BOARD OF CONTRACT APPEALS U.S. GOVERNMENT PRINTING OFFICE WASHINGTON, DC 20401 In the Matter of ) ) the Appeal of ) ) R.C. SWANSON PRINTING AND ) Docket No. GPO BCA 15-90 TYPESETTING COMPANY ) Jacket No. 241-699 ) Purchase Order 70992 ) Program D404-M ) SUPPLEMENTAL DECISION AND ORDER On March 6, 1992, the Board issued its Decision and Order in the above-captioned appeal of R.C. Swanson Printing and Typesetting Company (hereinafter Appellant or Contractor), from the final decision of Contracting Officer Katherine M. Phillips (hereinafter Contracting Officer), of the U.S. Government Printing Office (hereinafter Respondent or GPO), disallowing nearly all of the Appellant's claim for termination costs of $245,796.75, arising out the Respondent's termination of the Appellant's contract identified as Purchase Order 70992, Program D404-M, Jacket No. 241-699, for the convenience of the Government (R4 File, Tab U).1 In its Decision and Order, the Board dismissed the Contractor's claim for breach of contract damages for lack of jurisdiction, but ruled that the appeal from the Contracting Officer's denial of its claim for termination costs was a justiciable controversy.2 R.C. Swanson Printing and Typesetting Company, GPO BCA 15-90 (March 6, 1992), Sl. op. at 2. However, because the termination cost question could not be decided on the record as it existed, the Board ordered a hearing to take evidence on that issue. Id., Sl. op. pp. 41-42. GPO Instruction 110.12, Rules 8, 17-25. Accordingly, a hearing was conducted by the Board on June 2, 1992, for the purpose of developing evidence on the issue of termination costs (Tr. 4).3 At the hearing, the Respondent was represented by counsel, while the Appellant appeared pro se. Thereafter, both parties filed timely briefs and reply briefs with the Board addressing the issues involved.4 Based on the record in this case, including the evidence developed at the hearing and the written arguments of the parties contained in their posthearing briefs, the Contracting Officer's decision disposing of the Appellant's termination cost claim is REVERSED, and the matter is REMANDED to the Contracting Officer for further action in accordance with this opinion. I. BACKGROUND The relevant facts in this appeal are undisputed and were set forth at length in the Board's Decision and Order of March 6, 1992. They are repeated here only to the extent necessary for the Board's decision on the termination cost issue. This controversy stems from the Respondent's issuance, on December 1, 1988, of Purchase Order 70992 to the Appellant for the production of legal briefs for the Department of Justice (DOJ) under Program D404-M (R4 File, Tabs A, pp. 1, 5 and D). Purchase Order 70992 was a term contract for the period beginning December 1, 1988, and ending November 30, 1989. The Appellant's contract price for the work over the term was $504,702.66. Id. Among other contract specifications, Program D404-M provided, in pertinent part: QUANTITIES: . . . The quantities of items specified herein are estimates only, and are not purchased hereby. Except as may be otherwise provided in this contract, if the Government's requirements for the items set forth herein do not result in orders in the amounts or quantities described as "estimated," it shall not constitute the basis for an equitable price adjustment under this contract (R4 File, Tab A, p. 3). [Emphasis added.] Except as otherwise provided in this contract, the Government shall order from the contractor(s) all the items set forth which are required to be purchased by the Government activity identified on page 1 (R4 File, Tab A, p. 3). [Emphasis added.] The Government shall not be required to purchase from the contractor(s), requirements in excess of the limit on total orders under this contract, if any (R4 File, Tab A, p. 3). * * * * * * * * * * Subject to any limitations elsewhere in this contract, and pursuant to the section entitled "DETERMINATION OF AWARD AND PLACEMENT OF WORK," the low contractor and each successive low contractor shall furnish to the Government all items set forth herein which are called for by print orders issued in accordance with the "Ordering" clause of this contract, except when the shipping/delivery schedule cannot be met (R4 File, Tab A, p. 4). * * * * * * * * * * FREQUENCY OF ORDERS: Approximately 65 orders per month (R4 File, Tab A, p. 5). QUANTITY: Approximately 50 to 1,000 copies per order. (Most orders will be for 400 copies or less.) (R4 File, Tab A, p. 5). NUMBER OF PAGES: 4 to 400 pages per order. (Most order[s] will be for 64 page[s] or less, however an occasional order may have up to 1,200 pages.) (R4 File, Tab A, p. 5). * * * * * * * * * * DETERMINATION OF AWARD AND PLACEMENT OF WORK The Government will make multiple awards under this solicitation since it is anticipated that one firm may not be able to meet all of the requirements (R4 File, Tab A, p. 11). In order to make multiple awards and to determine the sequence of bidders, the Government will apply the prices quoted by each bidder in the "Schedule of Prices" to the following units of production which are the estimated requirements to produce one year's under this contract. These units do not constitute, nor are they construed as a guarantee of the volume of work which may be ordered for a like period of time (R4 File, Tab A, p. 11).5 [Emphasis added.] On April 11, 1989, the Contracting Officer asked GPO's Contract Review Board (CRB) to approve termination of the Appellant's Program D404-M contract for the convenience of the Government because the DOJ had decided that its needs had changed. Specifically, the DOJ wanted briefs produced from both manuscript copy and electronically transmitted data, and the existing Program D404-M did not provide for the production of briefs from dual sources; i.e., it was strictly a manuscript copy contract. By April 12, 1989, all members of the CRB had given their approval for the proposed termination action (R4 File, Tab E). See, PPR, Chapter XIV, Section 2 ¶ 3.