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.