U. S. Government Printing Office Office of General Counsel Contract Appeals Board Appeal of Maryland Composition October 9, 1974 Vincent T. McCarthy, Chairman Alan S. Zuckerman, Member Essie A. Ablove, Member Panel 74-4 I. Discussion - General This is an appeal concerning several contracts for composition services, involving deductions taken by the Government for asserted excess charges for measured composition set by the contractor (ems), and charges for author's alterations (AA's), plus a demand for type storage payments which the Government denies is due the contractor. The contractor filed its appeal through his Counsel, John C. Armor, on February 4 and April 17, 1974. On May 7, 1974, the appeal was acknowledged and Counsel was advised that "prior to a consideration of the merits of your appeal, you may offer such additional evidence in support of your appeal which you deem adequate to sustain your burden of proof. Written submission is preferred, supported by such documentation, affidavits and the like, which you deem adequate. In addition you may, if you desire, submit a brief in support of the legal position which forms the basis of the contractual relief which you have requested." No additional evidence, affidavits or briefs were filed in response to the foregoing. However, a letter from Counsel dated May 9, 1974 was received, which stated in pertinent part that: "Invoices, detailing all of the work done on all of the disputed jobs, and describing in full the services rendered under various contracts, have already been submitted on all the disputed jobs. . . . By this letter I incorporate by reference all of that material on behalf of my client, to be considered in the appeal." Thus the record consists of (1) the invoices submitted by the contractor which are the subject of the appeal, (2) various proofs of the jobs in question which are in the possession of the Government and which show the markings requiring corrections or alterations in the printed copy, (3) the contracts and other GPO contract administration records, and (4) the unsworn statements of the parties offered at the informal hearing detailed below. The major controversy, leaving aside the question of entitlement for storage charges demanded, centers around what the contractor asserts are arbitrary cuts in contractor billings for author's alterations. Some of the contracts involved payment for author's alterations on the basis of time, and others on a per line or per column line basis. Involved in the controversy concerning AA's would be a definition of the term itself, the intent of the parties and an interpretation of the language of the contracts (including amendments). An informal hearing was held on January 21, 1975. In attendance were Alan S. Zuckerman, presiding; Calvin A. Cox, President, Maryland Composition; John C. Armor, Counsel representing Maryland Composition; and Jack Isemann, and Robert B. Holstein, GPO, Office of Audits. During the course of the hearing, the GPO Superintendent of Composition, Leslie Cox; GPO Manager, Printing Procurement, G. S. Young; and Supervisor, Examination and Certification Division, GPO Financial Management Service, George Wormley were questioned. Mr. Armor recommended that the review of galleys and other proofs to be made during the course of the hearing be made on a random basis for various contracts. In view of the thousands of pages of material involved, it was agreed that the hearing would be held on that basis. The following claims (primarily deductions for em count) as indicated on the summary sheet prepared by the GPO and furnished the contractor were orally withdrawn at the hearing as being not in dispute. Accordingly, the following claims are dismissed with prejudice: GPO Jacket Number Amount 397-529 $4,868.00 397-529 772.20 447-708 145.90 465-238 244.72 465-238 35.10 470-631 1,510.60 476-450 196.19 476-450 35.00 723-414 146.60 773-414 30.00 445-125 59.50 461-096 241.31 468-191 421.17 All of the disputed matters involving time charges for author's alterations involve the subjective judgments of the parties. The contractor admits he has no time records to substantiate the time charges made, and that such charges are "estimated" with allocations made to printers' errors (contractor responsibility) and author's alterations (Government responsibility). In addition, the contractor has stated he knows "how GPO works" and allows for the ''additional cost of doing business with the Government.'' Presumably, some of the additional cost could be involved with the "Estimating" necessary for billing purposes in the absence of actual records of time spent. The contracts in controversy incorporate GPO Form 2834 (Rev. 4/1/68), entitled "General Specifications for Composition, Photoengraving and Platemaking." Form 2834 contains several provisions which are relevant to the present dispute. The provision entitled "Payment" states in pertinent part that: "Payment will be made on the basis of actual numbers of units of work of each classification as described in the specifications and the prices quoted. . . . The contractor's voucher must be supported by an itemized statement showing a breakdown, by item number, of all operations performed. . . ." Form 2834 also contains a section entitled "General Definitions and Instructions, with the following appropriate provisions: "Item 3. Measurement of Text Matter - The Text matter defined herein will be measured on the basis of the point size of the base ordered or