___________________________________________________ MOTION FOR SUMMARY RELIEF DENIED: May 2, 1996 ___________________________________________________ GSBCA 12503 PRODUCTS ENGINEERING CORP., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Jack Rephan of Hofheimer, Nusbaum, McPhaul & Samuels, Norfolk, VA, counsel for Appellant. Wendy Nevett Bazil and Michael D. Tully, Office of the General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges PARKER, HYATT, and WILLIAMS. HYATT, Board Judge. Appellant, Products Engineering Corp. (PEC), has appealed the termination for default of its contract for the supply of combination squares (GSBCA 12503) and the contracting officer's subsequent decision assessing excess costs of reprocurement (GSBCA 13051). Relying upon the Board's decision in Unlimited Supply Co. v. General Services Administration, GSBCA 12371, 94-3 BCA 27,170, appellant has filed a motion for summary relief as to GSBCA 12503, asserting that the pertinent facts in this appeal are undisputed and that it is entitled to prevail as a matter of law. Respondent opposes the motion on the ground that there are material facts in dispute. We agree with respondent and deny the motion. Background Findings 1. On July 31, 1992, PEC was awarded contract number GS- 00F-50322 to manufacture and supply Type VI combination squares, under National Stock Numbers (NSNs) 5210-00-540-3513 and 5210-00- 078-8949, to the General Services Administration (GSA). The contract required that the combination squares comply with Federal Specification GGG-S-656D. The contract also provided that orders for the combination squares were subject to the sampling and testing procedures of MIL-STD-105. Appeal File, Exhibit 1. 2. Under the contract, PEC was required to maintain an inspection system acceptable to the Government covering the supplies to be provided. Supplies tendered to the Government for acceptance must have been inspected under that system and found to be in conformance with contract requirements. The contract further provided that although the Government would normally rely upon the contractor's certification as to the quality of supplies shipped, it reserved the right under Federal Acquisition Regulation (FAR) clause 52.246-2 (Inspection of Supplies -- Fixed Price) to inspect and test all supplies provided under the contract, before acceptance. The contract inspection clauses further entitled Government representatives to periodically select samples of supplies produced under the contract for Government verification inspection and testing. Appeal File, Exhibit 1 at 12-13. 3. The applicable specification for testing of products supplied under the contract stated as follows: All sample type VI squares with protractor heads shall be tested for angular intervals. This shall be determined by means of either a circular measuring machine, sine bar, precision angle blocks, or other methods of equivalent accuracy. Appeal File, Exhibit 5. 4. On September 16, 1992, GSA inspected the first order filled under this contract. Samples were selected from the lot shipped and sent to the GSA National Lab in San Francisco for evaluation. On October 21, 1992, a quality deficiency notice was issued to PEC with respect to an order of combination squares that had been tested by GSA's laboratory. The order was rejected on the ground that certain of the squares tested failed to conform to the length of blade requirement. Appeal File, Exhibits 3, 4. 5. In January 1993, GSA tested samples from three additional orders, again leading to rejections of all three orders for failure to conform to contract specifications. Thereafter, an agreement between the parties was reached under which PEC would undertake corrective measures and re-offer the rejected shipments. The re-offered lots were also rejected for failure to meet required tolerances, however. After the second rejections, GSA terminated the contract for default. Appeal File, Exhibit 12. Prior Sales of Type VI Combination Sales The following are the material facts that PEC contends are undisputed: 6. PEC has been selling Type VI combination squares to GSA since the late 1960's. Since 1984, and exclusive of the units shipped under the subject contract, PEC has sold GSA more than 43,000 of the same combination squares as those purchased under contract number GS-00F-50322. These sales were subject to the same specification and sampling and testing procedures as those imposed under contract number GS-00F-50322. Affidavit of Paul Wien (undated) (Wien Affidavit) 4. 7. According to PEC's Vice President and General Manager, the only rejection of a Type VI combination square supplied by PEC involved a single item shipped to a military base in the early 1980's. At that time, the specification called for a ninety degree center head angle without any tolerance. GSA later agreed to a modification allowing a tolerance of plus or minus fifteen minutes. Wien Affidavit 8. 8. Since at least 1984, PEC has used the same type of cylinder gauge and quality assurance system to ensure that the combination squares shipped to GSA met the tolerance requirements of the specifications. Throughout this period PEC's quality assurance systems and testing methods have been observed and approved by GSA. During that period PEC shipped and GSA accepted more than 43,000 squares with the same blade and center head that were the subject of rejections under contract number GS-00F- 50322. PEC asserts that until GSA began testing with a coordinate measuring machine (CMM) and a Smartscope under contract number GS-00F-50322, there were no rejections of combination squares for failure to meet tolerance requirements. Wien Affidavit 9. The following are the disputed material facts asserted by GSA: 9. In rebuttal to PEC's contentions, GSA has submitted the declaration of its Supervisory Chemist employed at the GSA Laboratory in San Francisco. Declaration of Chit Kwan (May 25, 1995) (Kwan Declaration). In 1986, Mr. Kwan's duties included testing a variety of products for compliance with contract specifications. Among the products so tested were the Type VI combination squares falling under NSN 5210-00-540-3513 and NSN 5210-00-078-8949. These items were tested by GSA as a result of complaints received from agency customers using the combination squares. Mr. Kwan's declaration addresses two instances in which he found failures in PEC's Type VI combination squares using a coordinate measuring machine.[foot #] 1 Kwan Declaration 1-5. 