United States Government Printing Office
Contract Appeals Board
Appeal of Graphic Communications, Inc.
Appeal dated June 24, 1983
Hearing held on October 19, 1983
Decision dated October 25, 1983
CAB Panel 83-5
Thomas O. Magnetti, Chairman
John M. Baker, Richard R. Heroux, Members
Douglas MacBride, U.S. Government Printing Office Contracting
Officer represented by James C. Lane, Esquire
Graphic Communications, Inc. represented by Charles A. Sullins,
Esquire
Preliminary Statement
Graphic Communications, Inc. (hereafter the contractor)
appeals the denial by the Contracting Officer of certain costs
submitted for payment under a multiple award term contract
(Program 1498-M). A multiple award term contract contemplates
the issuance of purchase orders to all responsive, responsible
contractors who have bid on the contract. The contractors'
names are arranged in sequence on a list from the lowest to
the highest abstracted bid for the type of work to be
performed on each individual print order. Print orders are
then offered to the contractor who has submitted the lowest
bid for the type of work that is required by the specific
print order. That contractor has the right to refuse the
print order if it can not meet the delivery schedule set out
in the print order. If the print order is refused, the GPO
then offers the work to the next lowest bidder. This process
continues until the print order is accepted by a contractor on
the list.
In the instant case, there is a dispute as to the proper
interpretation of certain provisions of the contract
specifications. Because the U.S Government Printing Office
(the GPO) interpreted the contractor's bid on hidden hinge
covers in a manner different from what the contractor intended
by its bid, the GPO believed the contractor to be the lowest
bidder for that operation and offered almost all of the print
orders originating under this contract to the contractor. The
contractor, billing the GPO in accordance with its own
interpretation of this contract provision, was paid according
to its own interpretation not the Government's. Believing
that it was billing in the appropriate manner, the contractor
continued to accept work under the contract. The GPO
discovered the discrepancy after eleven months and withheld
$55,000 from the contractor to compensate the Government for
the alleged overbilling. In June 1983 the Contracting Officer
issued a final decision withholding approximately $27,500.
The contractor appealed this decision in accordance with the
"Disputes'' clause of the the contract. Article 2-3, Contract
Terms No. 1, GPO Publication 310.2, revised October 1, 1980.
The jurisdiction of the GPO Contract Appeals Board over this
appeal is established by GPO Instruction 110.10B, entitled
"Board of Contract Appeals Rules of Practice and Procedure"
and by Contact Terms No. 1, supra. This decision is based
solely on the record which consists of the 22 exhibits within
the Appeal File and the testimony provided at a hearing held
on October 19, 1983.
Issues to be Resolved
1.) Is the contract provision at issue ambiguous?
2.) If the provision is ambiguous, how should it be
interpreted?
3.) If the contractor's interpretation of the disputed
provision is
reasonable, what is the appropriate remedy for the
contractor?
Findings of Fact
1.) Invitations for Bids for Program 1498-M were mailed to
prospective bidders on May 12, 1982. This multiple award term
contract was to run from July 1, 1982 to June 30, 1983.
Exhibit 3. The contract specifications required the
production of Navy technical and training manuals. Operations
necessary for producing these manuals included printing,
binding, packing and shipment. It was estimated that 75% of
the print orders would require the production of hidden hinge
covers. Print orders requiring hidden hinge covers would
generally call for the production of between 200 and 300
manuals. Therefore, each such print order would require the
same number of sets of covers as number of manuals requested.
Each complete set of covers consisted of four pages. Id.
2.) Interested contractors were to provide a bid for the
makeready and/or setup charges for printing and binding each
complete set of hidden hinge covers and a separate bid for the
cost for running 100 copies of each set of the covers. Id.,
p. 14, I.4.(b). The contract provision at issue in this
appeal reads, in part, as follows:.