specified in width, and line count in depth. . . . Measurement will be on the basis of made up pages and will include the running head, paragraph spacing, and folio for depth measurement, but not including space for illustrations." In addition, measurement of tabular matter is similarly specified in Item 4. Items No. 7 and 13, entitled "Authors Alterations and Timework,"defines authors alterations and contain a provision reserving to the Government the final right to decide the amount of time to be allowed for all time charges. As part of the voucher certification procedures, invoices for composition are first reviewed by the staff of the GPO Financial Management Service, to determine the correctness of prices for various contract items, and then submitted to printing technicians, for composition measurement and a determination of the reasonableness of the hourly charges included in any invoice for the various items subject to such charges. It is at this point that a determination of any excess charges is made, and any deductions from the contractor's invoices recommended. In the instant case, deductions which were questioned by the contractor, were again reviewed by printing technicians in the Financial Management Service, and after the dispute arose, an independent review by the GPO Internal Auditing staff was made. We take notice of the fact that the Internal Auditor is organizationally independent of the Financial Management Service and the Printing Procurement Department. Mr. Isemann, the staff auditor at the time of the review, himself a journeyman compositor, reviewed all proofs submitted to support the author's alteration charges made by the contractor, without reference to the contractor's invoices, for the purpose of determining the amount of time which would be reasonable to make the changes required by the markings on the various proofs. In addition the em count was actually measured. Only after such data had been collected was there any reference made to the contractor's billing units. There is no indication of the lack of good faith of the auditor's review or the lack of expertise of the reviewing auditor, nor has the contractor made any allegations to that effect. Findings Based upon the unrebutted statements made by the GPO Auditor, Mr. Isemann, the GPO records and other statements of the parties, we find as follows: 1. Contrary to the assertion in Counsel's correspondence, Mr. Cox has been afforded the opportunity to review all material requested to the extent he desired, and on November 15, 1973, Mr. Cox reviewed such material as he desired. No requests for review of proofs were denied by the Government. 2. Complete proofs were available and were reviewed by Mr. Isemann for 6 of the 13 jobs in question. 3. All jobs in question were reviewed and measured for em count. 4. Six of the 13 jobs in question were completely reviewed for author's alterations, and the remaining 7 jobs partially reviewed on the basis of the proofs then available. 5. In order to ascertain the validity of any adjustments made for author's alterations, complete sets of proofs are necessary. The determinations of reasonableness of any hourly charges are based upon judgment of the reviewers who were themselves compositors using the time it should take to perform any given alterations by an experienced compositor. Likewise, based upon the undisputed statements of Mr. Cox, we find that: 1. Billings for hourly charges for author's alterations are not based upon time actually spent. Time is estimated on the basis of a review of the corrected and marked up proofs. 2. There is no actual count of printer's errors vis-a-vis author's alterations. Determination is based upon "judgment and experience." 3. Composition measurement is a "give and take affair" in that composition can be measured "tight or loose." GPO is reasonable on measurement. II. Claim I Group 1, Jacket Numbers 356-532, 397-529, 424-224, 470-631, 476-450, 723-414, 461-096. (Not all proofs available.) Group 2, Jacket Numbers 425-763, 447-708, 445-125, 468-191, 458-936. (All proofs available.) The purchase of certain composition service by formal advertising, unlike the purchase of manufactured items which can be identified and objectively measured, is a difficult task, particularly when contracts are purportedly awarded on a firm fixed price basis. A review of the various contracts, and the general provisions contained in GPO Form 2834, shows that contracts for composition services are awarded on the basis of estimated units of production, including estimated hours necessary for the accomplishment of certain items such as author's alterations. Some units of production are objectively determinable, such as numbers of proofs, numbers of pages made up, numbers of rules inserted. The extent of the composition performed (ems) is itself measurable with a reasonable degree of objectivity. However, the payment for services supposedly rendered on the basis of time, absent any supporting accounting data, creates a wholly different situation. The contracts contained no requirement that the contractor support charges for time expended with any.data other than proofs themselves which would show the services required and rendered. Although it is presumed that a prudent contractor would maintain such records for his own purposes in billing the Government, the contractor maintains that no such records exist and that charges were made on the basis of estimates only. In any event, absent a