_____________________________ GRANTED: July 1, 1992 _____________________________ GSBCA 9367 ABM/ANSLEY BUSINESS MATERIALS, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Robert E. Little, Jr. and Terri A. Zall of Porter, Wright, Morris & Arthur, Washington, DC, counsel for Appellant. Seth Binstock, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges LaBELLA, HYATT, and WILLIAMS. HYATT, Board Judge. ABM/Ansley Business Materials (ABM) appeals the decision of the contracting officer requiring it to reimburse the General Services Administration (GSA) for the full contract price of allegedly defective adhesive note pads supplied under an estimated quantities contract. We find that the Government, having accepted the note pads, has failed to meet its burden to prove that it was entitled to revoke that acceptance based either on a warranty or latent defect theory. In addition, the attempted revocation of acceptance was ineffective because the Government retained possession of the rejected note pads. Accordingly, the appeal is granted. Findings of Fact 1. On August 9, 1985, GSA awarded bid items eight through sixteen under contract number GS-02F-40412 to ABM/Ansley Business Materials (ABM) for the supply of adhesive pad writing paper. The contract period was from August 9, 1985 through March 31, 1986. Appeal File, Exhibit 3. 2. The contract required ABM to deliver an estimated quantity of three-by-five, one and one-half-by-two, and three-by- three inch canary-colored, adhesive paper pads to GSA warehouse destinations in Franconia, Virginia; Fort Worth, Texas; and Stockton, California. Appeal File, Exhibit 3. 3. The performance standard contained in the contract's Technical Purchase Description (TPD) provided that "performance shall be equal to 3M No. 655 Post-it Notes with respect to adhesion, ease of removal, and repositionability of the sheet." Appeal File, Exhibit 3. 4. The contract placed on ABM the primary responsibility for inspecting the supplies prior to shipment to ensure compliance with contract specifications. The manufacturer and supplier of the pads for ABM was Barton Nelson, Inc. Barton Nelson also assumed responsibility for inspecting the supplies prior to shipment. Transcript at 122-24. 5. The contract provided for GSA approval of the quality assurance plan proposed by the contractor. In this regard, the contract stated that the: Contractor shall provide and maintain an inspection system acceptable to the Government covering supplies under this contract and shall tender to the Government for acceptance only supplies that have been inspected in accordance with the inspection system and have been found by the Contractor to be in conformance with the contract requirements. Appeal File, Exhibit 3, Federal Acquisition Regulation (FAR) 52.246-2(b), Article 42 of GSA Form 3507. 6. There were some initial problems with Barton Nelson's inspection program, mainly as a result of the lack of written procedures. Once a written plan was developed, however, Barton Nelson was deemed capable of performing inspection functions. Transcript at 13-14, 17-18. 7. The contract's Quality Approved Manufacturer Agreement (QAMA) delineated the contractor's responsibilities with respect to performance of inspections and the obligation to provide a certification on the quality of the goods shipped. It contained the following provision: The Contractor will be responsible for the performance of all testing and inspection required by the contract prior to release of awarded items for shipment . . . . When shipments are released, one of the officials named [as responsible for inspection of each shipment] shall sign a Quality Approved Manufacturer Certificate, certifying that material has been inspected and found to comply with requirements of the contract. Appeal File, Exhibit 3 at 24. 8. The QAMA contained a warranty clause which stated: Notwithstanding any other provision of this contract concerning the conclusiveness of acceptance by the Government, any supplies or production lots shipped under this contract found to be defective in material and workmanship, or otherwise not in conformity with the requirements of the contract within a period of 12 months after acceptance shall at the Government's option be replaced, repaired or otherwise corrected by the contractor at no cost to the Government within 30 calendar days (or such longer period as the Government may authorize in writing) after receipt of notice to replace or correct. Appeal File, Exhibit 3 at 25. 9. The contract entitled the Government to review the contractor's records of inspections and gave it the right to make inspections "at all places and times, including the place of manufacture, and in any event before acceptance." Appeal File, Exhibit 3, FAR 52.246-2(c). At the same time, inspection by the Government did not "relieve the Contractor of responsibility for defects or other failures to meet contract requirements discovered before acceptance." Id., FAR 52.246-2(k) (emphasis added). 