Makeready and/or Running Charges
Set up Charges Per 100 Copies
Trim Size Trim Size
Inches Inches
OVER OVER
6 x 9-1/4 6 x 9-1/4
THRU THRU
I.PRINTING AND BINDING SINGLE PAGE 8-1/2 x ll 8-1/2 x ll
(TEXT OR COVER): (2) (5)
4. Looseleaf Products-
(a) Printing in a single ink
color, including binding
..........................each page... $_____ $_____
(b) Hidden-hinge covers (Print-
ing 1 or 2 sides in a single
ink color), including binding
..................per complete set.. $_____ $_____
Exhibit 3, p. 14. Although the prices quoted in this provision
had to include the entire cost for the production and
construction of the covers, the contract did not specify which of
the operating costs had to be factored into the makeready and/or
set up charge and which costs had to be included in the running
charge.
3.) The contractor bid $4.00 for the makeready and/or set up
charge for producing each complete set of hidden hinge covers
and $ .75 as its cost for running 100 copies of the covers.
Exhibit 5. Prior to the award of the contract, the contractor
was contacted by the Atlanta Regional Printing Procurement
Office in order to confirm its prices. Testimony of Mr.
MacBride and Mr. Core; Exhibit 8. The record indicates that
the contractor was questioned only concerning its costs for
running the hidden hinge covers. Testimony of Mr. Core. This
testimony was
unrebutted by the Contracting Officer. Testimony of Mr.
MacBride. The contractor sent the Atlanta office a letter dated
June 21, 1982, confirming its prices but specifically mentioning
only the running cost item. Exhibit 6. There is nothing in the
record that would indicate that the contractor was questioned
concerning its bid on the makeready and/or set up charge for
hidden hinge covers. The record does, however, indicate that
after the controversy arose in May 1983 the GPO believed that
there was either a possible bidding error constituting a post-
award error in bid or a possible mutual mistake. See Exhibit 14,
p. 2 and 3.
4.) Following receipt of contractor's letter confirming its
prices, the contractor's bid on the contract was deemed by the
Contracting Officer to be responsive. Exhibit 7. The
contractor was issued a Purchase Order on June 30, 1982.
Exhibit 9. Because the contractor was placed at the top of
the list for receiving print orders containing hidden hinge
covers, it received the bulk of the print orders requiring
this work.
5.) The contractor interpreted the contract language and its
bid to signify that its price for the makeready and/or set up
charge for each set of covers was $4.00 and $.75 for running
100 covers. Testimony of Mr. Core. This witness asserted at
the hearing that, given the hand operations required to
produce these hidden hinge covers, there were 300 separate
makeready and/or set up charges for each complete set of 300
covers. Id. There was no testimony presented by the GPO that
rebutted that testimony. Testimony of Mr. MacBride. The
contractor's interpretation of the contract language and its
bid results in a charge of $1202.25 for each print order
containing 300 sets of covers.
6.) The Contracting Officer maintained that the contract
language governing the bid for hidden hinge covers
contemplated the contractor bidding the makeready and/or set
up charge as a one-time charge with any costs associated with
the production of an individual set of covers factored into
the running cost. Testimony of Mr. MacBride. He also
testified that the industry practice for bidding makeready
and/or set up charges was to bid it as an initial one-time
charge representing the initial cost of setting up a printing
or a binding operation. Id. This general testimony regarding
industry practice did not specifically relate to the makeready
and/or set up charges for individual hand operations such as
those required by the production of hidden hinge covers.
Therefore, it does not rebut the testimony of Mr. Core
relating to the contractor's specific makeready and/or set up
costs for this operation.
7.) The GPO's interpretation of the bid would allow the
contractor a payment of $6.25 for the production of 300 sets
of covers. The Contracting Officer testified that this amount
would be an "exceedingly low" price for this operation.
Testimony of Mr. MacBride. Comparison of this charge ($6.25)
with other contractor's bids for this operation indicates that
this amount was almost three times lower than the next lowest
bidder. Exhibit 7. Furthermore, in stark contrast to this
amount, the Contracting Officer's estimate of the contractor's
cost in producing 300 sets of these covers was $530. Exhibit
16.
8.) The Contracting Officer testified that the contract
provision at issue needed "clarification". Testimony of Mr.