contract provision requiring reimbursement on the basis of actual hours spent, payment would of necessity be required on another basis. Consequently, the estimates used in awarding the contract, particularly in areas which are not themselves objective, must be based upon a reasonable estimate of the time normally required in jobs of a similar nature, even though it has been stated that no two composition jobs are alike. Likewise, after such services have been performed under circumstances as set forth above, some standard of reasonableness must be applied by the parties when attempting to determine the sums due the contractor for such services. The Government has attempted to protect itself to the extent possible from potential contractor overcharges by requiring that proofs be submitted to support the amount involved in making author's alterations, and reserving to itself the right to be the sole judge of the amount of time to be allowed for all time charges. However, such judgments must be viewed against some standard. Because of the nature of the contracts, the methods of award, and the lack of any accounting data, the only standard upon which this case can be determined would be the time required for a reasonably proficient contractor to perform the services necessary. Decision - Claim I We have carefully examined the material before us, together with the records and the varying statements of the parties, and conclude that the only method of decision available to us is the jury verdict approach often used by contract appeals boards and the Court of Claims in adjudicating claims for equitable adjustments for what has been labeled "constructive changes." Johnson, Drake, and Piper, Inc., ASBCA 9824 and 10199, 65-2 BCA ¶ 4868 (1965). Such a standard leads us to the following conclusions: We are not persuaded that the contractor's claims for time for making author's alterations represents either a close approximation of the time actually expended for the services performed by the contractor or the time required to perform the services as measured against the standard set forth above, e.g., that of a reasonably proficient contractor. When considering the general review process, and the final review in these cases by the auditor versed in the trade and independent of the contract decision process, we must give great weight to his findings, unless such findings can be shown to be arbitrary. In those instances where the auditor has shown that he has reviewed all of the proofs in the various stages of composition, we accept his finding that the contractor has been properly compensated for the services required. Such is not the case where the auditor did not have all of the proofs available to him. Consequently with regard to Group 2, where all proofs were available and were reviewed, the appeal is denied. However, the appeal is sustained with regard to Group 1 to the extent of $3,956.00 (those claims for which all proofs were not available for review), and the contractor is found to be entitled to payment of $3,956, for deductions taken for author's alteration charges by the Government to be prorated on Jackets 356-532, 397-529, 424-224, 470-631, 476-450, 461-096. II. Claim II - Jacket 465-238 Claim II is a claim for $4,436.20 additional payment for author's alterations for Jacket 465-238. The charges claimed in this case are not based upon the traditional hourly charge for services performed as contemplated by the General Specifications, but rather on the basis of a "per column line" charge for author's alterations. The question in dispute therefore is whether the services for which the contractor claims payment are author's alterations as contemplated by the contract, or something else as understood by the parties prior to the dispute. The contract itself is deficient in regard to defining the applicability of the extent of the "per column line'' charge. Discussion GPO contract for Jacket 465-238 was for composition services for a publication entitled "Physical and Thermodynamic Properties of Aliphatic Alcohols''. The work consisted of text and tabular matter. The contract consisted of 17 priced component items keyed to the definitions and descriptions set forth in the General Specifications for composition, GPO Form 2834. The pricing of concern in this claim are Items 7 an 13 (author's alterations and timework). Charges for making author's alterations (Item 7) were based on a "per line" for text and "per column line" for tabular matter. Each change in a column of a table would require payment of $.50. In the 7-column tables in controversy a change in one line of each column would require payment of $3.50. Pricing for Item 13 remained as an hourly charge. Each page of tables measures to approximately 5,200 ems, so that at the contract prices, tables could be totally set at about $30 per page. This contract was one of the first contracts which were restructured to avoid the subjective judgments inherent in charging for author's alterations on a time basis. Obviously a per line charge can be objectively determined by merely counting the lines where changes were made. The contract defines author's alterations both in the specifications and in the general specifications (GPO Form 2834) as consisting of "all marks made by the author at variance with the original manuscript as submitted to the contractor." The work required of the typesetter to modify the material set in type as a result of the author's marks was the