costs of services rendered
before the date of termination. See Laboratory Systems
Services, Inc., ASBCA No. 47901, 95-1 BCA ¶ 27,527; Arrow,
Inc., ASBCA Nos. 41330, 41338, 94-2 BCA ¶ 26,353. Before
using the "short-form" clause as a contract provision for
termination for convenience, the contracting officer must
first determine that, because of the nature of the contract,
the contractor would not incur substantial start-up costs,
and that a convenience termination will not result in a
claim for other than services rendered. See Carrier Corp.,
GSBCA No. 8516, 90-1 BCA ¶ 22,409, at 112,557. Improper use
of the clause is subject to reversal on the grounds that the
contracting officer abused his discretion, in which case the
"long-form" "Termination for Convenience" clause will be
substituted by operation of law. See DWS, Inc., Debtor-in-
Possession, ASBCA Nos. 29742, 29865, 90-2 BCA ¶ 22,696, at
113,987; Carrier Corp., supra, 90-1 BCA at 112,557-58;
Guard-All of America, ASBCA No. 22,167, 80-2 BCA ¶ 14,462,
at 71,300.
6 Accordingly, one question which surfaced at the prehearing
conference on November 23, 1993, namely, whether or not the
GPO Cost Directive applied to the contract in dispute, see
Report of Prehearing Telephone Conference, dated February 2,
1994, pp. 2, 4 (hereinafter RPTC-2), is really not an issue
at all. Clearly, the GPO Cost Directive applies to this
case because the "Termination for Convenience" clause
expressly requires it, and the "Contract Cost Principles and
Procedures" clause mandates the use of the GPO Cost
Directive "when required," as here. Rather, the real issue
in this appeal is which of two competing cost principles-GPO
Cost Directive, Sec. 3, ¶ 25 (Idle facilities and idle
capacity costs) or GPO Cost Directive, Sec. 3, ¶ 49
(Termination costs)-or both, governs the parties' dispute
over the Appellant's unabsorbed indirect costs.
7 The record indicates that approximately 80 percent of the
Contractor's income is derived from Government work (Tr.
106). Furthermore, the Appellant testified that its typical
markup for Government work is 20 percent (Tr. 28).
8 As indicated on the Print Order, the 19,000 copies
consisted of 16,000 with yellow pages (Item 2 Directory),
and 3,000 without yellow pages (Item 1 Directory) (Tr. 11;
R4 File, Tab E). Attached to the Print Order, and part of
it, were the detailed specifications for both books,
including the sequence of colored pages for each book, the
number of quality assurance samples (32), and distribution
instructions (Tr. 13, 14; App. Exh. No. 1).
9 The Contractor computed the total cost of this job at
$49,811.65 based on the following estimates: (a) $2,152.92
for pre-press (stripping and platting); (b) $18,736.91 for
paper stock; (c) $15,076.92 in total press charges
(makeready, ink, and running charges); (d) $13,844.90 for
bindery work (folding, collating, binding, trimming, and
shipping). Adding a ten (10) percent profit to these costs
brought the value of the contract to $54,792.81. See R4
File, Tab O, Cost Analysis. The Appellant continued to use
its original estimates in pursuing its termination claim
(Tr. 32).
10 The Respondent disagrees with this assessment. See
Answer, ¶ 4.
11 In its Complaint, the Appellant also asserted that the
large variance between the "Determination of Award" figures
and the scope of anticipated orders in the contract, showed
that the Government estimates were negligently prepared.
See Complaint, ¶ 5. Furthermore, the Contractor said that
it (and all other offerors) relied to its detriment on the
Respondent's estimates in calculating and submitting its
bid. See Complaint, ¶¶ 6, 7, and 8. GPO denies these
allegations. See Answer, ¶¶ 5, 6, 7, 8, and 9. Negligent
Government estimates can furnish the basis for a
contractor's recovery on a claim under a "requirements"
contract. See McDonald & Eudy Printers, Inc., GPO BCA 40-92
(January 31, 1994), slip op. at 18-19, 1994 WL 275096;
Shepard Printing, GPO BCA 37-92 (January 28, 1994), slip op.
at 26,
1994 WL 275077. Accord Crown Laundry & Dry Cleaners, Inc. v.
United States, 29 Fed. Cl. 506 (1993); Pruitt Energy Sources,
Inc., ENG BCA No. 6134, 95-2 BCA ¶ 27,840; Dynamic Science, Inc.,
ASBCA No. 29510, 85-1 BCA ¶ 17,710; Huff's Janitorial Service,
ASBCA No. 26860, 83-1 BCA ¶ 16,518)). Also cf. Medart, Inc. v.
Austin, 957 F.2d 579, 581 (Fed. Cir. 1992) ("Where a contractor
can show by preponderant evidence that estimates were
`inadequately or negligently prepared, not in good faith, or
grossly or unreasonably inadequate at the time the estimate was
made[,]' the government could be liable for appropriate damages
resulting." Citing Clearwater Forest Industries, Inc. v. United
States, 227 Ct. Cl. 386, 650 F.2d 233, 239 (1981).); Operational
Service Corp., ASBCA Nos. 37059, 37466, 38461, 38703, 93-3 BCA ¶
26,190, at 130,381 (". . . where the estimate is negligently
prepared so that it misleads the bidder, an equitable adjustment
can be made to the contract because it is relied upon to the
bidder's detriment."). Here, apart from the above-referenced
paragraphs in its detailed Complaint, the "negligent estimates"
issue was not discussed during the prehearing conference on
January 5, 1993, or the meeting on November 23, 1993, was not
litigated at the hearing on March 1, 1994, and was not argued in
the parties briefs. Instead, throughout the entire litigation
history of this appeal, the parties have been focused on the
"unabsorbed overhead" issue. See e.g., RPTC-2, pp. 2-4; RPTC-1,
pp. 6-7; Tr. 26-27, 92-93 (Goldstein); 119-20, 128-29 (Weiss);
133-34 (Office of the Inspector General (OIG) Supervisory
Auditor, Joseph Verch); R. Brf., pp. 3-7; App. Brf., pp. 3-7.
Therefore, it is clear that the Appellant has abandoned its
"negligent estimates" claim, and that matter is not before the
Board in this proceeding. See Shepard Printing, supra, slip op.
at 23, fn. 26.
12 The evidence of record says that the Appellant first
discussed the problem with the Respondent by telephone on
January 21, 1991. See RPTC-1, p. 3; R4 File, Tab F (first
paragraph, first sentence); Complaint, ¶ 13. However, the
NIH did not issue Print Order No. 40000 until January 23,
1991, which is the date on which the Contractor says it
"first learned of the error." See R4 File, Tab E;
Complaint, ¶ 9. Therefore, the Board assumes that the
Appellant is simply confused about January 21, 1991, as
being the date on which the Contractor first informed GPO of
the mistake in the contract specifications. Instead, the
Board believes that the earliest possible date on which such
a conversation could have taken place was January 23, 1991.