MacBride. In addition, there is an admission by the GPO in
the record that there appeared to be an ambiguity in the
specifications. See Exhibit 14, p. 3. Also of note is the
modification of this provision that was promulgated prior to
the award of the 1983-1984 contract. The modification read as
follows: "Only one make-ready charge will be allowed for each
page and/or per complete cover set." Exhibit 22. The
ostensible purpose of this modification was to avoid the
controversy that occurred with this contractor over the
contract language. Testimony of Mr. MacBride.
9.) The contractor billed the first five print orders
according to the GPO's interpretation outlined in paragraph 5,
above. Exhibits 14 and 19. Mr. Core explained this by
attributing the error to his billing clerk. Testimony of Mr.
Core. After the error was discovered, the contractor billed
in accordance with interpretation of the contract
specifications and the contractor's bid set out in paragraph
4, above. Id. The contractor did not submit revised vouchers
for these five print orders because more than ninety days had
elapsed since these vouchers had been submitted. Id.
However, all subsequent print orders were billed in accordance
with the contractor's interpretation of the specifications.
Despite the substantial increase in the billing costs, these
vouchers were paid by the GPO for approximately eleven months
without questioning the billing for the hidden hinge covers.
Id.; testimony of Mr. MacBride.
10.) Sometime in May 1983, the GPO discovered that the
contractor had billed and been paid a makeready and/or set up
charge for each set of covers. Exhibit 20. To compensate the
Government for the alleged overbilling, the GPO withheld
$55,400 due and owing the contractor. Exhibits 13 and 14.
After lengthy negotiations and a time study of the
contractor's operations, the Contracting Officer issued a
final decision that returned half that amount to the
contractor, retaining the other portion due to the alleged
overbilling. Exhibits 12 - 16.
11.) The contractor appealed this final decision by letter
dated June 24, 1983, later requesting a hearing on the matter.
Exhibit 1. A hearing was held at the contractor's request by
conference call on October 19, 1983.
Decision
The record indicates that officials at the GPO believed that
the contract provision at issue was indeed ambiguous. Exhibit
14. The Contracting Officer testified that the provision
needed to be clarified. Testimony of Mr. MacBride. A
modification of the contract was issued for the subsequent
contract in order to avoid further confusion. ld.; Exhibit
22. The Board is dubious that the language of this
modification does indeed accomplish the supposed aim of the
drafters. In any case, given these admissions, the GPO has
conceded that an ambiguity did exist permitting more than one
interpretation for the contract provision. The finding that
an ambiguity existed resolves the first issue raised by this
appeal.
In situations where ambiguities are deemed to exist, the
doctrine of contra proferentum is applied and the contract is
construed against the drafter of the ambiguous language. WPC
Enterprises. Inc. v. United States, 163 Ct.Cl. 1 (1963). The
essential elements of this doctrine are (1) that the contract
specifications were authored by the Government, (2) that the
language is susceptible of more than one interpretation, {3)
the intention of the parties does not appear, and (4) that the
contractor did actually and reasonably construe the
specifications in accordance with its interpretation of the
contract. Western Contracting Corporation v..United States,
144 Ct.Cl. 318 {1958).
In the instant case, the specifications were authored by the
Government, and the intention of the parties prior to award
does not appear. The contractor did actually construe the
specifications according to its interpretation once it
discovered that a mistake in the billing had taken place.
Testimony of Mr. Core. Any argument that, because the first
five billings were mistakenly billed in accordance with the
GPO's interpretation, the contractor did not actually construe
the specifications according to its interpretation is
militated against by the fact that the GPO paid the contractor
according to its interpretation of the contract for eleven
months without bringing the discrepancy to the attention of
the contractor.
In regard to the reasonableness of the contractor's
interpretation of the provision, there is unrebutted testimony
in the record to the effect that the contractor incurred an
individual makeready and/or set up charge for the production
of each set of covers. Testimony of Mr. Core. If this was
indeed the case, then it would have been appropriate to place
this cost under the makeready and/or set up charge column.
Since the record does not rebut this testimony nor does it
indicate what industry practice is for bidding the makeready
and/or set up charge for this particular operation, the
contractor's interpretation of the contract provision remains
unchallenged and must be deemed reasonable.
