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UNCLASSIFIED 


ARMED SERVICES MMRD OF CONTRACT APPEALS. ANALYSIS OF 
SUSTAINED DECISIONS ON DOO SUPPLV CONTRACT DISPUTES(U) 
NAVAL POSTORADUATE SCHOOL MONTEREY CA R D PNRS8ES 
DEC M F/6 13/3 













































AD-A177 946 


NAVAL POSTGRADUATE SCHOOL 

Monterey, California 

DTIC 


THESIS 

ARMED SERVICES BOARD OF CONTRACT APPEALS: 
ANALYSIS OF SUSTAINED DECISIONS 
ON DOD SUPPLY CONTRACT DISPUTES 

by 

Robert Douglas Parsons 
December 1986 

Thesis Advisor: Raymond W. Smith 

Approved for public release; distribution is unlimited 




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ARMED SERVICES BOARD OF CONTRACT APPEALS: ANALYSIS OF SUSTAINED 
DECISIONS ON DOD SUPPLY CONTRACT DISPUTES 


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The purpose of this thesis is to identify deficiencies in the Federal 
Government's acquisition process through an analysis of ASBCA decisions for 
the period 1981 through 1985. The study focused upon Department of Defense 
contract default terminations whose conversion to terminations for the 
convenience of the Government resulted from Board decisions. The essence 
of the study was to determine if meaningful conclusions could be draw., from 
the analysis that could be used to improve the acquisition process. Using 
this research methodology several deficiencies were found, such as, actions 
and inactions by the acquisition team that waived the Government's right 
to subsequently pursue a default termination, lack of communications and 
basic contract knowledge, inadequate training, and a general misunderstand¬ 
ing of the substantial compliance aspects in contracts requiring first 


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#19 - ABSTRACT - (CONTINUED) 


article units. Additional research is required, however 
this study concluded that analysis of sustained ASBCA 
appeals could be a useful technique for making improve¬ 
ments to the acquisition process. 


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The purpose of this thesis is to identify deficiencies 
in the Federal Government's acquisition process through an 
analysis of ASBCA decisions for the period 1981 through 
1985. The study focused upon Department of Defense contract 
default terminations whose conversion to terminations for 
the convenience of the Government resulted from Board 
decisions. The essence of the study was to determine if 
meaningful conclusions could be drawn from the analysis that 
could be used to improve the acquisition process. Using 
this research methodology several deficiencies were found 
such as, actions and inactions by the acquisition team that 
waived the Government's right to subsequently pursue a 
default termination, lack of communications and basic 
contract knowledge, inadequate training, and a general 
misunderstanding of the substantial compliance aspects in 
contracts requiring first article units. Additional 
research is required, however this study concluded that 
analysis of sustained ASBCA appeals could be a useful 
technique for making improvements to the acquisition 
process. 








I 


INTRODUCTION 


7 


A. BACKGROUND- 7 

B. PROBLEM STATEMENT - 10 

C. OBJECTIVES AND RESEARCH QUESTIONS - 12 

D. STUDY LIMITATIONS AND ASSUMPTIONS - 13 

E. LITERATURE REVIEW - 14 

F. ORGANIZATION- 15 

II. FRAMEWORK- 17 

A. GENERAL INFORMATION - 17 

B. DEFAULT TERMINATION - 17 

C. TERMINATION FOR CONVENIENCE - 21 

D. TERMINATION FOR DEFAULT CONVERSION - 22 

E. THE APPEALS PROCESS - 2 3 

III. METHODOLOGY- 2 5 

A. POPULATION AND SAMPLE DESCRIPTION - 25 

B. DATA COLLECTION PLAN- 2 7 

IV. SYNOPSIS OF SUSTAINED APPEALS - 29 

A. GENERAL- 29 

B. CASE ANALYSIS - 30 

V. ANALYSIS OF SUSTAINED APPEALS - 56 

A. INTRODUCTION- 5 6 

B. FAILURE TO DELIVER- 57 

C. JUSTIFICATION FOR CONVERSION TO "T FOR C" - 57 


5 



































D. COMMON CHARACTERISTICS 


65 


VI. CONCLUSIONS AND RECOMMENDATIONS - 68 

A. PREFACE- 68 

B. CONCLUSIONS - 68 

C. RECOMMENDATIONS - 71 

D. RESEARCH QUESTIONS - 73 

E. RECOMMENDATIONS FOR FURTHER RESEARCH - 77 

APPENDIX A: REPORT OF TRANSACTIONS AND PROCEEDINGS 
OF THE ARMED SERVICES BOARD OF CONTRACT 
APPEALS FOR THE FISCAL YEAR ENDING 30 
SEPTEMBER 1985 - 79 

APPENDIX B: DISPUTES PROCESS - 89 

APPENDIX C: DEFAULT (FIXED-PRICE SUPPLY AND 

SERVICE) (APRIL 1984) - 90 

LIST OF REFERENCES- 93 

INITIAL DISTRIBUTION LIST - 95 


6 




te'.'&L 































I. INTRODUCTION 


A. BACKGROUND 

Procurement authority for the Federal Government is 
derived from the Constitution as a power exercised under the 
general powers of the Sovereign. The secretary or adminis¬ 
trator of most federal departments and agencies is 
authorized to make purchases and contract for goods and 
services. Contracting authority is delegated to the 
directors of the offices that carry out the contracting 
activities [Ref. l:pp. 34-35] who, in turn, usually further 
grant to contracting officers [Ref. 2:p. 24]. Congress 
directs, through its legislative process, the laws from 
which the Executive branch will formulate acquisition policy 
and implementing procedures. 

The Federal Acquisition Regulation (FAR) provides the 
following definition: 

"Contracting officer" means a person with the authority 
to enter into, administer, and/or terminate contracts and 
make related determinations and findings. The term includes 
certain authorized representatives of the contracting 
officer acting within the limits of their authority as 
delegated by the contracting officer. 

[Ref. 3:p. 2-1] 

Since April 1, 1984, the principal regulation providing 
guidance to the contracting agencies is the Federal Acquisi¬ 
tion Regulation (FAR). The FAR is further modified by FAR 












supplements issued by the Department of Defense (DOD), 
National Aeronautics and Space Administration (NASA), and 
others. Additional rules affecting the acquisition process 
originate from a number of different sources, for example, 
Executive Orders of the President, the Office of Federal 
Procurement Policy (OFPP), and service secretaries. [Ref. 
2:pp. 10-15] 

To satisfy Government's material and service 
requirements, contracting officers award contracts, defined 
as "a mutually binding legal relationship obligating the 
seller to furnish supplies or services (including construc¬ 
tion) and the buyer to pay for them." [Ref. 3:p. 2-1] The 
majority of contracting actions run quite efficiently and 
flow from the initial requirements determination to comple¬ 
tion with no difficulties. On other occasions the contract 
could result in a termination with no cost to the Government 
or the contractor (a no cost settlement), a termination for 
the convenience (T for C) of the Government, or a 
termination for contractor default (T for D). 

From the Government's standpoint, T for C is an expen¬ 
sive method of discontinuing a contractual relationship with 
a supplier. Nonetheless, there are occasions when it is in 
the best interests of the Government to execute a T for C. 
"If the contracting officer decides to terminate for 
convenience, the Government's liability will be admitted and 
the contractor will recover his incurred cost and profit on 









work done." [Ref. 2:p. 776] T for C's are used most often 
when the Government no longer requires the contracted goods 


< 


or services. 

1. Termination for Default 

A T for D is the Government's ultimate method of 
dealing with a contractor's failure to comply with the terms 
of the contract. When the Government exercises its right to 
terminate for default, the contractor becomes liable for the 
consequences of the contract breach. The FAR specifies the 
justifications for terminating the contractor by use of the 
default clause. For example, the default clause for "fixed 
price supply and services" contracts provides for termina¬ 
tion, completely or partially, if the contractor fails to: 

(a) make delivery of the supplies or to perform the 
services within the time specified in this contract, 

(b) perform any other provision of this contract, or 

(c) make progress and that failure endangers perform¬ 
ance of the contract. [Ref. 3:p. 49-15] 

Additionally, the contractor could be terminated for 
default in two other situations: 

The first--failure to proceed--arises where the 
contractor fails or refuses to go forward with the work 
according to directions of the contracting officer. The 
second—anticipatory repudiation—occurs when the contrac¬ 
tor clearly expressed through words or conduct an inten¬ 
tion not to complete the contract work on time. [Ref. 
B:p. 640] 

However, the contracting officer's termination 
decision is not the final word. The terminated contractor 
is not without recourse. Appendix B graphically portrays 
the routes of contr_-tor relief. The Armed Services Board 


9 



















of Appeals (ASBCA) is the administrative avenue *hile the 






: 


t: 


I 


i 

( “v 

\ 

A 

' 



U.S. Claims Court is the judicial course of appeal. The 
ASBCA is the DOD and service secretaries’ authorized 
administrative representative in resolving contract 
disputes. The ASBCA renders decisions concerning guest ions 
of fact through the administrative procedure specified in 
the Disputes clause of the contract. A standard contract 
Disputes clause is provided as Appendix C. 

B. PROBLEM STATEMENT 

There is no on-going systematic effort to incorporate 
the new precedents established by the ASBCA decisions and 
the implementation of new legislation into a usable form 
that contracting officers can use on a daily basis. This 
knowledge is vital if the contracting officer is to execute 
his/her duties "in the best interests of the Government." 
The mo-t complete information concerning ASBCA decisions car. 
be obtained from Board of Contract Appeals Decisions . The 
Federal Contract Report and other publications periodically 
highlight specific decisions, but the completeness of the 
analysis, in the total scheme of things, is usually inade¬ 
quate to be of much use at the working level of the 
contracting process. 

The Board of Contract Appeals Decisions published by the 
Commerce Clearing House Inc., is presented in a case-mix 
format and consists of thousands of pages per year. The 
tailored extracts available from Federal Legal Information 

10 








■ n - 















W. PiPJP. v - Vim '* 1 J 'A '*. 'ASJ'J"*'* '.'"* ',» V* V V VJ 1 *> 

through Electronics (FLITE), while being less cumbersome,are 
not readily available nor in a usable form to substantially 
benefit contracting officers in their day-to-day operations. 
This research will address this information gap. 

DOD contractor disputes decisions are rendered by the 
ASBCA or the U.S. Claims Court. Exceptions to this proce¬ 
dure include bid protests which are decided by the Comptrol¬ 
ler General of the General Accounting Office. The General 
Services Board of Contract Appeals (GSBCA) exercises juris¬ 
diction in bid protests related to computer and computer- 
related equipment and support materials. [Ref. 8:p. 148] 

An analysis of the sustained ASBCA and U.S. Claims Court 
decisions with the intent of identifying recurring problems 
and/or errors by contracting officers is needed to improve 
the acquisition process. 

The ASBCA publishes an annual report, addressed to the 
Secretary of Defense and Service secretaries, that reports 
Board decisions by Service branch, but additional case load 
divisions are not segregated by Service [Ref. G]. The FY-85 
report is provided as Appendix A. An analysis of the report 
will reveal that appeals of default terminations comprise 
20% of the court's caseload. 

Contractors rely very heavily upon ASBCA decisions in 
the performance of contract work [Ref. 9:p. 14]. Therefore, 
it would behoove the Services to do the same. 


11 














C. OBJECTIVES AND RESEARCH QUESTIONS 

The overall objective of this study is to improve the 
Department of Defense (DOD) acquisition process as it 
relates to areas in which protests occur most frequently. 
To accomplish this objective, an analysis of ASBCA and u.s. 
Claims Court decisions will be undertaken to determine if 
meaningful conclusions to benefit the contracting process 
can be identified. This study will concentrate upon the 
following questions. 

Primary Question : 

Can meaningful conclusions be drawn from an analysis of 
sustained ASBCA and U.S. Claims Court appeals concerning 
Department of Defense contracts which were originally 
terminated for default (T for D) , but subsequently settled 
as terminations for convenience (T for C) as a result of an 
agency board or judicial decision? 

Subsidiary Questions : 

1. What are the principles generally cited for sustaining 
a contractor's appeal of a default termination? 

2. Once a contract termination is successfully appealed, 
what are the contracting officer's options and asso¬ 
ciated considerations? 

3. How might the T for D decision process be improved to 
reduce the number of successful contractor appeals? 

D. STUDY LIMITATIONS AND ASSUMPTIONS 

This research effort is limited to an analysis ot 
sustained contractor appeals rendered by the Armed Services 
Board of Contract Appeals and the U.S. Claims Court. 


12 












Decisions which were dismissed, denied, or settled cases 
were not within the scope of this research, nor were con¬ 
tracting officer/contractor settlements that were reached 
prior to a decision by the Board or court examined. The 
research was limited to decisions rendered against the U.S. 
Navy/Marine Corps, Army, Air Force, and Defense Logistics 
Agency. These four categories represent the vast majority 
of the DOD contracts. Omission of the small amount of 
contracting done by the Office of the Secretary of Defense 
will not impact the analysis or conclusions. Since the 
study concentrated on default terminations, bid protests 
were not surveyed. 

The ASBCA and the U.S. Claims Court consist of guali- 
fied attorneys, while the research has a limited legal 
background. Any possible biases of the research should not 
surface since the in-depth analysis will be based upon the 
cases' full text as published in the Commerce Clearing House 
publication. 

The study will be limited to supply contracts and will 
exclude research and development (R&D), construction, 
services, and others. To obtain a broad perspective and 
enhance the identification of trends or persistence problem 
areas, the data will include the four most recent and 
complete fiscal years readily available to the researcher: 
Fiscal years 1982 through 1985. 


I 


13 













FLITE was utilized to reduce the research data to a 
manageable level, therefore it is assumed that FLITE will 
identify all, or at least a representative sample, relevant 
cases for this analysis. It was assumed that the cases 
studied contain the necessary material from which meaningful 
recommendations can be derived. 