(a). On May 19, 1989, the Respondent telephoned the Appellant to inform it that Program D404-M was being terminated for the convenience of the Government, and to seek its agreement to terminate the contract without additional cost (R4 File, Tabs F and H).6 The Appellant would not agree to a no-cost cancellation of the contract, and instead filed a claim for $237,000 with the Contracting Officer (R4 File, Tab I). As stated in its letter, dated September 9, 1989, the basis of the Appellant's claim was, in pertinent part: Purchase Order 70992 was issued, effective December 1, 1988 through November 30, 1989. It was issued to cover work performed under Program [D]404-[M]. Swanson was the low bidder with a bid of $560,780.73 . . . As of September 6, 1989, when the contract was terminated, Swanson had been paid, or was still owed, $288,261.48. This means the contract still had an estimated $272,519.25 of work to expect under the contract. Swanson had been the [No.]1 contractor since September 1, 1984 and had every reason to believe and expect the [G] overnment to procure the total amount as they had the prior years. September, October and November have traditionally been the busiest months. Swanson acquired certain capital equipment in 1984 and 1985 specifically gearing its facilities for this legal brief work. These capital expenditures were tied to Swanson's plans to keep the [D]404-[M] program to cover these costs. There are still amounts left owing on these capital acquisitions which would have been paid off if the [GPO] had not terminated the contract. These capital purchases have a balance of approximately $70,500.00 which would have been paid up with proceeds from the remaining $272,519.25 of Purchase Order 70992. Furthermore, the loss of this contract suddenly with no adjustment period does not allow Swanson adequate time to replace such a substantial portion of its sales. Swanson's gross sales during the 9 months that Purchase Order 70992 was in effect were $418,479.33. Purchase Order 70992 represented 69% of gross sales for that 9 month period. . . . . . . [T]he bill [for a typical job under the contract] would be $842.16, Swanson's direct costs [would be] $109.17. This would have yielded a gross profit of $732.99 to go towards capital costs and overhead. 87.04% represented gross profit. Swanson expected to receive on the remaining $272,519.25 of Purchase Order 70092[,] 87.04%, or $237,200.76 to go to overhead and capital debt elimination as well as profit. Swanson hereby makes a claim for $237,200.76 on the Government's Termination for convenience of Purchase Order 70992 plus any future costs incurred in relation to this claim (R4 File, Tab I). On September 26, 1989, the Respondent issued a formal "Notice of Termination" (Notice) to the Appellant (R4 File, Tab J). The Notice informed the Appellant that the effective date of termination was September 6, 1989, which was approximately 3 months or 12 weeks prior to the end of the contract term (November 30, 1989) (R4 File, Tab J). The Notice also instructed the Appellant, among other things, to submit a settlement proposal on GPO Form 911 (which was enclosed) in accordance with the "Termination for Convenience of the Government" (TCG) clause in the contract (R4 File, Tab J). See, GPO Contract Terms, Contract Clauses, ¶ 19(c). Accordingly, by letter dated October 2, 1989, the Appellant sent the Contracting Officer a properly filled out GPO Form 911 with a claim in the amount of $245,796.75 (R4 File, Tab K).7 The Appellant's termination settlement proposal was referred to GPO's Office of the Inspector General (OIG) for an audit (R4 File, Tabs M and N). In referring the Appellant's proposal, the Contracting Officer asked the OIG to "determine the basis for and the accuracy of the amounts included in that claim[.]" (R4 File, Tab M). [Emphasis added.] The OIG issued its audit report of the Appellant's claim on February 27, 1990 (R4 File, Tab Q) (hereinafter OIG Audit Report). The audit report was based on an examination of the Appellant's settlement proposal, documents in GPO's procurement file, and records furnished by the contractor (R4 File, Tab Q, Attachment I). Of the Appellant's claim of $245,796.75, the audit report questioned $244,265.86, leaving a balance of $1,530.89 (R4 File, Tab Q, Attachment III, p. 1). With respect to the "Basis of the Claim," the OIG Audit Report states, in pertinent part: [The Appellant] estimated the dollar value of the terminated portion of the contract to be $272,519. [The Appellant] arrived at this figure by estimating the total dollar value of the contract to be $560,781 and deducting the $288,261 that the contractor claimed had been shipped and invoiced on the contract. However, the contract specifications stated, "The quantities of items specified herein are estimates only, and are not purchased hereby. Except as may be otherwise provided in this contract, if the Government's requirements for the items set forth herein do not result in orders in the amounts or quantities described as 'estimated,' it shall not constitute the basis for an equitable price adjustment under this contract." See, OIG Audit Report, p. 1. [Emphasis added.] As for the specific items encompassed in the Appellant's settlement proposal, the OIG Audit Report discloses the following: 1. Labor Costs: Of the Appellant's claim for labor costs ($6,468.00), the audit found that the Contractor could only support $809.80 ($404.80 for health care premiums and $405.00 for severance pay) with documentation. Thus, the report questioned $5,658.20 of the claim.8 2. Overhead Expenses: The Appellant claimed overhead expenses of $136,230.00. Although the auditors did not question the Appellant's overhead rate of 48.51 percent, they applied that rate only to the costs which they felt were directly associated with the termination of the contract-the labor costs. As a result, the report determined that $392.83 was allowable on the claim. As for indirect costs, the auditors said that they should be disallowed as unabsorbed overhead. [Citing, Technology, Inc., ASBCA No. 14083, 71-2 BCA ¶ 8956.] 3. Capital Acquisition Debt: The Appellant asked for $46,901.00 as reimbursement for the equipment it had purchased to perform work under Program D404-M when it first acquired the contract five years previously. The auditors noted that Program D404-M was procured annually, thus the Appellant was never guaranteed more than a year's work under a Program D404-M contract. Furthermore, the OIG auditors relied on the Contracting Officer's representation that GPO did not have an agreement with the Appellant to purchase machinery, that specialized machinery was not required to perform the contract, and that the machinery in question would have been used on any typesetting job, to support their conclusion that the capital acquisition claim should be denied in its entirety. 