Graphic Litho Company, Inc. GPO BCA 17-85 February 23, 1988 Michael F. DiMario, Administrative Law Judge Opinion This appeal, timely filed by Graphic Litho Company, Inc. (hereinafter "GLCI/Appellant"), 130 Shepard Street, Industrial Park, Lawrence, MA 01843, is from the final decision of Raymond MacDonald, Contracting Officer, U.S. Government Printing Office, Denver Regional Printing Procurement Office (hereinafter "Respondent" or "GPO/DRPPO"), dated November 4, 1985. The appeal is denied and the Contracting Officer's opinion is affirmed for the reasons set forth hereinbelow. Background The GPO DRPPO, by letter of its Manager, John D. Chapman, dated August 28, 1984, advised Mr. Ralph Wilbur, President, GLCI, that GPO DRPPO contract, Jacket No. 680-799, Purchase Order M-4967 of September 19, 1983, was being terminated for the convenience of the Government effective that day and that GLCI would have to properly account for its termination inventory in conjunction with any settlement. In written response, Appellant claimed reimbursable costs of $13,295.92, including $10,614.47 for some 64,750 sheets of paper stock which it had acquired on December 1, 1983, for the terminated job. (The specifications required the contractor to furnish white, offset map, lithographic finish paper (Basis - 500 sheets, weight - 60 lbs, size 25" x 38") equal to JCP Code E-30 as described in "Government Paper Specifications Standard No. 9" dated December 1981.) Chapman, because of concerns about the propriety of accepting Appellant's claim in light of having received prior inconsistent information from Appellant concerning the size and cost of the paper, referred the matter to GPO's Central Office for audit or investigation, as appropriate. His referral memorandum dated November 15, 1984, chronicled the following data: 1) Bids opened on September 20, 1983 with low bid of $11,404.00 from Graphic Litho. They claimed that the price was the cost of stock only and that they had made an error in bid. Graphic Litho was permitted to adjust their bid to $30,592.00 and award was made to them on October 11, 1983. 2) U.S. Forest Service put order on "hold" on October 31, 1983 and requested return of furnished material due to need to make changes. Graphic Litho reported having made some changes prior to "hold." 3) In March of 1984 we deducted 25% from the payment on Jacket 681-153 which was produced by Graphic Litho on White Lithographic Map paper equal to JCP E30. Deduction resulted from paper not meeting specifications. When informed of the deficiency, Ralph Wilber [sic] of Graphic Litho reproted [sic] problems with identifying and acquiring E30 stock. The stock involved in the matter of Jacket 680-799 is also JCP E30. 4) In July of 1984 it became clear that the order would not be put back into product [sic] in foreseeable future so decision was made to terminate the order for convience [sic]. When asked by Denver RPPO for cost and sample stock, Mr. Wilber [sic] gave a price of $12,206.64 for 64,750 sheets of 54 x 57" stock and provided samples. The stock failed testing for E30. 5) When informed of test results, Mr. Wilber [sic] provided his own test results and additional samples. The additional samples past testing. 6) Notice of Termination for convience [sic] sent on August 29, 1984. 7) Letter recieved [sic] from Mr. Ralph Wilber [sic] requesting, amoung [sic] other items, $10,614.47 for 64,750 sheets of 54 x 77" stock. The other items of cost claim that the stock has been on hand since December 1, 1983. (The memorandum's reference to its own exhibits have been omitted to avoid unnecessary confusion.) Official File, Tab M, Exhibit A. Additionally, the memorandum noted that: At the time of error in bid, worksheets showed a reasonable running stock 54 x 58". Of greater concern is the fact that Graphic Litho was unable to supply a sample, When [sic] first asked, that passed test despite claiming to have to stock [sic] on hand since December of the previous year. Also, Graphic Litho claimed in May, 1984 to have problems acquiring the E 30 stock or even understanding its stringent requirements. Official File, Id. at Tab M. As a result, the matter was investigated by the GPO Inspector General's Office. The focus of the investigation was apparently