13 The Appellant's message contained two lines-"Confirm
Above" and "Not Confirmed"-as well as a signature line at
the bottom. Although the Contracting Officer was asked to
check the appropriate line, sign the message, and return a
copy to the Contractor, there is nothing in the record to
indicate that he did so.
14 Bluelines are proofs which are prepared to look exactly
like the book or publication being ordered, including being
trimmed and bound the same way (Tr. 24-25).
15 The order was held at Weiss' direction since January 24,
1991 (R4 File, Tab G). At that point, however, the
Appellant had already begun the pre-press work under the
contract-e.g., filming, stripping, blueline editing and
proofing-while awaiting word from GPO on resolution of the
problem concerning its bid (Tr. 15).
16 The Appellant had originally planned to start running the
job by February 1, 1991 (Tr. 45).
17 The type of termination was a critical part of the
discussion between the parties on January 28, 1991. In that
regard, while the Respondent raised the specter of a default
termination, the record shows that the Appellant agreed to
produce Print Order 40000, but expected the remainder of the
contract to be terminated for convenience (R4 File, Tab G).
See Complaint, ¶ 21.
18 The record indicates that the parties also had a
discussion earlier in the morning, and that in response to a
question from the Contracting Officer, the Appellant told
Weiss that no paper stock for the job had been received
because the Contractor had canceled the order with its
supplier (R4 File, Tab I, p. 3). This information was
confirmed by the Appellant in their second conversation, as
well (R4 File, Tab I, p. 4).
19 As explained by the Appellant at the hearing, this charge
was $9.50 per flat, not 84 flats for $9.50 (Tr. 24).
20 Each of these charges was explained in detail by
Goldstein at the hearing (Tr. 17-25). Among other things,
he briefly testified that: (a) the film work included the
blanks and covers for a 328 page book (Tr. 17); (b) the
$1,754.00 charge for the films was based on normal charges
for that work (Tr. 23); (c) stripping is a manual operation
requiring a very skilled operator (Tr. 18-19); (d) the
stripping charge of $9.50 per flat is the average charge for
such work (Tr. 24); (e) except for differing media, blueline
proofs are made by the same process as plates (Tr. 19-21);
(f) the blueline charge of $3.50 per page is also standard
(Tr. 24-25); and (g) the costs of UPS and Federal Express
shown on the claim were amounts actually incurred for those
shipping services (Tr. 21).
21 At the hearing, Goldstein testified that he canceled the
paper stock sometime between January 24, 1991, and January
31, 1991, although could not remember the exact date (Tr.
78). Furthermore, he said that the 25 percent restocking
fee is the standard practice within the industry (Tr. 22).
22 The record indicates that on February 5, 1991, but before
it received this letter, the Respondent made a follow up
inquiry regarding the Appellant's initial claim of January
30, 1991 (R4 File, Tab Mc). Specifically, GPO wanted to
know if there would be any more charges, because the
Government wanted to take only one action on the canceled
contract. The Appellant advised the Respondent that the
additional claim had already been mailed.
23 The Appellant utilizes a computerized cost estimating
system, which it applies to both Government and private
procurements (Tr. 30, 33-34, 39, 84; App. Exh. No. 3). The
system was originally developed by McIntosh Press of Newman,
Georgia, and was adopted by the Contractor (Tr. 34). The
key concept in the system is the BHR-a cost figure which is
derived for each piece of machinery in the plant by
totalling actual fixed costs (rent, depreciation, property
taxes, insurance, and the square footage allocation of the
machine), variable costs (direct and indirect wages, and
electricity), other labor and miscellaneous costs (supplies,
social security taxes, workman's compensation and
unemployment insurance, other employee insurance, repairs),
general factory expense, and selling overhead (Tr. 35-37,
114-15; App. Exh. No. 4). When those items are added
together and factored with the total number of hours the
machine can be expected to be in use during the year, the
result is the BHR for that particular machine (Tr. 38, 41,
66; App. Exh. No. 4). It should also be noted that the BHR
is a mixture of both allowable and unallowable costs. For
example, while some BHR components such as rent,
depreciation, repairs and insurance are normally be
allowable, see GPO Cost Directive, Sec. 3, ¶¶ 19(c), 27(a),
32(a), other elements such as selling overhead (to extent it
includes indirect selling efforts) and property taxes, are
not, see GPO Cost Directive, Sec. 3, 11(f) 48(b)(5).
Furthermore, in a convenience termination situation, such as
here, common items such as supplies and other materials in
the contractor's inventory are not allowable if they can be
used in the contractor's other work. See GPO Cost
Directive, Sec. 3, ¶ 49(a). However, it is clear that the
BHR reflects an accepted method of accounting for indirect
costs, and under GPO's cost principles it may not be
fragmented by removing its individual elements. See GPO
Cost Directive, Sec. 3, ¶ 9(c).
24 At the hearing, Goldstein testified that although the
Miller Press was purchased either in 1987 or 1988, and thus
was not especially acquired for this contract, it
nonetheless was scheduled to be the primary press for the
NIH job (Tr. 42, 44, 78-79, 108-09). Furthermore, Goldstein
said that there are basically two rates for the Miller
Press-the BHR and the actual cost of running the machine
(Tr. 112). The Appellant's February 4, 1991, claim appears
to use the actual rate-$90.04-for the Miller Press (Tr.
112). On the other hand, Goldstein also expressed his
belief that it was reasonable to expect the machine to run
70 percent of the time; i.e., based on a maximum usage of
2,008 hours, the Contractor thought the Miller Press would
be in use for 1,406 hours during the year because allowances
had to be made for breakdowns, holidays, etc. (Tr. 37-38,
64, 90; App. Exh. No. 4). Thus, the BHR for the Miller
Press at a 70 percent usage rate is calculated by dividing
those 1,406 hours into the total annual center cost for the
machine, which results in a BHR for the machine of $56.68,
the figure it used in its estimate of the NIH job (Tr. 38,
42, 44, 64, 67; App. Exhs. No. 4 and 6). Similar BHR
estimates were made for the MBO Folder, the Perfect Binder,
Wollenberg Cutter, the other machines which would be needed
to perform the contract (Tr. 34, 41, 74-75). Goldstein also
testified that the procedure followed by the Contractor,
which is based on Appellant's actual cost figures as
compiled with the assistance of an accountant, is the
standard acceptable accounting practice for establishing
BHR's in the industry, and is necessary wherever a
computerized estimating system is used (Tr. 38-39, 40, 66).