The Defense Federal Acquisition Regulation Supplement 
(DFARS) and Government Contract Law are the primary sources 
of policy and interpretation, since these are the informa¬ 
tion sources relied upon by field contracting officers, in 
addition to his lawyer. 

Further, it is assumed that all readers will have a 
basic understanding of the Government acquisition process 
and contract law. 


E. LITERATURE REVIEW 

The literature review encompassed the Naval Postgraduate 
School's (NPS) main, thesis, and acquisition libraries. The 
computerized data base of FLITE and the Defense Logistics 
Studies Information Exchange (DLSIE) were utilized. 

The most successful inquiries proved to be FLITE and 
DLSIE. Other than two NPS master's theses completed in 
1979, significant, recent research in the area of appealed 


disputes 


1imited. 


thesis, 


Navy Supply Contract Disputes by Robert Howdyshell [Ref. 9] 
researched fiscal year 1978 and proved useful in structuring 


14 
















this research effort. The other NPS thesis was the U.S. 


Gene ral Accoun 




'.TifHTJFmy® 


on Department of Defense Contra 


Sustained Decisions 


rotests 


1978) by Michael Younker [Ref. 10]. 

The source data for analysis provided by FLITE, located 
at Lowery AFB Denver, Colorado, was outstanding. Without 
the superior service attitude, legal knowledge, and data 
base expertise of FLITE lawyer Mr. Robert Lundwall, the 
amount of data analyzed in this research would have been 
extremely limited. 

The NPS acquisition library was most useful in providing 
ready copies of DLSIE-generated research microfiche while 
the NPS main library was most valuable for its current and 
back copies of the ASBCA decisions published by Commerce 
Clearing House, Inc., which were utilized for the in-depth 
analysis of FLITE-identified cases and for its Government 
procurement publications. 


F. ORGANIZATION 

The general area of study is presented in the Background 
section of Chapter I. The Problem Statement justifies the 
need for this in-depth research effort. The Objectives were 
derived from the problem statement. The primary question 
and the three subsidiary questions provide the overall focus 
for the analysis and establish the benefit to be obtained 
from a solution. The scope of the research is refined in 


the Study Limitations and Assumptions. 


The Literature 

















Review explains the procedures followed in the analysis and 
research effort. The Organization section outlines the 
presentation of the study. 

Chapter II, Framework, delves more deeply into the 
financial implications, termination criteria, and the neces¬ 
sary factors involved in a contract termination. Chapter 
III identifies _he population and techniques used to gather 
the research data, while Chapter IV presents case-by-case 
synopses and the key principles of law concerning the 15 
sustained contract appeals of DOD contractors. 

The research analysis is presented in Chapter V. In 
Chapter VI, the conclusions of the research and recommenda¬ 
tions for improving the acquisition process are presented, 
as well as recommendations for further research. 


16 
















II. framework 


A. GENERAL INFORMATION 

The acquisition process is the means by which the 
Government obtains its needed materials, equipment, facili¬ 
ties, and services necessary to the performance of organi¬ 
zational missions. The contract is the tool used to reach 
these ends. 

Contract language is developed by the Government, 
reviewed and/or modified with the contractor, and ultimate¬ 
ly an agreement (binding contract) is reached as to the per¬ 
formance requirements of each party. Subsequently, 
differences in opinions concerning contract interpretation 
or changed conditions give rise to a dispute. A dispute is 
defined legally as: 

A conflict or controversy; a conflict of claims or 
rights; an assertion of a right, claim, or demand on one 
side, met by contrary claims or allegations on the other. 
The subject of a litigation; the matter for which a suit 
is brought and upon which issue is joined, and in relation 
to jurors are called and witnesses examined. [Ref. 6] 


B. DEFAULT TERMINATION 

When one party to a contract fails to perform, the other 
party has the right of recovering monetary damages for the 
breach. A common definition of breach is "a nonperformance 
of any contractual duty of immediate importance." [Ref. 
8:p. 155] 


17 













The FAR provides the contracting officer with specific 
instructions as to the factors to be evaluated when 


considering a termination for default. He must review the 
situation with acquisition, technical, and legal personnel 
prior to deciding upon a no-cost settlement, a termination 
for convenience, or one of default [Ref. 3:p. 49-16]. If 

the contractor's failure is one of non-delivery by the 
contract delivery date or a situation of anticipatory 
repudiation is determined, the contracting officer may 
terminate immediately. Although it is not required in the 
before-mentioned circumstances, issuance of a show cause 
letter is encouraged. For other failures, the "cure notice" 
must be sent to the contractor, thus allowing a reasonable 
amount of time (normally ten days) to respond as to the 
remedy for the deficiency. The one exception would be a 
situation in which the cure period extended beyond the 
delivery date. A knowledgeable contracting officer would 
wait for the delivery date to lapse and exercise a default 
termination action. If the contracting officer receives no 
response within the cure period or decides that the response 
is inadequate/inexcusable, the contracting officer has the 
right to immediately exercise a termination for default. 

Ref. 2:pp. 710-715’ Prior to termination action, it is 

recommended that the contracting officer issue a "shiv* 

M 


cause 


letter to permit a mutually beneficial resolution. 






Terminations for default are treated very differently 
depending upon the contract type, i.e., fixed-price of cost 


type. Under a fixed-price contract the impact upon the 
contractor can be quite severe: 

(i) the Government is not liable for the costs of 

unaccepted work--the contractor is entitled to 
receive payment only for work accepted by the 
Government; 

(ii) the Government is entitled to the return of 

progress, partial or advance payments; 

(iii) the Government has the right but not the duty to 
appropriate the contractor's material, inventory, 
construction plant and equipment at the site, and, 
under supply contracts, his drawings and plans--the 
price for the appropriated items to be negotiated; 

(iv) the contractor is liable for excess costs of 

reprocurement or completion; and 

(v) the contractor is liable for actual or liquidated 
damages. [Ref. 2:p. 635] 

As noted above one of the principal rights of the Govern¬ 
ment is that of charging the defaulting contractor for the 
Government's excess costs in reprocuring the contracted 
items or services. Other costs borne by the contract 
include the cost of moving Government-furnished property to 
the reprocurement contractor's plant, the expense of added 
inspections, and the administrative costs of readvertising 
resol lcitatior,) [Ref. 4:p. 157[. Also, a default 

termination may adversely impact the contractor's eligibili¬ 
ty for future Government contracts where past performance is 
a ons 1 deration in the determination of contractor 


responsibility Ref. 2 : p . hit . 


1 o 


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v-w- 














Under a cost reimbursement contract, the financial 
impact upon the contractor is much less severe than that 
realized under a fixed price contract. The contractor is 
reimbursed for all allowable costs, regardless of whether 
the work has been accepted by the Government and the 
contractor is entitled to a profit on work accepted by the 
Government [Ref. 4:p. 637]. 

The overriding concern of the contracting officer, when 
considering a termination action, is what will be "in the 
best interests of the Government." Even if the Government 
has the right to terminate a contract, it may not be to its 
benefit to do so. The FAR provides the following guidance: 

(f) the contracting officer shall consider the following 

factors in determining whether to terminate for 

default: 

(1) the terms of the contract and applicable laws 
and regulations. 

(2) the specific failure of the contractor and the 
excuse for the failure. 

(3) the availability of the supplies or services 
from other sources. 

(4) the urgency of the need for the supplies or 
services and the period of time required to 
obtain them from other sources, as compared with 
the time delivery could be obtained from the 
delinquent contractor. 

(5) the degree of essentiality of the contractor in 
the Government acquisition program and the 
effect of a termination for default upon the 
contractor's ability as a supplier under other 
contracts. 

(6) the effect of the termination for default on the 
stability of the contractor to liquidate 








guaranteed loans, progress payments, or advance 
payments. 

(7) any other pertinent facts and circumstances. 
[Ref. 3:p. 49-16] 

C. TERMINATION FOR CONVENIENCE 

The Termination for Convenience clause is a very unique 
power the Government has granted itself. It was developed 
primarily as a means to terminate war material contracts 
when winding down from a major conflict. While the T for C 
clause has been used as early as 1863, it came into wide¬ 
spread Government use as a result of The Urgent Deficiency 
Appropriation Act of 1917. The Act empowered the President 
"to modify, suspend, cancel, or requisition any existing or 
future contract for the building, production, or purchase of 
ships or related materials" [Ref. 13:pp. 1104-5], The use 
of convenience terminations was further established by The 
Contract Settlement Act of 1944, the Armed Services Procure¬ 
ment Act of 1947, and others. Currently, the FAR is the 
governing regulation of the Government [Ref. 13:pp. 1106-7]. 

In no other area of contract law has one party been given 
such complete authority to escape from contractual obliga¬ 
tions. The clause gives the Government the broad right to 
terminate without cause and limits the contractor's 
recovery to costs incurred, profit on work done and costs 
of preparing the termination settlement proposal. 
Recovery of anticipated profit is precluded. [Ref. 2:p. 
773] 

Termination for convenience is a Government right that 
may be exercised by the contracting officer when it is in 
the best interests of the Government. It may not be used to 













benefit, nor penalize, a contractor, i.e., if a contractor 
is performing at a loss or above profit expectations, a T 
for C action will not be used to change the contractor's 
relative financial position in contract performance. 

The contractor is to be "made whole," that is, to place 
the contractor in the position he would have been in, at 
this time, had the contract not been terminated. The 
contractor is entitled to all allowable costs incurred in 
performing work authorized by the contract; a profit on work 
performed, to include work-in-process and finished goods; 
and the costs of preparing the termination settlement. In 
some instances, the contractor may be reimbursed for contin¬ 
uing costs after settlement that cannot be applied to the 
contractor's other business, e.g., specialized equipment or 
buildings purchased or leased specifically for performance 
of the terminated contract. Initial costs, such as produc¬ 
tion line set-up costs, costs in terminating subcontractors 
and overhead costs are also examples of allowable costs. 


D. TERMINATION FOR DEFAULT CONVERSION 

The FAR, para. 49.401(b) provides the following remedy 
for a T frr D that was subsequently determined to be 
excusable: 


If the contractor can establish, or it is otherwise 
determined that the contractor was not in default or that 
the failure to perform is excusable; i.e., arose out of 
causes beyond the control and without the fault or negli¬ 
gence of the contractor, the default clauses prescribed in 
49.503 and located at 52.249 provide that a termination 
for default will be considered to have been a termination 









for the convenience of the Government, and the rights and 
obligations of the parties governed accordingly. [Ref. 
3:p. 45-15]. 


E. THE APPEALS PROCESS 

Once the contracting officer has terminated the contract 
for default, under the Default clause, the contractor may 
appeal the decision under the Disputes clause. Generally, 
disputes arise when the contractor feels that his claim has 
not been dealt with equitably. 

The Contracts Disputes Act of 1978 requires all DOD 

contract-related claims by the contractor against the 

Government, to be submitted to the contracting officer for a 

decision [Ref. 12:pp. 6-17]. A claim is defined as follows: 

Claim: Right to payment whether or not such right is 

reduced to judgement, liquidated, unliquidated, fixed, 
contingent, matured, unmatured, disputed, undisputed, 
legal, equitable, secured, or unsecured; or right to an 
equitable remedy for breach of performance if such breach 
gives rise to a right to payment, whether or not such 
right to an equitable remedy is reduced to judgement, 
fixed, contingent, matured, unmatured, disputed, 
undisputed, secured or unsecured. [Ref. 6] 

If a resolution of mutual agreement is not reached with 
the contracting officer the contractor can pursue an 
administrative resolution by appealing to the Armed Services 
Board of Contract Appeals (ASBCA) or the contractor can 
pursue a judicial decision by appealing to the U.S. Claims 
Court. Once the contractor has chosen the forum for his 
appeal (ASBCA or U.S. Claims Court), he is precluded from 
changing forums [Ref. 2:p. 947]. The ASBCA decisions are 

final, except: 


23 















In the event of an appeal by a contractor or the Govern¬ 
ment from a decision of any agency board pursuant to 
Section 9 [41 USCA S. 607], notwithstanding any contract 

provision, regulation, or rules of law to the contrary, 
the decision of the agency board on any question of law 
shall not be final or conclusive, but the decision on any 
question of fact shall be final and conclusive and shall 
not be set aside unless the decision is fraudulent, or 
arbitrary, or capricious, or so grossly erroneous as to 
necessarily imply bad faith, or if such decision is not 
supported by substantial evidence. [Ref. 2:p. 956] 

The Federal Courts Improvement Act of 1982, as amended, 

gave the Court of Appeals for the Federal Circuit exclusive 

jurisdiction to hear Government or contractor appeals of 

ASBCA and U.S. Claims Court decisions. The U.S. Claims 

Court rulings will be overturned only if the findings of 

fact are clearly erroneous. [Ref. 2:pp. 956-7] 

The appeals process is an expensive procedure for both 

parties, thus an appeal of a contracting officer's final 

decision is not undertaken lightly or arbitrarily. "There 

is also evidence that contract type, complexity of the 

contract, the contractor size and location are indicators of 

contracts which have a higher potential for a dispute." 

[Ref. ll:p. 74] 














III. 


METHODOLOGY 


A. POPULATION AND SAMPLE DESCRIPTION 

The population under consideration in this study 
included 15 disputes of DOD supply contracts where the ASBCA 
rendered sustained decisions during fiscal years 1982, 1983, 
1984 , and 1985 . The annual fiscal year Reports of Transac¬ 
tions and Proceedings of the ASBCA were obtained by the 
researcher from the ASBCA for the applicable fiscal years. 
Fiscal year 1985 is provided as Appendix A. 

The researcher felt that four years would provide a 
population from which a representative number of T for D's 
couid be extracted. Fiscal years 1982 through 1985 were 
chosen to reflect recent data and for the ease of access to 
the complete text in the Commerce Clearing House publication 
of ASBCA decisions. 

