UNITED STATES GOVERNMENT PRINTING OFFICE CONTRACT APPEALS BOARD Appeal of ATC Decal Company Jacket No. 672-527 Appeal received January 29, 1981. Decision dated July 14, 1981. Panel 3-81 THOMAS O. MAGNETTI, Chairman JOHN D. BENNETT , Member FREDERICK J. HEMPHILL , Member PRELIMINARY STATEMENT This is a decision on a timely appeal entered by ATC Decal Company (hereafter referred to as the contractor). This appeal disputes the final decision of the Contracting Officer terminating the contractor for default. The appeal is taken pursuant to Article 3 (the "Disputes" clause) of the GPO Contract Terms No. 1 (GPO Publication 310.2, August 1, 1979) as incorporated by reference into the Purchase Order and Specifications of this contract. The contract (Jacket No. 672-527) required the contractor to produce decals for the U.S. Air Force. The final decision of the Contracting Officer held the product was unacceptable due to its poor quality, and terminated the contract for default following the contractor's refusal to correct the defects. In accordance with GPO Instruction 110.10A titled "Board of Contract Appeals Rules of Practice and Procedure", the decision of this panel is based solely upon the record as evidenced by the documents and exhibits that constitute the Appeal File. STATEMENT OF FACTS On August 12, 1980, in accordance with GPO contract award procedures, GPO Purchase Order K 7027 for the procurement of a certain quantity of decals was awarded to the contractor as its bid was the lowest responsive bid that complied with the specifications. The contractor was required to print 2,600 irregularly shaped die-cut decals in 5 colors on 3-4 mil vinyl with pressure sensitive adhesive. The Government furnished samples for each of the decals ordered. There were various quantities ordered in four different sizes. The decals were to be produced in strict accordance with the specifications and shipping was to be completed by September 12, 1980. The contract's total cost was $1,495.00. The Department of the Air Force notified the GPO.by letter dated September 19, 1980, that after inspection, the delivered decals were "unacceptable due to the poor quality of the product." The Air Force printing officer included samples of the defective items within this complaint and requested that a product of higher quality be obtained. Following the receipt of this letter, Mr. Charles V. Booth, the quality assurance specialist in the GPO Dallas Regional Printing Procurement Office, attempted to communicate the Government's dissatisfaction to the contractor and requested the reprinting of the order. However, evidence indicates that the contractor was unwilling to correct the defects. The Contracting Officer then proceeded to send a notice dated September 30, 1980, to the contractor informing it that because the printing was unacceptable, the entire order was rejected. The Contracting Officer pointed out that the colors in the decals were mottled with broken borders and the die cutting was ragged. Moreover, the product did not match the color samples furnished by the Government. The contractor was thereby notified that based upon the poor quality of the proffered items and the unwillingness of the contractor to correct the defect, the Contracting Officer was considering terminating the contract for default. The Contracting Officer did afford the contractor the opportunity to present within 5 days of receipt of this notice a written justification for its failure or unwillingness to perform. As stated above, the notice of rejection and proposed termination was sent to ATC Decal Company on September 30, 1980. On October 23, 1980, the envelope containing the notice was returned unclaimed. Mr. Booth then attempted unsuccessfully to contact the contractor by phone on three separate occasions. See the Memorandum from the Contracting Officer to the GPO Contract Review Board dated October 29, 1980. A notice of termination 1/, dated October 31, 1980, was sent to the contractor stating that this final decision to terminate for default was based upon the contractor's unwillingness to correct the defects in the quality of the delivered goods by reprinting the order in accordance with the specifications. The right to default contractors in cases such as these is derived from the Article 12(b), titled "Inspection and Test" and Article 17, titled "Default" of GPO Contract Terms No. 1 which had been incorporated by reference into the Purchase Order and Specifications of this contract. Article 12(b) reads in part as follows: "In case any supplies or lots of supplies are defective in materials or manufacture or otherwise not in conformity with the requirements of the contract, the GPO shall have the right either to reject them (with or without instructions as to their disposition) or to require their correction. . . . If the contractor fails to promptly remove such supplies or lots of supplies which are required to be removed, or promptly to replace or correct such supplies or lots of supplies, the GPO either (i) may by contract or otherwise replace or correct such supplies and charge to the contractor the cost occasioned the Government thereby, or (ii) may terminate the contract for default as provided in the article entitled "Default" of these contractual terms." The contractor's appeal of this decision was received at the GPO on January 29, 1981. The appeal challenged the default termination as being arbitrary and capricious, claiming that the proffered decals were in 1/ The notice of termination was addressed to the same location as the notice of rejection and proposed termination for default that was returned to the GPO unclaimed. This was also the address that was on the Purchase Order for the contract. The Panel must assume from the documents within the Appeal File and the fact that the contractor responded to the final decision of the Contracting Officer that this was the contractor's place of business and was the proper address to send this correspondence. compliance with contract specifications. The contractor further claimed that the GPO had no right to charge it for the excess costs of reprocurement. lt should be noted that the contractor was advised by letter dated December 30, 1980, that it would be responsible for the excess cost involved in the reprocurement of the contract. The amount of those costs was $227.25 and was incurred when the GPO contracted for the work from the next higher and only other bidder on the original job. In accordance with GPO Instruction 110.1A, this appeal is now being decided on material contained in the Appeal File which includes a number of decals originally submitted by the contractor as allegedly conforming goods and rejected by Contracting Officer as not in conformance with the specifications. These decals were provided by the Contracting Officer at the request of the Panel chairman. Also the Appeal File now includes a certificate provided by the Contracting Officer relating to the procedure used in reprocuring this