Finally, he believed that the Appellant's charges based on
this system were reasonable, and should mirror the costs of
other printing plants in the southeastern United States
using similar estimating systems (Tr. 39, 40, 113).
25 When the Appellant's separate claims of January 30, 1991,
and February 4, 1991, are considered together, it is clear
that two different types of recovery are involved in this
proceeding; i.e., (a) reimbursement for work actually
performed prior to termination; and (b) compensation for
post-termination indirect costs (idle time) (Tr. 26-27, 92;
R4 File, Tabs M and N). Indeed, the parties stipulated that
there are no post-termination direct costs because the
Contractor performed no work on the contract after it was
terminated (Tr. 92-93).
26 Most of the 18 documents submitted on March 12, 1991, are
duplicates of other documents elsewhere in the appeal file.
See e.g., R4 File, Tabs E, F, G, H, and M; Complaint,
Exhibit A.
27 In the audit report, the OIG agreed with the Contracting
Officer that the film and GFM return costs were reasonable
(Tr. 136; R4 File, Tab R, Attachment D, fns. 1 and 4).
However, the OIG found no support for the entire blueline
claim (although the bluelines were in fact received by the
NIH), and nearly all of the claim for stripping charges, and
recommended that they be disallowed (Tr. 134; R4 File, Tab
R, Attachment D, fns. 2 and 3).
28 At the hearing, Weiss testified that even though he
thought the Contractor's film charges were high ($5.10), he
had no problem with them, and also found the shipping costs
to be fair and reasonable (Tr. 117, 124, 126). However, an
analysis of the Appellant's claim for stripping and blueline
production costs was difficult because, as the parties
agree, those tasks were not separate line items in the
contract's schedule of prices, but rather were part of
either the makeready and/or setup charges (Tr. 88, 117, 124;
R4 File, Tab S, p. 1). Since plating and setup were not
performed before the contract was terminated, the Weiss
believed that only a portion of the Contractor's price for
this line item ($11.82 per page) was reimbursable (R4 File,
Tabs B, p. 3, and S, p. 1). Accordingly, the Contracting
Officer looked to another GPO general usage program-Program
A814-M-in which almost all prices were separate line items,
to develop a new per page rate for stripping and blueline
costs (Tr. 117-18, 124, 126; R4 File, Tab S, p. 1). The
result was a charge of
$1.49 per page, which when multiplied by a total page count of
572 pages for both books, yielded a recovery for the Appellant of
$852.28 for these items (Tr. 118, 124; R4 File, Tab S, p. 1).
29 In Weiss' view, the Appellant's claim was actually higher
than the contract price; i.e., the Appellant was asking for
more money on termination than it would have been entitled
to if the work had been performed with or without the use of
paper (Tr. 119-20). However, as previously noted, paper
costs are not involved in this claim because the Contractor
was able to cancel the order from its supplier before it was
delivered (Tr. 22; R4 File, Tabs M and O).
30 The Contracting Officer's reference to Program A814-S
appears to be an inadvertent typographical error.
Throughout these proceedings the parties have referred to
the program in question as A814-M. See Tr. 118, 124, 126;
App. Brf., pp. 2-3; Res. Brf., p. 8. See note 29 supra.
31 In a way, this should not be surprising since the
Contracting Officer had offered to settle the Appellant's
initial claim for the pre-press work actually performed on
the contract prior to termination for 58 percent of the
amount billed (Tr. 16, 17, 27, 117, 124; R4 File, Tabs M, O
and S; App. Exh. No. 2). That is, Weiss had agreed that all
of the Contractor's charges for film and shipping, and 34
percent of its stripping and blueline costs ($852.28 of the
$2,800.12 claimed), were justified. This meant that only
$1,948.09 ($4,697.37-2749.28) remained in dispute between
the parties on the first claim-a figure which was less than
8 percent of the idle time claim submitted on February 4,
1991 ($24,670.13) (R4 File, Tab N).
32 The Appellant's original idle press claim (R4 File, Tab
N) was based on the 151 hours it had estimated would be
required to produce the job (Tr. 47, 48, 49, 60). However,
the Contractor was subsequently advised by its Counsel that
downtime could only be claimed for press hours which were
not actually filled during the established contract
performance period, in this case February 1991 (Tr. 60).
The record shows that while the Appellant attempted to
reduce its downtime claim by bidding for other Government
and private sector work during February 1991, and in fact
was partially successful (the Miller Press was completely
shutdown on just seven (7) of the 20 workdays that month;
i.e., February 1, 4, 5, 6, 7, 8, and 12, 1991), it
nonetheless was unable to find press work for 112 hours of
scheduled time, and bases its idle time claim on that figure
(Tr. 45, 50, 54, 61, 66, 110, 114; App. Exh. No. 5).
33 The Appellant testified that this summary analysis was
based principally on the information in its downtime
listing, and represented the costs directly attributable to
the termination action (Tr. 60-61, 93; App. Exh. Nos. 5 and
6). However, at the hearing the Contractor also said that
the summary listing's 80 percent utilization was inaccurate,
and 70 percent should be used instead since that figure was
more realistic (Tr. 64-65, 74, 90; App. Exh. No. 6).
Indeed, the Appellant indicated that it was no longer
willing to accept the 80 percent rate (Tr. 75). A 70
percent utilization rate assumes that the machinery will be
idle 30 percent of the time (Tr. 90-91).
34 The Appellant testified that the termination action which
left it with 112 hours of unfilled press time was directly
responsible for the financial loss it experienced in
February 1991 (Tr. 66, 72). In that regard, although
somewhat inflated because shipments made around Christmas
and New Year's are normally not billed until early January,
the Contractor's income statement for January 1991 shows
that it made a $60,343.30 profit (52 percent) for that month
(Tr. 67-70; App. Exh. No. 7). Similarly, the Appellant also
showed a profit in March 1991 ($28,549.88 or 14.52 percent)
(Tr. 71; App. Exh. No. 9). However, in contrast, its
financial statement for February 1991-the month during which
contract performance was to occur-indicates that the
Appellant suffered a net loss of $18,991.67 (26.97 percent)
that month (Tr. 70; App. Exh. No. 8).
35 As the Board reads the record, the total of the
Appellant's revised unabsorbed overhead claim is $15,464.12,
not $14,460.04. Nonetheless, even the Board's figures
represent a reduction of approximately 37 percent from the
claim submitted by the Contractor in February 1991. The
difference between the Board's computations and the
Contractor's is only $1,004.08, a 6 percent variation, which
in the context of this case is de minimis.