4. General and Administrative Expenses: Using a rate of 5.51 percent for general and administrative expenses, the Appellant claimed $15,016.00 in such expenses on the terminated portion of the contract. Although the auditors accepted the Appellant's rate of 5.51 percent, when they applied it to the "small dollar value of direct costs" involved they allowed only $44.62 toward general and administrative expenses. As for general and administrative expenses which were not related to direct costs, the auditors believed that they should be disallowed as being merely a claim for lost business. [Citing, Chamberlain Manufacturing Company, ASBCA No. 16877, 73-2 BCA ¶ 10,139.] 5. Lost Profit: The Appellant claimed $40,878.00 as lost profit on the remainder of the contract. The OIG auditors, however, found that the entire claim was disallowable on the ground that the Government is not responsible in termination for convenience cases for paying for work which is neither ordered or performed. [Citing, Shin Enterprises, Inc., ASBCA No. 16542, 72-1 BCA ¶ 9,391.] 6. Settlement Expenses: The Appellant claimed settlement expenses of $303.75, which represented 27 hours of termination proposal preparation time at an hourly rate of $11.25. The auditors, however, found that the records of the actual hours and pay rates of the employees who worked on the proposal only supported a settlement expense figure of $283.64.9 See, R4 File, Tab Q, Attachment III, pp. 3-6. On March 23, 1990, the Contracting Officer wrote to the Appellant offering to settle the termination claim essentially as recommended by the OIG auditors (R4 File, Tab S).10 By letter dated March 29, 1990, the Appellant rejected the Contracting Officer's settlement offer (R4 File, Tab T). Accordingly, on April 10, 1990, the Contracting Officer issued a final decision on the Appellant's termination settlement proposal, which disallowed all of the Contractor's claim except for $283.53 (R4 File, Tab U). In that regard, the Contracting Officer wrote, in pertinent part: In your letter [of March 29, 1990], you fail to address any specific points from my March 23, 1990 letter to you or to provide any additional information in support of your claim which would provide a basis for further discussion. Therefore I have concluded that, of the $245,796.75 claim in your October 2, 1989 settlement proposal, all claimed costs are denied with the exception of $283.64 representing the costs of preparing your settlement proposal. This decision is made based on the reasons as stated in my March 23, 1990 letter (R4 File, Tab U). The Appellant responded by filing this appeal with the Board (R4 File, Tab V). II. ISSUES PRESENTED In its Decision an Order of March 6, 1992, the Board described the central issue with regard to the disposition of the Appellant's termination proposal as: Was the Contracting Officer's decision denying nearly all of the Appellant's claim for settlement costs correct, and if not what should be the appropriate termination costs?11 It is clear, however, that subsumed in this overall question are two others which must be answered in order to resolve the dispute over the Contracting Officer's disallowance of nearly the whole termination claim submitted by the Appellant: 1. Did the Contracting Officer use the proper cost basis for considering the Appellant's settlement proposal in this case? 2. Has the Appellant provided sufficient proof to show that it incurred the costs connected with the terminated contract described in its claim? III. POSITIONS OF THE PARTIES The respective positions of the parties on the issues presented in this appeal were set forth in the Board's Decision and Order of March 6, 1992. R.C. Swanson Printing and Typesetting Company, supra, Sl. op. at 19-22. Suffice it to say, the Appellant believes that the proper measure for termination costs is the estimated value of the contract over its entire term. See, App. Brf., p. 1-2, ¶¶ 3-5; App. R. Brf., pp. 1, 5; Tr. 13, 19-20, 28; PCR, p. 8. Furthermore, the Appellant contends that its claim for termination costs is fully justified and reasonable under the circumstances.12 See, App. Brf., pp. 2, 3 ¶¶ 5,6, 8 ; App. R. Brf., 1-3, Tr. 14-15. The Respondent, on the other hand, believes that the cost basis of the contract became fixed at the moment of termination-that is the practical effect of its position that each print order is a separate contract. R. Brf., pp. 7-8; Tr. 97-98; PCR, p. 6. Furthermore, since the Government had already paid the Appellant for all the work it performed, the Respondent believes that there is no basis for any additional claim. R. Brf., p. 7; Tr. 22, 97-98; PCR, p. 6. The Respondent also rejects the major underlying assumption of the Appellant's claim, namely, that the contract implied a guarantee of a certain quantity of work. R. Brf., pp. 2, 7-8; R. R. Brf., p. 4; Tr. 19-20, 97-98; PCR, p. 6. Moreover, since Program D404-M is awarded annually through open competition and there is no guarantee that the Appellant will be the successful bidder each time, the Respondent believes that no basis exists for the Government to defray the cost of the machinery which the Contractor had purchased several years ago and used in performing the contract. R. Brf., p. 5; Tr. 62-63; PCR, p. 6. Finally, since the Contractor has the burden of establishing the amount of its incurred costs associated with the termination for convenience, the Respondent contends that the Appellant's inability to provide the Contracting Officer and/or the OIG auditors with tangible support for its settlement proposal, warrants disallowance of the claim.13 R. Brf., pp. 2, 8-9; R. R. Brf., p. 4; Tr. 4-5; PCR. p. 6. See, PPR, Chapter XIV, Section 2 ¶ 3.j(7)(c) (i)-(iii). IV. DECISION14 1. In considering the Appellant's settlement proposal, the Contracting Officer failed to take into account that the terminated contract was a "requirements" contract. Thus, the decision disallowing nearly all of the claim for termination costs was made using the wrong cost basis. In its initial Decision and Order of March 6, 1992, ruling on the "breach of contract" issue raised by the Appellant, the Board held that it had no jurisdiction to consider "pure" breach of contract questions because, inter alia: (1) the Board was essentially a creature of the "Disputes" clause