Appeal of Norm Hodges & Associates, Inc.
Appeal dated October 5, 1981
Decision dated April 12, 1982

Panel 82-2

Preliminary Statement

This is a decision on a timely appeal filed by Norm Hodges &
Associates, Inc. (hereinafter referred to as the contractor).
The contracts at issue (Programs 24-S and 154-M) required the
contractor to produce microfiche for the Government Printing
Office (GPO).  The GPO Contracting Officer terminated these
contracts for default because the contractor abandoned its plant
without informing the GPO.  The contractor disputes this final
decision to terminate the contracts for default.  The appeal is
taken in accordance with Article 2-3 (the"Disputes" clause) of
the GPO Contract Terms No. 1, GPO Publication 310.2, revised
October 1, 1980. 1/

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 oral argument before the
Board held on March 11, 1982.

Statement of Facts

On August 1, 1980, in accordance with standard GPO contract award
procedures, Purchase Order 14771 for the contract Program 24-S
was awarded to the contractor.  This contract required the
contractor to produce silver halide master microfiche from three
categories of Government furnished material: source documents, or
print image tapes, or text data base magnetic tapes.  Exhibit 6,
Appeal File (hereafter A.F.).  According to the specifications,
the production and delivery of silver .halide archival quality
camera microfiche were to adhere to the performance schedule
established in the specifications.  Paragraph 2.21, Exhibit 3,
A.F.  On October 10, 1980 the contractor was awarded a second
contract (Program 154-M) by Purchase Order 16083.  Exhibit 11,
A.F.  This multiple award contract required the contractor to
produce and deliver microfiche from Government furnished camera
copy source documents and silver halide microfiche.  Exhibit 8,
A.F.  In placing work under this multiple contract, noncompliance
with the shipping and/or delivery schedule could be cause for the
Government to withhold further orders until the contractor was
judged by the Government to have established adequate procedures
to fulfill the delivery requirements.

On August 4, 1981, the contractor was notified by letter that the
Government would withhold further print orders under Program 154-
M because it had been late in delivering 40% of the print orders
submitted during the month of July.  The contractor was directed
to establish production controls that would ensure future
compliance with the performance schedule.  By letter dated August
7, 1981, the contractor attempted to explain its delinquent
performance on four print orders.  Exhibit 13, A.F.  The letter
further informed the Government that the contractor had closed
its doors for a 30 day period to restructure its finances and
management.  Following receipt of this notification, the
Government apparently placed no further orders under Program 154-
M with the contractor.  However during this same time period, two
print orders under Program 24-S were placed with the contractor.
Exhibits 18, 19, A.F.

The GPO was informed on August 26, 1981, that the contractor had
been evicted for nonpayment of rent from the plant it leased in
Fairfax, Virginia.  Exhibits 14, 15, A.F.  As a consequence of
this eviction, the premises and its contents were in the control
of the Sheriff's Office of Fairfax County.  Several employees of
the GPO visited the site in the hope of recovering GPO property.
Visual inspection revealed that the contractor had removed all of
its production equipment.  These employees reported back that no
production could take place at the plant.  Exhibit 15, A.F.; see
also, Exhibit 20, A.F.  During the next week, the GPO made
several unsuccessful attempts to contact the contractor.  Exhibit
22, A.F.  Based on the fact that the contractor had abandoned its
plant without notifying the GPO of the move and without leaving
any forwarding address, the GPO terminated both contracts for
default.  Exhibits 20, 21, A.F.  The reason provided in the
termination notice for the default action was "because of the
close of [its] business." Id.

The contractor appealed the Contracting Officer's final decision
by letter to the Public Printer dated October 5, 1982.  Exhibit
1, A.F.  On December 14, 1981, the contractor requested an
informal hearing which was scheduled for 9:30 a.m. on March 11,
1982.  The contractor was notified of this hearing date by a
letter from the Administrator, GPO Contract Appeals Board and one
from the Chairman of the GPO Contract Appeals Board Panel dated
January 26 and January 29, 1982, respectively.  The January 26th
letter contained the hearing time.  The certified return receipts
indicated that the contractor received both of these letters.
The hearing was convened at 9:45 on March 11, 1982, however
neither the contractor nor any of its representatives were
present.  One of the contractor's employees called during the
hearing, but provided no reasonable excuse for its absence.  As
in any case of unexcused absence of one of the parties, the Panel
proceeded with the hearing and the contractor's case was
considered to be submitted on the record within the Appeal File.
This procedure is in accordance with Paragraph 13(d) of the
aforementioned GPO Instruction 110.10B.



