UNITED STATES GOVERNMENT PRINTING OFFICE CONTRACT APPEALS BOARD Appeal of Stevens Graphic, Incorporated Appeal dated February 2, 1981 Decision dated March 22, 1982 Panel 4-81 THOMAS O. MAGNETTI, Chairman CHARLES T. RAY, Member GEORGE A. SIMMS, Member PRELIMINARY STATEMENT This is a decision on a timely appeal filed by Stevens Graphics, Inc. (hereinafter referred to as the contractor). The contract (Jacket No. 313-269) required the contractor to produce IRS tax forms. Because of improper paper stock, the contractor had to run the forms twice. It then claimed compensation ($41,400) for the first run. The final decision of the Contracting Officer disallowed the claim. The contractor disputes this final decision of the Contracting Officer. This appeal is taken in accordance with Article 3 (the "Disputes" clause) of the Government Printing Office Contract Terms No. 1, GPO Publication 310.2, revised August 1, 1979. Exhibit 1, Appeal File (hereafter A.F.). The jurisdiction of the GPO Contract Appeals Board over this appeal is established pursuant to GPO Instruction 110.10B, entitled "Board of Contract Appeals Rules of Practice and Procedure", and to Contract Terms No. 1, supra. This decision of the Board is based solely on the record which consists of the exhibits within the Appeal File and the testimony heard by the Board at a hearing on this appeal held on October 29 and 30, 1981. STATEMENT OF FACTS 1. The contract (Jacket 313-269) called for the production of over 11 million 1040A tax forms for the Internal Revenue Service. Exhibit 3, A.F. 2. This contract provided that the contractor was subject to all the terms and conditions of GPO Contract Terms No. 1, supra, and GPO Quality Assurance Through Attributes Program (GPO Publication 310.1, May 1979; Exhibit 16, A.F.) The Quality Attributes Program and Contract Terms No. 1 were incorporated by reference into the contract specifications. Exhibit 3, A.F. The specifications were incorporated by reference into the contract's Purchase Order. Exhibit 5, A.F. 3. The specifications required printing of the forms in black and red ink on either white offset book paper or white C.W. writing paper equal to the standards established in Joint Committee on Printing (JCP) codes A60 or D10. See Exhibits 3 and 8, A.F. Although the contract permitted the use of reclaimed, recovered and recycled paper, the product had to conform with not only the JCP standards but also with the GPO Quality Assurance Through Attributes Program. According to those standards the paper could not contain more than 5% unbleached fibers. Exhibits 8, 16, A.F. 4. The GPO awarded the contract to the contractor by Purchase Order 14696, dated August 15, 1980. Exhibit 5, A.F. 5. The contractor ordered the paper from Georgia-Pacific Paper Company. Although the paper was recycled, the contractor believed it would meet the specifications. Transcript, pp. 9, 21-23, 31 (hereafter T. 9, 21-23, 31). The contractor's contract for the paper did not include a provision directing Georgia- Pacific to comply with JCP or GPO standards on paper content or quality. T. 38, 315*. 6. When the paper was received by the contractor, Mr. Edmond Ward, the contractor's General Manager, visually inspected one roll of the paper. T. 9, 26, 29/30, 45. 7. It is not possible to determine fiber content in paper by visual inspection. Chemical analysis is necessary to make a determination concerning fiber content in paper. T. 24, 35, 40, 46, 64-67, 98-99, 106, 304, 334. 8. There were no methods reasonably available to the contractor to chemically analyze the paper product to determine presence of unbleached fiber. However, the only method utilized by the contractor for inspection of the paper content was visual. T. 9, 26, 45-46, 71-72, 76, 304, 308. 9. Pursuant to the provisions of the contract, the contractor notified the GPO seventy-two hours prior to press production. T. 10. Prior to production, on Monday, October 27, 1980, Mr. Vincente Tillman, a printing management specialist with IRS arrived at the contractor's plant in Greensboro, North Carolina in order to inspect the production procedure. T. 248. Mr. Tillman was met by Mr. Ward, who in turn put him in the care of Mr. Edward Dandle, the contractor's Assistant Plant Manager. T. 10, 54-55, 248. 10. During this inspection, Mr. Tillman was shown sample press sheets of the tax form. T. 248. He did not have any equipment with him to chemically analyze the paper; nor was he trained to do so. T. 84, 99, 251, 334, 346. He suggested that the ink, margins, and register be adjusted to better comply with the contract specifications. T. 54-56, 248-250, 281-282. Unsatisfied with color of the ink on the paper, Mr. Tillman requested continued adjustment of the ink during the inspection. T. 54-55, 249-250, 253, 261-263, 265, 285. 11. After these adjustments, Mr. Tillman ,wrote "O.K. to print" on one of the sample tax forms. T. 54-56, 250, 281-282; Exhibit 14, Attachment B, A.F. He was then informed by Mr. Dandle that production of the tax forms would commence. T. 10, 61, 74, 76-77, 253, 272. * It should be noted that in the two volumes of transcript from the hearing record, there are no pages between pages 128 and 239. 