36 The record shows that the Contractor prepared its revised
claim-App. Exh. No. 6-using BHR figures for 80 percent
utilization. However, Goldstein testified at the hearing
that he was no longer willing to accept an 80 percent BHR,
but rather now based his claim on a 70 percent figure (Tr.
74-75). The effect of this revision is to change the BHR
amounts on App. Exh. No. 6 as follows: (a) on the Miller
Press from $49.62 to $56.68; (b) on the MBO Folder from
$40.03 to $45.72; (c) on the Perfect Binder from $29.94 to
$34.20; (d) on the Wollenberg Cutter $27.21 to $31.09; and
(e) the Collator from $38.93 to $44.47 (Tr. 74-75).
37 The handwritten figure of $56.78 in App. Exh. No. 6 is an
obvious inadvertent error. The evidence of record shows
that the BHR for the Miller Press at a 70 percent usage rate
is $56.68 (Tr. 38, 74; App. Exh. No. 4). See note 23 supra.
Indeed, $6,348.00 is the result of 112 hours multiplied by
$56.68.
38 Although it is not entirely clear, the Board assumes that
the press helper in question is Douglas Larson, who
Goldstein testified is the employee assigned to the Miller
Press (Tr. 54, 80). Larson, an hourly paid worker, was
idled when the Miller Press was shut down because of the
cancellation of the NIH job (Tr. 80-81, 99). Furthermore,
Goldstein was not sure if Larson was paid for February 1,
1991, the first day the Miller Press went unused because of
GPO's termination action, of if he performed other plant
tasks like sweeping the floor (Tr. 82-83, 100-01).
39 The reason for this revision is that the Appellant did
not incur any hand collating expense; i.e., the three (3)
temporary employees who were hired to do the collating were
terminated when the contract was canceled before any such
work was performed (Tr. 61-62, 64, 91-92).
40 Indeed, during the prehearing telephone conference on
January 5, 1993, the Appellant stated that in past
convenience termination cases GPO itself has paid for
unabsorbed overhead costs; e.g., where a contractor made
reasonable efforts to utilize the idle capacity but was
unable to do so despite best efforts, or where it could not
absorb the overhead costs because they were legitimately
allocable to specific contracts. RPTC-1, p. 6. However,
the Contractor also said that the Respondent had recently
begun disallowing unabsorbed overhead costs on the ground
that the contractor was unable to meet one or more of the
requirements prescribed in the GPO Cost Directive. RPTC-1,
pp. 6-7. Consequently, the Appellant wanted to know if
there had been any change in language of the GPO Cost
Directive or its application, which precluded recovery of
unabsorbed overhead costs by contractors as a blanket rule.
RPTC-1, p. 7. The Contractor's question was never answered,
and no evidence on the matter was introduced at the hearing.
Thus, there is nothing in the record to show if the
Respondent had interpreted the relevant provisions of the
GPO Cost Directive differently in the past, or whether there
was agency precedent for paying the sort of unabsorbed
overhead costs submitted by the Appellant.
41 The Appellant advances several arguments advanced by
Joseph & O'Donnell for allowing unabsorbed overhead costs,
"particularly where the terminated contract represents a
substantial portion of the contractor's work, or where the
obtaining of contracts in the industry requires substantial
lead time," including: (a) recovery is not prohibited by
regulation or law; (b) the regulatory objective of fairly
compensating the contractor is thwarted when denial of the
unabsorbed overhead results in a substantial loss to the
contractor; (c) recovery of unabsorbed overhead is permitted
by the government in analogous contexts such as partial
terminations and delay; and (d) recovery of unabsorbed
overhead incurred after contract termination is permitted in
all commercial practices, including those governed by the
Uniformed Commercial Code (UCC 2-708-2) (App. Brf., pp. 5-6,
citing Joseph & O'Donnell, at X-36). Similarly, the
Contractor says that Trueger holds that idle facilities and
idle capacity costs should be compensable for at least "a
reasonable period" after the termination because: (a) a
contractor, who deployed people, space and facilities in
order to complete a government contract, may not be able to
"swing into new business on the day after the abrupt
government action;" and (b) from an accounting standpoint,
there is simply no basis to charge these costs to any cost
objective other than the terminated contract (App. Brf., p.
6, Trueger, at 745-60, 805-06).
42 The Appellant also asks the Board to award it interest at
the statutory rate from the date it certified its claim
(App. Brf., p. 3). See 50 U.S.C. App. § 1215(b)(2). The
Contractor candidly admits that nothing in the contract
authorizes the requested interest payment, although it notes
that there is a specific provision in the "Termination for
the Convenience of the Government" clause requiring a
contractor receiving partial payments to repay the
Government the amount in excess of the actual value of the
work performed, with interest, upon termination of the
contract (App. Brf., p. 3, citing GPO Contract Terms,
Contract Clauses, ¶ 19(k)(2)). The crux of the Appellant's
argument is that since there is no explicit prohibition
against the payment of interest on its claim, the Board, by
administrative fiat, should add interest to any recovery
because: (a) the claim has been pending for a long time; and
(b) interest awards operating as "a one-way street" from
contractors to the Government are patently unfair, and cry
out for a balancing of the equities by the creation of an
entitlement flowing the other way; i.e., what's "sauce for
the goose" should be "sauce for the gander" (App. Brf., p.
3). While the Contractor's contention has a certain surface
appeal, the simple fact is that the Board has no authority
to award interest under GPO regulations. See Universal
Printing Co., GPO BCA 9-90 (June 22, 1994), slip. op. at 55,
fn. 54, 1994 WL 377586. See also Chavis and Chavis
Printing, GPO BCA 20-90 (February 6, 1991), slip. op. at 7,
n. 7, 1991 WL 439270 (Prompt Payment Act of 1982, 31 U.S.C.
§ 3901 et seq. (1988)). It is well-settled that a
contractor cannot recover interest on a claim against the
United States unless there is an express provision in the
contract or a relevant statute permitting such payment. See
Maitland Brothers Co., ASBCA No. 40388, 93-3 BCA ¶ 26,007,
at 129,305, motion for reconsid. denied 94-1 BCA ¶ 26,285.
See also Fidelity Construction Co. v. United States, 700
F.2d 1379 (Fed. Cir. 1983), cert. denied 464 U.S. 826
(1984); Reese Industries, ASBCA No. 36077, 89-1 BCA ¶
21,255. Accordingly, the Appellant's request for interest
on any recovery awarded by this decision, at the statutory
rate from the date it certified its claim, must be denied.