10. The contract also stated that: "Acceptance shall be conclusive, except for latent defects, fraud, gross mistakes amounting to fraud, or as otherwise provided in the contract." Appeal File, Exhibit 3, FAR 52.246-2(k). 11. The parties are in agreement that quality assurance personnel at Barton Nelson inspected all the supplies as they left the Barton Nelson plant and certified that the goods complied with the contract requirements. Appellant's Pre-hearing Brief at 5; Respondent's Pre-hearing Brief at 3. 12. Barton Nelson's quality control manager performed the final inspection of the pads in the following manner: she removed the top sheet of the pads and went down four to five sheets on each pad. She then took the pad with her hand, and pulling from left to right, removed the self-stick notes and applied them to a sheet of 20-pound bond paper. She then picked up the self-stick sheets with her finger, pressed them down, applied them again, and repeated this ten times. Next, she applied each of the same sheets that she was using to the bond paper and hung them in a vertical position to test whether the sheets would hold up and not curl off for 48 hours. They did not. She testified that she did not experience any failures. Her testing manual did not require ten repositionings, only three. Transcript at 126-28. 13. In addition, a quality assurance specialist from GSA made regular visits to the Barton Nelson plant and tested selected shipments before they were delivered. Transcript at 14- 15. These tests involved looking at the packaging, packing, and marking of the shipments. The GSA inspector also opened individual packages, counted the sheets, and tested various sheets within the pad for bonding and repositionability. These quality control visits by GSA did not reveal any defects in the pads being shipped. Id. at 15-16. 14. Following delivery of the writing pads to GSA customers, the administrative contracting officer (ACO) began to receive complaints. A typical complaint would be to the effect that the "notes do not attach to paper secure[ly] for very long. Notes will not detach from pad w/o tear[ing]." Appeal File, Exhibit 7. Another complaint was that the "adhesive quality is poor and notes do not attach to paper securely for very long." Id., Exhibit 8. Several others stated that the "product does not serve its intended purpose." Id., Exhibit 20. Numerous complaints were received and investigated. See id., Exhibits 7, 8, 10-14, 16, 20, 21, 23, 30, 31, 34-36, 40, 58, 62, 63, 69, 73, 76, 78, 82, 87, 97, 100-103, 105, 108-113, 119-122, 126, 128-131, 135-138, 158. Notably, a complaint from Region Five recorded dissatisfaction with the quality of the ABM product when compared to the 3M product that had previously been received. The investigator who tested the samples supplied by the complaining office found no difference between the ABM sheet and the 3M sheet. Id., Exhibit 16. 15. In early June of 1986, appellant received its first formal quality complaint demanding replacement of 1,830 dozen pads. Appeal File, Exhibit 24. In telephone conversations with respondent, ABM requested further information and samples of the allegedly nonconforming note pads. Id., Exhibits 26-27. In a letter dated June 24, 1986, ABM formally requested return of defective pads so as to ensure there would be no mix-up with replacement products. Id., Exhibit 29. ABM met with little success in obtaining GSA's cooperation in ensuring return of allegedly defective note pads. The pattern continued, with GSA notifying ABM of complaints, and ABM asking for defective product to be returned for testing and agreeing to replace defective pads. In total, four complaints were handled this way, involving some 3,879 dozen of the more than 1,000,000 dozen pads shipped under the contract. E.g., id., Exhibits 38, 42, 49, 50, 74, 85, 98, 99. 16. Although the contract period was to end as of March 31, 1986, the last shipment was made on July 31, 1986. Appeal File, Exhibit 48. Despite the trickling of complaints, it was never suggested that appellant stop shipping. Transcript at 16-17. GSA put a hold on some deliveries midway in the shipping cycle to conduct tests -- all passed, and the hold was lifted. Appeal File, Exhibit 68. 17. As part of its investigation of the complaints concerning appellant's product, GSA ordered laboratory testing to determine if the complaints were justified. A laboratory test record prepared on April 30, 1986, reported the results of an investigation of a complaint of poor adhesion and poor repositionability of the three-by-five inch writing pad. It was noted that the "submitted samples did not fall off of vertical surface." After twenty-four hours, the samples tested remained on the vertical surfaces; they also remained after forty-eight hours. The samples also passed the laboratory test for adhesive coating, performance, assembly of pad, and workmanship. Appeal File, Exhibit 17. A laboratory test of the three-by-three inch writing pads reported substantially similar results. Id., Exhibit 18. 