12. Mr. Tillman then made inquiries concerning the availability of shipping materials (bills of lading, shipping cartons, etc.) and paper supplies; and was shown several rolls of paper stored in the contractor's warehouse. T. 56-57, 75-76, 252. The inspection having ended, Mr. Tillman left the contractor's plant carrying with him a number of the sample press sheets. T. 254. 13. Production began at the contractor's plant after the inspection and was completed by approximately 9 o'clock Wednesday morning (October 29, 1980). T. 11, 61, 74. 14. On October 28, 1980, another IRS inspector, Glenn Pelicheck, arrived at the contractor's plant to inspect another IRS.form. T. 11, 58. Mr. Pelicheck brought with him one of the press sheets of the 1040A form. He inquired as to the ink used on the 1040A form but determined it was satisfactory. Id. 15. On the morning of October 28, 1980, apparently unsatisfied with the sample press sheets, Mr. Tillman brought the sheets to the attention of his superiors, Thomas May, IRS Procurement Manager,and John Smith, IRS Assistant Procurement Manager. T. 254, 267-268, 275, 278-281, 331. They looked at the forms and Mr. May instructed Mr. Tillman to have the paper tested at the GPO. T. 268, 331, 339. Mr. Tillman brought the forms to the GPO for testing that day. T. 268. 16. The forms were tested by the GPO Quality Control and Technical Department and their content was determined to contain over 50% unbleached fiber. T. 333. These results were communicated to Mr. Thomas May on the morning of October 29, 1980. T. 254, 287. Based on these findings, Mr. May informed the GPO that the forms were unacceptable to the IRS. T. 332-333; Exhibit 7, A.F. 17. On Wednesday, October 29, 1980, after the production run was completed, the GPO notified the contractor at approximately 11:00 a.m. that the forms were unacceptable because they did not conform to the contract specifications regarding paper quality. T. 58-59, 332; Exhibit 12, A.F. The contractor was instructed to obtain conforming paper and to reprint the contract. T. 11-12, 332. This rejection was confirmed by a letter dated October 31, 1980. Exhibit 13, A.F. 18. The contractor did comply with GPO instructions and produced a conforming product within the original time schedule. Subsequently, the contractor requested compensation in the amount of $41,400 for the expense incurred by the first press run. This claim was rejected by the Contracting Officer in a letter dated December 2, 1980. Exhibit 14, Attachment E. 19. By letter dated February 2, 1981, the contractor appealed this decision to the GPO Contract Appeals Board. Exhibit 14, A.F. 20. A panel of that Board held a pre-hearing conference regarding the claim on October 8, 1981. A hearing was held on October 29 and 30, 1981, at which both parties were represented by counsel. ISSUES It was determined at the aforementioned pre-hearing conference that the following three issues had been raised by the contractor's appeal (see the Pre-hearing Statement): I. Did the actions of the government constitute an acceptance of the forms produced by the contractor on or about October 29, 1980? II. Did the actions of the government constitute a constructive change of the contract? III. Did the government's actions operate to estop it from denying the contractor its costs for printing the forms that were produced on or about October 29, 1980? DISCUSSION In a case such as this, where the Government has rejected work and required the contractor to correct the defects, it bears the burden of proving that the original work did not conform to the contract requirements. Southwest Welding and Manufacturing Co. v. United States, 413 F.2d 1167 (1969); see also, Hardeman- Monier-Hutcherson, ASBCA 11785, 67-1 BCA ¶ 6210; Ramar Co., ASBCA 16060, 72-2 BCA ¶ 9644; Pams Products, Inc., ASBCA 15847, 72-1 BCA ¶ 9401. The Government meets this burden by submitting evidence of the non-conformance to contract specifications. This evidence would include any test it has.conducted which would show non-compliance. C.W. Roen Construction Co., DOTCAB 75-43, 76-2 BCA ¶ 12,215. In the instant case, the IRS requested that the GPO Quality Control Technical Department conduct a chemical analysis of the paper used by the contractor. Findings of Fact, No. 15 (hereafter FF. 15). The test results indicated that there were 50% unbleached fibers present in the paper. Exhibit 10, A.F.; FF. 16. Since contract permitted only 5% unbleached fiber, the contractor's paper did not meet the specifications. Exhibits 3, 8, 10, A.F. This fact was not disputed by the contractor. T. 31, 36. The issues to be resolved, therefore, do not relate to compliance with the contract, but rather arise from an the inspection of the press run by an IRS inspector. FF. 9-12. This inspector inspected the press run prior to production and marked "O.K. to print" on a sample press sheet after having the ink color, the margin size, and the registration on the form adjusted in accordance with the specifications. FF. 10-11. After these adjustments, the inspector was apprised by the contractor's employees that production would commence. FF. 11. Following the departure of the inspector, production began and was completed in less than two days. FF. 13. However, the inspector, dissatisfied with the color of the samples of the tax forms that he brought back to Washington, showed the samples to his superiors. They instructed him to have the forms