on the question of whether Appellant had in fact acquired the paper in time to meet the adjusted shipping date of November 10, 1983. The IG's report dated September 4, 1985, summarized the investigation, thusly: This investigation was initiated upon the receipt of information provided to the Office of the Inspector General on November 20, 1984, by Mr. Raymond MacDonald, Assistant Manager, Denver Regional Printing and Procurement Office (DRPPO). Mr. MacDonald requested that this office determine if the Graphic Litho Company, Inc. (GLCI), Lawrence, Massachusetts, had paper stock on hand to produce Jacket Number 680-799 in a timely manner. According to Mr. MacDonald, the information was needed in order to fairly compensate GLCI for materials purchased for the above contract which was later terminated for the convenience of the Government. The DRPPO had attempted to resolve this matter, but has received what it considered to be possible false information from GLCI in response to its requests for information. The pertinent and significant facts in this case are as follows: (1) GLCI was awarded Jacket Number 680-799 under Purchase Order Number M4967, dated September 19, 1983; (2) contract specifications for this Jacket Number stipulated a shipment date of October 20, 1983, contingent upon receipt of Government-Furnished-Property (GFP) by the contractor on September 26, 1983; (3) contract specifications for Jacket Number 680-799 on October 13, 1983, thereby adjusting the ship date for that contract to November 10, 1983; (5) GLCI notified the DRPPO by correspondence dated October 24, 1983, that it was experiencing difficulty locating JCP-30 paper or its equivalent; (6) on November 2, 1983, GLCI returned the GFP for Jacket Number 680-799 at the DRPPO's request for "corrections": (7) GLCI took delivery of paper stock for Jacket Number 680-799 on November 21, 1983 and what appears to be November 23, 1983,: (8) GLCI received Notice of Termination for Jacket Number 680-799 by letter dated August 28, 1984 from the DRPPO; and (9) GLCI received written notice dated November 29, 1984, from the DRPPO directing GLCI to maintain and not dispose of the paper stock for Jacket Number 680-799 until the present dispute is resolved. The DRPPO contended that the Government is liable for GLCI's costs related to Jacket Number 680-799 only if GLCI had paper stock on hand in time to produce the contract by the adjusted ship date of November 10, 1983. GLCI's position is that it did not receive notification of the adjusted ship date subsequent to returning the GFP for Jacket Number 680-799, which was subsequently confirmed by the DRPPO and, consequently, cannot be held to the November 10, 1983, ship date for purposes of resolving this dispute. [The Summary's reference to the reports own exhibits have been omitted to avoid unnecessary confusion.] Rule 4 File, hereinafter "R4 File", Tab 23. Additionally, the report states that during the course of the investigation "Mr. Chapman requested that [the IG] attempt to determine if the 54" x 57," 'South Shore Wht [sic] Wove', paper ordered by GLCI [Graphic Litho Company, Inc.] Invoice Numbers M06468 and M06712 was JCP-E30 quality paper." (R4 File, Tab 23, page 8.) The IG's Office, in an effort to answer the question, contacted Mr. Bruce A. McCulloch, Market Manager, Merchant Paper, HPCI (Hammermill Paper Company, Inc. - the paper manufacturer). McCulloch reportedly stated that the paper in question was "roughly equivalent" to JCP-E30 paper but that [d]ue to the stringent requirements for JCP-E30, not every sample of the above paper would pass testing for JCP-E30." Subsequently, by final decision letter of November 4, 1985, Raymond MacDonald, Contracting Officer, GPO DRPPO, advised Wilbur that the GPO DRPPO had: [E]valuated your settlement proposal for the costs incurred by your firm . . . . The last item, paper, is also something that we don't find we are liable for. We base that on the fact that neither you nor your paper supplier can verify that the stock you have on hand is equal to our specifications. Your supplier in response to our investigation stated that he would not guarantee the stock supplied to Graphic Litho as paper that would meet our specifications. He also stated the paper was not