Due to the small magnitude, less than three percent of 
the other agencies for whom the ASBCA rendered decisions, 
the inclusion of these agencies' cases in the total caseload 
totals will not distort the illustrative significance of 
data when total caseload is used as a base. 

As stated earlier, the courts can render one of the 
following decisions: sustained, denied, settled, or dismis¬ 
sed. Denied and dismissed decisions represent cases in 


which the Gover: ment actions were valid. Although subjected 














TABLE 1 


TOTAL ASBCA APPEALS BY KIND OF PROCUREMENT 


Tvoe 

FY82 


FY83 


FY8 4 


FY85 


Supply 

299 

32 

401 

35 

437 

34 

427 

34 

Construction 

358 

38 

427 

38 

515 

39 

504 

40 

R & D 

34 

3 

13 

1 

18 

1 

16 

1 

Service 

212 

23 

236 

2 1 

246 

19 

247 

20 

Surplus Sale 

20 

2 

24 

2 

16 

1 

5 

- 

Other 

15 

2 

30 

3 

74 

6 

66 

5 

♦Total 

938 

1001 

1131 

100% 

1306 

100% 

1265 

100% 


Source: Researcher's summarization of annual ASBCA 
Report of Transactions and Proceedings 

♦Represent totals from the three Services, Defense Logistics 
Agency, and other. The other cases decided by the ASBCA, 
representing less than three percent of total appeals, 
include such agencies as Office of Personnel Management, 
Defense Mapping Agency, Health and Human Services, and 
Defense Nuclear Agency. 


to substantial proceedings, the settled decision is the 
compromise of both parties' positions. Therefore, an 
analysis of the sustained contractor appeals was identified 
as fruitful ground for uncovering Government errors during 
contract performance. 

The cases that were terminated by the Government for 
reasons of contractor default were chosen for analysis 
beci use these cases represent a disproportionately large 
segment of the ASBCA annual caseload. Of the 55 principal 
contract clauses or issues involved in disputes cited by the 
ASBCA, T for D appeals consistently average over 15%. The 
Changes clause was cited nearly as often, while all other 


26 













clauses/issues were cited much less frequently. Appendix A 
provides detailed data summaries. 

B. DATA COLLECTION PLAN 

To reduce the thousands of annual cases to a manageable 
level, the services of FLITE were utilized to provide 
listings of the ASBCA and U.S. Claims Court decisions in 
which the words "supplies" or "supply contract" and 
"termination f <r default" appeared in the FLITE synopsis. 
Fiscal years 1982 through 1985 were analyzed. FLITE is a 
computerized research service operated by the Judge Advocate 
General's Department, U.S. Air Force in Denver Colorado. 

The search of U.S. Claims Court produced no pertinent 
cases, while the ASBCA search produced 132 default termina¬ 
tion cases. Through individual case analysis, the 

researcher reduced the number of cases by identifying those 
with sustained decisions of contractor appeals for the three 
services and the Defense Logistics Agency (DLA). Decisions 
involving other DOD agencies, non-supply contracts, Govern¬ 
ment and contractor appeals of previous decisions, contrac¬ 
tor appeals of excess reprocurement costs, and dismissed, 
denied, and settled uses were eliminated. The 132 cases 
were reduced to a population of 15 cases, in which a con¬ 
tractor terminated for default in a supply contract was 
converted to a termination for convenience by the Board. 

During the literature search, it was discovered that one 
researcher questioned the completeness of the FLITE listings 


















[Ref. 9: p. 29]. Therefore, to validate the research tech¬ 
nique, the researcher chose to compare the FLITE data to the 
Board Of Contract Appeals Decisions for one sample fiscal 
year. The indices in the three FY-85 volumes cited 105 
cases involving default, of which only four cases (BCA No. 
18498, 18043, 18059, and 17878) fit the research parameters. 
These four cases correlated with the four cases identified 
through analysis of data provided by FLITE. Thus, the 
researcher is confident of the completeness of the 
population selected. 


28 












A. 


GENERAL 


An in-depth analysis was completed on the fifteen cases 
cited in Chapter III. The cases are arranged into the three 
categories, cited by the contracting officer as the primary 
reason for terminating the contract. On each sequentially 
numbered case, the ASBCA's principal justification for 
converting the default termination into one of the conveni¬ 
ence for the Government is provided. 

The presentation on each of the fifteen cases is formu¬ 
lated around a three step approach. It commences with a 
summation of the Findings of Fact and follows with an 
explanation of the Board's Decision. The third step further 
amplifies the Principle of Law cited by the Board for 
sustaining the contractor's appeal. Any divergence between 
the ruling and the current policies, regulations, or 
previous interpretations of law is presented. An analysis, 
based upon the cases and additional information provided in 
this chapter, is presented in Chapter V. 

















B. CASE ANALYSIS 


1. Category One: Failure to Make Delivery 

a. Case l 1 Government Encouraged Continued 

Performance 

(1) Findings of Fact . The contract required an 
October 1974 delivery of 57 rebuilt aircraft engines to the 
U.S. Air Force. No deliveries were made in October. By a 9 
October agreement, amended 20 November 1974, 25 engines were 
scheduled for delivery in November. An agreement for Decem¬ 
ber deliveries was made on 07 November and twice amended. 
While the contractor made partial deliveries, the deliveries 
were becoming increasingly delinquent. Due to the contrac¬ 
tor's failure to meet required schedules, the Government 
issued "show cause" letter on 20 December 1974. On 07 
January 1975, the Government agreed to a February delivery 
schedule of 56 engines. On 29 January, another "show cause" 
notice was issued, prompted by non-delivery of 41 of the 55 
engines scheduled for December. 

On 29 January, the Government withdrew its 
procurement quality assurance (PQAP) activities from the 
contractor's plant, due to six of seven engines failing 
critical inspections. On 07 February, the contract was 
modified with new delivery dates of March through August 
1975 for the October and November delinquent deliveries. 
The Government completed a quality audit on 20 February in 

BCA: 18,498. Gary Aircraft Corp. ASBCA No. 

20,534. October 17, 1975 Contract No. F41608-74-D-1645. 


30 













which it disassembled a rebuilt engine in the contractor's 
plant. Forty-seven defects were discovered. The next day, 
21 February 1975, the contractor corresponded corrective 
actions it had taken to eliminate the quality problems. 

The Government's quality assurance (QA) 
representative responded, on 25 February, that the correc¬ 
tive actions were unsatisfactory and advised the adminis¬ 
trative contracting officer (ACO) that the contractor's QA 
system was "out of control." 

On 28 February, the ACO recommended immedi¬ 
ate termination under the Default clause of the contract. 
However . on the same day, the procuring contracting officer 
(PCO) approved a contract modification that increased the 
number of engines to be rebuilt under this contract. Notice 
of termination for default was forwarded by the ACO on C r > 
March 1975. The basis of the termination was the failure to 
make the December, January, and February deliveries. 

(2) Decision . During the course of the 
contract, the Government's conduct toward the contractor was 
clearly inconsistent with an intention to terminate the 
contract for default. No deliveries were made in October 
1974, but partial deliveries were received in November and 
December. The contractor was advised of QA problems and 
took measures to correct the deficiencies. On 28 February, 
the Government increased the quantity of engines on the 
contract and, thus, further encouraged contractor 

3 1 






















performani'e and implied that the deliveries were not 


“of -he 

essence." Appeal sustained. 

; i,i Po int o t Law . No new policy or interpret i- 
tion of law was presented in the case. It clearly reaffirms 
that the Government cannot encourage performance of a 
contractor who is repeatedly late with lei iveries and or 
taxes corrective actions to problems noted by the Govern¬ 
ment, and then terminate for default. 

a. Case 2 2 Government Encouraged Continued 
Per f ormance 




1 1 ) 

Eindinqs 

of Fact. In 

November 1983, the 

contractor 

was 

awarded a 

i contract to 

supp1y 

244 airport 

i i q h t 

hoods 

on 

or before 

29 June 1984. 

Two 

months after 

award, 

the 

i tern 

manager 

urged termination of 

the contract 


because the current supply would last at least ten years 
considering the declining demand rate. This action was 
infeasible due to the high termination costs to the Govern¬ 
ment it would entail. 

On 23 July 1984, past the required delivery 
date, the Government QA representative inspected and 

rejected a lot consisting of 83 hoods, for excessive burrs. 
On 26 July, the contractor responded by correcting the 
problems through disassembly, removal of the burrs, and 
reassembly of the hoods. The QA representative reinspected 
>nd approved the hoods. 

2 85-2 BCA 17,878. Mu 11 1 -E1ectric Mfg. Inc. ASBCA No. 
j0,0 5 5. January 29, 1985. Contract No. DLA4000-84-C-0248. 


32 













reassembly of the hoods. The QA representative reinspected 
and approved the hoods. 

At the close of business, on 27 July, the 
company closed for a two week vacation. A "show cause" 
letter was issued 10 July for failure to deliver by the 29 
June delivery date. Two days later a response from the 
contractor acknowledged receipt of the notice; advised that 
the plant was on a two week vacation; and relayed the fact 
that the entire shipment was ready for inspection. After 
several unsuccessful attempts, the Government's QA represen¬ 
tative did contact the plant on 13 August, but was told the 
material was not ready for his inspection. The contract was 
terminated for default the following day. 

(2) Decision . It was clear that the contractor 
failed to comply with the 29 June 1984 contract delivery 
date. The Government's inspection on 23 July and its state¬ 
ments as to the corrective actions required were relied upon 
by the contractor as evidence to continue its performance 
and effectively waived the 29 June delivery date. No new 
delivery was established, thus the contract could not be 
terminated for a nonexistent due date. 

(3) Point of Law . When the Government acts in 
a manner as to encourage performance past the contract 
delivery date, it has waived its right to terminate for non¬ 
delivery r Ref. 2:p. 689]. A key ingredient to this deter¬ 
mination is the "contractor's reliance" upon the Government 








actions of inactions to continue performance. To satisfy 
this requirement, the contractor needs to continue the 
performance necessary to contract compliance, that is to 
say, the contractor continues to act in a manner conducive 
to satisfactory delivery of the items [Ref. 2:p. 689]. 

c. Case 3 3 Government Encouraged Continued 
Performance 

(1) Findings of Fact . On 22 August 1978, the 
contractor was awarded a supply contract for incremental 
deliveries of wet weather ponchos. The Government was late 
in furnishing patterns and the delivery dates were extended 
to allow for the Government's tardiness. The contractor 
experienced difficulty in obtaining the coated fabric from a 
supplier and was granted an additional extension. The 
contractor continued to have problems with the supplier and 
sent an outside expert to the supplier's plant to assist. 
The supplier problem precipitated slow deliveries and 
resulted in the Government issuance of a "show cause" letter 
on September 12, 1979. 

A meeting between the Government and the 
contractor was held on September 21, at which time the 
contractor proposed a revised delivery schedule. Addition¬ 
ally, he advised that the supplier problems were improving, 
additional material was to be procured from another proven 



3 83-2 BCA: 16,842. Cecile Industries, Inc. ASBCA 
Nos. 24,600 and 27,625. September 22, 1983. Contract No. 
DLA 100-78-C-1125. 








f 

I 

! 

i 

supplier; that additional facilities were being opened; and 
that the contractor had hired a new general manager. The 

i 

Government did not dispute the excusability of any delays, 
but was solely concerned with receiving deliveries. The 
Government did advise that it was retaining all rights to 

i 

terminate, but did not advise that it was going to do so. 

On October 17, 1979, the Government made 

suggested changes to the proposed revised delivery schedule. 

The contractor agreed to these changes. The contracting 
officer was dissatisfied with the $6,000 price reduction as 
a consideration for revising the schedule, but did not 
communicate this to the contractor. With the Government's 
knowledge, the contractor arranged for the new supplier. 

The contracting officer decided to reject 
the proposed revised delivery schedule and to partially 
terminate the contract for default. In her haste to 
complete the day's work before a three day weekend, she 
mistakenly advised the company via a telegram using language 
which followed that of a termination for convenience. 

The contractor understood the correspon¬ 
dence to be a partial termination for convenience. Upon 
receiving the T for D notice in the form of a contract 
modification, the contractor responded that since the tele¬ 
gram terminated the same line items for convenience, the 
Government can not, subsequently, terminate for default. 


35 









The Government resolicited the items delin¬ 
quent from the terminated contract. The terminated 
contractor was the lowest of six bidders. The Government 
considered the terminated contractor nonresponsive based 
upon the unsatisfactory performance of the previous and two 
other contracts and upon receipt of a pre-award survey 
citing lack of production capacity and labor resources. 
When the terminated contractor failed to file for a 
Certificate of Competency with the Small Business 
Administration, his bid was rejected as nonresponsive. 
Excess reprocurement costs left the terminated contractor 
over $300,000 indebted to the Government. 

(2) Decision . By not exercising its right to 
terminate for default within a reasonable time, the 
Government waived that right. The Government urged the 
defaulting contractor to do everything possible to increase 
deliveries and made several revisions to delivery schedules, 
thus relaying the fact that delivery of the ponchos was not 
"of the essence." If time was of the essence, the only 
other issue was for the contracting officer to consider if 
the items were available from another source within the 
delivery schedules required of the contract. The Board 
finds no evidence of this concern by the contracting offi¬ 
cer, but merely a dissatisfaction with the contractor's 
proposed price reductions. There was a history of late 
deliveries, revisions 


of delivery dates, discussions, 












negotiations for price reductions coupled with the 
Government's encouragement of continued performance. 

(3) Point of Law . The result of this case is 
similar to the previous cases, where the Government's 
inaction in exercising its rights to terminate and its 
continued encouragement to perform after the delivery date 
were inconsistent with its actions of subsequent termination 
for default. 