chemically analyzed by the GPO. FF. 15. The test results indicated that the paper did not conform to contract specifications. FF. 16. After the IRS was notified of these results, it communicated to the GPO its unwillingness to accept forms printed on this paper. The GPO thereupon rejected the tax form. Id. This decision was transmitted to the contractor approximately 2 hours after the press run had been completed. FF. 17. The contractor contends that the inspector by his actions approved the tax form as printed on non-conforming paper and that this approval constituted acceptance of the form on the non- conforming paper. Contractor's Brief, pp. 9-13. The contractor argues that any defect in the paper was patent and therefore acceptance of the non-conforming product by this inspector would cut off any right of the Government to require reprinting. Id. The contractor further asserts that the inspection and subsequent approval by signing "O.K. to print" on the sample press sheet constructively changed the contract provisions by permitting printing on non-complying paper. Contractor's Brief, pp. 13-17. Furthermore, since the Government knew the paper was being tested for compliance and did not notify the contractor until after it had received the test results, the Government breached its implied duty to inform the contractor of these materials facts and therefore constructively changed the contract. Any such constructive change, if proven, would entitle the contractor to relief for expenses incurred as a result of the change. The contractor's third argument is that the Government should be estopped from denying the contractor's claim because the Government knew the paper was being tested for compliance and did not inform the contractor of the testing procedure. Contractor's Brief, pp. 17-22. The contractor relied on the actions of the allegedly duly authorized IRS inspector to its detriment by printing on non-conforming paper. As regards the first issue raised by this appeal, the Board rules that the actions of the IRS inspector did not constitute acceptance of the substandard paper. It has been held that inspections by Government inspectors at contractor's plants are not acceptance and do not preclude rejection after the supplies are shipped. Mack Equipment & Machine Company, ASBCA 12532, 68-2 BCA ¶ 7140; Washington Technological Associates, Inc., ASBCA 10048 & 10349, 65-2 BCA ¶ 4892. However, as the contractor-has pointed out in its brief, contractors have been allowed to rely on the instructions and guidance of inspectors who have been dispatched by Contracting Officers to inspect a contractor's plant prior to production or during production. Centre Manufacturing Co., Inc. v. United States, 392 F.2d 229 (Ct. Cl. 1968); Max Drill, Inc. v. United States, 427 F.2d 1233 (Ct. Cl. 1970). In the instant case, the weight of the evidence indicates that the IRS inspector was approving or accepting only what he could visually inspect, i.e., the printed image on the paper. He was not approving or accepting the content of the paper. T. 91-92, 103-104, 112a, 114, 251, 281-282, 329-330. Therefore any acceptance or approval would not extend beyond the approval of the printed image to include acceptance of non-conforming paper. Both Mr. Tillman, the IRS inspector, and Mr. May, his superior, testified that Mr. Tillman's inspection only included such areas as the ink on the paper, the margins, and the line registration. T. 251, 281-282, 330. Mr. Tillman was not able or authorized to inspect the content of the paper. Id. If Mr. Tillman did not have the authority to inspect the content of the paper, then he could not bind the Government in any matters beyond his original authority. Max Drill, Inc. v. United States, supra, at p. 1243. Furthermore, Mr. Tillman, Mr. May and Mr. Fontana, a GPO employee proffered by the Government as as expert in press inspections, testified that no inspector is authorized to change any provision of the specifications without written authorization of the Contracting Officer. T. 86, 247, 335. See also, Tellico Lumber Company, AGBCA No. 80-149-3, 80-2 BCA ¶ 14,787. No such authorization was sought or obtained. Without the express or implied authority to alter the contract provisions relating to the content of paper, any actions by the inspector relating to acceptance of non-conforming paper, had they occurred at all, would have been cloaked with only apparent authority. Such authority can not bind the Government. Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380 (1947). Mr. Fontana testified that an inspector would not have the proper equipment to inspect the fiber content of the paper while on a inspection of an IRS tax form contract at a contractor's plant. T. 84, 98-99, 106. An inspection of fiber content could only be done by through chemical analysis. Id; FF. 7. This was verified by the contractor's own witnesses who testified that the fiber content of the paper could not be determined by visual inspection alone. FF. 7, 8. Mr. Ward testified that due to the nature of recycled paper visual inspection would be useless in determining the fiber content. T. 35, 40, 45-46, 66-67. Mr. Dandle testified that the necessary equipment for such analysis was not on the contractor's premises. T. 71-72, 76; see also, T. 9, 24, 64. Based upon the testimony