ABCD DENIED: July 23, 1992 GSBCA 11363(10193)-REIN DARWIN CONSTRUCTION COMPANY, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Howard A. Pollack of Braude & Margulies, P.C., Washington, DC, counsel for Appellant. Kathleen McCartney, Office of Regional Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges LaBELLA, NEILL, and DANIELS. DANIELS, Board Judge. This case involves a contract between Darwin Construction Company, Inc. (Darwin) and the General Services Administration (GSA) for the replacement of windows at the Agriculture South Building in Washington, D.C. The appeal challenges the agency's termination for default of the contract. On October 16, 1990, we issued an opinion on the parties' cross-motions for summary relief. We found that the termination was justified on the merits, but that procedurally, it was flawed. We reserved judgment, pending a hearing, as to whether the procedural errors were prejudicial to Darwin and consequently sufficient to invalidate the termination. Darwin Construction Co., GSBCA 10193, 91-1 BCA 23,419 (1990). During late 1990 and early 1991, the parties attempted to resolve the outstanding issues amicably. On February 7, 1991, the Board determined that the case should be dismissed without prejudice while the settlement negotiations continued. We permitted either party to move to reinstate the case before July 31, 1991. On July 23, 1991, Darwin asked that the case be reinstated. The scheduling of a hearing was delayed while appellant, then proceeding pro se, first failed to respond to Board orders and then engaged a lawyer to represent it. The hearing was eventually held on March 10, 1992. Based on evidence presented at that hearing, we find that GSA ignored only one procedural requirement in terminating the contract, and that this error was not prejudicial to Darwin. We therefore deny the appeal. Findings of Fact The facts underlying the matter in dispute are set out fully in our opinion on cross-motions for summary relief, 91-1 BCA at 117,481-84. We incorporate the "Background" section of that opinion into this one and summarize it here for the benefit of the reader. The contract in question was for the supply and installation of "aluminum window units [which] are single hung, one of a kind, custom units matching profiles of existing wood windows exactly." The contract made clear that special engineering and tooling would be necessary to produce these windows. Contract performance took far longer than the specified amount of time; by the mandated completion date of August 14, 1987, appellant had not even provided a sample of the 250-odd windows to be installed. The agency assessed liquidated damages of one hundred dollars per day for delays in the work. Performance was marked by a succession of show cause and cure notices from the agency, followed by responses from the contractor which proposed specific rescheduling of deadlines. On each occasion, after considering the response, GSA decided not to terminate the contract for default. On or about April 28, 1989, Nathaniel Fountain, the president of Hi-Tech Windows of Buffalo, New York (Darwin's window fabrication subcontractor) arrived at the construction site with the remaining windows required to be installed. Mr. Fountain wanted to be paid $5,000 for these windows. Contractor personnel were not present; Lester Robinson, appellant's president, says that the subcontractor had not told them in advance that the delivery would be made on that date. Mr. Fountain did not unload the windows; instead, he returned with them to his plant in New York State. When Mr. Robinson learned what had happened, he called Mr. Fountain to discuss delivery and payment. Mr. Fountain then increased Hi-Tech's price to an amount that Mr. Robinson believed to be unjustifiably high. On May 25, 1989, the contracting officer directed Darwin to show cause within ten days as to why, "[i]n view of your lack of progress in completion of the project," the contract should not be terminated for default. The precipitating event for this action was the subcontractor's refusal to deliver the remaining windows. The letter noted that the agency, by letter dated April 5, had directed appellant "to diligently pursue the remainder of the contract." The letter also noted that the subcontractor had brought the remaining windows to the site on April 28, but that "as of this date, none of these windows have been installed." The contracting officer told Darwin: Your response should include a written explanation of the reasons for the lack of progress and a schedule of work that will demonstrate your ability to complete the contract as required. Your failure to present such a[n] explanation may be taken as an admission that no valid explanation exists. By letter dated June 5, 1989, Darwin informed the contracting officer that it had received the May 25 letter on May 30. Darwin said, "We are presently in negotiation with the window manufacturer regarding the delivery of the remaining 31 windows and should have same resolved shortly." Appellant requested "an additional week to 10 days prior to responding." It concluded, "We shall respond by 15 June." On June 30, 