of the contract; and (2) its jurisdiction was derivative and contractual, and hence it was limited to the "four corners" of the agreement in deciding disputes. R.C. Swanson Printing and Typesetting Company, supra, Sl. op. at 24-27 (citing, The Wessel Company, GPO BCA 8-90 (February 28, 1992), Sl. op. at 32-33, 46; Peake Printers, Inc., GPO BCA 12-85 (November 12, 1986), Sl. op. at 6; Bay Printing, Inc., GPO BCA 16-85 (January 30, 1987), Sl. op. at 9). Consequently, in resolving the dispute over settlement costs which divides the parties here, the Board is constrained to look for guidance in the TCG clause of the contract itself. In that regard, the TCG clause provides, in pertinent part: (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. . . . (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; . . . (3) The reasonable costs of settlement of the work terminated, . . . GPO Contract Terms, Contract Clauses, ¶¶ 19(d),(e). [Emphasis added.] A comparison of the above-quoted TCG provisions with the termination for convenience clauses in the Federal Acquisition Regulation (FAR), discloses that the GPO clause is essentially a verbatim adoption of the FAR provisions relating to convenience terminations of fixed price contracts. See, FAR, Part 52, §§ 52.249-2(e)(f). As the TCG clause indicates, under a termination for convenience, a contractor is generally entitled to reasonable costs incurred, a reasonable profit on them, and the costs of settlement; i.e., preparing the termination settlement proposal. See, e.g., Humphrey Logging Company, supra, 85-3 BCA ¶ 18,433; Bay Ridge Press, GPOCAB No. 4-82, Sl. op. at 3 (September 15, 1983).15 Although a termination settlement should compensate the contractor fairly, it is the contractor who has the burden of establishing both that costs were actually incurred and the amount of its incurred costs. Cf., Building Maintenance Specialists, Inc., ENGBCA No. 5654, 90-3 BCA ¶ 23,032. 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.16 Seiler Instrument and Manufacturing Company, 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 CCR-1, 76-2 BCA ¶ 11,930 (1976). A second aspect of TCG clauses is the limitation placed on the contractor's recovery, namely, the "total contract price." GPO Contract Terms, Contract Clauses, ¶¶ 19(d); FAR, Part 52, § 52.249-2(e). An examination of the cases discloses three things about the concept of "total contract price": (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; cf., Nolan Brothers, Inc. v. United States, 194 Ct.Cl. 1, 437 F.2d 1371 (1971); Celesco Industries, Inc., ASBCA No. 22460, 84-2 BCA ¶ 17,295; Pioneer Recovery Systems, Inc., ASBCA No. 24658, 81-1 BCA ¶ 15,059 (1981); Chamberlain Manufacturing Corporation, supra, 73-2 BCA ¶ 10,139 (1973); and (3) it is variable insofar as the "total contract price" is directly related to the type of contract involved in the termination of convenience. See, e.g., Alta Construction Company, PSBCA No. 1463, 92-2 BCA ¶ 24,824; Okaw Industries, Inc., ASBCA Nos. 17863, 17864, 77-2 BCA ¶ 12,793 (in indefinite quantities contracts, the "total contract price" is the minimum price plus quantities ordered in excess of minimum). In other words, where a contract has been terminated for the convenience of the Government, the "total contract price" establishes the cost basis of the termination settlement. The core controversy in this appeal involves the parties' differing views about the proper measurement of the "total contract price," where, as here, a requirements contract is terminated for convenience. As indicated above, the Appellant believes that in such a case termination costs should be based on the estimated value of the contract over its entire term. See, App. Brf., p. 1-2, ¶¶ 3-5; App. R. Brf., pp. 1, 5. The Respondent, rejecting the Appellant's contention that the contract implied a guarantee of a certain quantity of work, argues that because each print order is a separate contract, the cost basis of the contract became fixed at the moment of termination. R. Brf., pp. 2, 7-8; R. R. Brf., p. 4. Thus, as the Board interprets the Respondent's theory, GPO seems to be arguing that the convenience termination of the Appellant's requirements contract in effect converted it into a fixed price contract-or a series of fixed price contracts (print orders)-for termination settlement purposes. Contrary to the Respondent's position, however, a reading of the cases in this area tells the Board that for a requirements contract the "total contract price" for the purpose of the TCG clause is, as claimed by the Appellant, the estimated contract price.17 See, e.g., Albano Cleaners, Inc. v. United States, 197 Ct.Cl. 450, 455 F.2d 556 (1972); Aviation Specialists Inc., DOT BCA No. 1967, 91-1 BCA ¶ 23,534. Aviation Specialists Inc. is particularly instructive in understanding why the "total contract price" for a terminated requirements contract is the "estimated contract price." In that case, where a requirements contract for use of a particular aircraft was terminated for convenience, the Department of Transportation Board of Contract Appeals (DOTBCA) permitted the contractor to recover its post- termination costs for the six months remaining in a one year contract including depreciation, overhead and profit. Aviation Specialists Inc., supra, 91-1 BCA ¶ 23,534, at 117,992, 117,994. Although it limited the Contractor's recovery to the "total contract price" established by using the Federal Aviation Administration's (FAA) pre-award estimate of its requirements, the DOTBCA observed that the FAA could have avoided liability altogether if it had let the contract expire instead of terminating it. Id., at 117,992. As set forth at length in the DOTBCA's decision, the rationale for equating the "total contract price" with the "estimated contract price" in a terminated requirements contract is, in pertinent part: 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. We cannot take lightly the FAA's obligation to purchase all of its requirements from appellant. The appellant had a right to rely on this obligation when planning to perform the contract. . . . Id., at 117,991. [Emphasis added.] * * * * * * * * * * 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.18 Id., at 117,992. * * * * * * * * * * 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. . . .19 Id. * * * * * * * * * * The "Termination for Convenience" provision