The Government's right to default a contractor is derived from
Article 2-18  2/, entitled "Default." This provision reads in
part as follows:

2-18. Default
(a) The Government may, subject to the provisions of paragraph
(c) of this article, by written notice of default to the
contractor, terminate the whole or any part of the contract in
any one of the following circumstances:
(1) If the contractor fails to make delivery of the supplies or
to perform the services within the time specified herein or any
extension thereof; or
(2) If the contractor fails to perform any of the other
provisions of the contract, or so fails to make progress as to
endanger performance of the contract in accordance with its
terms, and in either of these two circumstances does not cure
such failure within a period of 10 days (or such other period as
the Contracting Officer may determine to be reasonable and
authorize in writing) after receipt of notice from the
Contracting Officer specifying such failure.

This clause gives the Government the right to default the
contract without prior notice only in cases where the contractor
has failed to deliver supplies within the schedule specified in
the contract or within any extensions thereof.  Art. 2-18(a)(l).
If the Government wishes to default because of some other action
or inaction by the contractor the Government must notify the
contractor of the problem and must afford the contractor a period
of 10 days to resolve the problem to the satisfaction of the
Contracting Officer.  Art. 2-18(a)(2).  Regardless of which
provision the Government invokes, it was the burden of proving
that it acted properly in terminating a contract.

In the instant case, the ostensible reason provided by the
Government for the default action was the apparent closing of the
contractor's business.  Exhibit 21, A.F.  Since this
justification for default does not necessarily include failure to
deliver, a default for this reason alone would only be
permissible under Article 2-18(a)(2).  This is because closing
one's business would give rise to the presumption that the
contractor had failed to make progress so as to endanger the
performance of the contract in accordance with its terms.  As
stated above, under this provision the Government must provide
the contractor a 10 day cure notice before terminating the
contract for default.  Failure to provide the appropriate notice
renders the default invalid.  Kisco Co. v. United States, 610
F.2d 742 (Ct. Cl. 1979); Bailey Specialized Buildings, Inc.  v.
United States, 404 F.2d 355 (Ct. Cl. 1968).  The record here
reveals that no such cure notice was provided to the contractor.

The Government argued however at the hearing that the default
action was taken under Article 2-18(a)(l) because the contractor
failed to deliver microfiche ordered within the shipment periods
established in the contract specifications and the individual
print orders.  This nondelivery presumably arose under Print
Orders 99, 104 and 105 which had shipping dates of August 19, 26
and 27, 1981, respectively.  Exhibits 17, 18, 19, A.F.  Since the
default notice terminating the three print orders was dated
September 9, 1981, and the contractor has not offered any
evidence that it did deliver the work in a timely fashion, the
Board concludes that there was no delivery of these three orders
at the time of termination.  The contract terms permit immediate
termination action for failure to deliver goods at the
appropriate time.  Kan-Du Tool and Instrument Corp., ASBCA No.
23466, 79-2 BCA  13,907; Technical Publishing Services, Inc.,
GPO CAB 1-81, January 20, 1982.

Termination for failure to deliver has been upheld even if based
upon improper grounds if a proper ground for default termination
existed at the time of termination.  Pots Unlimited, LTD. v.
United States, 600 F.2d 790 (Ct. Cl. 1979), and the cases cited
therein; Cross Aero Corp., ASBCA 14801, 71-2 BCA  9075.
Therefore, in a case such as this, where the termination is based
on default in delivery, any assertion that the termination notice
contained an invalid reason or was invalid because of the reason
contained therein does not void the action provided that at the
time of termination a valid ground does in fact exist.  See also,
Royal Lumber Co., Inc., ASBCA No. 2847 (1955).

It is the ruling of this Board that given the facts of this case
the Government could not default the contractor for nondelivery
on Print Orders 99, 104 and 105.  Ordinarily, the Government is
entitled to strict compliance with its contract specifications.
Red Circle Corp. v. United States, 185 Ct. Cl. 1, 8 (1968);
Associated Graphics, GPO CAB 76-12, January 12, 1981.  However,
the record indicates that the Government waived its right to
receive delivery in strict accordance with the specifications.
In cases where the Courts or the Boards have found this kind of
waiver, the determining factor has been a finding that the
contractor relied to its detriment on Government action or
inaction.  DeVito v. United States, 413 F.2d 1147 (Ct. Cl. 1969);
Clark Cable Corp., ASBCA No. 17090, 72-1 BCA  9463.  This waiver
may result from Government action prior to the due date
indicating that time is not of the issue.  Bailfield Industries,
Division of A-T-O, Inc., ASBCA Nos. 14582, 14583, 72-2 BCA 
9676.  A waiver is binding not because of consideration, but
because of principles of fair dealing or estoppel.  Nash &
Cibinic, Federal Procurement Law, Vol. II, 3rd Edition, 1980, p.