43 See note 28 supra.
44 The Board bases its decision on the following record: (a)
the Appellant's Notice of Appeal, dated April 6, 1992; (b)
the R4 File (Tabs A-T); (c) the Complaint, dated June 17,
1992; (d) the Answer, dated July 17, 1992; (e) the Report of
Prehearing Telephone Conference, dated March 26, 1993; (f)
the Report of Prehearing Telephone Conference, dated
February 2, 1994; (g) the transcript of the hearing held on
March 1, 1994, including App. Exh. Nos. 1-9, and GPOBCA Exh.
No. 1; (h) the brief submitted by the Respondent on April 4,
1994; and (i) the brief submitted by the Appellant on April
7, 1994.
45 Prior to the establishment of the Board in 1984, see GPO
Instruction 110.10C, Subject: Establishment of the Board of
Contract Appeals, appeals from decisions of GPO Contracting
Officers were considered by ad hoc contract appeals boards.
Decision of these ad hoc boards are hereinafter cited as
GPOCAB. While the Board is not bound by their decisions,
its policy is to follow the rulings of the ad hoc panels
where applicable and appropriate. See e.g., Shepard
Printing, GPO BCA 23-91 (April 29, 1993), slip op. at 14,
fn. 19, 1993 WL 526848; Stephenson, Inc., GPO BCA 2-88
(December 20, 1991), slip op. at 18, fn. 20, 1991 WL 439274;
Chavis and Chavis Printing, supra, slip op. at 9, fn. 9.
46 Of the 235 published appeals decisions issued by the
Board and the ad hoc panels since 1974, only four (4)
involved "pure" termination for convenience issues. See
R.C. Swanson Printing and Typesetting Co., supra,
Supplemental Decision; Graphic Litho Co., Inc., GPO BCA
17-85 (February 23, 1988), 1988 WL 363329; The Standard
Register Co., GPO BCA 4-86 (October 28, 1987), 1987 WL
228972; Cloverleaf Enterprises, Inc., [No GPOCAB No.] (May
9, 1980), 1980 WL 81267. In one other case, the termination
for convenience question was merely a disguise for the
contractor's breach of contract claim, and hence there was
no jurisdiction. See Microform Data Systems, Inc., GPOCAB
3-79 (February 1, 1980), 1980 WL 81258. Excluded from this
count are those cases which were converted to convenience
terminations pursuant to GPO Contract Terms, Contract
Clauses, ¶ 20(g) (Default), when the original
defaults were found improper and overturned. See e.g., Graphics
Image, Inc., GPO BCA 13-92 (August 31, 1992), 1992 WL 487875;
Pennsylvania Printed Products, GPO BCA 29-87 (January 22, 1990),
1990 WL 454977; American Drafting and Laminating Co., GPO BCA
6-85 (April 15, 1986), 1986 WL 181459; Graphic Litho, GPOCAB
11-83 (May 25, 1984), 1984 WL 148105; Bay Ridge Press, GPOCAB
4-82 (January 12, 1983), 1983 WL 135369, Supplemental Decision
(September 15, 1983), 1983 WL 135370; Norm Hodges and Associates,
Inc., GPOCAB 2-82 (April 12, 1982), 1982 WL 122517.
47 It should be noted that the Board's final decision in
R.C. Swanson Printing Co. has been appealed by the
contractor to the United States Court of Federal Claims,
where it is now pending. See Richard C. Swanson and Larry
A. Ford, d.b.a. Swanson Printing & Typesetting Co. v. United
States, Civil Action No. 94-185(C). In that regard, after
the Board explicated and applied the principles relating to
the recovery of costs where "requirements" contracts are
terminated for convenience, see R.C. Swanson Printing and
Typesetting Co., supra, Supplemental Decision, GPO asked for
reconsideration on the ground that the contract in question was
not a true "requirements" contract because it was a multiple-
award type of agreement, which did not create an exclusive
relationship between the contractor and the Government-an
essential element for a "requirements" contract, see R.C. Swanson
Printing and Typesetting Co., GPO BCA 15-90, Decision on Motion
for Reconsideration and Order (December 20, 1993), slip op. at 6,
1993 WL 668317. GPO's position was based on a prior decision of
the United States Claims Court which expressly held that this
agency's multiple-award agreements were not requirements
contracts, as that concept is understood in the law of Government
contracts. See Media Press, Inc. v. United States, 215 Ct. Cl.
985, 986 (1977). After reviewing that court decision, the Board
agreed with the Government, and granted the motion for
reconsideration. See R.C. Swanson Printing and Typesetting Co.,
supra, Decision on Motion for Reconsideration and Order, slip op.
at 15. The contractor's appeal essentially challenges the Claims
Court's holding in Media Press, Inc. However, the issues in the
Claims Court are not relevant in this case. Here, the agreement
in question, unlike the one in R.C. Swanson Printing and
Typesetting Co., is a single-award "requirements" contract, which
clearly establishes the necessary exclusive relationship between
the parties.
48 Historically, the power of the Government to terminate
its contracts in the absence of a breach by the non-
governmental party arose in order to limit the Government's
liability during the unpredictable circumstances of war, and
to shift some of the risk of changing conditions to the non-
governmental party. See Plaza 70 Interiors, Ltd., HUD BCA
No. 94-C-150-C9, 95-2 BCA ¶ 27,668, at 137,938 (citing G.L.
Christian & Associates v. United States, 160 Ct. Cl. 1, 312
F.2d 418, cert. denied 375 U.S. 954 (1963)). See also
Cibinic & Nash, pp. 1073-74. The right to terminate
contracts for the convenience of the Government was later
expanded to civilian and peacetime contracts. See Torncello
v. United States, 231 Ct. Cl. 20, 681 F.2d 756, 764-6
(1982).
49 Application of the "best interests of the Government"
standard is a sine qua non in convenience termination cases.
Thus, even if a termination might be beneficial to the
contractor because, for example, it is performing at a loss,
the Government has no duty to terminate for convenience just
for the contractor's sake. See Contract Management, Inc.,
ASBCA No. 44885, 95-2 BCA ¶ 27,886; Rotair Industries, Inc.,
ASBCA No. 27571, 84-2 BCA ¶ 17,417.
50 For example, where a fixed-price indefinite quantities
contract is involved, the Government may not retroactively
terminate a fully performed contract in an effort to limit
its liability for failing to order the contract's minimum
amount of services. See PHP Healthcare Corporation, ASBCA
No. 39207, 91-1 BCA ¶ 23,647. See also Montana Refining
Company, ASBCA No. 44250, 94-2 BCA ¶ 26,656 (a convenience
termination did not relieve the Government of its obligation
to pay for the portion of the guaranteed minimum quantity of
jet fuel that it failed to purchase because the clear
language of the contract's "Termination for Convenience"
clause, which was an approved deviation from the standard
clause, did not permit the Government to terminate any
portion of the guaranteed minimum quantity. Citing PHP
Healthcare Corporation, supra).
