__________________________________________________ DENIED: September 15, 1993 ___________________________________________________ GSBCA 12037 CENTENNIAL LEASING, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Sam Zalman Gdanski of Montebello, NY, counsel for Appellant. Michael D. Tully, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges LaBELLA, BORWICK, and HYATT. BORWICK, Board Judge. Background This appeal involves an indefinite quantity requirements type contract for the lease of automobiles and light trucks. On December 6, 1991, the General Services Administration (GSA), respondent, awarded contract line items 5 and 7 (five passenger sedans and twelve passenger vans) of contract No. GS-00F-9034A to Centennial Leasing Corporation (Centennial). On December 9, 1991, the contract was modified to include contract line items 3, 13, and 16 (mid-size sedan, compact pickup, and delivery van, respectively). On August 14, 1992, the contracting officer required appellant to show cause as to why it should not be terminated for default for failure to deliver vehicles leased by numerous delivery orders. Appellant's excuse for failure to perform was its inability to secure financing to purchase the vehicles. The contracting officer terminated the contract for default on September 1, 1992. Centennial appealed. Appellant argues that the contracting officer should not have terminated the contract for default; that any default was excused because of failure of performance of its creditors or due to an act of God. It also maintains that Centennial had the financing in place to perform the contract within two weeks of default. For the reasons stated below, we deny the appeal. Findings of Fact Precontractual Matters In response to the solicitation for offers, Centennial submitted an offer with an estimated dollar value of $2,175,780. The contracting officer of respondent's Automotive Commodity Center had received an unsatisfactory pre-award financial report on Centennial from respondent's credit and finance branch. The contracting officer thus determined that Centennial was not responsible and, on October 30, 1991, sought a certificate of competency from the Small Business Administration (SBA). Appeal File, Exhibit 9. On December 6, 1991, after considering the matter, SBA granted a certificate of competency for $530,880 for items five and seven only. Appeal File, Exhibit 11. On December 6, respondent awarded a contract for those items to Centennial. Transcript at 9. The Automotive Commodity Center desired to award additional items. Appeal File, Exhibit 12; Transcript at 10. On December 3, Centennial wrote the contracting officer that it had secured from Sparta Auto Leasing $3,800,000 in addition to its existing credit line of $2,176,000. Appeal File, Exhibit 16. Centennial stated that Sparta would "act only as a bank" and that Centennial would utilize the Sparta line of credit when it had exhausted the existing credit line of $2,176,000 from National Westminster Bank of New Jersey. Id.[foot #] 1 Based on that letter, the Automotive Commodity Center awarded three additional line items, i.e. 3, 13, and 16 -- mid-size sedan, compact pickup, and delivery van, respectively -- to Centennial without requesting a certificate of competency from SBA. Transcript at 22-23, 31. The estimated value of these line items was $855,360. Appeal File, Exhibit 5. Contract Terms The contract provided that the lease period for the vehicles was for a period of twelve months from the date of delivery of each vehicle, with an option to extend each lease separately for two additional twelve month periods. Appeal File, Exhibit 5 at 5. The contract required the delivery of the vehicles to be made "at the point(s) specified within 90 days after receipt of order." Appeal File, Exhibit 3 at 15. ----------- FOOTNOTE BEGINS --------- [foot #] 1 The financing arrangement consisted of Sparta providing a line of credit by borrowing $3.8 million from a financial institution and turning the funds over to appellant as needed. Transcript at 68-69. In return for the line of credit, Sparta was to receive 50% of the profits from the lease of the vehicles to the Government. Id. at 84. ___ ----------- FOOTNOTE ENDS ----------- The Default clause of the contract, as incorporated by reference through GSA Form 3507, states: (a)(1) The government may . . . by written notice of default to the Contractor, terminate this contract . . . if the contractor fails to-- (i) Deliver the supplies or to perform the service within the time specified in this contract or any extension[.] . . . . (g) If, after termination, it is determined that the Contractor was not in default, or that 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. Appeal File, Exhibit 3 at 4; Supplemental Appeal File, GSA Form 3507 at 22.[foot #] 2 Loss of Supplemental Financing On January 21, 1992, Sparta's chief operating officer died. Appeal File, Exhibit 16. Following that death, appellant's president testified that he received initial assurances that, "there would be no problem in . . . providing the line of credit." Transcript at 48. He testified that as a result of the death, the financial institutions from which Sparta was to borrow the $3.8 million eventually decided to withdraw from the arrangement. Id. Appellant's president testified that in April of 1992, it became apparent that Sparta would not provide the supplemental financing; consequently, appellant's president sought other sources of financing. As of May of 1992, appellant had delivered and paid for $2,200,000 worth of cars, trucks, and vans, and it had outstanding orders for vehicles worth $1,800,000 more. Transcript at 50. Appellant's president attempted to secure financing from "every major financial institution" in San Francisco, Chicago, and Atlanta but was unable to secure financing. Id. at 54-55. The General Motors Acceptance Corporation was willing to provide financing, but