states that a contractor's entitlement to payment cannot exceed the "total contract price" as reduced by the payments previously made and the price of the work not terminated. This contract does not contain any amount denominated as the "total contract price." Were this a fixed price contract the Government's liability would be limited by the price of the contract. Surely under a requirements contract where the Government has no obligation to purchase any fixed amount of supplies, the parties could not have intended for that obligation to become limitless in the event of termination. On the other hand, . . . , limiting the FAA's obligations to those services actually ordered would have the effect of permitting the FAA to avoid its obligation at any time, at no cost. Under such circumstances there would be no binding obligation and the contract would fail for lack of consideration. [Citation omitted.] The portion of the termination for convenience clause limiting a contractor's recovery to the total contract price is ambiguous in its application to requirements contracts. We must therefore determine the limits of the FAA's obligation. Id., at 117,993. [Emphasis added.] * * * * * * * * * * Under an indefinite quantities contract the "total contract price" for purposes of the Termination of Convenience clause is the minimum price set forth in the contract plus the value of any services ordered in excess of that minimum. [Citation omitted.] . . . However, there is a significant difference between the parties' rights and obligations under a indefinite quantities contract and under a requirements contract. In the former case the contractor is aware that the Government's obligation is only to order the minimum quantity set forth in the contract. After the Government has satisfied that obligation, the Government can purchase its requirements from other sources. However, under a requirements contract, the Government's obligation is not so limited. While there may be no minimum quantity that must be obtained, the Government must purchase all of its needs from the contractor for the contract period. Thus, when planning its performance under a requirements contract, the contractor has a right to rely on the estimated quantity as set forth by the Government in the contract. In Albano Cleaners, Inc. v. United States, [17 CCF ¶ 81,144] 455 F.2d 556, 197 Ct.Cl. 450 (1972), the court had before it a contract which contained a minimum contract price, as in an indefinite quantities agreement. The contract otherwise was similar to a requirements contract in that the Government was required to order all of its needs from the contractor. The court held that under a termination for convenience, the contractor was not limited by the minimum contract price, but was entitled to receive all of the expenses it incurred in preparing to fulfill its contractual obligations. Here, the FAA agreed that for one year it would purchase all of its specified needs from Aviation Specialists. It estimated that 500 hours of airplane time at a cost of $212,250.00 would be required. Based on this representation appellant purchased an aircraft for use on the contract. We conclude that under a requirements contract the "total contract price" for the purpose of the termination for convenience clause is the estimated contract price. Thus, FAA must reimburse appellant is allowable costs as we have set forth above, up to a maximum of $212,250.00. Id., at 117,994. [Emphasis added.] Applying the principles of Aviation Specialists Inc. to this appeal, which also involves a requirements contract, it is clear that the Appellant's argument that termination costs should be based on the estimated value of the contract over its entire term, is consistent with the law. Consequently, by using the Government's estimates of work over the life of the contract to extrapolate a total contract price of $560,780.73 for its settlement proposal, the Appellant computed the "total contract price" for the purposes of the TCG clause by the proper method (R4 File, Tab K).20 Therefore, the Board also finds that the Respondent's reliance on so much of the contract specifications which told bidders, inter alia, that the contract quantities were estimates only and not a guarantee of work or a basis for an equitable price adjustment, is misplaced in the context of this case. When the Contracting Officer applied that view to the Appellant's settlement proposal, the effect was to treat the terminated contract as if it were one for a fixed price instead of the requirements contract which the parties had bargained for.21 For this reason, the Board concludes that the Respondent employed the wrong cost basis of the contract when it considered the Appellant's settlement proposal, and thus the decision disallowing nearly all of the claim for termination costs was erroneous as a matter of law. Accordingly, the Board REVERSES the Contracting Officer's termination cost decision, and will REMAND the matter to the Contracting Officer for further action in accordance with this opinion.22 Cf., RD Printing Associates, Inc., GPO BCA 02-92 (December 16, 1992), Sl. op. at 37 [citing, General Business Forms, Inc., GPO BCA 2-84 (December 3, 1985), Sl. op. at 23]. V. CONCLUSION For the above reasons, the Board finds and concludes that: (1) the Appellant correctly figured its termination settlement proposal on the basis of the estimated contract price over the life of the contract; (2) the Contracting Officer's failure to take into account that the terminated agreement was a requirements contract resulted in a decision which disallowed nearly all of the Appellant's claim for termination costs by using the wrong cost basis; and (3) the record in this case does not provide the Board with the necessary factual information to determine the appropriate settlement allowances for the Appellant's claim in light of the rule expressed in Aviation Specialists, Inc. ACCORDINGLY, the decision of the Contracting Officer is REVERSED, and the appeal is allowed. FURTHERMORE, the matter is REMANDED to the Contracting Officer with instructions to reconsider the Appellant's claim in light of this Supplemental Decision and Order, and to offer compensation in settlement which is fair and reasonable under the circumstances. See, Codex Corporation v. United States, 226 Ct.Cl. 693, 698 (1981). Also see, PPR, Chapter XIV, Section 2 ¶ 3.k(1)(iii). It is so Ordered. July 1, 1993 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 June 29, 1990. GPO Instruction 110.12, Subject: Board of Contract Appeals Rules of Practice and Procedure (GPO Instruction 110.12), dated September 17, 1984 (Board Rules), Rule 4. It will be referred to hereafter as R4 File, with an appropriate Tab letter also indicated. The R4 File consists of documents identified as Tab A through Tab V. 2 The bifurcated nature of the Appellant's appeal was clear from the pleadings and documentation in the appeal file. See, R4 File, Tab V; Appeal File, Tabs 1 and 6 (the Board's appeal file will be referred to hereafter as App. F., with an appropriate Tab number also indicated). See also, Prehearing Telephone Conference Report (PCR), pp. 11-12. 