Since the Contracting Officer has admitted that the contract
provision needed clarification and a modification of the
provision was issued, the Board finds that the GPO has
admitted that the contract provision was ambiguous.
Therefore, the provision is susceptible to more than one
interpretation. All of the above-cited elements being
present, the Board invokes the rule and holds that the
provision must be construed in accordance with the
contractor's interpretation. Therefore, the second issue must
be resolved in favor of the contractor.
Before the Board turns to the issue of the contractor's
remedy, certain observations should be noted. This is not a
case where the GPO has proven that the contractor made an
error in bid. If there were such an error, the appropriate
remedy for the post-award error in bid is to increase the
contract price, not to exceed that of the next lowest
acceptable bidder. GPO Printing Procurement Regulations,
Chapter IV, Section 6, paragraph 4.b, p. 46. However, no
clear and convincing evidence was presented at the hearing
demonstrating that an error in bid was made. On the contrary,
the contractor indicated that it intended its bid of $4.00 per
each complete set of covers. Testimony of Mr. Core.
The Contracting Officer is under a duty to advise the
contractor of any mistake in bid apparent on its face. GPO
Printing Procurement Regulations, Chapter IV, Section 6,
paragraph 1, p. 45. Although the record does indicate that
the contractor was contacted to verify its running charge, as
there was no testimony or evidence to indicate that the
contractor was questioned specifically about the $4.00
makeready and/or set up charge, the Board must find that this
price was not specifically questioned by the GPO. Testimony
of Mr. Core and Mr. MacBride; Exhibit 6. The Contracting
Officer admitted that, under the GPO's interpretation of the
contract provision, the contractor's bid for hinged covers
($6.25) was extremely low. Testimony of Mr. MacBride. This
extremely low price for the hidden hinge cover operation
should have alerted the GPO of the necessity to attempt to
reconfirm not just the running charge but also the makeready
and/or set up charge prior to issuance of the Purchase Order.
If this had occurred, the GPO would have become aware of the
contractor's interpretation and could have taken the
appropriate action to find an error in bid or to issue the
print orders to another contractor.
Given the nature of this multiple award term contract, this
failure to verify both prices for production of the hidden
hinge cover, worked a hardship on the contractor. Due to the
GPO's interpretation of the contractor's bid, the contractor
was placed at the top of the sequence of contractors to
receive print orders. Most of the print orders issued under
this contract were placed with this contractor. Because the
contractor was being paid in accordance with its
interpretation of the contract, it accepted work. It never
would have accepted the work if it had been alerted prior to
the issuance of the contract of the GPO's interpretation.
Testimony of Mr. Core. The GPO contends that it would not
have placed any work with the contractor if it had been aware
of the contractor's interpretation. Testimony of Mr.
MacBride. However, the GPO had constructive notice of the
contractor's interpretation since, over an eleven month
period, it received the contractor's vouchers and paid for
work that was billed with a separate makeready and/or set up
charge for each set of covers. Because, during the term of
the contract, the GPO paid the contractor in accordance with
the contractor's interpretation, again the opportunity was
lost to alert the contractor that its interpretation was
believed to be mistaken. Instead, the contractor continued to
accept work without knowledge that there was a
misunderstanding as to the contract provision.
The ineluctable conclusion that must be drawn from the record
is that there is clear evidence of poor contract
administration. Given this fact and the paucity of the GPO's
case regarding its interpretation of the contract provision at
issue, as presented at the hearing, the Board is left no
recourse but to find for the contractor on all issues.
Although the Board is well aware that the contractor's actual
costs for the disputed operation range somewhere between $500
and $800, the Board will not rewrite the contract to allow a
remedy different from that which is represented by the
contractor's interpretation of the disputed contract
provision. Having found that an ambiguity existed and that
the contractor's interpretation was reasonable, the Board will
go no
further than to reverse the final decision of the Contracting
Officer and remand the appeal to the Contracting Officer for a
decision consonant with this Board's decision. In the event that
negotiations regarding the contractor's recovery should prove
unsatisfactory to the contractor, it has the right to appeal the
matter to the Board pursuant to the "Disputes" clause of the
contract.