10. Specifically, with respect to tests conducted on December 31, 1986, GSA found, using a CMM as well as other tools, that PEC's Type VI combination square failed various tolerances required by the contract. Mr. Kwan states that Mr. Wien was aware of the 1986 failure and the use of the CMM by GSA because he visited the GSA laboratory in 1987 and expressed concern with this methodology. Kwan Declaration 6, 8-9. Discussion PEC has challenged the default termination of its contract, arguing that the combination squares rejected by GSA in fact met the specification tolerances. At the same time, PEC asserts that even if the tolerances were not met, the undisputed material facts pertinent to the establishment of a prior course of dealing barring the termination for default of its contract for failure to conform to the specifications entitle it to summary relief on this issue. PEC thus contends that the default termination must be overturned and converted to one for the convenience of the Government. Summary relief, or summary judgment, is appropriate when there exist no genuine issues of material fact, and the moving party is entitled to relief as a matter of law. It is the moving party's burden to establish the absence of any genuine issue of material fact. The tribunal must view all the evidence and draw all inferences in a light most favorable to the party opposing summary judgment, resolving all significant doubt in favor of that party. Armco, Inc. v. Cyclops Corp., 791 F.2d 147, 149 (Fed. Cir. 1986) (citations omitted); accord United States v. Diebold, Inc., 369 U.S. 654, 655 (1962); Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1390 (Fed. Cir. 1987); Mike Creech v. General Services Administration, GSBCA 11726, 93-3 24,156, at 129,067. Specifically, PEC contends that GSA was barred from terminating for default contract number GS-00F-50322 for failure to meet specifications because of an established course of dealing under which GSA had, since 1984, under previous contracts ----------- FOOTNOTE BEGINS --------- [foot #] 1 A coordinate measuring machine (CMM) was initially acquired by GSA in 1986. Mr. Kwan was trained to operate and use this equipment by the manufacturer's field engineer. Mr. Kwan attests that a CMM is a "popular and widely- accepted industry means of testing dimensional tolerances of a machined object; its accuracy is as good as other means of dimensional measurements." He further states that the CMM is "able to perform the necessary testing measurements for these types of combination squares in order to determine compliance with the applicable specification." Kwan Declaration 7. ----------- FOOTNOTE ENDS ----------- repeatedly accepted the same equipment, subject to identical specifications, based on the same quality control procedures implemented by PEC without subjecting the equipment to testing with a CMM. This long history led PEC to believe that combination squares which were within tolerance when tested pursuant to PEC's own quality assurance system would be acceptable to GSA. PEC based its bid prices on this belief. Evidence of a prior course of dealing may establish the intent of the parties with respect to the proper interpretation of contract language. It may also establish that a contract requirement has effectively been waived: "A contract requirement for the benefit of a party becomes dead if that party knowingly fails to exact its performance, over such an extended period, that the other side reasonably believes the requirement to be dead." Gresham & Co. v. United States, 470 F.2d 542, 554 (Ct. Cl. 1972); accord General Security Services Corp. v. General Services Administration, GSBCA 11381, 92-2 BCA 24,897, at 124,169-70. PEC relies principally upon the Board's decision in Unlimited Supply Co. v. General Services Administration, GSBCA 12371, 94-3 BCA 27,170, to support its claim that it is entitled to judgment as a matter of law.[foot #] 2 In Unlimited Supply, the Government terminated for default a contract for the supply of stainless steel mixing bowls on the ground that the bowls did not meet the specification for capacity. The Board overturned the default termination principally because of the existence of conflicting evidence in the record as to whether the bowls actually met the capacity requirement; the conflict was resolved against the party with the burden of proof. Additionally, however, the Board observed that a prior course of dealing had been shown under which the Government had under nineteen prior purchase orders subject to the same provisions as the one that had been terminated, accepted the same bowls, made with the same molds. The record contained no evidence that the Government had ever advised Unlimited Supply of its previous discovery that the bowls did not conform to specifications, although apparently some testing performed after acceptance on earlier contracts had alerted the Government to this fact. Because appellant relied on the prior unqualified acceptances in pricing the terminated orders, the Government would not be permitted, without notice, to exact strict conformance with the specifications. Id. at 135,391, 135,393-94. PEC's contract was terminated because GSA, after testing various lots, as it was entitled to do under the contract, determined that the combination squares did not meet the ----------- FOOTNOTE BEGINS --------- [foot #] 2 The decision in that case was issued on the basis of a fully-developed record, not on a motion for summary relief. ----------- FOOTNOTE ENDS ----------- specifications. Although PEC has submitted the affidavit of its vice president, stating that the same product was accepted by GSA on numerous prior occasions under the same contractual terms and conditions, at this juncture it would be premature to conclude that GSA was barred from terminating the contract for default by a prior course of dealing. PEC's argument is that GSA accepted the same products for many years and did not notify it that the combination squares could be subjected to testing by a CMM. GSA's knowing failure to enforce the tolerance requirements is a prerequisite to the application of the prior course of dealing doctrine to these circumstances. The evidence adduced by GSA raises the possibility that PEC should have been aware of the possibility that its combination squares might be tested by means of a CMM, and also suggests that GSA may not have led PEC to believe that it was willing to waive the tolerance requirements. On this record, there are sufficient material facts yet to be resolved to preclude ruling summarily. Decision Appellant's motion for summary relief is DENIED. ___________________________ CATHERINE B. HYATT Board Judge We concur: ___________________________ ___________________________ ROBERT W. PARKER MARY ELLEN COSTER WILLIAMS Board Judge Board Judge