In the instant case, the contractor notified the Government in a
letter dated August 7, 1981, that it ''as "restructuring its
financial and management area and [had] closed its doors for a
30-day period to overhaul these systems." Exhibit 13, A.F.  The
Government never commented on this action but in the next few
weeks sent Print Orders 104 and 105 to the contractor.  Exhibits
18 and 19, A.F.  Since the Government had notice that the
contractor's production had temporarily ceased for the month of
August and it still continued to submit print orders, the
inescapable conclusion is that the Government did not consider
that it was necessary for the contractor to comply with the
shipping dates on these two print orders (August 26 and 27, 1981)
. The Government's inaction demonstrated that time was not of the
essence and it is now estopped from arguing that it is.

Although Print Order 99 was provided to the contractor in July
1981, prior to the closing of its plant, the aforementioned
waiver would also include this print order.  The Government was
notified prior to the delivery date on Print Order 99 that the
contractor's plant had closed.  Exhibits 13, 17, A.F.  The
Government was given constructive notice that delivery on that
print order was going to be delayed by the closure.  It made no
comment concerning this except to submit two more print orders
(Print Orders 104 & 105).  The inaction coupled with the
submission of more print orders served to waive the delivery
requirements for all of the print orders.

Since the contractor continued to receive print orders while it
was closed, it would have been reasonable for the contractor to
rely on the fact that since the Government knew it had shut down
its production during August, it was not necessary for the
contractor to adhere strictly to the production schedule.  If the
contractor had been notified that its closing was unacceptable,
it might not have continued a course of action that would have
led it to default.  As it was, the contractor was never given the
opportunity.  Therefore, because the Government allowed the
contractor to continue its production shut down by not notifying
it that this course of action was endangering the contractor's
performance on the contract or that the Government expected the
delivery dates of print orders to be adhered to, it waived any
right to timely delivery.

This Board holds that if the Government wanted to terminate
Program 24-S under Article 2-18(a)(l), it should have
reestablished its delivery schedule.  DeVito v. United States,
supra.  If it wanted to terminate the contract under Article
2-18(a)(2), it should have provided a 10-day cure notice.  Since
it did neither, the termination was improper and invalid.

The termination of Program 154-M was also improper.  There is no
indication in the record that there were any outstanding print
orders under this contract that would have permitted the
Government to default the contract due to late delivery as
allowed under Article 2-18(a)(l).  Therefore this default had to
have been effected under Article 2-18(a)(2).  As stated above,
since there was no cure notice provided, any termination under
this article would be invalid.

In light of the fact that the GPO ascertained at the end of
August that the contractor had moved from its premises and was
incapable of production at that location, this decision may seem
to exalt form over substance.  However, it should be remembered
that a default termination, as a species of forfeiture, is
considered a drastic sanction and is to be strictly construed.
H. N. Bailey and Associates v. United States, 196 Ct. Cl. 156,
163-65, 449 F.2d 387, 391 (Ct. Cl., 1971); DeVito v.  United
States, supra, J. D. Hedin Construction Co. v. United States, 187
Ct. Cl. 45, 57; 408 F.2d 424, 431 (1969).  The Corps of Engineers
Board of Contract Appeals, after citing this principle, held

"[T]hey [default terminations] will be enforced only where the
party seeking the forfeiture has strictly performed his
contractual obligations according to the letter; and they will
not be enforced against equity and good conscience."

Mountain State Construction Co., Inc. ENG. BCA No. 3549, 76-2 BCA
 12,197, at p. 58,725; see also, Amecon Division Litton System,
Inc., ASBCA No. 19,687, 77-1 BCA  12,239.  Since the Government
has not strictly performed its contractual obligations regarding
termination for default, the termination cannot be upheld.


Accordingly, the Board remands this appeal to the Contracting
Officer for conversion of the default termination to one for
convenience of the Government pursuant to Articles 2-17 and
2-18(e), Contract Terms No. 1, supra.  In the event that
negotiations regarding quantum should prove unsatisfactory to the
contractor, it has the right to appeal this matter to the Board
in accordance with the contract's aforementioned Disputes clause.


1/ This contract provision had been numbered as Article 3 in the
previous version of the contract.  See  Contract Terms No. 1, GPO
Publication 310.2, revised August 1, 1979.  The language remains
substantially unchanged.

2/ This clause is numbered Article 17 in the 1979 version of
Contract Terms No. 1, supra.