chargeable item. The general specifications of the contract to which the pricing schedule was keyed, contemplate author's alterations charges on the traditional time basis (Item 7 and Item 13), and those provisions were not revised to take into consideration the revised per line basis of charging. Both definitions (Item 7 and 13) are entitled "Author's alterations and timework" (Emphasis added.) Both also state that the time charge is applicable "where work performed cannot be properly classified under any measurable item.'' (Emphasis added.) Under the time charge concept contained in the General Specifications, it was not necessary to segregate or limit the charges for author's alterations to the actual "change" indicated by the author from other work performed by the contractor on a time charge basis. Consequently, the effect of an author's mark on a made-up page or galley was not material since the contractor would be reimbursed for the time necessary to effectuate the total change, e.g., the deletion or modification of a line requiring the movement of type, remake of the page on page proofs, the addition or removal of leading, or any other efforts necessary to accommodate the change, were considered in the time charge - but not on a per line charge without further definition. In other words, it is clear that a charge for a changed line could be objectively considered under the per column line basis of charging when only that line was affected by the change. It is questionable that the per line charge was intended or contemplated to cover the effects on other lines or pages resulting from given author's alterations, absent further definition in the contract. With regard to tabular matter, the contract specification required that "vertical rules must be indicated on all galley proofs and must show on all page proofs''. The general specifications (GPO Form 2834) state that for galley proofs "tables must have box heads placed in proper position and shall be ruled out sufficiently to show columnar arrangement." The contractor totally ruled galley proofs even to the extent of placing the bottom rule on each table. In effect, he accomplished page make-up in the galley proof stage which made any modification to the tables difficult, time consuming and costly. If no change were made in the tables, the contractor would save himself that additional step in the production process, and would save himself the cost associated with that work. This was a business judgment we do not question at this time. The galley proofs of the tabular matter thus completed, the galleys for the text were delivered to the Government for review as required by the contract. The records show that galley proofs as returned by the Department required extensive revisions and deletions of tabular material, resulting in (among other things) remake, rerule and refolio. To accomplish the requirement, a ''change order" authorizing 25 hours of hand time was issued on October 31, 1972. The change order states that: "Change is hereby made in Purchase Order 67944 to the effect that you are authorized to perform 25 hours of hand time caused by the many deletions of tabular lines which required remake, rerule and to refolio." Such work required the removal and movement of type and leading because of the space created by the deletion of material, reruling and remaking of pages required because the galleys were in page form, and refolioing (numbering) as a result. The parties considered the requirement as properly under the provisions of Item No. 13, General specifications (Author's alterations and time work (hand)). The records also show that the revised galleys were thus delivered to the department for review. The department made additional corrections, and using the revised galleys furnished, made up page dummies for the contractor to follow in preparing page proofs. The dummy prepared by the department did not take into account deletions in the tables they made in the revised galley proofs, so that by following the dummy, a blank page was created at the end of the tables appearing in the front of the publication. The foregoing necessitated an expansion of the aforementioned tables to accommodate the blank page, so that lines of type set in columns and fully ruled had to be shifted, sometimes from page to page. Seventeen pages of tables were affected in what was in effect a "remake'' job. In addition, pages 40 - 420 (380 pages) required the switching of running heads (Page captions) and folio (Page) numbers as a result of following the page dummy. By letter dated February 15, 1973, the contractor requested a change order "for changes that cannot be billed under the regular author's alterations in the contract." He stated further that "there were several pages [the 17 pages of tables] that had to be disassembled and reruled. It was also necessary to untie all pages from page 40 to 420 to switch running heads and change folios [Page numbers] because a whole page was added. These changes took 37-3/4 hours at $15.00 per hour." (Item 13 of the contract.) After investigation GPO Change Order 67944 dated April 3, 1973, was issued authorizing the time as requested. An independent GPO estimate of the time required to remake the 17 tabular pages and the work on pages 40 - 420, was 38.10 hours. The estimate was made on March 28, 1973. The contractor, however, billed for the value of the change order, plus $.50 per column line for the movement of type and removal of necessary space to remake the tabular pages. 