51 In Torncello v. United States, note 48 supra, the United
States Court of Federal Claims crafted a stricter standard
for invoking the "Termination for Convenience" clause,
saying that there must have been a change in circumstances
in order to properly invoke the clause. See 681 F.2d at
771-72. However, subsequent decisions clearly show that the
Torncello holding has been restricted in its application,
see e.g. Operational Services Corp., ASBCA No. 37959, 93-3
BCA ¶ 26,190; Fiesta Leasing and Sales, Inc., ASBCA No.
29311, 86-3 BCA ¶ 19,045, mot. for reconsid. denied 87-1 BCA
¶ 19,622; Drain-A-Way Systems, GSBCA No. 7022, 84-1 BCA ¶
16,929 (citing Adams Manufacturing Co. v. United States,
Appeal Nos. 49[-]82, 51-82 (Fed. Cir. May 12, 1983)
(Unpublished)), and the traditional "bad faith or a clear
abuse of discretion" test continues to dominate, see
Caldwell & Santmyer, Inc. v. Secretary of Agriculture, 55
F.3d 1578 (Fed. Cir. 1995), aff'g 94-2 BCA ¶ 26,854, 1994 WL
45000; Salisbury Industries v. United States, supra, 905
F.2d 1518, 1521 (Fed. Cir. 1990); C.F.S. Air Cargo, Inc.,
ASBCA No. 36113, 91-3 BCA ¶ 23,583. See generally Cibinic &
Nash, pp. 1079-80.
52 The key to such evidence is that there must be a showing
of a specific intent on the part of the Government to injure
the contractor. See Stephenson, Inc., supra, slip op. at
54. Accord Kalvar Corp. v. United States, 543 F.2d 1298,
1302 (Ct. Cl. 1976), cert. denied, 434 U.S. 830 (1977). See
also Solar Turbines, Inc. V. United States, 23 Cl. Ct. 142
(1991).
53 The Appellant does not contest the termination of its
contract by the Respondent or allege bad faith or abuse of
discretion on the part of GPO. See Plaza 70 Interiors,
Ltd., supra, 95-2 BCA at 137,938. Indeed, the record shows
that the Contractor desired such a termination for
convenience. See note 17 supra. Moreover, the Board sees
nothing in the record before it which would amount to
"irrefragable" proof of bad faith.
54 Although the Appellant challenged the Government's
estimates as unrealistic, see Special Waste, Inc., supra,
this case appears to be a Caldwell & Santmyer, Inc.
situation. In Caldwell & Santmyer, Inc., an improper award
involving ambiguous specifications was terminated for
convenience by the contracting officer who acknowledged the
Government's error. Likewise, the Contracting Officer here
exercised his discretion to terminate the contract for
convenience because of the erroneous "Determination of
Award" figures regarding the running rate and paper (R4
File, Tab K).
55 On the other hand, the rule is that in determining the
amount due a contractor as a convenience termination
settlement, the Government may not deduct for defective work
because that would be tantamount to treating the termination
as one for default. See Richerson Construction, Inc., GSBCA
Nos. 11161, 11263(11045)-REIN, 11430, 93-1 BCA ¶ 25,239;
Youngstrand Surveying, supra, 92-2 BCA at 124,694 (". . .
Absent information establishing that the unsatisfactory work
results from the contractor's fault or folly, . . . the
general rule is that contractors are compensated as part of
a convenience termination even for effort resulting in
defective work." Citing Morton-Thiokol, Inc., ASBCA No.
32629, 90-3 BCA ¶ 23,207; Caskel Forge, Inc., ASBCA No.
7638, 1962 BCA ¶ 3318.).
56 In the past, the Board has referred to this theory as "an
accepted fiction." See Graphic Litho Co., Inc., supra,
slip. op. at 9.
57 The bulk of termination for convenience cases that are
reported in court and board decisions do not involve
questions of the contract price as a ceiling on recovery, or
loss contracts. See Tom Shaw, Inc., supra, 93-2 BCA at
128,073. Indeed, we are told that in routine cases not
involving such issues, unrecognized or unresolved changes or
similar matters that may, or may not, justify a contract
price increase can be ignored, since the costs of such
alleged changes or other events are automatically recovered
as part of the total costs. Id.
58 If the Board is reading the above-quoted passage from J.
W. Cook & Sons, Inc. correctly, it seems that the ASBCA is
respectfully disagreeing with the interpretation of the
"fairness" concept enunciated by the Court of Claims in
Codex Corp. v. United States, the ASBCA decision cited with
approval by the GSBCA in Richerson Construction, Inc. and
the VABCA in Arctic Corner, Inc.
59 Those slight differences are purely cosmetic and
inconsequential. The GPO Cost Directive refers to "[t]he
applicable paragraphs of this instruction], while the PPR
substitutes the words "[c]ost principles." In addition, the
PPR inserts the words "for supplies or services" between the
words "subcontracts" and "whenever" in the sentence. Other
than those changes, the two paragraphs are mirror images of
each other.
60 As the Government indicated in its brief, the above-
quoted cost principles simply adopt FAR Part 31, 48 C.F.R.
31.000 et seq. (1994). R. Brf., p. 3. Specifically, in
that regard, GPO Cost Directive, Sec. 2, ¶ 3 is the
equivalent of FAR 31.102, while GPO Cost Directive, Sec. 2,
¶ 4(b)(3) is the same as FAR 31.103(b)(3).
61 The Board is doing so in full recognition that some other
contract appeals boards, such as the ASBCA, have different
ideas about the choice between "fairness" and strict
adherence to accounting rules than the Claims Court, the
GSBCA and the VABCA. See J.W. Cook & Sons, Inc., supra,
92-3 BCA at 124,865. However, in the Board's view, the
philosophy espoused by those three forums is more in harmony
with the underlying purposes of a convenience termination
settlement.
62 Thus, as of this moment the Appellant is clearly entitled
to reimbursement for its film costs ($1,754.00) and for the
Federal Express and UPS charges ($143.25). However, the
record indicates that the Contractor has not been paid the
undisputed amount as yet, most likely because it has not
invoked the partial payment procedures of the "Termination
for Convenience" clause and the Respondent's printing
procurement regulation. See GPO Contract Terms, Contract
Clauses, ¶ 19(k)(1); PPR, Chap. XIV, Sec. 2, ¶ 3.m.(1)(a).