1989, the contracting officer signed a statement of findings and determinations, for inclusion in the contract file. He found that none of the remaining windows had been installed, and that Darwin and its window manufacturing subcontractor "are at impasse over finances. Until the impasse is overcome the contract will not be completed." He then made this determination: On the basis of the foregoing Findings and after consideration of the factors set forth in FAR [Federal Acquisition Regulation] 49.402-3, I hereby determine that . . . [a] notice of termination for default be issued to Darwin Construction Company because of their failure to perform the Contractually specified work. By letter dated July 12, 1989, the contracting officer terminated the contract for default. He stated, with regard to the show cause order, "Your response to my direction was a request for additional time. However, this does not demonstrate diligent pursuit in performance of the contract as per my direction." We now make the following additional findings of fact, based on testimony given at our hearing. Although GSA issued show cause orders to Darwin prior to May 25, 1989, it did not terminate the contract prior to that date because Darwin's responses to the orders gave specific cause for concluding that performance would move forward and the project would be completed. Transcript at 147-49, 160. The final lot of windows consisted of thirty-one units. Transcript at 53. Darwin believed that it had made an agreement with Hi-Tech under which Darwin would pay $5,000 when this lot was delivered. Id. at 54. When Mr. Robinson learned of the misadventure concerning delivery of the windows, he called Mr. Fountain. The latter said that he would not return with the windows until GSA had agreed to pay a monetary claim for Hi-Tech's increased costs. Transcript at 55-56, 78-82. (Darwin had submitted such a claim, and the contracting officer had rejected it. Id. at 79-81.) Mr. Robinson informed two GSA construction officials of the predicament. Id. at 57. After Darwin received the last show cause order, Mr. Robinson told the GSA construction officials that he was continuing to attempt to get the windows from Hi-Tech. Transcript at 59-60. Robinson did speak with Fountain, "trying to get [him] in a comfort level" such that he would agree to delivery. Id. Robinson went so far as to hire a private detective to locate the windows. Id. at 61. If the windows had been found, he testified, "we would have gone and taken [them] ourselves." Id. at 67. Fountain's response to the calls, however, was not to supply the windows, but rather, to quote a high price for delivery -- first $160,000, and then $80,000. Id. at 62-63. Mr. Robinson testified that after his June 5 response to the show cause order, asking for more time to respond, he wanted to respond further, but "was kind of not able to give [the contracting officer] a definitive answer." Transcript at 63. The reason, Robinson said, was that he and Fountain "never could get an agreement." Id. at 64. Mr. Fountain spoke on many occasions with the two GSA construction officials between May 25, when the show cause order was issued, and July 12, when the contract was terminated. Transcript at 114, 116-17, 139, 141. He told them that he would not deliver the windows until Mr. Robinson paid him a sum that he considered reasonable; Darwin and Hi-Tech were at an impasse, he said. Id. at 116, 129. One of the construction officials also spoke with Mr. Robinson, who said that he was trying to resolve his differences with Mr. Fountain. Id. at 129-30, 139-40. The officials eventually concluded that "there was just a failure, a breakdown in communication between the supplier and the general contractor on the project." Id. at 126. One of the officials testified, "[I]t was a total impasse there. As far as I was concerned, we wouldn't have been able to complete the project." Id. at 131. The officials communicated their conclusion to the contracting officer, who agreed with it when he terminated the contract. Id. at 164, 172. After the final show cause order was issued but before the termination was made, one of the construction officials (who was designated the project officer) investigated the possibility of completing the job through alternative sources. Darwin's surety did not respond to his inquiries, but he considered this unexceptional because he had generally found that a bonding company does not decide whether to complete a job until a default termination has actually been made. Transcript at 126-27, 142. A number of window manufacturers who were listed in a trade catalog did express interest in completing the work. Id. at 126- 27.1 The project officer and his supervisor concluded that if the contract were terminated, GSA could attempt to secure the windows in any one of three different ways: by having the surety take over the contract; by dealing directly with Hi-Tech; or by entering into an arrangement with any of the interested firms. Id. at 151.2 The contracting officer took this information and conclusion into consideration before terminating the contract. Id. at 161-62, 174-75. The contracting officer did not