3 The court reporter's transcript shall be referred to herein as "Tr." with an appropriate page number thereafter. 4 Although the Respondent's initial brief is entitled "Respondent's Closing Argument on Issue of Termination Costs," it will be referred to hereinafter as "R. Brf.", with an appropriate page citation thereafter. The Appellant's initial brief will be cited as "App. Brf.," with an appropriate page number thereafter. The Respondent's reply brief and the Appellant's reply brief shall be referred to as "R. R. Brf." and "App. R. Brf.," respectively, with an appropriate page citation thereafter. 5 As indicated in the Board's March 6, 1992, Decision and Order in this matter, the invitation for bids (IFB) on Program D404-M also provided that the contract would be governed by GPO Contract Terms effective December 1, 1987. R.C. Swanson Printing and Typesetting Company, supra, Sl. op. at 3, fn. 4. In its undated posthearing brief, which the Board received on July 20, 1992, the Appellant advanced the argument that this IFB provision meant that the 1987 version of GPO Contract Terms governed the dispute, and that the Respondent's reliance on the 1988 revision was misplaced. App. Brf., p. 1, ¶¶ 1, 2. The gravamen of the Appellant's contention was that the 1987 version of GPO Contract Terms made no provision for the application of "any cost accounting standards" to this dispute. App. Brf., p. 1, ¶ 1. In its reply brief of July 27, 1992,, the Respondent's disputed the Appellant's argument. R. R. Brf., pp. 1-3. The Board resolved this issue in footnote 4 of its Decision and Order when it held that the 1988 version of GPO Contract Terms was the relevant regulation for the purpose of this appeal. R.C. Swanson Printing and Typesetting Company, supra, Sl. op. at 3, fn. 4. Thus, the Board observed that: (a) the IFB was issued and the contract awarded after the 1988 revisions to GPO Contract Terms went to effect-September 1988; and (b) even the revised IFB for Program D404-M issued by the Respondent on May 23, 1989, for the period from July 1, 1989, to June 30, 1990, still referred to GPO Contract Terms effective December 1, 1987 (R4 File, Tab G, p. 2). Id. In any event, GPO's Printing Procurement Regulation, which was in effect on the date the contract was awarded to the Appellant, specifically states that the Contracting Officer shall use cost principles, inter alia, in "[p]roposing, negotiating, or determining costs under terminated contracts[;]". GPO Printing Procurement Regulation, GPO Publication 305.3, revised September 1, 1988, Chapter VIII, Section 1 ¶ 3.b(1) (hereinafter PPR). 6 In termination for convenience cases, it is GPO policy for the Contracting Officer to explore the possibility of a no- cost settlement with the contractor, where it looks as if very small costs were incurred on the terminated portion of the contract and the contractor may be willing to waive his/her right to collect in order to avoid the administrative work and expense associated with processing a claim. PPR, Chapter XIV, Section 2 ¶¶ 2, 3.j(4). In fact, one of the other contractors on the Program D404-M contract, Wilson- Epes, did agree to a no-cost settlement (R4 File, Tab F). R.C. Swanson Printing and Typesetting Company, supra, Sl. op. at 10, fn. 11. 7 The settlement proposal submitted by the Appellant discloses the following information: (a) Section I (Bid Price Cost Breakdown)-material ($28,946.00), labor ($39,922.00), overhead ($280,391.00), general and administrative expense ($127,405.00), and profit ($84,117.00); (b) Section II (Status of Contract At Effective Date of Termination)-$288,261.00 previously shipped and invoiced, and $272,519.00 not to be completed, for a total covered by the contract of $560,781.00; and (c) Section III (Settlement Proposal)-labor ($6,468.00), overhead ($136,230.00), capital acquisition debt ($46,901.00), general and administrative expense ($15,016.00), lost profit ($40,878.00), and settlement expenses ($303.75), for a total proposal price of $245,796.75 (R4 File, Tab K). 8 As indicated in the OIG Audit Report, the Appellant's labor costs were a combination of health premiums and severance pay. OIG Audit Report, Attachment III, p. 3, fn. 1. Subsequently, by letter dated April 15, 1992, to Counsel for GPO, the Appellant sought payment for additional labor costs based on a potential increase in its contribution to the State of Maryland unemployment fund because it had to lay off employees when the contract was terminated. The Respondent contends, inter alia, that this aspect of the Appellant's labor cost claim cannot be considered by the Board because it is untimely. R. Brf., p. 4. The Board agrees. The TCG clause in the contract clearly states that a contractor shall submit his/her 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." GPO Contract Terms, Contract Clauses, ¶ 19(c). In the Board's view, the Appellant's claim based on its contribution to the Maryland unemployment compensation fund is not so much a request for additional labor costs as it is a demand that the Government defray its tax burden to the State. As such, it is not an amendment to an existing claim, but a new one. Under the circumstances, the Board has no jurisdiction over a claim filed by the Appellant after the contractual period for filing a termination settlement proposal (3 months). See, e.g., Mictonics, Inc., ASBCA No. 30262, 85-2 BCA ¶ 18,119. 