Having failed to exercise its right to 
terminate for delinquent deliveries, the Government essen¬ 
tially waived the contract delivery schedule. Without the 
establishment of a new delivery schedule, there can be no 
default based upon a non-existent schedule. [Ref. 2:p. 689] 

d. Case 4 4 Government Encouraged Continued 

Performance 

(1) Findings of Fact . The contract was for 
delivery of a jacketed stainless steel 525 gallon tank in 
accordance with the Government-furnished drawing. The 
contract schedule and the drawing provided were inconsistent 
and resulted in a considerable delay in the Government's 
approval of the contractor's shop drawings, a condition of 
the contract. The contract was administered in such a way 
as to lead the contractor to believe that time was not "of 
the essence," as evidenced by two delivery date extensions. 

4 83-l BCA 16,398. Pacific Coast Welding & Machine, 
Inc. AS BCA No. 26,105. March 7, 1983 . Contract No. 200- 
80-0017. 

















The contract was currently in default. The Government was 
aware of the subcontractor's continued performance in 
providing material for the dimpled jacket portion of the 
tank, after an extended delivery date had passed. The 
Government argued that it was aware of the subcontractor's 
continued performance, but did not interpret that as 
continued performance by the prime contractor. 

(2) Decision . The ASBCA decision was summariz¬ 
ed in an except from the historic "De Vito decision": 

The necessary element of an election by the non¬ 
defaulting party to waive default in delivery under a 
contract are (1) failure to terminate within a reasonable 
time after the default under circumstances indicating 
forbearance, and (2) reliance by the contractor on the 
failure to terminate the continued performance by him 
under the contract, with the Government's knowledge and 
implied or express consent. 

The continued performance by a subcontrac¬ 
tor is interpreted as continued performance by the prime 
contractor because the subcontractor is doing the prime's 
work. The Government's delay in terminating was beyond a 
reasonable period of forbearance and therefore waived its 
right to terminate for default based upon delinquent 
delivery. 

(3) Point of Law . The Government has a 
reasonable period of time in which to investigate the facts 
and determine the actions required that would be in the best 
interests of the Government. Within this forbearance 
period, the Government can terminate the contract for 
default. The judgment call is in determining the period of 


38 












reasonable forbearance. It varies, depending upon the facts 
and circumstances of each case. [Ref. 2:p. 688] If the 
contractor continues to perform, with the Government's 
knowledge, the Government is obligated to act expeditiously 
in making its decision to terminate [Ref. 2:p. 689]. 

e. Case 5 5 Unconscionably Priced Contract 

(1) Findings of Fact . A contractor mistakenly 
submitted a bid on only one part of a two-part seat 
assembly. He had previously been awarded ten contracts for 
part one and one contract for part two, but the two-part 
assembly had never been procured as a complete unit. 

The contractor's bid was 33%, 72%, and 93% 
lower than the second, third and fourth lowest bidders, 
respectively. The ACO telephoned the contractor to request 
he check his price quotation, but there was no mention of 
the Government's suspicion of bidder's "mistake" or the wide 
disparity between his bid and the bids received for the 
other competitors. The contractor had had a contract within 
the last year for part one of the assembly. His bid on this 
contract agreed with the unit price bid on this previous 
award. 

The contractor was awarded the contract and 
discovered his error upon receiving the written contract. 
The ACO refused his request for a price increase, but the 

5 84-3 BCA 17,599. Manistique Tool & Mfg Co. ASBCA No. 
29164. August 14, 1984. Contract No. N00104-83-C-4041. 


39 




















contractor continued manufacturing of part one of the two- 
part assembly. 

(2) Decision . The contractor's mistake was due 
to a misreading of the contract specifications, not due to a 
mistake in business judgment. The bid verification 
procedure performed by the Government was inadequate. To 
force the contractor to comply with all the contract provi¬ 
sions would be "unconscionable." The contract is 
enforceable to the extent of supplying the one part upon 
which the contractor's bid was based. The contractor is 
entitled to recovery of all its reasonable costs incurred in 
supplying the one part of the assembly. 

(3) Point of Law . The issue of unilateral 
mistake must be a clerical or arithmetical error, or a 
misreading of specifications, but does not extend to 
mistakes in business judgment. [Ref. 2:p. 229] 

The Government is required to notify 
bidders of suspected errors in their bids. The FAR provides 
the following guidance: 

After the opening of bids, contracting officers shall 
examine all bids for mistakes. In cases of apparent 
mistakes and cases where the contracting officer has 
reason to believe that a mistake may have been made, the 
contracting shall request from the bidder a verification 
of the bid, calling attention to the suspected mistake. 
[Ref. 3:p. 14-13] 

The Government must have "knowledge or 
reason to know" of the mistake [Ref. 2:p. 232 ]. In the 
verification process, the contracting officer must call 


0 








attention to the suspected mistake and disclose the 
particular reasons which led to his suspicion of a mistake 
Ref. 3:p. 14-14]. The rationale for unconsclonab 1 1ity is 

not to allow the Government to "get something for nothing." 
A final point on "unconscionability": 

If the contractor's mistake results in a contract 
which is grossly imbalanced, relief may be granted on the 
theory of unconscionabi1ity even if the contractor had 
verified the bid after appropriate request for verifica¬ 
tion, 53 Comp. Gen. [Ref. 2:p. 236] 

f. Case 6 6 Government Hindrance 

(1) Findings of Fact . The case involved the 
default termination of contracts 1205 and 1628, however, the 
case hinges upon a third contract, 749. The contractor was 
performing all three new contracts. The delivery date of 
the two terminated contracts was September 1979. Contract 
749 was solicited and awarded for delivery of "chlorinated 
lime" to be used as a deodorizer. Subsequent to award, and 
just prior to delivery, the Government contented that the 
material required certification by the Environmental 
Protection Agency (EPA) for reason of its classification as 
a pesticide. Thus, the Government would not receipt for nor 
make a payment on contract 749. The Government had relied 
upon an outdated reference in arriving at this conclusion. 

Several months later, the Government 
conceded that the EPA certification was not applicable to 

®82-2 BCA 15,948. Spiritual Scented Sky Products. 
ASBCA No. 24,507. July 14, 1982. Contract No. DLA400-79-C- 

1205. 











the deodorizing compound. Consequently, the Government 
authorized payment for contract 749 in late October and, 
almost simultaneously, issued a default termination on the 
two other contracts. The contractor contended that the 
erroneous withholding of payment on contract 749 led to his 
nonperformance on the two contracts. 

(2) Decision. The Board dismissed the Govern¬ 
ment's argument that the withdrawing of the EPA certifica¬ 
tion was a contract waiver of the EPA requirement vice an 
error in requiring the certification. The Government had no 
right to delay acceptance and withhold payment. The 
contractor is not responsible for excess reprocurement 
costs. 

(3) Point of Law . The contractor is generally 
required to assume the risk of providing sufficient funds to 
perform a contract. Failure of expected loans to material¬ 
ize, for instance, would not excuse performance. However, 
the contractor will be granted relief when the lack of 
financing is caused by wrongful Government actions. [Ref. 
2:p. 414] The contractor must establish that the Govern¬ 
ment's actions caused the financing problems [Ref. 2:pp. 
414-415]. 


42 









g. Case 7 7 Unusually Severe Weather 

(1) Findings of Fact . The contractor was 
required to deliver 99,999 board feet of specially treated 
scaffold planks on or before 28 January 1981. The contrac¬ 
tor's supplier had adequate logs,but was delayed in 
transporting the logs from the forest to the mill by unusual 
rain and heavy wind damage to the logging road. The Govern¬ 
ment rejected this claim after its research revealed that 
the conditions experienced were normal. The Government 
resolicited and awarded to a reprocurement contractor. 

(2) Decision . The Government erroneously 
relied upon weather data for the lumber mill area and not 
the logging road areas, which had experienced unusually 
severe weather. The logging roads were washed-out, mired in 
mud, and blocked with trees blown down by storms. The 
contractor's appeal was sustained. 

(3) Point of Law . This case exhibits a new 
interpretation of "unusually severe weather," i.e., exacting 
the location of performance. "Unusually severe weather is 
weather that is abnormal compared to the past weather at the 
same location for the same time of year" {Ref. 2:p. 398]. 
The two key points in this area of law are the "place of 
performance" and the "effect upon performance." The place 
of performance was not the lumber mill, which had normal 

7 82-1 BCA 15,500. J&M Lumber Co. ASBCA No. 25,951. 
December 10, 1981. Contract No. DLA720-80-C-0910. 


43 















weather, but rather, the logging roads located in nearby 
low-lying areas. This area, close to the coast, had experi¬ 
enced hurricane-force storms. The second key is the effect 
upon performance. One day of unusually severe weather may 
excusably delay performance for months, e.g., the storm may 
damage existing structures and cause the site to be mired in 
mud for an extended period of time. [Ref. 2:p. 399] 

2 • Category Two: First Article 

a. Case 8 8 Government Encouraged Continued 
Performance 

() findings_of_Fact. The contract provided 

for delivery of 988 portable multifuel space heaters for use 
in vehicles, such as personnel carriers. First article 
approval was required. The manufacture of the heater had 
previously been a sole source procurement to Hunter Mfg. Co. 
The contractor obtained a Hunter heater and performed a 
reverse engineer effort. Minor changes and improvements 
were incorporated and the first article test was approved. 

Subsequently, the contractor received 
several unrelated contracts and, due to plant capacity con- 
s t ra ints, decided to accept an offer from Hunter to produce 
the heaters. The Government contract required the first 
ar ^^ c ^ e an< 3 production units to be manufactured by the same 
source. The Government QA representative, who had approved 
the assembling and testing of the first articles at the 


8 

82-2 BCA 15,981. Precision Products. ASBCA No. 
25,280. July 27, 1982. Contract No. DAAK01-78-C-1098. 










contractor's plant, made routine visits to the plant in 
performing his contract oversight duties. Incident to 
contract performance, the Government was allowed 60 days to 
review the draft copy of the instruction manuals for the 
heaters. The smooth manuals were required to accompany the 
heater deliveries. The Government completed its review 
seven months after receipt of the initial drafts from the 
contractor. When the procuring contracting officer became 
aware that Hunter had been subcontracted to produce the 
heaters and that the deliveries were overdue, he terminated 
the contract for default. The Government reprocured the 
heaters from Hunter Mfg. Co. 

(2) Decision . The delay in deliveries was 
excusable and due to the Government's excessive review 
period of the manuals while the heaters were ready for 
shipment. Although the first article and production unit's 
place of manufacture clearly violated the terms of the 
contract, the Government waived its right to terminate due 
to the Government's awareness of this fact. The Govern¬ 
ment's QA representative is "the eyes and ears" of the 
contracting officer. He was aware, or should have been 
aware, that the production was not taking place at the 
contractor's plant. 

(3) Point of Law . The law books are filled 
with cases that deal with the contracting officer's techni¬ 
cal representative, many decisions of which are 















contradictory. The focus is upon whether knowledge by a 
contracting officer's representative is "imputed" lo be 
knowledge by the contracting officer. It is appl cable when 
the "nature of the relationship between the authorized 
person and the representatives establishes a presumption 
that the authorized person will be informed" [Ref. 2:p. 39]. 

fc. Case9 9 Government Hindrance 

(1) Findings of Fact . The two principal con¬ 
tracts called for manufacturing PRC-77 radios. The other 
sixteen contracts were for the same item and resulted pri¬ 
marily from options for additional quantities and the award 
of foreign military sale contracts. The radios were 
required to be tested on the Government-furnished test 
equipment, Special Automatic Test Equipment (SATE). The 
knowledgeable contractor experienced severe difficulties in 
certifying the radios on SATE, as had several other contrac- 


tors who 

had 

used 

it. The 

U.S. 

Army also reneged on an 

agreement 

to 

allow 

a single 

first 

article test to satisfy 


the two contracts. The extensive problems associated with 
the use of SATE caused repeated rejections of the first 
articles, extensive delays, and eventual termination of the 
two contracts for default. Those default terminations 
precipitated the default terminations of the other sixteen 
contracts. 


9 84-3 BCA 17,543. Bristol Electronics Corp. ASBCA 
Nos. 24792, 24929, 25135 through 25150. 


46 












(2) Decision . The Government's refusal to make 
equitable adjustments for the contractor’s problems derived 
from the use of the Government-furnished defective test 
equipment was directly responsible for the contractor's 
default on the eighteen contracts. 

(3) Point of L aw. Several issues arise in this 
case, the two most significant being (1) the Government's 
implied duty not to hinder (discussed in Cases 6, 8, and 14) 
by its refusal to make a fair and equitable adjustment, and 
(2) the Government's responsibility to provide the test 
equipment "suitable for the intended use" [REf. 14:p. 655]. 
"A few cases have held it [Government-furn i shed property] is 
covered on the theory that defective Government-furn i shed 
property is the equivalent of a defective specification" 
;Ref. 2:p. 282 ] . 

c. Case 10 10 Government Encouraged Continued 

Performance| 

(1) Findings of Fact . The contractor was to 
supply 574 each hoisting slings. The contractor was late in 
submission of its first article and the Government intended 
to terminate for default. When the company contacted the 
contracting officer to advise that the first article would 
be delivered in one or two days, the contracting officer 
advised the contractor to "Put that in writing." 


10 85-2 8CA 18,043. King's Mfg. Co. Inc. ASBCA No. 
27,201. April 3, 1985. Contract No. N00104-81-C-K69 1 . 


4 7 















(2) Decision . By her statement, the contract¬ 
ing officer encouraged continued performance after the 


delivery date of the first article. This encouragement of 
performance is legally interpreted as a waiver of the 
delivery date. With no new delivery date, the contract 
cannot be terminated for non-delivery until a new date has 
been established. 

(3) Point of Law . (Same as cases 1, 2, 3 and 

8 ) . 

d. Case ll 11 : No First Article Approval Clause 

(1) Findings of Fact . The contract called for 
delivery of fiberglass blade spacers that are installed on 
compressors in wind tunnels. The contractor failed to 
deliver an acceptable first article and, subsequently, 
failed to deliver a first production run sample. The 
contractor consistently advised the Government of progress 
and proposed solutions. The Government's response was one 
of encouragement to performance, even after the contractor 
was in default. 