not on terms that would provide appellant with a profit under the lease. Id. at 56-58. ----------- FOOTNOTE BEGINS --------- [foot #] 2 GSA Form 3507 incorporates the standard Termination for Default clause found at FAR 52.249-8. Supplemental Appeal File, Second Exhibit. ----------- FOOTNOTE ENDS ----------- Performance Resulting in Default As early as March 24, 1992, complaints were filed with respondent concerning appellant's failure to perform under the contract. Appeal File, Exhibit 18. A total of 37 purchase orders for vehicles were placed by customer agencies and departments that appellant failed to timely fulfill. Appeal File, Exhibits 19-54; Transcript at 63. Appellant admitted that, by its own calculations, Centennial failed to deliver approximately 100 vehicles under the contract. Transcript at 80- 81. In June of 1992, appellant contacted the contracting officer and explained that it was having some financial problems and expected to have "cleared them up within a week or so." Transcript at 15. However, the complaints concerning appellant's performance continued through the summer of 1992. See generally Appeal File, Exhibit 18. Termination for Default On August 14, 1992, the contracting officer sent appellant a "show cause notice," advising appellant that the Government was considering terminating the contract for default. Appeal File, Exhibit 15. The notice gave appellant the opportunity to provide a written account justifying deficiencies in contract performance. Id. On August 24, 1992, appellant, responding to the show cause letter, stated that "Sparta . . . has not been able to honor its funding commitment to Centennial." Appeal File, Exhibit 16. In addition, appellant stated that "I believe that we are close to having funding in place. However, I cannot guarantee that this additional funding will be secured by Centennial. . . ." Id. On August 26, 1992, appellant sent supplemental information to the contracting officer that stated, "the line of credit with Sparta could not be honored by the corporation." Id. On September 1, 1992, the contracting officer terminated the contract for default, stating that: the explanation presented in your letter is not considered to be an excusable delay as defined in the Federal Acquisition Regulation. . . . Your right, therefore, to proceed with performance of the contract is hereby terminated for default pursuant to FAR 52.249-8(a)(1)(i), [for] failure to deliver the vehicles in the time specified. Appeal File, Exhibit 17. On September 15, 1992, appellant's president informed respondent that appellant had secured credit from Tilden Commercial Alliance of New Jersey (Tilden) in the amount of $3,000,000, and sought rescission of the termination. Appellant supplied no proof of a firm financial commitment from Tilden to appellant. Complaint, Exhibit dated September 16, 1992, Facsimile Attachment. The contracting officer decided that because of chronic delivery problems and the non-delivery of vehicles it was not in the best interests of the Government to rescind the termination for default. Transcript at 18. Appellant filed its timely notice of appeal on September 18, 1992. Discussion The burden of proving the grounds for a termination for default is upon the Government. M&T Construction Co., ASBCA 42750, 93-1 BCA 25,223, at 125,636. Appellant admitted that it failed to deliver approximately 100 vehicles specified in a total of thirty-seven purchase orders issued under the contract. Appellant admitted that its failure to acquire the necessary financing to fulfill the requirements of the contract resulted in its inability to fulfill the delivery orders. Respondent has established a basis for the default termination. Sparta's failure to provide supplemental financing to purchase the vehicles required to fill the delivery orders does not excuse Centennial's default. As we have previously held: The law is generally, that it is the responsibility of contractors to have the cash to finance their contract performance. . . . This is as true of borrowed money as of cash in the bank and is true even when the lender fails to advance the funds through no fault of the contractor. Yucca, a Joint Venture, GSBCA 6768, et al., 85-3 BCA 18,511, at 92,971 (citations omitted). Here, appellant had a stable line of credit sufficient to finance the initial two items awarded under the contract, but gambled it could obtain enough funds to purchase the remaining vehicles it was obligated to lease to the Government. When the gamble failed, appellant was financially overextended and found itself unable to perform. Appellant claims its default is excused by an "act of God," i.e. the death of Sparta's chief operating officer. The illness or death of key contractor or subcontractor personnel is not a valid excuse justifying nonperformance, nor is it considered an act of God, as the contractor assumes the responsibility of employing and utilizing a competent work force. Yankee Telecommunications Laboratory, Inc., ASBCA 25,240 et al., 85-1 17,786, at 88,873. Appellant is also responsible for securing financing, regardless of whether earlier credit has been withdrawn. Yucca; Katzdorn Construction & Co., AGBCA 87-265-3, 87-2 BCA 19,929, at 100,838-39. The unfortunate passing of Sparta's chief operating officer was not the cause of appellant's default; appellant's inability to obtain secure financing caused the default. Finally, appellant represented -- without proof -- that yet another source of financing had been secured. In light of the past unsuccessful history of the financing of this contract, the contracting officer did not act unreasonably in refusing to rescind the default termination based upon that representation. Decision The appeal is DENIED. _________________________ ANTHONY S. BORWICK Board Judge We concur: _________________________ VINCENT A. LaBELLA Board Judge _________________________ CATHERINE B. HYATT Board Judge