18. The ACO testified that at first she could not "find any evidence with any tests that we could come up with to duplicate what was happening in the field." Transcript at 51. In August of 1986, she still detected nothing wrong with the samples she received, despite the complaints. Later, she began to see the problems. She noticed that the adhesive was so strong in the sample two-by-two pad she received that "you couldn't write on the top half of it. It bled through." She discovered that the three-by-five inch pads started curling up and falling off immediately. The same problem affected the two-by-two inch pads. She detected that the product quality deteriorated over a period of time. She said she conducted her tests over a period of time with different pads. Id. at 58-59. She had felt the complaints she received were random and not indicative of the whole supply "being bad" until she received the result of the laboratory test represented by Exhibit 80 in the appeal file. Id. at 67. She had a nationwide quality assurance survey performed and discovered pads in all the warehouses that had prompted the same complaints. Id. at 76. When she began using the product herself, at first she found they "worked fine." She did not start to observe problems until after December of 1986, when she noticed that the middle-sized sheets would fall off due to poor adhesion. Id. at 77-78. None of the lots, items, or shipments were rejected prior to acceptance. Id. at 100. 19. As complaints continued to be submitted, other Government entities performed their own testing and evaluation of appellant's products, with varying results. For example, the investigation of a GSA Quality Assurance Branch in San Francisco, California concluded that the note pads fell off or became partially detached after thirty to forty minutes. Appeal File, Exhibit 63. 20. Another report produced by GSA's quality control facility for Region Nine stated that the material complied with the technical description and FQA test, but was determined "not [to] serve its intended purpose." The quality inspection specialist who prepared the report speculated that the adhesive started drying out after the pad was removed from its wrapper, causing reduced usable life. Appeal File, Exhibit 25. 21. A memorandum prepared on March 2, 1987, from the Director of the Quality Assurance Division to the Contract Management Division reported the laboratory test results emerging from a national survey of the ABM pads. In the author's opinion, the available results confirmed that the pads were not equal to 3M for adhesion or repositionability. Appeal File, Exhibits 91, 92, 94, 95, 96, 100, 101, 102, 103. 22. The pads were ultimately tested by a GSA chemist. The laboratory test record for the three sizes of writing pads supplied by appellant noted that the "peel strength," which required the peel of a 1/2 inch strip from "xerox paper," was found to be lower than the 3M product used for comparison and the repositionability of the product was also found lower after five applications and removals. The ABM product was found to "stick noticeably less well." The test results were issued on December 15, 1986. Appeal File, Exhibit 80. The GSA chemist testified that no particular test or testing methodology had been specified; he merely used "common sense," making up the tests as he went along. Transcript at 28-29, 38. His testing procedures involved placing a sample sheet of paper between the two jaws of an instrument called an "instron" to register the pull in pounds per inch. Id. at 23-25. To test repositionability, he laid the pad flat on the table, picked the top sheet off and started at the left-hand corner, pulling the sheet off the pad from left to right and positioning it on a sheet of bond paper; with "normal" pressure, he ran his index finger across the top of the paper on the portion where the adhesive was, then lifted the sheet up again and repositioned it in another position. He performed the same procedure ten times each for both the ABM and the 3M products.