The contract contained no standard First 
Article Approval clause or equivalent clause under which a 
default termination could be exercised for failure to 
deliver acceptable first articles. Contractor performance, 
with Government encouragement, continued beyond the delivery 

11 85-2 BCA 18,059. Composites Horizons. ASBCA No. 
25,529 and 26,471. April 18, 1985. Contract No. F40650-79- 
C-0007. 













date. The contract was terminated for failure to timely 
provide the first article and initial production for 
testing. 

(2) Decision . Having omitted the First Article 
Approval clause from the contract, the Government could not 
cite lack of an acceptable first article submission as 
justification to terminate the contract for default. The 
Government's encouragement of performance beyond the 
delivery date is, in fact, a waiver of the delivery 
schedule. 

(3) Point of Law . Similar to Cases 1, 2, 3, 


Case 


Government Hindrance 


(1) Findings of Fact . The contract was for 
forty-six printed circuit boards. Sixty-six drawing numbers 
were referenced in the solicitation, however, these drawings 


were not distributed as part of the solicitation. The 
contractor realized this, but felt it was unnecessary for 


submission of his bid. 


Subsequent to contract award, the 
Government was unable to locate the drawings. The Govern¬ 
ment contends that, having discovered that the solicitation 
lacked the referenced drawings, the contractor should have 
notified the Government of that fact. 

12 84-3 BCA 17,677. Amplitronics, Inc. ASBCA No. 
29,629. September 13, 1984. Contract No. N00104-82-C-K723. 


49 












(2) Decision . The Government was correct in 
its contention that failure to notify the Government of the 
omission of drawings amounted to the contractor's assumption 
of increased risk. However, the contractor acted in 
accordance with the Government's established policy of never 
including drawings with solicitations, but furnishing the 
necessary drawings after award. The Government agreed that 
the drawings were necessary for production of the circuit 
boards. The contract is converted to a termination for the 
convenience of the Government and remanded to the parties 
for negotiation as to monetary settlement costs. 

(3) Point of Law . This case has yielded a new 
interpretation of solicitation reguirements and rests upon 
the Government's implied duty "not to hinder." The Govern¬ 
ment was not in possession of the required drawings and 
sought to transfer additional performance risk to the 
contractor. If an action by the Government is required for 
contract performance, lack of that action is a breach of its 
implied duty to cooperate. [Ref. 2:p. 212] 

f. Case 13 13 Substantial Compliance 

(1) Findings of Fact . The contract called for 
delivery of 126 radio interference filters. The first 
articles failed a temperature and immersion teat (the units 
leaked). The units passed essentially all other 

13 82-1 BCA 15,505. FIL-COIL Co. Inc. ASBCA Nos. 
26,101 and 26,329. December 11, 1981. Contract No. DLA900- 
80-C-0284. 


50 













requirements. The contractor responded to a "show cause" 
notice that the problem had been identified and corrective 
steps had been taken to correct the defects. A new delivery 
was negotiated. 

In discussions with the contracting 
officer, not in the presence of the Government's engineer 
responsible for technical approval, the contractor was led 
to believe that resubmission for first article testing would 
be necessary only for the temperature and immersion test. 
Minor deficiencies, again, resulted from the testing 
procedure. The Government terminated for default based upon 
the contractor's inability to produce an acceptable first 
article. 

(2) Decision . Although the filters submitted 
for testing did not fully comply with the contract specifi¬ 
cations, they did substantially demonstrate the contractor's 
ability to perform the contract. The Government was not 
obligated to accept the non-conforming items, but was obli¬ 
gated to allow the contractor an opportunity to cure the 
deficiencies. 

(3) Point of Law . A failure to deliver 
acceptable first articles or prototype is not a failure to 
deliver supplies. The purpose of submitting a first article 
is to demonstrate the contractor's technical ability to 
comply with the contract. The "substantial compliance" 
principle is the focal point with first article testing. 













Major deficiencies in first article testing require a "cure 
period" to permit the contractor to correct defects. [Ref. 
2:pp. 655-657] 

g. Case 14-*- 4 Substantial Compliance 

(1) Findings of Fact . The contract provided 
for delivery of eighteen 20-mm gun booster fitting assem¬ 
blies. The first articles were rejected for relatively 
minor defects. The contractor corrected all the noted 
defects and submitted a second first article. This time it 
was rejected for defects that were not noted on the first 
testing and were minor in nature. An ambiguous specifica¬ 
tion on a drawing and an erroneous measuring technique 
performed by the Government inspector contributed to the 
rejection of the second submission. The Government 
terminated for default due to the contractor's inability to 
furnish the required first article. 

(2) Decision . The defects were minor in nature 
and could have been remedied quickly and at a small cost. 
The purpose of the "first article" requirement is to 
demonstrate the contractor's understanding and "Know-How." 
The Board summarized concisely: 

Deficiencies in a first article that are correctable 
in production are not a valid basis for an outright 
disapproval of a first article, and in recognition of 
this, the first article approval clause expressly provides 
for conditional approval. 

i 4 82-2 BCA 16,830. Dunrite Tool & Die, Inc. ASBCA No. 
27,538. August 23, 1983. Contract No. F09603-80-C-4500. 


52 











(3) Point of Law . No new laws or interpreta¬ 
tions of established law were demonstrated in this case, 
merely a reiteration of the principles presented in the 
previous case. 

3. Category Three: Anticicatorv ReDudiation 


a. Case 15■ L3 Unfounded Unequivocable Manifestation 

of Contractor's Intention not to Perform 

(1) Findings of Fact . A Blanket Purchase 
Agreement (BPA) called for the supplying of beef to the 
commissary system operated by the U.S. Forces in Europe. 
Defense Subsistence Region Europe (DRSE) solicited offers 
and accepted the bid of Martin Suchan. Contract awards 
preceded deliveries by only two or three weeks. The 
contractor had never received such a large contract for 
delivery of beef. This required the contractor to increase 
his credit line and to place an unusually large order with 
his supplier. The rising beef prices prompted negotiations 
between the contractor and his supplier. These complica¬ 
tions eroded the contracting officer's confidence in the 
contractor's ability to deliver. Through the post-award 
discussions and difficulties the contractor kept the 
contracting officer apprised of developments; stated he was 
confident that he would resolve his problems; but refused to 
state unequivocally that he would not deliver the beef. 


15 83-1 BCA 16,323. Martin Suchan. ASBCA No. 22,251. 
February 8, 1983. Contract No. DSA 139-76-A00002. 

















In consideration of all the facts available 
and his interpretation of the contractor's statements, the 
contracting officer terminated the contract for default due 
to the contractor's "stated inability to deliver." Subse¬ 
quently, but prior to the first delivery date, his credit 
line was increased and his supplier was in a position to 
provide the beef. 

(2) Decision . As stated in the Dingley v. Oler 


case of 1886, 

The hallmark of anticipatory repudiation is that there 
must be a "definite and unequivocal manifestation of 
intention on the part of repudiator that he will not render 
the promised performance when the time fixed for it in the 
contract arrives." Corbin on Contracts § 973. Therefore, 
to constitute an anticipatory repudiation the alleged 
repudiators' words of conduct must manifest a "positive, 
unconditional, and unequivocal declaration of fixed purpose 
not to perform the contract in any event or at any time." 

The record established without a doubt that 
Suchan did not tell the contracting officer that he would 
not perform in accordance with the terms of the contract. 
The contractor's actions in informing the contracting 
officer of difficulties can not be interpreted as an 
inability or refusal to perform. 

(3) Point of Law . The "anticipatory repudia¬ 
tion" doctrine rests upon the contractor's "definite and 
unequivocal manifestation" not to perform in accordance with 
the terms of the contract [Ref. 2:p. 678]. This occurs when 
the contractor: 


54 












1. Refuses to perform. 

2. Expresses intention not to perform. 

3. States inability to performance or the facts clearly 
show inability to perform. [Ref. 14:p. 528] 

The doctrine is founded upon the Uniform 

Commercial Code and holds that to wait until the appointed 

time of contract nonperformance would "unduly penalize" the 

buyer when it appears the contractor cannot or will not 

perform. [Ref. 15:p. 528] 

The issues involved in an anticipatory 

repudiation often require difficult judgmental decisions. 

For example, a contractor's appeal was sustained, 71-1 BAC § 

8,700 (1971), when the contractor filed for bankruptcy and 

failed to commence work as promised. The bankruptcy trustee 

stated that the contractor had the necessary equipment and 

capability to perform. In another case the contractor's 

appeal was sustained, 82-2 BCA § 15,881 (1982), when the 

contractor sent a letter informing the contracting officer 

that financial difficulties had forced him to suspend 

manufacturing operations, but that he was "actively trying 

to resolve the financial problems." In one particularly 

interesting case, 71-1 BCA 8690 C 1 <9^ 1 ) , the "contractor used 

abusive language to a Government official, agreed that the 

contract should be cancelled, and stated that he neither 

cared about nor wanted the work." This contractor's appeal 

was also sustained by the Board. Ref. .1 : p. *86' 




















V. ANALYSIS OF SUSTAINED APPEALS 


A. INTRODUCTION 

The information from Chapter IV will be analyzed for the 
reasons the contracting officer cited in terminating the 
contract for default and the justifications cited by the 
Board in sustaining the contractors' appeals. Refer to 
Table 2 for a summary of this information. Due to an 
overlap between Chapter IV's Category 1 (Failure to Make 
Delivery) and Category 2 (First Article), the first section 
is appropriately titled "Failure to Deliver." After a brief 
presentation of the magnitude of the total "failure to 
deliver" aspects of the sample cases, this chapter presents 
an analysis of the major principles, cited by the ASBCA, for 
sustaining the contractors' appeals. The format of this 
section is a discussion of the principles of law and the 
associated requirements followed by a discussion of the 
particular actions in the cases which correlate to these 
principles. The third area of analysis focuses upon the 
individual characteristics of the cases, i.e., contract 
size, unit prices of supplies, and the time between the T 
for D action and the Board's decision. These data are 
summarized in Table 3. 


56 









B. FAILURE TO DELIVER 

The default clauses identify three different grounds for 
terminating a contract for default: 

1. Failure to deliver the product or complete the work of 
service within the stated time period, 

2. Failure to make progress in prosecuting the work which 
endangers timely completion, and 

3. Breach of "other provisions" of the contract. [Ref. 
B:p. 640] 

In addition to the three justifications listed above, 
"failure to proceed" and "anticipatory repudiation" are 
common law remedies to terminate for default [Ref. B:p. 640] 

Referring to Table 2, a combination of Categories 1 
(Failure To Make Delivery) and 2 (First Article) represent 
the total number of sample contracts that were terminated 
for not delivering the requirements on or before the 
contract delivery date. This total represents over 93 
percent, fourteen out of fifteen, of the sample. The one 
other case, Case 15, involved an anticipatory repudiation. 
It is noteworthy to observe that cases which cited the other 
three justifications (failure to make progress, breach of 
"other provisions," and failure to proceed) were not found 
in the sample. 

C. JUSTIFICATION FOR CONVERSION TO "T FOR C" 

1. Government Encouraged Continued Performance 

Where the Government allows a contractor to continue 
performance past the delivery date, it surrenders its 


57 













TABLE 2 


A COMPARISON OF THE BASIS OF THE DEFAULT 
TERMINATION TO THE REASON FOR THE CONVERSION 



BASIS FOR 

TERMINATION 

FOR DEFAULT 


ARMED SERVICES 
BOARD OF CON- 1 

TRACT APPEALS 
REASONS FOR 
CONVERSION 

Failure 
to Make 
Delivery 

2. First 3. 
Arti¬ 
cle 

Antici¬ 
patory 
Repudi- 
tion 

% 

Govt' Encour¬ 
aged Continued 
Performance 

1/2,3,4 

8,10,11 


46.7% 

Unconscionably 
Priced Contract 

5 



6.7 

Contract Con¬ 
tained No First 
Article Approval 
Clause 


(11) 


0 

Gov't Hindrance 

6 

9,12 


20.0 

Substantial 

Compliance 


13,14 


13.3 

Anticipatory 
Breach Unfounded 



15 

6.7 

Excusable Delay 

7 

(8),(9) 


6.7 

Percentages 

46.7% 

46.7% 

6.7% 



Source: Researcher's summarization of ASBCA research 

cases. 

Note: The numbers represent individual case numbers, not 

quantities. 

The numbers in parentheses represent secondary 
reasons for conversion to T for C and are not counted 
in computing the percentages. Numbers w/o 

parenthesis are the primary reason for the 
conversion. 

Percentages do not add to 100% due to rounding. 












alternative and inconsistent right to terminate under the 
Default clause. This assumes that the contractor has not 
abandoned performance and a reasonable time period has 
passed since the delivery date. [Ref. B:p. 685] This elec¬ 
tion to permit continued performance can be done through 
inaction as well as by the intentional or unintentional 
actions taken by the Government. The proof for this defense 
by the contractor also requires that the contractor place a 
reliance upon the Government's encouragement to continue 
performance to his detriment. This reliance is often 
evidenced by continuing to incur costs in connection with 
continued performance under the provisions of the contract 
[Ref. B:pp. 690-694]. 

In three of the seven cases, in which the Government 
encouraged continued performance, active steps taken by 
contracting officers and their representatives were relied 
upon by the Board in rendering their decision. In Case 1, 
the PCO exercised a contract option while the ACO was in the 
process of terminating for default. In Case 2, the Govern¬ 
ment's QA representative performed an acceptance inspection 
after the scheduled delivery date. In Case 10, the 
contracting officer advised a defaulting contractor to place 
his "one or two day" delivery proposal in writing. This 
response was interpreted by the Board as encouragement of 
continued performance. 