special order to meet particular specifications. For these reasons we will not pay for the paper purchased to produce this order. R4 File, Tab 22. Thereafter, the appeal was timely filed with this Board with a request that the matter be decided on the written record. Subsequently, the Appellant supplemented the R4 File by submitting its own exhibits, including its Exhibit 25, a statement dated July 1, 1986, addressed "To Whom It May Concern" from Bruce A. McCulloch, supra, referring to the Respondent's IG report, stating: Please be advised in paragraph 4, page 8, I was quoted out of context insofar as their [sic] is no recollection of a statement on my part that the specific lot of paper in question would or would not meet JCPE30 specifications. Hammermill South Shore Offset (the grade in question) is not specifically guaranteed to meet JCPE30 specifications. However, many specific runs of this grade do, in fact, meet JCPE30 specifications. The written record was thereafter settled on July 8, 1987. Accordingly, the matter is now before the Board for decision. Issue The principal issue raised by this appeal is whether or not Appellant, pursuant to its termination for convenience settlement claim, is entitled to be paid for certain termination inventory, namely, regularly manufactured and merchandised paper stock acquired for the specific fixed- price supply contract in question but which neither the Appellant nor its supplier paper mill will guarantee to meet specified Government paper specification standards. Discussion The Government, as a matter of contract law, is generally entitled to require strict compliance with its contract specifications, including those of fixed-price supply contracts. Jefferson Construction Co. v. United States, 151 Ct.Cl. 75 (1960); Red Circle Corp. v. United States, 185 Ct.Cl. 1, 8 (1968); American Electric Contracting Corp. v. United States, 579 F.2d 602, 608 (1978); Dependable Printing Company, Inc., GPO BCA 5-84 (1985). The question in the instant case is whether such entitlement has been somehow nullified because the Government exercised its right to terminate such contract for its own convenience. Examining pertinent case law, we find there is an accepted fiction that the effect of a termination for convenience is to convert a fixed-price contract into one for reasonable cost reimbursement, Southland Manufacturing Corp., ASBCA 16830, 75-1 BCA ¶ 10994 (1974), so long as such costs were in fact incurred in pursuit of performance of the contract and do not exceed the original contract price. Derrick Electric Co., ASBCA 21246, 77-2 BCA ¶ 12643 (1977). Moreover, the reimbursement may include the "cost of raw materials, . . . which do not comply in all respects with the requirements of the specifications. . . . if they are reasonable, allocable, and allowable." Best Lumber Sales, ASBCA 6737, 72-2 BCA ¶ 9661 at 45908 (1972). But, costs for common supplies useable by the contractor on other work, will usually be disallowed pursuant to Government cost principles. However, if the contractor can prove by a preponderance of the evidence that it has no use for the supplies, it will be is entitled to reimbursement, notwithstanding common use of the supplies in industry. American Packers, Inc., ASBCA 14275, 71-1 BCA ¶ 8846 (1971). Based upon the case law, supra, we believe that the Contracting Officer acted within his legitimate discretion in denying Appellant's claim for reimbursement of its paper costs, since the record clearly shows the paper to be a common item for which the Government bears no liability and for which the contractor has offered no evidence of nonusability. Since we find no Government liability, there is no need to examine Appellant's claimed entitlement to interest. Appellant is, however, entitled to be paid reasonable storage costs under the provisions of U.S. Government Printing Office Contract Terms No. 1 (GPO Publication 310-Revised October 1, 1980), Article 2-17(d) (3), from the effective date of the termination until its receipt of the Contracting Officer's "final decision" letter denying the claim inasmuch as the Contracting Officer directed that Appellant secure and preserve the paper pursuant to Article 2-17(b)(9) of the said Contract Terms No. 1. We affirm.