9 On March 21, 1990, the Contracting Officer contacted Laurel Wilson of the OIG staff for additional information on the settlement expenses portion of the audit report (R4 File, Tab R). According to Wilson, one problem with performing the audit was that the Appellant did not explain how he arrived at his figures, although a list of hours worked, well as the hourly rate for two employees-Rita Langford and Larry Ford- was provided to the OIG auditors (R4 File, Tab R). While no hourly rate was provided for Richard Swanson, the auditors believed $15.00 an hour was fair compensation (R4 File, Tab R). 10 An examination of the Contracting Officer's letter of March 23, 1990, discloses the following disposition of the Appellant's claim: (1) Labor costs for severance pay ($6,468.00 claimed)-$809.80 of the claim could be supported if the Appellant proved that amount was actually paid, that the employees spent a substantial amount of their time on contract work, and the employees were released because of the termination of Program D404-M (the balance of the claim was denied); (2) Overhead expenses ($136,230 claimed)-provided that the labor costs of $809.80 was supported with additional evidence, $392.83 (based on a claimed overhead rate of 48.51 percent) could be allowed (the balance of the claim, representing all overhead not related to direct labor costs, was denied); (3) Capital acquisition debt ($46,901.00 claimed)-the entire amount was denied because the Appellant was not guaranteed an award of the contract in any given year, nor a was it assured of a position in the sequence of bidders, and the equipment in question could be used for a variety of composition and printing contracts; (4) General and administrative expenses ($15,016.00 claimed)-provided that the labor costs of $809.80 was supported with additional evidence, $44.62 (based on a claimed rate of 5.51 percent) could be allowed (the balance of such costs not related to direct labor costs was denied); (5) Lost profit ($40,878.00 claimed)-the entire amount was denied on the ground that profit on work which was neither ordered nor performed is not allowed in a termination for convenience; and (6) Settlement expenses ($303.75 claimed)-$283.64 was allowed as reimbursement for the cost of preparing the settlement proposal (the balance was denied because it was not supported by documentation) (R4 File, Tab S). 11 R.C. Swanson Printing and Typesetting Company, supra, Sl. op. at 18. 12 During the preliminary stages of this appeal, the Appellant also argued that the Contracting Officer's settlement offer was not made in good faith and hence was not acceptable. See, R.C. Swanson Printing and Typesetting Company, supra, Sl. op. at 20 (citing, PCR, p. 10). However, at the hearing and in its post-hearing briefs to the Board, the Appellant did not pursue that allegation, thus the Board deems it abandoned for the purpose of this appeal. In any event, such a "bad faith" claim needs to be established by "well-nigh irrefragable" proof because of the strong presumption that Government officials properly and honestly carry out their functions. See, e.g., Shepard Printing, GPO BCA 23-92 (April 23, 1993), Sl. op. at 7-8, fn. 11; B. P. Printing and Office Supplies, GPO BCA 14-91 (August 10, 1992), Sl. op. at 16; Stephenson, Inc., GPO BCA 02-88 (December 19, 1991), Sl. op. at 55; The Standard Register Company, GPO BCA 4-86 (October 28, 1987); Sl. op. at 12-13. Also see, Melvin R. Kessler, PSBCA No. 2820, 92-2 BCA ¶ 24,857, aff'd on resconsid. 92-2 BCA ¶ 25,092; Federal Data Corporation, DOTBCA No. 2389, 91-3 BCA ¶ 24,063; 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. 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, Solar Turbines, Inc. v. United States, 26 Cl.Ct. 1249, 1275 (citing, Kalvar Corporation v. United States, 211 Cl.Ct. 192, 199, 543 F.2d 1298, 1302 (1976), cert. denied, 434 U.S. 830 (1977)); Stephenson, Inc., supra, Sl. op. at 54. In the Board's view, no such "irrefragable" proof of the Respondent's bad faith exists in this record. Certainly, there is absolutely nothing in the record which would show that the employees of two separate Government entities-GPO and the DOJ-set out to harm the Appellant or that they acted in concert to achieve that specific result. Id., Sl. op. at 57. 13 See generally, John Cibinic, Jr. & Ralph C. Nash, Jr., Administration of Government Contracts 2d ed., (The George Washington University, 1986), p. 842 (hereinafter Cibinic and Nash). It is "black letter" law in this area that the contractor has the burden of proof concerning termination costs, and in the absence of evidence provided by the contractor, the contracting officer's allowance will be accepted. See, e.g., R & B Bewachungs GmbH, ASBCA No. 42214, 92-3 BCA ¶ 25,105; American Geometrics Construction Company, Inc., ASBCA No. 37334, 92-1 BCA ¶ 24,545; Humphrey Logging Company, AGBCA Nos. 84-359-3, 85-204-3, 85-3 BCA ¶ 18,433; Roberts International Corporation, ASBCA No. 15,118, 71-1 BCA ¶ 8869 (1971); Delaware Tool & Die Works, Inc., ASBCA No. 14033, 71-1 BCA ¶ 8860 (1971), mot. for reconsid. denied, 72-1 BCA ¶ 9206 (1972). Also see, PPR, Chapter XIV, Section 2 ¶ 3.j(7)(c)(i)-(iii). While it is preferable to establish incurred costs from accounting records, if such documentation is not available due to no fault of the contractor, the costs may be established on the basis of estimates. See, e.g., Bailey Specialized Buildings, Inc., ASBCA No. 10576, 71-1 BCA ¶ 8699 (1971). However, even if estimates are used, the contractor still has the burden of proof. See, e.g., Lagarelli Brothers Construction Company, Inc., ASBCA No. 34793, 88-1 BCA ¶ 20,363 (A contractor's claim for termination costs was denied because he did not provide evidence to prove his losses. Cost estimates are acceptable only if accounting records are unavailable due to no fault of the contractor. Here the contractor testified to his estimate of losses, but failed to show that the accounting records were unavailable). See also, e.g., Clary Corporation, ASBCA No. 19,274, 74-2 BCA ¶ 10,947 (1974); R. G. Robbins & Company, ASBCA No. 27,516, 83-1 BCA ¶ 16,420 (1983) (disallowing recovery for general and administrative expenses not supported by cost data or accounting testimony). 