contract. ISSUES I. Following a determination by the Contracting Officer that the decals submitted by the contractor did not comply with the specifications or did not match the samples as furnished by the Government, was this termination for default proper? II. Were the reprocurement of the contract and the assessment of excess costs due to that reprocurement reasonable and proper? DISCUSSION I. The language of the inspection clause gives the GPO the broad right to reject goods which do not conform to the contract specifications and/or order the contractor to correct these defects discovered during the inspection process. If the contractor fails to correct these defects within the delivery schedule or within a reasonable period afterwards, the Government can terminate the contractor for default. See Article 12(b), supra. These rights are derived from the rule that the Government is entitled to enforce strict compliance with the specifications found in its contracts. H. L. C. & Associates Construction Co. v. United States, 176 Ct. Cl. 285, 367 F.2d 586, 589 (1966)- The determination of whether a product conforms with the contract specifications must rest with the Contracting Officer and is within his/her discretion in the administration of the contract. Thomas W. Yoder Co., VACAB 997, 74-1 BCA ¶ 10,424 (1974). Where the specifications contain an imprecise statement of the contract requirements, the standard for rejection of the contractor's work becomes more subjective. However, no claim has been raised by this appeal that the specifications were ambiguous or imprecise as not to indicate what the contractor had to do in order to produce a conforming decal. Rather, the substance of this appeal is whether the Contracting Officer abused his discretion by rejecting the decals which the contractor alleges conform to the contract specifications. Because the acceptance or rejection of nonconforming goods is within the discretion of the Contracting Officer, this Board's review of the action must be limited to a determination whether he "exceeded the allowable limits of the exercise of his discretion." Thomas Yoder, supra, at 49,251. If the Contracting Officer's decision is neither unreasonable, under the circumstances of the case, nor arbitrary or capricious, then there is no violation of the Government's contractual duty and the Board will not substitute its judgment for that of the Contracting Officer in determining whether a certain product does or does not comply with the requirements of the Government as set forth in the contract specifications. Id. In the case at bar, the decals as delivered by the contractor to the Department of the Air Force in accordance with the contract were inspected by the Air Force Printing Officer. He determined the decals to be unacceptable and so notified the GPO, forwarding samples of the unacceptable decals to the Contracting Officer. From these samples the Contracting Officer ascertained that the colors used on the decals were mottled and had broken borders. Additionally, the die-cutting along the border of the decals was ragged and uneven. Because of these defects, it was determined that the decals did not match the color samples as furnished by the Government. Based on the presence of these defects the Contracting Officer decided to reject the delivery and require reprinting. An inspection of several of the decals submitted to the Board as representative of the work provided to the Government by the contractor indicates that the defects as set out in the letter to the contractor dated September 30, 1980, were indeed present in the decals. See Panel's Exhibit No. 2. The Contracting Officer was, therefore, well within his discretionary powers to reject the nonconforming goods. Ordinarily, when the Government elects to reject defective goods, it must give the contractor the opportunity to correct the defect. Radiation Technology, Inc. v. United States, 177 Ct. Cl. 227, 366 F.2d 1003 (1966). Here the opportunity to correct the defects by reprinting the order was provided to the contractor. On September 26, 1980, the GPO contacted the contractor and informed it that the work was unacceptable and would have to be reprinted. The contractor refused to do so. A notice of rejection and proposed termination was then sent to the contractor. On September 30, 1980, although it was apparently mailed to the contractor'scorrect business address, it was unclaimed. When the letter was returned to the GPO by the Post Office, three further attempts were made to contact the contractor telephonically, all unsuccessful. Faced with the inability to obtain a conforming product, the GPO had no recourse but to hold the contractor in default. This action was justified in light of the contractor's obduracy in refusing to tender decals that were acceptable to the Government. II. Following a valid default termination, one of the most important of the Government's remedies is the right to assess the defaulted contractor for the excess costs of reprocuring the unperformed part of, or if necessary, the entire contract from another contractor. This right to recover excess costs is contained in the default clause of the Contract Terms No. 1 (Article 17). The three elements of a Government claim for excess reprocurement are similarity -- the Government must repurchase products substantially similar to those that were to be provided by the defaulted contractor, incurrence -- the Government must actually reprocure and thereby incur extra costs, and mitigation -- the Government must act reasonably to minimize the excess costs and damages that resulted from the default. Environmental Tectonics Corp., ASBCA 21204, 78-1 BCA ¶ 12,986 (1978). The elements of similarity and incurrence are clearly established by the record. Subsequent to the termination, the Contracting Officer reprocured the identical contract from the second lowest bidder on the original contract for the same price that it had bid on original contract. The contract price for this reprocurement was $227 over the defaulted contractor's price and represented the amount assessed as an excess cost. The Government clearly mitigated the excess costs of reprocurement by contracting the second lowest bidder and awarding the contract for the price which the successor company had originally bid. See Panel's Exhibit No. 1. Since only two companies had provided responsive bids on original contract, it is reasonable to believe.that further solicitation of other firms would not have resulted in lower prices and therefore would have been unnecessary. San Antonio Construction Co., Inc. ASBCA 8110, 1964 BCA ¶ 4479. Therefore, the reprocurement procedure as used in these particular circumstances was logical and justifiable. DECISION Based upon the above reasoning, the decision of the Contracting Officer to terminate the contractor for default and to assess against it the excess costs of reprocurement are upheld. Accordingly, the contractor's appeal is hereby denied in its entirety.