Inaction by the Government was cited by the Board as 
the justification for converting the remaining four cases to 


f 

i 


I 

i 

K 

s 

N 

N 

1 


! 


i 


h, 

h 

f 

b 


w 

k 

t 


terminations for convenience. In Cases 3, 4, and 11, the 
Government attempted to terminate for default at a point 
beyond the reasonable time period in which it should have 
taken such action. The circumstances of Case 8 involved the 
"eyes and ears of the contracting officer," a Government QA 
representative. The contracting officer had been aware, or 
should have been aware through his representative, that the 
first article units and the production units were not 
manufactured at the same facility as required by the 
contract. Failure to take immediate action upon learning of 
this fact waived the Government's right to subsequently use 
it as a basis for a default termination. 

Thus, in nearly half of the cases (46.7%), the 
Government attempted to exercise its right to terminate for 
default when it had previously waived its rights to do so. 

2. Mistake 

A unilateral mistake by the contractor may be 
grounds for relief if the Government knew, or should have 
known, of the error. The requirements for relief are (1) a 
determination whether the alleged mistake is the type for 
which relief is granted, and (2) that the Government should 
have known of the error. The reason for which relief of a 
unilateral mistake is granted fall into two categories, 
misreading specifications and clerical or arithmetical 

60 













errors. In determining whether the Government knew, or 
should have known of the mistake in a contractor's bid, 
rests upon the adequacy of the verification request. If a 
contracting officer knows or suspects a mistake, he must 
notify the offeror to call attention to the suspected error. 
Accoruing to FAR para. 14.607(c)(1), the contracting officer 
must "point out the suspected mistake or otherwise identify 
the area of proposal where the suspected mistake is" and 
request verification. [Ref. B:pp. 223-236] 

The circumstances of Case 5 are straight from the 
textbook, i.e., the mistake was proven from the contractor's 
recent performance of a contract thought to be of the same 
nature. The Government's bid verification request failed to 
call attention to the specific area in which the suspected 
error was located, but took the form of "Double check your 
bid and tell if it is correct" request. This case was the 
only one of this nature and does not merit additional 
analysis. 

3. Contract Lacked First Article Approval Clause 


Failure to deliver acceptable preproduction items, 
e.g., first articles and prototypes, is not a failure to 
deliver supplies [Ref. B:p. 655]. To overcome this limita¬ 
tion, the FAR provides the First Article Approval clause 
(para. 52.209-3 & -4) to use with such contracts. 

No such clause was used in Case 11, but the Govern¬ 
ment still attempted to use it as a secondary justification 


















for its T for D action. The primary reason for terminating 
was discussed in Section 1 above, Government Encouraged 
Continued Performance. In consideration of the nature of 
the case and its single occurrence, further analysis would 
not serve in the research effort of identifying frequent 
problems in the acquisition process. 

4. Government Hindrance 

A contractor's performance can be affected by the 
Government's action or inaction, causing performance to be 
more costly or difficult. If the Government's action is 
wrongful, it will have breached its implied duty to 
cooperate and not to hinder or interfere with the contrac¬ 
tor's performance [Ref. B:p. 212]. To recover, the contrac¬ 
tor must prove a causal relationship to the problems 
encountered [Ref. B:p. 213]. The providing of defective 
Government-furnished equipment can be viewed as a hindrance 
as can a defective specification [Ref. B:p. 655]. 

In Case 6, the Government's erroneous requirement 
for an Environmental Protection Agency (EPA) certification 
prior to acceptance and payment in the performance of 
another contract directly caused the contractor's financial 
difficulties that led to his nonperformance on two other 
contracts. During the preaward survey the proceeds from the 
first contract were clearly linked to the successful comple¬ 
tion of the terminated contracts, thus the causal relation¬ 
ship was satisfied. In Case 9, the required use of the 


62 











Government-furnished equipment, which subsequently proved to 
be defective, caused the nonperformance beyond the delivery 


date of several related contracts. Another example of 
Government hindrance was presented in Case 12. The 
contractor based his bid upon a solicitation which contained 
none of the drawings necessary for manufacturing the circuit 
boards. During the post-award period, the Government could 
not locate the drawings, but insisted upon performance. 
Normally, the contractor should have requested the missing 
drawings and by bidding on a contract with no drawings, the 
contractor assumed all the cost risks of performance. 
However, since the issuance of solicitations without 
drawings was the standard procedure, the Government's 
refusal to provide them to the contractor upon award was a 
violation of the Government's implied duty to cooperate. 
This area was considered significant for represented 20 
percent of the total cases analyzed. 

5• Substantial Compliance 


As 

stated in Section 

1, 

a failure 

to 

deliver 

acceptable 

first 

articles is 

not 

a failure 

to 

deliver 

supplies. 

The 

proof rests 

upon 

an evaluation 

of the 


significance of the defects present in the first article 
units provided by the contractor. Minor defects do not 
justify rejection of the first articles, but should result 
in a qualified acceptance. [Ref. B:pp. 655-656] In Cases 


63 






















13 and 14, by the Government's admission during the Board's 
proceedings, the defects were minor in nature. 

6. Anticipatory Repudiation Unfounded 

The research yielded only one pertinent case in 
which the Government terminated for default on this basis. 
The case is not considered a recurrent problem. As 
discussed in Chapter IV, Case 15, The Government must prove 
that the contractor refuses to perform, expresses an intent- 
tion not to perform, or states an inability to perform or 
the facts clearly show that inability [Ref. 15:p. 528]. The 
difficulty lies in establishing the contractor's "definite 
and unequivocal manifestation" not to perform in accordance 
with the term of the contract [Ref. 15:p. 528]. 

7. Excusable Delay 

The purpose for an excusable delay clause is to 
protect the contractor from penalties of late performance 
and to permit additional compensation if the Government 
constructively accelerates performance [Ref. 2:p. 389]. FAR 
para. 52.249-8 provides that, except for defaults of subcon¬ 
tractors, the contractor shall not be terminated for default 
nor held liable for excess costs if failure to perform the 
contract was from causes beyond his control and without his 
fault or negligence [Ref. 2:p. 389]. To qualify for an 
excusable delay, the excuse must have: 

1. been beyond the contractor's control and not a result 
of his negligence, 


64 














UVWJ A 'A IMyTWA V.vTA'V.vV."" " ' • ” 


2. been unforeseen and he could not have been expected to 
foresee, and 

3. caused the delay [Ref. 2:pp. 391-396]. 

The excusable delay in Case 7 was one of "unusually" 
severe weather. The weather must have been unusually severe 
for the time of year and the location of performance, which 
was unforeseen and beyond the contractor's control, and not 
caused by his negligence. In Case 7, the error was made by 
the Government when it fixed the location of performance as 
just the lumber mill vice including the logging roads over 
which the logs were to be transported. The Board cited 
excusable delay as a secondary reason for sustaining the 
contractor's appeals in Cases 8 and 9. In Case 8, the 
Government was permitted, by the contract, to review the 
manuals for up to 60 days prior to returning them to the 
contractor. This review lasted seven months. In Case 9, 
the contractor qualified for an excusable delay as a result 
of his reliance upon the Government-furnished test equip¬ 
ment, which later was determined to be defective. With the 
inclusion of secondary reasons for the Board's decision, 
this area represents 20 percent of the sample case 
conversions. 

D. COMMON CHARACTERISTICS 

The cases were analyzed in an attempt to identify 
characteristics that appeared frequently throughout the 
research. The attempt was to identify those areas in which 


65 









TRACT CiIARACTKRISTICS 














the Government experiences frequent difficulties when 


terminating for default. Those common characteristics are 
enumerated in Table 3 and presented below: 

1. Low Unit Price --The highest unit cost was for $14,280, 
followed by $3,748. All others were less than $2,000 
per unit. 

2 . Low Contract Price —Eleven of the fifteen cases 
analyzed were less than $1 million. 

3 . Duration of the Dispute —The average time elapsed 
between the termination for default action and the 
Board's decision was 40.4 months for contracts exceed¬ 
ing $100,000, but just 10.8 months for those under 
$100,ooo. 

4. Nor-complex materials --With the possible exception of 
the blade spacers for wind tunnel compressors in Case 
11, all of the supplies listed in Table 3 were not of 
a sophisticated nature. 


67 









VI . CONCLUSION’S AND RECOMMENDATIONS 


A. PREFACE 

Although fifteen cases over the course of four years 
certainly does not lead the researcher to believe that the 
Government's procedures in executing terminations for 
default is seriously flawed, the research accomplished in 
this study identified several deficiencies in this process. 
These deficiencies are presented in the conclusions cited in 
this chapter. The recommendations portion will address the 
identified shortfalls, followed by a discussion of the 
research questions and suggestions for further research. 

B. CONCLUSIONS 

1. Conclusion 1 

The problems identified are not a result of new 
policies, regulations, and interpretations of previous Board 
decisions, but are basic principles of contract administra¬ 
tion, such as, estoppel, Government hindrance, substantial 
compliance, and excusable delay. 

The deficiencies noted were in the basic principles 
of which every warranted contracting officer should have a 
thorough working knowledge. Seven of the fifteen total 
cases analyzed were overturned by the Board because the 
Government had previously waived its rights to exercise a 


68 












default termination. Four of the seven decisions resulted 
from Government inaction. 

The principle of Government Hindrance was cited m 
twenty percent of the cases. Two of the three cases were 
determined by erroneous Government actions in administerin'-! 
other contracts. 

Thirteen percent of the cases involved the principle 
of substantial compliance 'pplied to contracts involving 
first article units. In consideration of the current 
Government commitment to increasing competition through 
break-out procedures, dual sourcing, and other methods, the 
difficulties associated with administering a growing number 
of first article contracts can only be expected to multiply. 

2. Conclusion 2 

Many case decisions precipitated from a general lack 
of communications. 

This problem was directly responsible for four (26. ' 
percent) of the contracting officer's T for D actions being 
converted to convenience terminations. 

In Case 1, the ACO should have advised the PCO that 
he was proceeding with a T for D action. In Cases 2 and . 
the Government QA representative's actions were not relayei 
to the contracting officer who was held responsible for this 
knowledge. 

The contracting officer's erroneous advice to the 
contractor producing a first article unit, pri'r ^c 


69 








onsulting with the Government's program engineer, was 
rounds for sustaining the contractor's appeal in Case 13. 

• . Conclusion 3 

The contracts are characterized by low unit cost, 
cw contract value, and deliverables of a non-complex 
ature. 

An analysis of Table 3 reveals that all the unit 
osts were under $15,000 and eight-six percent were under 
2 , ■'■ 00 . Seventy-three percent of the contracts had a value 
f less than $1 million. 

With the possible exception of the blade spacer 
-cn-raot, the supplies can be characterized as low-tech, 
c'. r: r e purchases. 

4. done 1 usion 4 

The higher dollar value contracts are involved in 
he l.sputes process for a much longer period of time than 
re the low dollar value contracts. 

As stated in the Chapter V, Section D analysis, the 
entrants valued in excess of $100,000 are in the disputes 
recess for an average of 3 1/2 years, while the average 
.~e ;n disputes for contracts valued at less than $100,000 
s eleven months. This could be a result of contractors 
• * r. . ower value contracts choosing the expedited or 
- e.erated procedures of the ASBCA, which are designed for 
he low value claims. 


7 








C. RECOMMENDATIONS 


1. Recommendation 1 

Increase the degree of communications between the 
members of the acquisition team. 

Measures need to be implemented to preclude the 
situation, exhibited in Case 1, in which the ACO had 
commenced a default termination while the PCO simultaneously 
exercised a contract option to increase the number of 

deliveries. The general lack of communications between the 
ACO and the Government's QA representative led to sustained 
contractors' appeals in Cases 2 and 8. Adding Case 13 to 
this category brings the total to nearly 27 percent of the 

total sample cases analyzed. A coordinated team effort 

would present a true "single face to industry." The 
solution to this problem could be as simple as stressing the 
need for active communications and the citing of documented 
problem cases in contracting officers' basic contracting 
education process. 

2• Recommendation 2 

Increase the degree of expertise and contract 

awareness of acquisition personnel at all levels. 

It is evident from the research that contracting 
officers and their representatives are not consistently 
applying basic contract knowledge in the decision-making 
process. The application of this knowledge in the Waiver of 
Government's Rights and in the Substantial Compliance 


71 




















aspects of first article testing procedures would have 
reduced the number of cases in this study by over half. 
Possible causes of these errors would include: Lack of 
training and education, understaffing, inadeguate super¬ 
vision, poor legal or other advice, and/or insufficient 
management aids, e.g., computerized contract monitoring 
systems. 

3. Recommendation 3 

Contracting officers must be made aware of the 
requirement to be decisive, particularly in areas that would 
impact the grounds for a default termination, through the 
training, career development, and evaluation processes. 

The need for prompt action is supported by the four 
cases, in Chapter V.C.l, in which inaction by the 
contracting officer waived the Government's right to subse¬ 
quently terminate for default based upon the contractor's 
delivery delinquencies. 

4. Recommendation 4 

Implement a contract management information system 
that would increase the visibility of contract delivery 
dates and current status. 

This system would not necessarily be designed to 
favorably impact the contractors' compliance with schedule 
delivery dates, but it would increase the awareness of the 
Government acquisition personnel of contracts that are in or 
approaching default. This awareness could reduce the 











V, 

V, 


occurrences of unintentional encouragenent of continued 
performance. 

5. Recommendation 5 

Conduct an evaluation of the quality of leqal advice 
that the contracting officers are receiving when deciding to 
terminate a contract for default. 