[foot #] 1 After two positionings, the ABM product would curl on the corners. He concluded this result represented "poor adhesion." Id. at 26-28. He tested further for repositionability by placing an ABM paper down on a piece of bond paper. Then he and his chief would lightly blow underneath. The sheet would completely fall off. This effect, he concluded, resulted from poor adhesion. Id. at 29. He also noted that when he placed a sheet of ABM and a sheet of 3M on a piece of bond paper, side by side, after about five seconds, the ABM sheet started to curl. When blown on from underneath, the ABM product would blow away and the 3M product would hold. Id. at 30. He ----------- FOOTNOTE BEGINS --------- [foot #] 1 When asked where he obtained the 3M samples, he responded that he went to the stationery store in San Francisco and bought them himself. Transcript at 26. ----------- FOOTNOTE ENDS ----------- used different samples and performed the test in different ways, but each time found the same result: ABM failed in repositionability. Id. at 34-35. He admitted that he disposed of the samples he tested and threw away the settings that he used on the testing machine. Id. at 38. 23. Appellant's expert witness, a professor of polymer science at the University of Akron and a specialist in adhesion, criticized the GSA chemist's laboratory testing procedures and conclusions for a number of reasons. He noted that the purchase of 3M pads in December 1986, for the purpose of comparison with ABM pads shipped in August 1985, was not necessarily a fair test since 3M could have improved its product in the interim period. Transcript at 146-47. He also criticized various inconsistencies in the chemist's testimony and pointed out that some of the results, such as the noted ease-of-removal of appellant's note paper, were actually favorable. Id. at 137-38. The expert found the same problems with the laboratory test records presented in Exhibits 92 and 94 of the appeal file -- he had no idea what was done; what the procedure was. The procedure was not written down and no samples were saved. There was nothing to indicate how the tester made the judgment in question. Id. at 139. The same questions arose with respect to the tests represented by Exhibit 95, the last of GSA's quantitative tests. Id. at 139-40. 24. Appellant's expert testified that specifications typically spell out quantitative tests with controlled procedures since it is "virtually impossible to make two different materials that have exactly the same properties under all conditions. It would be virtually impossible to make two adhesives that have exactly the same properties." Transcript at 156. 25. Although the Quality Approved Manufacturer Agreement specified that the Government's remedies for defective supplies included replacement, repair, or correction by the contractor, respondent determined that dissatisfaction was so widespread that it would elect to claim reimbursement of the full contract value of $562,718.52. It so notified appellant in a letter dated March 27, 1987. The letter requested instructions for disposition of the nonconforming materials. Appeal File, Exhibit 104. 26. Meanwhile, GSA began informing customers with complaints that no replacement of the pads would be made. Instead credit would be issued. Customers were requested to hold onto the pads they found deficient pending settlement of a possible appeal. Appeal File, Exhibits 114, 118, 120, 121, 122, 123, 124. 27. Subsequently, on June 22, 1987, after receipt of additional complaints, GSA supplemented its demand, adding the amount of $31,263.19, representing credits issued to its customers, thus increasing its total claim to $593,981.71. Appeal File, Exhibit 133. 28. ABM responded to these demands by pointing out that given the high quantity of pads manufactured it was unlikely that 100 percent of the product would be perfect and that the random instances of defective product identified by GSA appeared to be well within contract requirements. Under the circumstances, then, ABM did not feel that wholesale rejection of supplies passing quality testing was proper. Nonetheless, ABM also expressed a desire to accommodate the Government's concerns, offering to replace any product established to be defective. Appeal File, Exhibit 134. 29. On August 5, 1987, the administrative contracting officer requested appellant to provide information concerning its "proposed improvement in the writing pads," technical data on the product for evaluation, and a proposed shipping schedule for the replacement shipments detailed in appellant's previous letters. Appeal File, Exhibit 139. 30. In response to GSA's request for reimbursement, ABM traced the order numbers that were available to it and compared them with its shipping and invoicing records. It discovered that for product #7865 (3 X 5 pads), GSA had requested reimbursement for 206,865 dozen when only 147,000 dozen were shipped under that order number. GSA later revised the total quantity of units being held in its warehouses to 158,707 dozen. ABM further informed GSA that on other traceable orders, a quantity of 67,740 dozen #7865 and #7867 were accepted by GSA more than one year prior to the date for reimbursement reflected in the ACO's letter of June 27, 1987. Appeal File, Exhibits 147, 150. 