realize, when he issued the show cause order, that he was required to send a copy of the order to the Small Business Administration (SBA) and to discuss the matter with a GSA small business specialist. Consequently, he took neither action. Transcript at 163. The deputy director of GSA's Office of Small and Disadvantaged Business Utilization testified that her office is the GSA advocate for small business and that she works very closely with the SBA. She testified further that her office was never contacted regarding this termination. She stated that based on her extensive experience, if the contracting officer had sent a copy of the show cause order to her office and the SBA, the letter would have been considered by both the office and that agency to be for informational purposes only; it would simply have been filed. She stated her office and the SBA take affirmative action upon receipt of a show cause order only in one of two circumstances: either the contractor specifically requests assistance or the possible termination involves a firm that is a participant in the program authorized by section 8(a) of the Small Business Act, 15 U.S.C. 637(a). Because of the large volume of terminations for default involving small businesses, neither the office nor the ____________________ 1 The project officer also testified that the cost of engineering dies for extruding the aluminum to fabricate the windows would have been in excess of $100,000. Transcript at 133, 142. He did not know, at the time of the termination, who owned these dies; at the time of the hearing, he believed that the extruder (a firm other than Hi-Tech) owns them and that the Government has the right to use them. Id. at 143. ___ 2 Ultimately, the windows were purchased from Hi-Tech for about $40,000. At the time of the hearing, GSA was reprocuring services to install the windows. Transcript at 157-58. agency has sufficient resources to assist every firm that is threatened with such an action. Transcript at 188-97. Darwin does not function as a supplier of materials to the Government, except insofar as it supplies some of the products that it incorporates into construction work. Transcript at 98- 99, 112, 162. At the time that the contract was terminated, no problems existed on the job with regard to guaranteed loans, progress payments, or advance payments. Transcript at 73-77, 110-12, 130, 153, 162-63. Discussion In our interlocutory opinion, we found that the parties had not presented evidence on the basis of which we could determine whether, in the process of deciding to terminate Darwin's contract, the contracting officer observed four requirements contained in 48 CFR 49.402-3 (1989), "Procedure for default." 91-1 BCA at 117,486. A violation of any or all of these requirements would be grounds for overturning the termination, but only if the violation was prejudicial to Darwin. Id. at 117,487 (citing Darwin Construction Co. v. United States, 811 F.2d 593, 598-99 (Fed. Cir. 1987)). The Armed Services Board of Contract Appeals has understood Darwin v. United States in the same light: "Mere failure to consider one or more of these factors is not an automatic admission ticket to a termination for convenience. It is but one factor to consider in looking at the totality of the circumstances surrounding the contracting officer's actions." Lafayette Coal Co., ASBCA 32174, 89-3 BCA 21,963, at 110,482; see also Ruffin's A-1 Contracting, Inc., ASBCA 38343, 90-3 BCA 23,243, at 116,627. Of the four requirements noted by the Board, Darwin contends in its posthearing brief that two of them were ignored and that the consequence was prejudicial to appellant in that compliance might have led a prudent contracting officer not to terminate the contract for default.3 The first provision is subparagraph (e)(4), which states, "If the contractor is a small business firm, the contracting officer shall immediately provide a copy of any cure notice or show cause notice to the contracting office's small business specialist and the Small Business Administration Regional Office nearest the contractor. The contracting officer should, whenever practicable, consult with the small business specialist before proceeding with a default termination." The ____________________ 3 The other two are clearly of no consequence. The termination had no effect on Darwin's capability to perform supply contracts, because Darwin acts solely as a construction contractor, or on Darwin's ability to liquidate guaranteed loans, progress payments, or advance payments, because none were at issue. See FAR 49.402-3(f)(5), (6). ___ second provision is subparagraph (f)(3), which requires that the contracting officer consider the availability of the supplies or services from other sources in determining whether to terminate the contract for default. Although we cannot find in the record any evidence that Darwin is a small business, both parties assume this to be true. Darwin maintains that if the SBA had told the firm that it had received a copy of GSA's show cause order, Darwin's president "would have responded immediately to SBA and also to [the contracting officer's] office." Transcript at 