The decision to pursue a termination for default 
action is the responsibility and decision of the contracting 
officer. However, in making that decision, he relies upon 
the information he has gathered and the advice he has 
received. Once he has gathered all the available informa¬ 
tion, a primary person from whom he solicits advice is the 
lawyer. The legal issues in the majority of the cases 
analyzed were clear and not subject to a court's new inter¬ 
pretation of contracting principles of law. In the opinion 
of the researcher, the cases never should have gone to the 
Board for a resolution. With improved legal advice, the 
occurrence of T for D conversions by the Board or Court 
could be dramatically reduced. 

D. RESEARCH QUESTIONS 

1. Primary Research Question 

Can meaningful conclusions be drawn from an analysis 
of sustained ASBCA and U.S. Claims Court appeals concerning 
Department of Defense contracts which were originally 
terminated for default (T for D) , but subsequently settled 

73 





V-V-V- 






“ » • , * • • « • • * . • * , * , • 


















as terminations for convenience (T for C) as a result of an 
agency board or judicial decision? 


It is feasible to draw meaningful conclusions that 
will improve the acquisition process using the methodology 
of this research. 

The analysis uncovered several areas in which better 
Government performance in contact administration could 
reduce the number of erroneous actions identified through 
this research, such as, an increase in basic contracting 
knowleage, communications, and decisiveness. A complete 
explanation is contained in the Recommendations section of 
this chapter. 

2. Subsidiary Question 1 

What are the principles generally cited for sustain¬ 
ing a contractor's appeal of a default determination? 

The most frequently cited ASBCA decisions for 
sustaining a contractor's appeal are, in descending order, 
Government Encouragement of Continued Performance, 
Government Hindrance, and Substantial Compliance. 

As shown in Table 2, the frequencies of occurrences 
are 46.7 percent, 20.0 percent and 13.3 percent, respec¬ 
tively. Of the seven cases in which the contractor's 
performance was encouraged beyond the schedule delivery 
date, four were a result of inaction by the Government while 
two of the other three involved actions by the contracting 


officer's representative. A particularly interesting aspect 










of two of the three cases involving hindrance was that these 
successful appeals resulted from the Government's wrongful 


actions in administering other contracts. The two cases 
citing substantial compliance as justification for 
sustaining the contractor's appeal exhibited a general 
misunderstanding of the principle of law when applied to 
contracts involving first article units. A more in-depth 
discussion of the individual cases is presented in Chapter 
V. c. 


3• Subsidiary Question 2 

Once a contract termination is successfully 
appealed, what are the contracting officer's options and 
associated considerations? 

In some instances, the Board or Court will direct 
specific actions and dollar remedies in their decision. In 
these cases, the contracting officer has no options since 
his actions have been directed, specifically. However, with 
most agency or court decisions, the contracting officer does 
have possible options through which to resolve the contrac¬ 
tual relationship. 

1. The Government has the right to appeal a Board or 
Court decision to the Court of Appeals for the Federal 
Circuit. [Ref. 2:p. 955] 


2. If the contract performance has not commenced, a 
recission of the contract could be issued to excuse 
the contractor [Ref. 2:pp. 238-241]. A recission is 
normally associated with contractors' claims of 
"mistake" and usually directed by the Board or Court 
when applicable. 


75 












v % .y w y w . vm yy m y , y m y™J 1 


3. Reinstatement . The parties are always free to 
reinstate the contract, regardless of the stage to 
which the dispute has progressed. Although this 
option is infrequently exercised, it can be of mutual 
benefit to the Government and the contractor [Ref. 

2:p. 709]. It may be especially applicable to 
contracts erroneously terminated when the first 
article unit did substantially comply with the 
contract's requirements. 

4. Reformation . If the parties can agree, the contract 
can be reinstated and modified to require only 
partial, or other-wise modified, performance [Ref. 
2:pp. 238-240]. 

5. Proceed with the Termination for the Convenience of 
the Government in which the Government admits the 
mistake and assumes the obligations of payment of 
allowable and allocable costs and profit on costs 
incurred. 

Reformation and reinstatement require a negotiated 
agreement as to the necessary contract modifications, but 
still require the contractor to deliver the supplies. The 
only option listed above, other than proceeding with the T 
for C, that was evidenced from the cases, was a reformation 
in Case 5. The contractor's bid was based upon only one 
part of a two part assembly. The contract was reformed to 
permit the contractor to build, and receive payment for, 
only the one part. 

Normally, the contracting officer has few available 
options, therefore his considerations require no evaluation. 
A contractor who has failed to deliver the contracted 
supplies will be hesitant to commit himself to such an 
arrangement and will often choose the T for C, in which case 
he is "made whole." However, in those rare instances in 


which the contractor and the Government desire to complete 









the contract, the contracting officer must first evaluate 
the situation by answering the same questions he asked when 
making the original decision to T for D. 

Regardless of the course of action chosen, the 
decision must be made in accordance with the provisions of 
the Board or Court's decision, coordinated with higher 
authority, and serve in the best interests of the 
Government. 

4. Subsidiary Question 3 

How might the T for D decision process be improved 
to reduce the number of successful contractor appeals? 

An in-depth discussion into the requirements for 
making improvements to the decision process are presented xn 
the Recommendations Section of this chapter, such as, 
improved communications, increased knowledge and awareness, 
decisive action, a contract administration management infor¬ 
mation system, and better legal advice. 

E. RECOMMENDATIONS FOR FURTHER RESEARCH 

This analysis illuminated several deficiencies in the 
Government acquisition process. However, since the research 
was limited in scope and methodology, many other areas that 
also promise fruitful results are presented below: 

1. Research the degree to which T for C's are exercised 
vice a T for D as a result of the Government sharing a 
high degree of responsibility for the contractor's 
performance difficulties. 

I 


77 













2. Research the feasibility of increased automation in 
the contract administration function, as presented in 
Recommendation 4. 

3. Evaluate the practical application of default models 
to the acquisition process with a focus on the identi¬ 
fication of early warning signals. 

4. Evaluate the existing professional relationship 
between ACO's and PCO's, focusing on the degree and 
quality of communication. 




















APPEND I X A 


REPORT OF T RANSAC TIONS AN D PROCEEDINGS Of Tfi 
SERVICES BOARD OF CON TRACT APPE ALS FOR I HE 
YEAR ENDIN G . 30. SEP TEMBER I : 


ARME 


SERVICES HOARD ' E ' NTRA'T APPEAL 
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ises pen i ; r i 
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. p ; • s.’-ie , 

•‘tense Maf• :nj aj<? 
etense N .e.u Vie 
e ; " s t 1 1 e i 

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' r !’ ismisseil i; t p 
Hoar 1 Hr - ped;nqs 









J'3 1 A .^r» 'j 'JI ">*>’JVV F/V-7T-WTJT.»-. 


F. Status of Cases Pending End of FY 1985: 


Complaint Due 540 

Answer Due 217 

Reply Due 0 

Discovery Start 281 

Prehearing Conference 13 

To Be Set 441 

Hearing Set 152 

Transcript & Briefs Due 152 

Suspense 131 

Ready to Write 147 

TOTAL 2047 

Rule 12 122 


G. Summary since May 1, 1949 (date of creation of 
ASBCA from predecessor boards) 

Docketed 31,802 

Reinstated 640 

32,442 

Disposed of 30,368 

2,074 

The conclusion of Fiscal Year 1985 reflects that once 
igain the ASBCA has received a record number of new appeals. 
For the first time in the history of the Board the number of 
pending appeals exceeds two thousand. The magnitude of the 
workload leads to two inescapable conclusions. First, 
additional personnel must be authorized. Second, the Board 
must develop internal procedures which permit the parties 
under appropriate appeals to opt for "Prompt Procedures." 

In June of 1985, a comprehensive "ASBCA Management 
Improvement Plan" was prepared by an ASBCA committee as 
"ustlfication for additional resources and submitted by the 
men Acting Chairman to the General Counsel of the 
Department of Defense. The plan discussed the current 
staffing of the Board, provided justification for additional 
personnel positions and associated space and equipment, 
analyzed the status of the Board's docket, detailed internal 
controls to better manage the docket, and calculated future 
work load projections based on historical data. The plan 
further detailed steps already taken or in the process of 
being taken to change methods of processing appeals to 
improve productivity. Emphasis was placed on disposing of 
the oldest ready-to-write appeals on our docket. This goal 
has now largely been accomplished. However, this has 
resulted in a large build-up of pending appeals which must 
be heard. The plan uniformly received positive comments and 
indicated efforts to implement the Columbia Technology 
management study recommendations made in December 198J. 


81 










However, the plan was held in abeyance pending the 
completion of the process for selecting a new ASBCA 
Chairman. 

On 1 October 1985, the undersigned was appointed as the 
new Chairman. As chairman, I have, amongst other actions, 
initiated the following changes: 

revised the docket assignment system to more evenly 
balance the work load and have begun intense docket 
reviews and docket adjustments? 

redefined the Commissioners work assignments to 
help relieve the Judges from numerous administra¬ 
tive docket functions; 

revised the Rule 12 docket processing system to 
balance the work load and to continue to insure 
substantial compliance with time deadlines; 

reassigned computer terminals to improve efficien¬ 
cy; (in the immediate future a new, expanded 
computer system will be installed which will permit 
each Judge access to a terminal including capabili¬ 
ty for automated legal research)? and 

initiated procedures on a trial basis, subject to 
the approval of both parties, for prompt processing 
of appropriate cases. 

Many of the above mentioned "changes" are cosmetic, 
-enpcrary stop-gap measures, preliminary or experimental 
•■ops designed to immediately improve working conditions and 
productivity. However, insufficient number of personnel and 
■ i '.equate office space are limiting constraints which 
..»v*>r*»ly restrict any significant improvement in productivi- 
have every reason to believe that needed resources 
r e approved as soon as a management plan is formally 
~ i to DOD for approval. The filling of existing 

> »■ * r ..lets, which includes three Administrative Judge 

• •;, and the submission of a revised management plan 
• rd's top priorities. Nominations for at least 
- • •• vi ant judge positions and the management plan 
Tinted by 1 December 1985. 

ember 1985, the General Accounting Office 
a. report ’ GAO .'NS I AD-8 5-102 ] on its review of 
r .;1ed: 

■ • i : i ; s not organizationally independent 

■ ••*-»•-* * : r>fpnse, no centralized control 

• 1 i is exercised within the 









Department. Further, the Board is perceived by members 
of the contracting community to be independent in its 
decision-making process. 

However, members of contract appeal boards are not as 
insulated as they could be from agency control. Members 
are appointed and the Office of Personnel Management 
maintains can be removed by the agencies which bring 
disputes before the boards. Other employees who perform 
quasi-judicial functions like board members are selected 
from a government-wide register and can be removed only 
by the Merit Systems Protection Board. Legislation 
should be considered if the Congress wants to insulate 
board members from agency control to the same degree as 
other quasi-iudicial employees. 

The Board has issued Interim Procedures for processing 
applications of attorney fees filed pursuant to the Equal 
Access To Justice Act (Section 504 of Title 5 of the United 
States Code). The EAJA imposes strict jurisdictional 
deadlines for the filing of applications and for the data 
required to be filed with the application. The EAJA 
includes numerous procedural and substantive issues which 
are not clearly resolved and may initially cause an undue 
burden on the Board's limited resources. 

While the statistical data on its face doesn't appear to 
bode well for the Board, there are a number of positive 
signs that are very encouraging to me. Since the effective 
date of the Contracts Disputes Act of 1978, the number of 
docketed appeals has nearly doubled. There were 1221 
pending appeals as of October 1979. During this same time, 
the number of ASBCA judges, which was recognized in 1978 as 
being too low, as well as the size of the Board's staff has 
not substantially changed. The merely administrative 
functions associated with the increased workload have had a 
tremendous impact on the Board's resources. We have 
literally been buried with paper and are bursting at the 
seams. Despite the necessity for the Judges to absorb a 
significant amount of these additional administrative 
functions, the judges' productivity has remained relatively 
stable. I am convinced that when we acquire adequate 
additional personnel, the situation will improve. The fact 
that productivity has remained as high as it has reflects 
that the Board is blessed with quality people, who are 
dedicated to maintaining the Board's excellent reputation. 


PAUL WILLIAMS 
Chairman 

Attachment 


83 














Data re Appeals Disposed of by the 
Armed Services Board of Contract Appeals 
During FY ' s 1981-1985 


Origin of 

FY 

FY 

FY 

FY 

FY 

Appeals: 

1981 

1982 

1983 

1984* 

1985 

Air Force 

199 

188 

255 

234 

258 

Army 

322 

341 

425 

524 

463 

DLA 

154 

139 

157 

218 

232 

Navy 

Other 

206 

198 

212 

267 

251 

(non-DOD) 

34 

72 

82 

63 

61 


2. Average amount 
of Claims 
(where Amount 
is stated): 


Prime 


Contractor 

$335,983 

$420,115 

$173,058 

$241,096 

$294,304 

Gov't 

$114,920 

$380,718 

$286,606 

$238,968 

$102,762 

Sub-Cont. 

$124,118 

$271,128 

$286,606 

$238,968 

$102,762 

Business Size: 





Small Bus. 
Contr. 

544 

644 

781 

966 

994 

Small Bus. 
Set Aside 

128 

180 

177 

302 

371 


4. Peal Party 
in Interest 


Prime Cont. 

832 

814 

1,013 

1,120 

1,165 

Sub-Contr. 

82 

103 

91 

110 

49 

Both 

1 

12 

5 

23 

18 

Other 


9 

22 

53 

33 

5. Method of Award 





Adver. 

453 

551 

720 

781 

735 

Negotiated 

419 

353 

329 

396 

366 

Other 

43 

34 

31 

— 


Unknown 



51 

129 

164 

* 29 cases were 

cancelled 

as docketed in 

error or 



duplicates. 

**28 cases were cancelled as docketed in error or 
duplicates. 


84 






Contract Type: 


Basic Agreem. 2 
CPFF 29 
CPIF 10 
FFP 737 
FPIF 24 
Requirements 36 
Other 77 

Kind of Proc. 