relating to this inspection, it is obvious that Mr. Tillman could not and was not accepting the product printed on defective paper. Since neither he nor anyone else present during the inspection could have sufficiently analyzed the paper to determine its conformance with the contract specifications, it is not reasonable to believe that the inspector had the authority, as has been argued by the contractor, to accept the forms as printed on the defective,paper. The "O.K. to print", therefore, only related to the printed image on the paper.1/ This case is analogous to the facts of W.L. Spruill & Co., Inc., ASBCA No. 14390, 71-2 BCA ¶ 8930. There it was held that the contractor was not entitled to compensation for performing corrective work after the initial work had been approved by an on-site Government inspector. The Board ruled that this approval did not constitute final acceptance but was provisional in nature because the inspector did not.know that the contractor was using a non-conforming product. The inspector's failure to protest the use of this substandard material was not construed as a binding acceptance of material not conforming to the contract specifications. Additionally, the Board did not consider the approval to be a waiver of a contract requirement, the burden of which the contractor had assumed along with the risk of non- compliance. The risk of non-compliance does not shift to the Government when it inspects a contractor's plant. See also, Felton Construction, Co., AGBCA No. 406-9, 81-1 BCA ¶ 14,932. In the instant case, the contract specifically required the contractor to use materials equal to paper standards set out in the contracts (JCP Standards A60 or D10). It is well established that the Government is entitled to enforce strict compliance with the specifications and standards set forth in its contracts. Red Circle Corp. v. United States, 185 Ct. Cl. 1, 8, (1968); Jefferson Construction Co. v. United States, 151 Ct. Cl. 75 (1960); Gem Business Forms, GPO BCA 5-81, August 29, 1981. The contract in issue placed the burden of compliance on the contractor and the presence of a Government inspector did not shift the responsibility to comply with the contract provisions from the contractor. Furthermore, there is credible evidence in the record that indicates that Mr. Tillman questioned Mr. Dandle about the paper stock when they were adjusting the ink on the paper. He was assured that the paper met the specifications. T. 250, 263, 292, 335. Mr. Tillman referred to this conversation with Mr. Dandle in his Quality Assurance Inspection Report, dated October 29, 1980. Exhibit 9, A.F. Mr. Dandle denied that this conversation ever took place. T. 56, 60, 69. Mr. Ward also testified that Mr. Tillman never mentioned paper compliance to him during the short time they were together. T. 13. The Board finds that, given the fact that Mr. Tillman and Mr. Dandle took so long to adjust the ink to obtain a satisfactory press sheet, it is reasonable to believe that Mr. Tillman did mention the paper as a possible cause of their difficulty in adjusting the sample tax form. It is quite conceivable then that Mr. Tillman was told that the paper met specifications since the contractor believed the paper supplied to them by Georgia-Pacific met the specifications. FF. 5. After receiving such assurances and knowing that he was not in a position to test the paper, Mr. Tillman was justified in acquiescing to the contractor's wish to begin production immediately. Assuming arguendo that acceptance did occur, could the acceptance be revoked due to the nature of the defect? If the defect were patent then any acceptance, absent fraud, would be irrevocable. A defect is patent when it could be readily discovered by an ordinary examination or test. Geranco Manufacturing Corp., ASBCA 12376, 68-1 BCA ¶ 6898. The contractor argues that because the inspector suspected something was wrong with the paper, the defect in the tax form was patent. A latent defect is one that existed at the time of acceptance but would not have been discovered by a reasonable inspection. Stewart Avionics, Inc., ASBCA 15512, 75-1 BCA ¶ 11,253. It is obvious that this particular defect, the percentage of fiber content in the paper in excess of the contract specifications, was latent by nature in that the fiber content could not be determined by the inspection techniques utilized by Mr. Tillman. T. 84, 98-99, 106. Furthermore, the latent nature of this defect was attested to by all of the witnesses. FF. 7, 8. Since there was no one present at the inspection who had the knowledge, training, or facilities to conduct the chemical analysis of the paper to determine the fiber content of the paper, this defect must be considered latent as it could not have been discovered by reasonable examination. Id. Therefore, if acceptance had occurred at the time of the inspection, as the contractor argues, the latency of the defect would permit revocation of the acceptance. The contractor next asserts that the Government constructively changed the contract terms when Mr. Tillman wrote "O.K. to print" on one of the sample press sheets and when the Government did not disclose that it was having the paper tested. The Board holds that no such constructive change was made. As was concluded above, the "O.K. to print" only