67-68. Presumably, following this line of argument, the SBA would then have worked some magic which would have gotten the subcontractor to supply the windows, and Darwin could have given assurances that installation would proceed promptly. The contracting officer admits that he did not send a copy of the show cause order to GSA's small business office or to the SBA. As to what might have happened if he had followed the regulatory requirement, only GSA presented relevant evidence. According to the uncontroverted testimony of the deputy director of GSA's Office of Small and Disadvantaged Business Utilization, nothing would have happened unless Darwin had actively requested help. Because her office and the SBA do not have sufficient resources to assist every firm that is threatened with a default termination, both the office and the SBA have a policy of taking the initiative to help only those small businesses that are participants in the program authorized by section 8(a) of the Small Business Act. There is no indication in the record that Darwin is such a firm. Although Darwin maintains that such a policy is "simply inconceivable," Appellant's Posthearing Brief at 19, appellant has presented no evidence to the effect that it does not exist. Darwin's president, Lester Robinson, maintained at hearing that if the SBA had told him that it had received a copy of the show cause order, he "would have responded immediately to SBA and also to [the contracting officer's] office." Transcript at 67- 68. It strikes us as quite improbable that a contractor would provide no real response to a show cause order unless it had learned that a separate federal agency had a copy of the order. As shown by the testimony of the GSA small business official, however, even if we accept Mr. Robinson's statement as true, it would be to no effect because the SBA does not have a regular practice of contacting contractors who are in danger of default. As Darwin says, the regulation mandating transmission to the SBA of a copy of a show cause order threatening default is clearly for the benefit of the contractor. Nevertheless, as GSA notes, the law entitles the contractor to no more than receipt of the copy by the SBA; it does not impose an affirmative duty on the SBA to do anything with the copy. The other requirement imposed by regulation on the contracting officer, regarding which we had no evidence when we decided the cross-motions for summary relief, is that the availability of the supplies or services from other sources be considered in determining whether to terminate the contract. Hearing testimony established that a GSA construction official, the project officer, did indeed investigate alternative sources of supply and installation while the contracting officer was contemplating a default termination. He found that a number of firms were interested in completing the work. The contracting officer considered the information gained by the project officer before terminating the contract. Darwin maintains that this information was faulty in that the true cost of contract completion by anyone other than Darwin was absurdly high, and that the windows were therefore not truly available from anyone else. This assertion is based on the theory that the Government would have to pay any other firm more than $100,000 to engineer dies for extruding aluminum for the window frames. Based on what we know, the idea that the Government would have to pay for re-engineering of the dies is highly speculative. It assumes that neither of GSA's two preferred alternate sources -- Darwin's surety and Hi-Tech -- would agree to complete the job, and that if new windows had to be fabricated, whoever owned the original dies would not make them available for a reasonable price. Darwin did not provide any reason to believe that any of these assumptions is correct -- and indeed, actions taken to reprocure fulfillment of Darwin's responsibilities have shown that appellant's theory is not true. We find that the information developed by the project officer reasonably showed that alternative sources of supply existed, and that the contracting officer reasonably relied on this information in deciding to terminate the contract. The evidence regarding this matter confirms that the termination was a reasonable exercise of discretion, and was not arbitrary and capricious. Darwin has thus failed to demonstrate that violation of the regulatory requirements had any impact on the termination of the contract. Only one violation existed -- GSA's small business office and the SBA were not given copies of the show cause order -- and that had no effect on events. The appeal is therefore denied, and the termination is allowed to stand. In its posthearing brief, Darwin has raised four other arguments which go to the validity of the termination. Although these contentions are not properly before us -- all other aspects of the contracting officer's determination were considered in our interlocutory opinion -- we address them here to put them to rest. First, Darwin maintains that the windows that GSA required were virtually identical in profile to commercially available windows; that supply and