1 The contractor admitted at the hearing that the result of his interpretation is not equitable, but insisted that he is entitled to payment nonetheless because of the pricing schedule in the contract. We do not agree. From our examination of the facts and circumstances surrounding the making of the contract, we do not believe that Item 7 of the pricing schedule (Author's Alterations) can reasonably be interpreted to cover all of the items of "timework" included in the combined definition for Item 7 in the 1 We take note of the fact that the revised galleys used for the dummy were already essentially made up into pages, a fact which is consistent with the contractor's practice in the original galley proof state, and a fact which raises the question of how much actual page make-up work the contractor performed in following the dummy. General Specifications (GPO Form 2834). Nor do we believe that the actions of the parties are evidence of a contrary conclusion. The contractor's request of February 15, 1975, including the time requested, are sufficient evidence of the parties understanding of the language of the contract, when both the November and April change orders were issued that the time charges under Item 13 were considered applicable to the required work. Moreover, such an interpretation is reasonable and consistent with the facts as they existed. Decision - Claim II The appeal is therefore denied as to Claim II (Jacket 465-238). Claim III, Jacket 475-763 Jacket 475-763 was a contract for composition services for the Department of the Army. Bids were evaluated for the purpose of determining the low bidder on the basis of the estimated requirements for the publication in question, although offers were requested on all items shown on GPO Form 2831, even though there was no anticipated requirement for 13 of the 27 items listed. As a consequence, the effect of the prices offered for which no evaluation factors were listed were not considered when determining the low bidder for the purposes of award as there was no anticipated need for those requirements. Among the unevaluated prices requested were those for type storage, e.g., Items 17, 18. Maryland Composition submitted a bid containing prices for Item 17 as follows: "17. Holding type (Per month): (a) Type in galley form per square inch .08. (b) Type in page form (40 square inches or less) - per page .28. (c) Type in page form (over 40 square inches) - per page .35." Prices bid by other contractors for the same service during the same time period ranged from a low of .0035 per square inch per month to a high of .02 per square inch per month for an average of .00755 per square inch per month (excluding the .08 bid of Maryland Composition). GPO subsequently established a price of .002 per square inch per month as the reasonable cost of storage. Maryland Composition therefore included a price in excess of 1000% per cent higher than the average price established in other contracts by bid, and more than 40 times the price subsequently allowed by the GPO for such services. Notwithstanding the bidder's failure to submit a signed bid, and contrary to the instructions contained on the face of the bidding form, Purchase Order No. 55711 dated July 2, 1971, was erroneously issued to Maryland Composition, Inc. The contractor, when later confronted with the fact that his offer was unsigned, reduced his storage price from .08 to .01 per square inch per month (Item 17a) which was confirmed by a letter from the contractor dated January 26, 1972. The contractor now disputes the offered price reduction and seeks an additional $8,534.40 based on the original .08 price, claiming that the reduction was not supported by consideration. An unsigned bid, unaccompanied by any extrinsic evidence of an intention to be bound, is not an offer and affords no basis upon which a contract can be awarded under the formal advertising procedures. 46 Comp. Gen. 648. The issuance of the purchase order or "award" document therefore created no obligation on the part of the contractor or the Government and can best be characterized as an "offer'' by the Government, with acceptance by the offeree occurring by performance. Although as a consequence there is a question as to the items included in the contract because of the nature of the offer, i.e., whether or not the contract included those items (such as type storage) for which no need was expressed or anticipated in the solicitation, or what agreement, if any, existed prior to the contractors offer of .01 per square inch per month for type storage, it is not necessary to reach that question. Similarly, we need not decide the question of consideration to determine this portion of the appeal. Decision - Claim III We find that the .08 price for storage, being more than 1000% higher than an average price for the same service during the same period, and more than 40 times the price subsequently determined to be reasonable by the Government and accepted by all composition contractors (included the claimant) without objection, to be unconscionable within the rule set forth in Hume v. United States, 132 U.S. 406 (1889), and therefore, not enforceable. We accept the contractor's subsequent offer of .01 as more akin to the market value of the services in question and we will therefore, not disturb the order authorizing payment at .01 per square inch per month. The appeal is therefore denied as to Claim III (Jacket 475-763).