related to the printing on the paper. As the IRS inspector was not aware of the non-conforming paper, he could not have accepted it. Moreover, the contractor's argument that the Government breached its duty to disclose information that it had in its possession is without foundation. The Government does have a duty to disclose material information that it exclusively possesses when nondisclosure would damage the contractor. This duty did not arise in this case, however, until after the Government had received the test results. See FF. 16. None of the cases cited by the contractor establishes that there is a duty to inform the contractor that testing is in process. The Government is obliged to notify contractors of test results and the rejection of goods because of those results within a reasonable time of learning of those results. Cone Brothers Contracting Co., ASBCA No. 16078, 72-1 BCA ¶ 9444. This is so that the contractor can mitigate his losses by halting production of rejectible goods. The test of what is a reasonable time for notification depends on the circumstances. Max Bauer Meat Packer, Inc. v. United States, 458 F.2d 88 (Ct. Cl. 1972). The Board concludes from the facts of this case that the Government acted reasonably and in a timely fashion when it informed the contractor of the test results on the morning of October 29, 1980. FF. 15-17. The contractor was obligated to provide a conforming product. It took the risk of rejection of that product when it supplied paper that did not conform to contract specifications. The terms of the contract required that paper comply with definite standards and provided that the Government could test the contractor's product in order to assure compliance with these standards. Article 12, Contract Terms No. 1, supra. . The contractor was aware or should have been aware of these rights and therefore cannot now claim that the Government should have informed it that testing was being considered. Additionally, it should be noted that the contractor was well aware of the dangers of using recycled paper. Mr. Ward testified that recycled paper varied greatly in quality. T. 25, 45, 50. Despite the fact that the contractor knew that visual inspection was practically useless in determining the fiber or groundwood content of recycled paper, only one roll of the defective paper was visually inspected. T. 24-28, 35, 40, 45-46, 66-67, 304. Because of the contractor's inability to analyze the paper properly, it was forced to rely on its supplier to deliver conforming paper. T. 26, 34, 65. Since the contractor was aware that neither it or the IRS inspector could perform the proper chemical analysis of the paper at the press site to determine compliance with the contract specifications, it should have expected that the paper might have undergone some testing by the Government. If it were reasonable to expect that testing would occur, the contractor cannot now claim that it was prejudiced because the Government opted to have the paper tested and did not notify it until the testing was completed. The contractor's third argument raises the defense of estoppel and asserts that it relied to its detriment on the actions and representations of Government employees. The contractor contends that because the Government waited until the testing was finished before it notified the contractor, the entire production run was completed and the contractor was damaged. Both acts of commission and omission may permit the defense of estoppel to be asserted against a party. Silence works an estoppel if a party is under a duty to speak. United States v. Georgia-Pacific Co., 421 F.2d 92, 97 (9th Cir. 1970). As held above, the Government is under no duty to disclose prior to receiving the test results. Although the Government knew the production was running, it did not know that the work was not in compliance with the contract specifications. It did not keep silence to induce or to allow the contractor to continue what would become later a ruinous course of activity. Since the contractor knew or should have known that the IRS inspector was not able to inspect the defective paper for compliance with the applicable paper standards, the contractor had no reason to believe that the Government was accepting defective paper. Therefore, it can not now argue that it had a right to rely on the fact that the Government did not notify the contractor that testing was in process. Decision Based upon the facts as established by the record and the above reasoning, the contractor's appeal is denied in its entirety. _______________ 1/ The contractor cites 50 Comp. Gen. 534 (miscited as 53 Comp. Gen. 534) for the proposition that approval by a Government employee of a press proof can operate as an acceptance. However, this decision can be distinguished on its facts. The preproduction inspection operated as a final acceptance of the press proofs only because there was a patent error contained in the inspected artwork. The word "boundary" was misspelled in the press proofs as "boundry", an obvious error that should have been detected by the inspecting official. In the instant case, the defect was latent in nature since the fiber content could not have been discovered by the inspection conducted by Mr. Tillman at the contractor's plant. 50 Comp. Gen., at 535.