On the other hand, the Board also notes that the chapter on
"Contract Claims and Litigation" in the regulation provides:
"In the event of an appeal, the amount, if any, determined
to be payable in the decision of the Contracting Officer,
less any portion previously paid, should be paid in advance
of any decision by the board without prejudice to the rights
of either party or the appeal. [Emphasis added.]" See PPR,
Chap. X, Sec. 1, ¶ 5.g.
63 If the accounting records are not available due to no
fault of the contractor, the costs may be established on the
basis of estimates, if they are supported by detailed,
substantiating data. See e.g., R. G. Robbins & Co., ASBCA
No. 27516, 83-1 BCA ¶ 16,420; Leopold Construction Co.,
ASBCA No. 23705, 81-2 BCA ¶ 15,277; Bailey Specialized
Buildings, Inc., ASBCA No. 10576, 71-1 BCA ¶ 8,699.
However, the use of estimates does not change the burden of
proof. Cf. Lagarelli Brothers Construction Co., Inc., ASBCA
No. 34793, 88-1 BCA ¶ 20,363; Clary Corp., ASBCA No. 19274,
74-2 BCA ¶ 10,927.
64 To the extent that the Contractor also argues that GPO's
interpretation could bar recovery of pre-press production
costs by terminated contractors who bid those tasks at "no
charge" and include the work elsewhere in the job, see App.
Brf., p. 3, the Board declines to engage in such
speculation. See Univex International, GPO BCA 23-90 (July
31, 1995), slip. op. at 35, 1995 WL 488438; Sterling
Printing, Inc., supra, slip op. at 82.
65 Indeed, even if the Contractor was a participant in
Program A814-M, that contract would be inapposite here. The
substantial differences between the type of work under
Program A814-M and the agreement in dispute would preclude
finding a commonality or course of dealing between the
parties with respect to stripping and blueline costs. Cf.
RD Printing Associates, Inc., GPO BCA 02-92 (December 16,
1992), slip op. at 35-36, fn. 33, 1992 WL 516088. Accord
Gresham & Co., Inc. v. United States, 200 Ct. Cl. 97, 470
F.2d 542 (1972).
66 The reason the "jury verdict" technique is usually viewed
as an evidentiary tool, rather than as a method of proof of
the amount itself, is simple enough. As explained by the
ASBCA: "There is neither a single nor a precise method of
arriving at the dollar amount of an equitable adjustment.
In general we seek to reach a figure as an equitable
adjustment which represents the cost to a reasonably
efficient contract[or] of performing the changed work under
his contract. Evidence of this amount may be found in the
actual costs of the particular contract, to the extent that
those costs are not shown to be other than reasonable, and
in engineering estimates of reasonable cost made by experts
who bring into play their experience and knowledge to
attempt to visualize the price at which that reasonably
efficient contractor could perform. Neither estimating nor
accounting are such exact arts that either can produce
figures which will be agreed to by all parties without
legitimate argument. We recognize that often, despite
protestations to the contrary, extreme positions on monetary
entitlement are taken during litigation. . . . [We must
determine] . . . a figure as the amount of an equitable
adjustment . . . [which] . . . ordinarily is . . . some
place between the amount contended for by each party to the
litigation. . . . This is a figure which in the view of the
trier of the facts is fair in light of all the facts of the
case, or, put another way, is supported by consideration of
the entire record." Johnson, Drake & Piper, Inc., supra,
65-2 BCA at 23,073. Similarly, the Department of
Agriculture Board of Contract Appeals has observed that: "It
is not essential that the amount be ascertainable with
absolute exactness or mathematical precision. [Citations
omitted.] It is enough if the testimony and evidence
adduced is sufficient to enable the court or board (acting
as the jury) to make a fair and reasonable approximation of
the amount recoverable. [Citations omitted.]" Lawrence D.
Krause, supra, 82-2 BCA at 80,073. See also Greenwood
Construction Corp., Inc., AGBCA No. 75-127, 78-1 BCA ¶
12,893.
See generally Cibinic & Nash, pp. 716-23.
67 In essence, notwithstanding the requirement for proof of
costs, the cases disclose a hesitancy to completely deny
recovery where it is reasonably certain that an injury did,
in fact, occur. See Meva Corp. v. United States, 206 Ct.
Cl. 203, 220-21, 511 F.2d 548 (1975) (where the court
allowed a "jury verdict" recovery because it was "equally
clear" that the contractor suffered substantial monetary
damage in direct consequence of the Government's breach of
contract). See also Harold Benson, AGBCA No. 384, 77-1 BCA
¶ 12,490 (where the evidence did not support the amount
claimed by the contractor but did indicate that the amount
allowed by the contracting officer was too low); Custom
Roofing Co., ASBCA No. 19164, 74-2 BCA ¶ 10,925 (where the
board granted a "jury verdict" recovery based on "rough
estimates"); and Rocky Mountain Construction Co., IBCA No.
1091-12-75, 77-2 BCA ¶ 12,692 (where the board applied the
"jury verdict" method to an item whose cost was "totally
unclear"). Indeed, under the "jury verdict" technique, a
board may even go so far as to make its own calculations of
an equitable adjustment if it is not satisfied with the
computations of either the contractor or the Government.
See Steve P. Rados, Inc., AGBCA No. 77-130-4, 82-1 BCA ¶
15.624; Varo,
Inc., ASBCA No. 15000, 72-2 BCA ¶ 9,717. In short, the teaching
of the cases is that it is an error for a trier of fact to
totally deny a contractor's claim when entitlement is clear and
there is some evidence upon which to base a "jury verdict"
recovery. See Assurance Co. v. United States, supra; S.W.
Electronics & Manufacturing Corp. v. United States, supra;
Electronic & Missile Facilities, Inc. v. United States, supra.
See also Eagle Paving, AGBCA No. 75-156, 78-1 BCA ¶ 13,107.
Thus, the "jury verdict" method works in harmony with two
purposes of the equitable adjustment procedure in general, namely
to recognize and give appropriate consideration to the special
circumstances of each case, and to avoid blind computations of
additional costs or cost savings. See G.M. Company Manufacturing
Inc., ASBCA No. 2883, 57-2 BCA ¶ 1,505, at 5,234.
68 Of the 20 workdays in February 1991, the record shows
that the Appellant procured other work which fully occupied
the Miller Press on February 15, 1991, and February 18,
1991, respectively, and hence there is no claim for those
days (App. Exh. No. 5). Indeed, as previously noted, the
Miller Press was completely shutdown on just seven (7) of
the 20 workdays that month; i.e., February 1, 4, 5, 6, 7, 8,
and 12, 1991. See note 32 supra.
