UNITED STATES GOVERNMENT PRINTING OFFICE CONTRACT APPEALS BOARD APPEAL OF EDWARD BROTHERS, INC. Contractor's appeal filed on May 5, 1983 Hearing held on November 7, 1983 Decision dated May 3, 1984 Contract Appeals Board Panel 83-3 THOMAS O. MAGNETTI, Chairman BRIAN MORRISSEY EDWIN P. DOLAN Members PRELIMINARY STATEMENT Edward Brothers, Inc. (hereafter the contractor) has appealed the 20.3% reduction of the contract price taken by a Contracting Officer of the U.S. Government Printing Office (GPO). The reduction was taken because the contractor failed to produce the standard of quality required by the contract for halftone illustrations. The contractor appealed the decision in accordance with the "Disputes" clause of the contract. Article 2-3, Contract Terms No. 1, GPO Publication 310.2, revised October 1, 1980. The appeal was timely filed. 1/ The contractor asserts that, since the GPO was partially responsible for the poor quality of the printed material, no price reduction should have been taken. The GPO Contract Appeals Board has jurisdiction over this appeal pursuant to GPO Instruction 110.10B, entitled "Board of Contract Appeals Rules of Practice and Procedure" and Contract Terms No. 1, supra. This decision is based solely on the record which consists of the 56 exhibits in the Appeal File and the testimony provided at an informal hearing held on November 7, 1983. FINDINGS OF FACT 1. A contract to produce the Occupational Outlook Handbook, 1982-83 Edition, was awarded to the contractor by the GPO on February 16, 1982. Exhibit 7 of the Appeal File. The contract called for the production of approximately 160,000 copies of a 486 page book in black ink with halftone illustrations (128,000 paperbound books). Exhibit 2. Purchase Order 22344 incorporated by reference the contract specifications. Exhibit 7. The specifications incorporated by reference GPO Contract Terms No.l, supra, and the GPO Quality Assurance Through Attributes Program (QATAP), GPO Publication 310.1, revised June 1981. Exhibits 2, 54. 2. The quality for printing the Occupational Outlook Handbook had to meet standard for Level III of the QATAP. Exhibit 2, p. 5. In order for the contractor to attain the specified standard for halftone illustration, it would have to match the quality of the camera copy. Exhibit 2, p. 6. The printing attribute established for the halftone match was set out in the QATAP. Exhibit 54, Printing Attribute No. 8, p. 18. 3. The GPO submitted a copy of the handbook which was printed in the previous year to the contractor as a sample of the required margins. Exhibit 2. 4. On April 15, 1982, the GPO determined that the quality in the halftones in the paperbound copies which had been submitted by the contractor was below standard. Exhibits 25, 26. As of this time, the contractor had printed 80,000 copies of the Handbook. Exhibit 31. 5. Using visual inspection methods, fifty copies of the Handbook were inspected by Norman Campbell, an Inspector of the GPO Quality Assurance Section. Testimony of Norman Campbell. The inspection indicated that there was a major defect in the halftones contained in each book. Exhibit 34. A 20.3% reduction in the contract price for the defective 80,000 books was recommended. 6. The contractor was informed by a Contract Modification, that because of the unsatisfactory quality of the halftones in the 80,000 paperbound copies of the Handbook, the contract price for this number of books would be reduced by 20.3%. Exhibits 37, 38. 7. The problem with the quality of the halftones was resolved and the remainder of the contract was produced without further problems. Exhibit 45. 8. The contractor protested the reduction in price in a letter to the Contracting Officer dated May 14, 1982. Exhibit 48. The Contracting Officer issued a final decision on July 14, 1982, stating that because the contractor had not complied with the standards required for halftone quality by the contract, that a price reduction was imposed in accordance with the QATAP. Exhibit 49. 9. The reduction in the contract price ultimately charged the contractor was $31,522.55. Exhibit 53. 10. The contractor appealed this price reduction by letter dated May 5, 1983. Id; see also Footnote No. 1. 11. On November 7, 1983, a hearing was held at the request of the contractor. At that hearing, the contractor was represented by Walter F. Hamilton, Jr., Executive Vice President, Edwards[sic] Brothers, Inc, who also testified on behalf of the contractor. DECISION It is undisputed that the 80,000 copies of the Handbook produced by the contractor did not meet the standards established in the QATAP for halftone match for Level III publications. Finding of Fact No. 5. This was admitted by the contractor's representative. Testimony of Mr. Hamilton. Due to the loss of detail in the halftones, the copies that had been inspected were found to be defective. Exhibit 34; see also Exhibit 54, p. 18. For an example of this failure to obtain the quality level for the halftone match, see page 83 of the Occupational Outlook Handbook. Exhibit 55. Since all of the samples that were inspected contained the same poor quality in the halftones, one major defect was assessed for all of the fifty copies inspected. Exhibit 34. The discount table in the QATAP for fifty major defects permits a reduction of 20.3% in the contract price. Exhibit 54, p. 44. The contractor asserts that the GPO should share the responsibility for the defective quality in the halftones. This argument is based on the contention that the GPO approved paper that would not permit the quality of halftone match that was established in the specifications. For guidance on the quality of the halftone, the contractor relied on the copy of the previous printing of the Handbook that the GPO furnished to the contractor. According to the contractor, the quality of halftone in that handbook was considerably worse than what the contractor produced. The contractor alleges that no other guidance was furnished by the GPO. Also, the contractor contends that, because the GPO did not request a pre-production