installation of custom-built windows was extremely expensive for the contractor; and that termination because Darwin was unable to provide the precise windows required was unreasonable. This argument ignores the contract specifications, which are for "one of a kind, custom units matching profiles of existing wood windows exactly." The contract made clear that special engineering and tooling would be necessary to produce these windows. Whether the agency was wise to insist on precise duplication of the units being replaced is not at issue; the fact is that it did so, and that Darwin entered into the contract knowing that it would have to meet the specifications. GSA was entitled to the benefit of its bargain; the relationship between custom and stock windows has nothing to do with the default termination. Second, Darwin urges that we find unreasonable the contracting officer's determination that appellant and its subcontractor were at an impasse, such that appellant was unlikely ever to provide the remaining windows and thus complete the contract. This contention is based on the theory that because Mr. Robinson orally informed a GSA construction official that he was continuing to try to reach an agreement with the subcontractor, an impasse did not exist. This argument was raised and rejected in the context of the cross-motions for summary relief. As we explained in our interlocutory opinion, there is a considerable difference between a desire to perform and an ability to do so; a contractor's failure to provide items for a cause which is within the control of a subcontractor is not excusable. The GSA officials, including the contracting officer, were reasonable in concluding, on the basis of everything they knew about the dispute between Darwin and its subcontractor, that Darwin was highly unlikely ever to complete the work. Third, Darwin suggests that this case is very much like Delfour, Inc., VABCA 2049, et al., 89-1 BCA 21,394 (1988), in which a board of contract appeals overturned a termination for default. In that case, the board found that the termination was improper principally because at the time it was made, the design of work to be performed under the contract was still under negotiation between the Government and the contractor. Id. at 107,856-58. That situation is markedly different from the one in the instant case; the nature of the work to be performed by Darwin under its contract is not in question and whatever negotiations were taking place did not involve the Government. Fourth, Darwin insists, based on the testimony of Mr. Robinson, that the contractor was never put on notice that the contract might be terminated for default. Mr. Robinson alleged at hearing that he never thought that Darwin had been given an ultimatum. Transcript at 68-69. His understanding of the May 25 show cause order was that the contracting officer only "wanted us . . . to bring him current as to where we were at . . . that particular moment." Id. at 89. He said that if any GSA official had informed him, after June 5, that Darwin was in jeopardy of having the contract terminated for default, he "would have immediately got a hold of [the contracting officer] and found out what the problems were . . . , and . . . reassure[d] him that we were doing everything maximum to get this job done." Id. at 66. If he had been given a specific deadline for installing the windows, he said that he "would have met that deadline, regardless of what it took, including paying the price to get the windows done." Id.; see also id. at 96. This last argument is simply not credible. The show cause order is clear in warning that termination for default is being strongly considered and that a failure to present "a written explanation of the reasons for the lack of progress and a schedule of work that will demonstrate your ability to complete the contract as required . . . may be taken as an admission that no valid explanation exists." This order, on its face, was sufficient to warn any contractor about what was transpiring. The problem at hand should have been especially obvious to Darwin, for Mr. Robinson is highly experienced in contracting with the Government, Transcript at 113, 127, 151-52, 165, and while he has headed the firm, it has gone through the default termination process on at least two other occasions, id. at 91- 95.4 That GSA had previously threatened termination, but permitted work to continue, does not preclude a termination in the final instance. The earlier decisions not to terminate were made after receipt of specific indications that progress would be made; they could not have convinced a reasonably prudent contractor that a request for more time to reach an unlikely agreement with a subcontractor would also forestall default. Decision For the reasons set out in this opinion, the appeal is DENIED. _________________________ STEPHEN M. DANIELS Board Judge ____________________ 4 In these instances, the terminations were later converted into terminations for the convenience of the Government. Transcript at 91. We concur: _________________________ _________________________ VINCENT A. LaBELLA EDWIN B. NEILL Board Judge Board Judge