69 It should be noted that this provision, by its terms,
does not preclude recovery merely because a "common item" is
"reasonably usable on the contractor's other work." To be
unrecoverable, the item must be both "reasonably usable" and
capable of being retained without loss to the contractor.
Furthermore, the provision clearly apportions the burden
each party bears with respect to establishing the proper
classification of residual equipment. Thus, the contractor
is responsible for initially coming forward with evidence to
demonstrate it could not retain the equipment at cost for
use on other work without sustaining a loss. Once this is
done, the burden shifts to the Government to show that there
has been an evaluation of the contractor's current and
planned production to determine if such residual equipment
is in fact reasonably usable by the contractor or in excess
of the latter's reasonable needs. The extent to which these
requirements are met determines the proper classification of
residual equipment. See Fiesta Leasing and Sales, Inc,
supra, 87-1 BCA at 99,287 (citing Essex Electro Engineers,
Inc., DOTCAB Nos. 1025, 1119, 81-1 BCA ¶ 14,838 at 73,250,
reconsid. denied 81-1 BCA ¶ 15,109, aff'd 702 F.2d 998 (Fed.
Cir. 1983)).
70 By definition, a tangible capital asset has three
essential characteristics: (a) it is acquired for use in
operations and not for resale; (b) it is long-term in
nature, yielding services over a number of years; (c) it has
physical substance. See Lane K. Anderson, Accounting for
Government Contracts: Cost Accounting Standards, Matthew
Bender Accounting Series, 1981, § 13.03[4], pp. 13-6, 13-7
(hereinafter Anderson).
71 "Tangible capital assets" are expressly included within
the definition of "facilities" in the cost accounting rules
relating to "idle facilities and idle capacity costs." See
GPO Cost Directive, Sec. 3, ¶ 25(a). "Idle capacity," is
simply defined as "the unused capacity of partially used
facilities." Id.
72 See note 23 supra.
73 In Cloverleaf Enterprises, Inc., the ad hoc contract
appeals panel affirmed the contracting officer's award of
depreciation and administrative costs pursuant to the
Government's convenience termination of the contract. See
Cloverleaf Enterprises, Inc., supra, slip op. 18. In doing
so, the ad hoc panel relied on the decision of the ASBCA in
Ted J. Grimsrud and Claude Carr, ASBCA No. 7971, 1962 BCA ¶
3562. Similarly, in Aviation Specialists, Inc., the
Department of Transportation Board of Contract Appeals
(DOTBCA) awarded the terminated contractor a small profit
(1.3 percent) on its continuing costs because of the special
circumstances of that case, despite the general rule
prohibiting anticipatory profits in convenience
terminations. See Aviation Specialists, Inc., DOT BCA No.
1967, 91-1 BCA ¶ 23,534, at 117,993. Both Cloverleaf
Enterprises, Inc. and Aviation Specialists, Inc. are "pure"
convenience termination cases. In cases where the
convenience termination of a "requirements" contract is the
result of a default being overturned, recovery seems to be
strictly limited to unreimbursed costs of the actual work
performed on the contract before termination. See e.g., Bay
Ridge Press, supra, Supplemental Decision, slip op. at 3.
74 As a matter of contract law, a requirements contract is:
". . . a contract by which one party, the seller, agrees to
satisfy all of the buyer's requirements for services and/or
items for a specified period of time. That contract is
violated if either the buyer does not purchase all of its
requirements from the seller, or, if the seller fails to
satisfy all of the buyer's needs. The consideration that
makes such a contract binding is the buyer's promise to
purchase all of its requirements from the seller and the
seller's promise to satisfy those requirements." See R.C.
Swanson, supra, Supplemental Decision, slip op. at 22
(quoting Aviation Specialists, Inc., supra, 91-1 BCA at
117,991).
75 The termination clause in question was FAR 52.249-2,
"Termination for Convenience of the Government (Fixed-Price)
(April 1984)," which was incorporated by reference in the
contract. See Aviation Specialists, Inc., supra, 91-1 BCA
at 117,989. As previously indicated, GPO's convenience
termination clause, GPO Contract Terms, Contract Clauses, ¶
19, is essentially a verbatim adoption of FAR 52.249-2. See
R.C. Swanson, supra, Supplemental Decision,
slip op. at 18.
76 In reaching the conclusion that the terminated contractor
was entitled to recover its continuing costs relating to the
aircraft after the date of termination, the DOTBCA relied on
two earlier cases decided by the ASBCA-Fiesta Leasing and
Sales, Inc., supra and Ted J. Grimsrud and Claude Carr,
supra. See Aviation Specialists, Inc., supra, 91-1 BCA at
117,992. In Fiesta Leasing and Sales, Inc., which the Board
has cited with approval in this case, an Air Force fixed
price definite quantities contract for the lease of buses
was terminated for convenience. After termination, the
contractor
attempted but was unable to lease the buses elsewhere. The ASBCA
found that under the "Termination for Convenience" clause the
contractor was entitled to its depreciation expense and to its
insurance and other continuing costs on certain buses following
the termination. Ted J. Grimsrud and Claude Carr, which was
cited in the ad hoc panel's ruling in Cloverleaf Enterprises,
Inc., see note 73 supra, involved a requirements contract under
which the Air Force agreed to purchase all of its snow removal
needs for approximately six months from the contractor. In order
to fulfill the contract, the contractor purchased a snow plow.
After about two and a half months, the contract was terminated
for convenience when the military base involved ceased to be an
active installation. The contractor claimed entitlement to fuel
and insurance costs and sought reimbursement for the original
cost of the snow plow. The ASBCA found that the contractor was
entitled to depreciation expenses on the plow and the insurance
costs for the two and one-half month period of contract
performance. There was no indication whether the contract
contained a clause providing for continuing costs, and the ASBCA
made no allowance for the period following termination. Fuel
costs were not allowed since there was no proof that these costs
were associated with the contract.
77 See note 60 supra.
78 Indeed, GPO Cost Directive, Sec. 3, ¶ 25(b)(2) cross-
references GPO Cost Directive, Sec. 3, ¶ 49.
79 In the Board's view, the 18 workdays affected by this
ruling is analogous to a reasonable wind-up period following
the convenience termination of the Appellant's contract.
See Southland Manufacturing Corp., supra, 75-1 BCA at
52,361.
80 As the Board indicated in remanding the claim in R.C.
Swanson, it expected that recomputing the terminated
contractor's allowances under the rule of Aviation
Specialists, Inc. would have the greatest impact on
overhead, capital acquisition, and G & A expenses. However,
the record in that case did not provide the Board with a
sufficient factual record to resolve the claim de novo. See
R.C. Swanson, supra, slip op, at 26-27, fn.22.