conference; did not send a representative to guide the contractor; and did not request proofs, it did not follow its own procedures and contributed to the contractor's belief that the GPO was not interested in the quality of the work. It is clear from a review of the evidence that the contractor was, or should have been, aware of the quality that was expected in the halftone illustrations. The specifications established the quality level that had to be met for halftone illustration and specified that the halftones had to match the camera copy. Exhibit 2, pp. 5-6. The camera copy was furnished to the contractor. Exhibit 2, p. 2. The QATAP set out the allowance for deviation for this printing attribute. Exhibit 54, p. 18-20. There was no reason for the contractor to rely on the copy of the previous year's Handbook for any guidance other than as a sample for margins. The reason for furnishing this handbook to the contractor was clearly set out in the contract specifications. Exhibit 2, p. 2; see also Exhibit 19. If the contractor used paper that would not permit the required quality of work, it did so at its own risk. The contractor stated that it would not ordinarily use the type of paper, which the GPO had approved and it used for these 80,000 books, for documents containing halftone illustrations. However, the evidence of record indicates that the same paper stock was used to produce handbooks that conformed to the standards for halftone illustration. Exhibit 45. The contractor has not demonstrated that the GPO took any affirmative action that might have justified the contractor's deviance from the required standard for halftone quality. The requirements that the contractor participate in a pre-production conference or furnish proofs were contract provisions which were designed to benefit the GPO. The GPO could forego such actions without waiving its right to the contractor's strict adherence to the contract specifications. Therefore, the Government's inaction did not relieve the contractor's duty to comply with the specifications. Because there was no action on the part of the GPO that would indicate that the agency would be satisfied with poor performance, the contractor had no right to believe that the GPO would be satisfied with substandard performance. The contractor also argues that the assessment of the 20.3% reduction in the contract price was "too simple, unreasoning and very unfair". Testimony of Mr. Hamilton. The price reduction was taken in accordance with the formula set out in the QATAP. The purpose of QATAP is to ensure strict adherence to the descriptions of printing and finishing attributes for each level of printing and to assess a price reduction for failure to comply with the standards. The method for adjusting the contract price operates as a liquidated damage clause. A liquidated damage clause permits the assessment of damages for a breach of contract and is used when actual damages caused by the failure to perform would be difficult to estimate accurately at the time the contract was entered into. In order to have an enforceable liquidated damages clause, the clause must fix an amount of damages that is a reasonable forecast of just compensation for the harm caused by the contractor's failure to perform. Priebe & Sons v. United States, 332 U.S. 407 (1947). In the instant case, given the nature of the contractor's failure to perform, it would have been difficult to estimate the actual damage suffered by the GPO. Although the defect in the halftones caused no information loss, the Government was entitled to receive a publication with pictures that were sufficiently clear for visual evaluation. As the contractor supplied a product that seriously deviated from the contract specifications, it was liable for liquidated damages. The reduction in contract price of 20.3% represents a reasonable estimate of the damage caused by the contractor's substandard performance. 2/ The Board holds that the 20.3% reduction in the contract price was an appropriate use of the liquidated damage clause as formulated in the price reduction tables of the QATAP. The record is unclear as to how the Contracting Officer computed the amount actually assessed this contractor as a price reduction. Therefore, the Board remands the assessment of the exact amount of the price reduction to the Contracting Officer to ensure that the reduction was made in strict accordance with the Contract Modification. Exhibits 37, 38. The 20.3% reduction in price should have been limited to the price of the 80,000 defective Handbooks. Proof of the appropriate price reduction should be submitted to the Board within 14 days of the date of this decision and communicated to the contractor. If it is determined that the price reduction was computed incorrectly, a suitable adjustment in the amount owed by the contractor should be made. Based upon the above reasoning, the Board denies the contractor's appeal except to the extent that the Board directs the Contracting Officer to ensure that the price reduction was computed correctly. _______________ 1/ The appeal was filed more than ten months after the final decision of the contracting Officer. However, this Board ruled.in Edward Brothers, Inc., GPO CAB 3-83 (September 19, 1983) that this appeal was filed in a timely fashion. The Board denied the GPO's Motion to Dismiss the Appeal, and processed the appeal as if it had been filed within 90 days of the Contracting Officer's final decision. 2/ The GPO has made major revisions in the QATAP since its issuance in 1979. Prior to June 1981, the price reduction tables permitted reductions of up to 50% of the contract price. These tables were revised following the decision in Printers II, Inc., GPO CAB 4-80, July 9, 1980. However, these tables cannot be applied mechanically. The formula must be used by the Contracting Officer on a case-by-case basis, only where actual damages are difficult to estimate at the time the contract is awarded. The liquidated damages must also bear some rational relation to the actual damages suffered by the GPO.