14 The record on which the Board's supplemental decision is based consists of: (1) the Appellant's letter, dated April 12, 1990, appealing the Contracting Officer's final decision; (2) the R4 File (Tabs A-V); (3) the Appellant's letter, dated July 5, 1990, furnish additional information; (4) the Prehearing Telephone Conference Report; (5) the transcript of the evidentiary hearing conducted by the Board on June 2, 1992; (6) the Respondent's initial brief, dated July 17, 1992, as amended by its "Erratum" of July 30, 1992; (7) Appellant's initial brief (undated, but received by the Board on July 20, 1992; (8) the Respondent's reply brief, dated July 27, 1992; and (9) the Appellant's reply brief (undated, but received by the Board on July 27, 1992). 15 The Board was established by the Public Printer in 1984. GPO Instruction 110.10C, Subject: Establishment of the Board of Contract Appeals, dated September 17, 1984. Prior to the Board's creation, appeals from decisions of GPO Contracting Officers were considered by ad hoc contract appeals boards (the decisions of these ad hoc boards are hereinafter cited as GPOCAB). R.C. Swanson Printing and Typesetting Company, supra, Sl. op. at 28, fn. 30. While the decisions of these ad hoc boards are not legally binding on the Board, it is Board policy to follow them where applicable and appropriate. See, e.g., Chavis and Chavis Printing, GPO BCA 20-90 (February 6, 1991), Sl. op. at 9, fn. 9; Stephenson, Inc., supra, Sl. op. at 18, fn. 20. 16 In short, allowable costs incurred, plus profit, will be recovered, subject to the overall limitation of the contract price and the possible application of the loss adjustment provisions. See generally, Cibinic and Nash, note 13 supra, p. 841. 17 See generally, Cibinic and Nash, note 13 supra, p. 868. 18 Part 31 of the FAR is entitled "Contract Cost Principles and Procedures." Although this appeal is not covered by the FAR, for reasons already stated by the Board the standard cost principles applicable to Government contracts apply to the terminated contract involved in this dispute, as well. See, note 5 supra. 19 Specifically, the DOTBCA found that the appellant had incurred expenses of depreciation, insurance, maintenance, facilities capital, overhead, and advertising following termination. The DOTBCA held that these costs were recoverable as continuing costs under the FAR because they could not be "reasonably discontinued immediately." Aviation Specialists Inc., supra, 91-1 BCA ¶ 23,534, at 117,993. 20 See, note 7 supra. 21 Indeed, practically 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, e.g., KDI Precision Products, Inc., ASBCA No. 21522, 79-1 BCA ¶ 13,640 (firm fixed price); Chamberlain Manufacturing Company, supra, 73-2 BCA ¶ 10,139 (fixed price incentive); Shin Enterprises, Inc., supra, 72-1 BCA ¶ 9,391 (fixed price); Technology, Inc., supra, 71-2 BCA ¶ 8,956 (cost plus fixed fee). The exception appears to be Dairy Sales Corporation, ASBCA No. 20193, 75-2 BCA ¶ 11,613, aff'd sub nom., Dairy Sales Corporation v. United States, 593 F.2d 1002 (Ct.Cl. 1979), which involved the convenience termination of an item in a requirements contract which was awarded by mistake and on which no work had been performed. The Respondent cites Dairy Sales Corporation for two propositions: (a) the burden of proof regarding the amounts due in a termination settlement remains with the contractor; and (b) anticipatory profits are not recoverable. R. Brf., p. 9; R. R. Brf., p. 4, fn. 2. In Dairy Sales Corporation, both the Armed Services Board of Contract Appeals and the Claims Court relied on a specific provision in the Armed Services Procurement Regulation (ASPR) which provided, inter alia, that: " [a]nticipatory profits and consequential damages shall not be allowed. . . . " in disallowing the appellant's claims for anticipatory profits. See, Dairy Sales Corporation v. United States, supra, 593 F.2d at 1004 (citing, ASPR § 8-303(a)). That identical language is not only repeated in the FAR, see, FAR, Part 49, § 49.202(a) (Profit), but it also appears in GPO's Printing Procurement Regulation. See, PPR, Chapter XIV, Section 2 ¶ 3.n. (Allowance for Profit). Consequently, it seems to the Board that the award of a small (1.3 percent) profit on the appellant's continuing costs in Aviation Specialists, Inc., is an exception to the general rule against allowing anticipatory profits in convenience terminations which the DOTBCA crafted because of the special circumstances of that case. 22 The Board is remanding the Appellant's claim to the Contracting Officer for reconsideration in light of the rule of Aviation Specialists, Inc. which the Board adopts here; i.e., that the parameters for settlement of a termination for convenience claim under a requirements contract is established by the estimated contract price. The Board expects that its decision will have the greatest impact on any recomputation of allowances for the Appellant's overhead, capital acquisition, and general and administrative expenses. Unlike the situation in Aviation Specialists, Inc., the record in this case, including the testimony taken at the hearing conducted by the Board on June 2, 1992, does not provide the Board with the necessary factual information to make the determination in those areas for itself. For example, while the Appellant might be allowed a reasonable allowance for depreciation on its machinery for the three months remaining in the contract term, there is no evidence in the record to show how much depreciation had been taken on that machinery in the past. Cf., Hugo Auchter Gmbh, ASBCA No. 39462, 91-1 BCA ¶ 23,645; Metered Laundry Services, ASBCA No. 21573, 78-1 BCA ¶ 13,206, modified on reconsid., 78-2 BCA ¶ 13,451. Moreover, there is nothing in the record which would allow the Board to make a finding as to which of the Appellant's costs could or could not "reasonably be discontinued during the remaining contract term." Aviation Specialists, Inc., supra, 91-1 BCA ¶ 23,534, at 117,992. Finally, the Contractor is reminded that although the Board has endorsed its theory of the case, it still has the burden of proving its claim for settlement costs, see, e.g., R & B Bewachungs GmbH, supra, 92-3 BCA ¶ 25,105; American Geometrics Construction Company, Inc., supra, 92-1 BCA ¶ 24,545; Humphrey Logging Company, supra, 85-3 BCA ¶ 18,433; Roberts International Corporation, supra, 71-1 BCA ¶ 8869 (1971); Delaware Tool & Die Works, Inc., supra, 71-1 BCA ¶ 8860 (1971), mot. for reconsid. denied, 72-1 BCA ¶ 9206 (1972), even if estimates are used. See, e.g., Lagarelli Brothers Construction Company, Inc., supra, 88-1 BCA ¶ 20,363; Bailey Specialized Buildings, Inc., supra, 71-1 BCA ¶ 8699 (1971). Also see, PPR, Chapter XIV, Section 2 ¶ 3.j(7) (c)(i)-(iii).