Construe. 338 
R&D 22 
Service 135 
Supply 380 
Surplus Sale 21 
Other 19 


Principal Contr. 
Clause(s) or 
issue(s) involved 
in Dispute:* 

Actual Damages 


(Govt't 

claim) 1 

Allow. Costs 29 

Basic Agreem. 

Bid Mistake 12 

Bid Protest 
Breach 

Changes 266 

Cost Acctg. 
Standards 
Cost or Pric. 

Data 9 

Cost Princ. 20 

Default 235 

Delivery 1 

Differing Site 
Conditions 33 

Discounts 
All Disputes 


Disputes (CDA) 
Disputes 

(Juris.) 6 

Economic 

Price Adj. 



















FY 

1981 

Equal Access 
to Justice 
Est. Quant. 

Excess Costs 21 
Exc. Delay 2 

First Article l 

Freight Chg. 3 

G.F.P. 8 

Gen. Average 1 
Govt. Delay 
Guar. Descr. 
Inspection 
Insurance 
Int. Propert. 
Interest 5 

Labor 8 

Liability for 
HHG Damages 6 

Lim. of Costs 
Liq. Damages 18 

Miller Act 1 

Mutual Mist. 

Option to Ren. 
Payments 25 

Price Escal. 6 

Prog. Paym. 

Prop. Disposal 7 
Requirements 4 

Risk of Loss 
Shipment 1 

Specifications 81 

Storage 

Susp. of Work 3 

Taxes 2 

Termination for 
Convenience 14 

Value Eng. 5 

Warranty 12 

Other 37 

Unknown 


FY 

1982 


6 

28 

1 

1 

5 


3 

9 

5 

7 

17 

1 

2 

22 

2 

6 
1 
6 

5 

97 

2 

3 

17 

6 
13 
15 


FY 

1983 


18 

3 

21 

1 

4 

8 


5 
7 

2 

9 

15 

1 

2 

36 

1 

6 
1 

3 
6 

152 

4 
7 

18 

6 

10 

10 

34 


FY 

1984 


1 

9 

16 

7 

10 

1 

6 


12 

12 

18 

17 

7 

14 

12 

5 

11 

19 

20 

19 


6 

5 

14 

8 

29 

4 

2 

24 

4 

13 

1 

4 

4 

160 

10 

6 

21 

4 

49 

32 

82 


FY 

1985 


13 

35 

36 
19 

16 

2 

5 

53 

3 
1 

25 

4 

15 

1 

62 

1 

7 

8 
36 

4 

29 

3 

31 

9 

100 

1 

51 

7 

31 

16 

36 

2 

83 


The statistics on this page are not longer 
representative of the subject matter of the Board's 
especially under the Contracts Disputes Act. 
categories will be made as practical. 


truly 
cases, 
Changes in 


86 






V 


jipfimwww 


»l.*l «l >1 




* V 1 




FY 

FY 

FY 

FY 

FY 



1981 

1982 

1983 

1984 

1985 

9 . 

Hearings and 
of Hearing:* 

Days 






Hearings: 

In Wash. D.C. 
Outside Wash. 

38 

36 

56 

46 

58 


D.C. 

147 

136 

151 

169 

181 


Percentage 
outside Wash. 







D.C. 

79% 

79% 

73% 

79% 

76% 


Days of Hearing: 






In Wash. D.C. 
Outside Wash. 

61 

94 

142 

100 

175 


D.C. 

304 

286 

278 

349 

393 


Percentage 
outside Wash. 







D.C. 

83% 

75% 

66% 

78% 

69% 

10. 

Pre-Hearing 
Discovery 
(cases in 
which ruling 
sought): 

58 

77 

148 

137 

300 

11. 

Pre-Hearing 

Confer. 

120 

56 

49 

114 

228 

12 . 

Rule 12 Proc. 

• 






# Proceed. 

183 

187 

205 

229 

262 

13 . 

Record only 
Disposit. 

58 

79 

73 

75 

168 

14. 

Disposition: 







Settled 

Dism. (no 

478 

459 

489 

522 

506 


reason giv.) 

17 

14 

23 

28 

15 


Dism/Rule 30 

28 

78 

123 

124 

118 


Dism/Rule 31 
Lack of 

90 

88 

107 

184 

41 


Jurisd. 

3 

4 

35 

31 

45 


Dism/Withd. 





121 

Reg. 

CO/Dec. 

— 

— 

— 

56 

47 


*Relates to hearings in appeals disposed of during a 
particular FY. 







Denied 

169 

168 

192 

205 

Sustained 

130 

127 

162 

158 

(Remand) 

77 

81 

116 

99 

(Not Stat.) 


4 

- 

- 

(Amount De¬ 
termined) * 

53 

42 

46 

59 


5. Time on Dock. 

(days from date 
of docket, to 
date of dec.): 

All cases: 

Average 458 438 422 450 

Median 287 278 263 297 

Rule 12 cases: 

Average 171 173 156 151 

Median 151 148 137 149 

6. Time from date 
appeal ready 
for dec. to 
date dec. 
filed (days): 

All cases 

Average 33 34 49 50 

Median 11 14 

Cases in which 
formal opn. filed: 

Average 65 78 114 105 

Median 21 27 29 19 

All Rule 12 
appeals: 

Average 13 17 14 16 

Median 57 38 

Total dollars determined during FY 81 was $ 4,820,958 

Total dollars determined during FY 82 was $35,142,367 

Total dollars determined during FY 83 was $ 6,258,134 

Total dollars determined during FY 84 was $19,104,775 

Total dollars determined during FY 85 was $ 1,952,442 










APPENDIX B 


DISPUTES PROCESS 

SISPVTES PISCES! 


Requests f orPeyment 


Debt Collection 

or 


or Contract 

Contract Adjustment 


AdJustmentActlon 


CONTROVERSY OR OELflV 
(ofter contractor hot 
opportunity to express 
iiiaws)—-- 




Contractor Claims 
For claims of $50,000 or undar 
the CO shall Issue n decision 
within 00 days. For certified 
claims over $$50,000 the CO 
shall issue a decision within 
60 days or notify contractor 
of the "reasonable* time 
within which a decision will 
ho issued. _ 


(with apprauel of 
attorney general) 


COURT OF APPEALS FOR 
[THE FCOERAl CIRCUIT 

1 - 

[ U S SUPREME COURT 
(certioteri) 


120 days 


Different procedures apply 
for Tannessae Ualley Authority 
and maritime contracts 


Cibinic, J. Jr., and Nash, R.C., Jr., 
Administration of Government Contracts , 
George Washington University, p7 89 5. 


Source: 
































APPENDIX C 


DEFAULT ( FIXED-PRICE SUPPLY 
AND SERVICE ) (APRIL 1984^ 


(a) (1) The Government may, subject to paragraphs (c)and 
(d) below, by written notice of default to the Contractor, 
terminate this contract in whole or in part if the Contrac¬ 
tor fails to: 

(i) Deliver the supplies or to perform the services 
within the time specified in this contract or any extension; 

(ii) Make progress, so as to endanger performance of 
this contract (but see subparagraph (a)(2) below); or 

(iii) Perform any of the other provisions of this 
contract (but see subparagraph (a)(2) below). 

(2) The Government's right to terminate this contract 
under subdivision (1)(ii) and (1)(iii) above, may be 
exercised if the Contractor does not cure such failure 
within 10 days (or more if authorized in writing by the 
Contracting Officer) after receipt of the notice from the 
Contracting Officer specifying the failure. 

(b) If the Government terminates this contract in whole 
or in part, it may acquire, under the terms and in the 
manner the Contracting Officer considers appropriate, 
supplies or services similar to those terminated, and the 
Contractor will be liable to the Government for any excess 
costs for these supplies or services. However, the 
Contractor shall continue the work not terminated. 

(c) Except for defaults of subcontractors at any tier, 
the Contractor shall not be liable for any excess costs if 
the failure to perform the contract arises from causes 
beyond the control and without the fault or negligence of 
the Contractor. Examples of such causes include (1) acts of 
God or of the public enemy, (2) acts of the Government in 
either its sovereign or contractual capacity, (3) fires, (4) 
floods, (5) epidemics, (6) quarantine restrictions, (7) 
strikes, (8) freight embargoes, and (9) unusually severe 
weather. In each instance the failure to perform must be 
beyond the control and without the fault or negligence of 
the Contractor. 


90 








i 


(d) If the failure to perforin is caused by the default of 
a subcontractor at any tier, and if the cause of the default 
is beyond the control of both the Contractor and 
subcontractor, and without the fault or negligence of 
either, the Contractor shall not be liable for any excess 
costs for failure to perform, unless the subcontracted 
supplies or services were obtainable from other sources in 
sufficient time for the Contractor to meet the required 
delivery schedule. 

(e) If this contract is terminated for default, the 
Government may require the Contractor to transfer title and 
deliver to the Government, as directed by the Contracting 
Officer, any (1) completed supplies, and (2) partially 
completed supplies and materials, parts, tools, dies, jigs, 
fixtures, plans, drawings, information, and contract rights 
(collectively referred to as "manufacturing materials" in 
this clause) that the Contractor has specifically produced 
or acquired for the terminated portion of this contract. 
Upon direction of the Contracting Officer, the Contractor 
shall also protect and preserve property in its possession 
in which the Government has an interest. 

(f) The Government shall pay contract price for completed 
supplies delivered and accepted. The Contractor and 
Contracting Officer shall agree on the amount of payment for 
manufacturing materials delivered and accepted and for the 
protection and preservation of the property. Failure to 
agree will be a dispute under the Disputes clause. The 
Government may withhold from these amounts any sum the 
Contracting Officer determines to be necessary to protect 
the Government against loss because of outstanding liens or 
claims of former lien holders. 

(g) If, after termination, it is determined that the 
Contractor was not in default, or that the default was 
excusable, the rights and obligations of the parties shall 
be the same as if the termination had been issued for the 
convenience of the Government. 

(h) The rights and remedies of the Government in this 
clause are in addition to any other rights and remedies 
provided by law or under this contract. 

(End of clause) 

(R 1-8.707) 

(R 7-103.11 1959 AUG) 

Alternate I (APR 1984). If the contract is for transpor¬ 
tation or transportation-related services, delete paragraph 
(f) of the basic clause, redesignate the remaining para¬ 
graphs accordingly, and substitute the following paragraphs 
(a) and (e) for paragraphs (a) and (e) of the basic clause: 


91 
















(a)(1) The Government may, subject to paragraphs (c) and 
(d) below, by written notice of default to the Contrac-tor, 
terminate this contract in whole or in part if the Con¬ 

tractor fails to: 

(i) Pick up the commodities or to perform the services, 
including delivery services, within the time specified in 
this contract or any extension; 

(ii) Make progress, so as to endanger performance of 
this contract (but see subparagraph (a)(2) below); or 

(iii) Perform any of the other provisions of this 

contract (but see subparagraph (a)(2) below). 

(2) The Government's right to terminate this contract 

under subdivisions (1) (ii) and (1)(iii) above, may be 

exercised if the Contractor does not cure such failure 
within 10 days (or more if authorized in writing by the 
Contracting Officer) after receipt of the notice from the 
Contracting officer specifying the failure. 

(e) If this contract is terminated while the Contractor 
has possession of Government goods, the Contractor shall, 
upon direction of the Contracting Officer, protect and 
preserve the goods until surrendered to the Government or 
its agent. The Contractor and Contracting Officer shall 
agree on payment for the preservation and protection of 
goods. Failure to agree on an amount will be a dispute 
under the Disputes clause. 













LIST OF REFERENCES 


Sherman, S.N., Government Procurement 
Wordcrafters Publication, 1981. 


Management , 


2. Cibinic, J. Jr., and Nash, R.C. Jr., Administration of 
Government Contracts . George Washington University, 
1985. 

3. U.S. Department of Defense, Federal Acquisition Regula¬ 
tion . Washington: Government Printing Office, April 
1984. 

4. Mahoy, J.O., Government Contract Law . 6th ed., Gunter 
Air Force Station AL, Extension Course Institute, 1979. 

5. Roche, Captain A.D., and Scheidt, T.L., GS-12, USAF, 

Contract Terminations for Default and Convenience . 
Master's Thesis, Air Force Institute of Technology, 
Wright-Patterson Air Force Base, Dayton, Ohio, June 
1981. 

6. Black, H.C., Black's Law Dictionary . Rev. 6th ed., St. 
Paul: West Publishing Company 1979. 

7. Armed Forces Board Of Contract Appeals charter, para. 9, 

July 01, 1979. 

8. U.S. Department of the Air Force, Government Contract 
Law . Air Force Institute of Technology, Wright-Patterson 
Air Force Base, Dayton, Ohio, 1979. 

9. Howdyshell, R.J., Armed Services Board of Contract 

Appeals: An Analysis of Sustained Decision of Navy 

Supply Contract Disputes . Master's Thesis, Naval 
Postgraduate School, Monterey, California, June 1979. 

10. Younker, M.E., U.S. General Accounting Office: Analysis 
of Sustained Decisions on Department of Defense Contract 
Related Protests f1975-1978) . Master's Thesis, Naval 
Postgraduate School, Monterey, California, December 
1979 . 

11. Baxa, J.B., and Hicks, P., Inquiry Into the Distribution 
of Contracting Parameters to Contract Disputes , Master's 
Thesis, Air Force Institute of Technology, 1976. 

























12. U.S. General Accounting Office, Office of the General 
Counsel, Government Contract Principles . U.S. Government 
Printing Office, 1980. 

13. Cibinic, J. Jr., and Nash, R.C. Jr., Federal Procurement 
Law , Vol. 3, George Washington University, 1980. 

14. Riemer, W.H., Handbook of Government Contract Adminis¬ 
tration . Prentice-Hall Inc., Englewood Cliffs, New 
Jersey, 1968. 

15. Government Prime Contracts and Subcontracts Service , 
Procurement Associates Inc., 1978. 










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