31. The contracting officer's decision, issued January 12, 1988, rejected appellant's assertions that the product complied with testing criteria and was suitable for its intended purpose. The decision stated that due to a lack of specificity in the contract with respect to testing, "various methods of testing were tried in an attempt to duplicate whatever was causing the ever-increasing number of customer complaints." It concluded that the total of thirty-three verified complaints in addition to the "untold number" of oral complaints of lack of adhesion or repositionability of appellant's product, represented "overwhelming evidence that [the] product does not meet the performance required by the contract, regardless of what test method is used." The contracting officer further concluded that since ABM did not plan to replace all the defective material with compliant, acceptable notepads, ABM was required to reimburse GSA for the full contract value of $563,484.04, due within thirty days of receipt of her letter.[foot #] 2 Once again, the letter requested instructions for disposition of nonconforming goods. Appeal File, Exhibit 162. Appellant appealed the decision on January 21, 1988. Id., Exhibits 164-65. Discussion Respondent's principal contention is that it is entitled to full reimbursement of the contract value of the removable note pads, virtually none of which were ever returned to ABM, because the pads did not meet the contract's performance requirement that the performance of the pads shall be equal to 3M Post-It Notes with respect to ease of removal and repositionability. GSA acknowledges that, as the holder of the claim, it bears the burden of proving by a preponderance of the evidence that appellant's product was defective. See Mutual Maintenance Co., GSBCA 7496, 85-2 BCA 18,098. To support its assertion that the note pads did not comply with the contract specifications, respondent relies upon the large number of customer complaints it received and states that "GSA, as the customer, is the party with the right to determine whether the product conforms with the TPD." Respondent's Reply Brief at 4. We cannot agree that the Government has unfettered discretion to cast aside any product it contracts for and is in any way dissatisfied with. The product description is not a subjective standard. It is not beyond the realm of possibility that goods may conform to the technical specification and yet displease the customer. Thus, the fact of complaints, even though numerous, does not, standing alone, prove that appellant's product failed to meet the contract specifications.[foot #] 3 ----------- FOOTNOTE BEGINS --------- [foot #] 2 The claim for an additional $31,263.19, representing credits issued to GSA's customers, presumably was dropped, or considered merged into the claim for full reimbursement of the contract price. See Finding 27. ___ [foot #] 3 For instance, the administrative contracting officer (ACO) to the Region Nine quality assurance branch surmised that the complaints were caused by an occasional note pad which was inconsistent in adhesive ability and the fact that "they [the customers] are seeing 'ABM' as the brand name, rather than the preferred '3M.'" Appeal File, Exhibit 68. In addition, at least one quality technician determined that the products supplied by ABM met the TPD with respect to repositionability and adhesive quality, but were apparently prone to more rapid deterioration after opening than were the 3M pads, a problem he considered not to be addressed by the specification. Finding 20. ----------- FOOTNOTE ENDS ----------- GSA concedes that it accepted the note pads.[foot #] 4 As such, respondent's contractual remedies are severely restricted since acceptance, under the terms of the contract, is conclusive except in limited situations. Finding 10. This provision has been construed to mean that the Government's acceptance of goods, even if nonconforming, is final, and that "the contractor has no further liability under the contract." California Power Systems, Inc., GSBCA 7462, 86-1 BCA 18,598, at 93,367; see also, Zebra Corp., GSBCA 4723, 80-2 BCA 14,484, at 71,392; Boston Pneumatics, Inc., GSBCA 3122, 72-2 BCA 9682, at 45,211-12. Here, however, respondent argues that the acceptance is not conclusive because of the claimed defects in the shipments. There are two contractual mechanisms by which the Government can avoid the conclusiveness of acceptance. First, acceptance is not deemed conclusive in the face of a showing of a "latent defect, fraud, [or] gross mistake amounting to fraud." FAR 52.246-2(k). Second, this contract contains what amounts to a warranty provision in the QAMA which also "overrides the conclusiveness of inspection and acceptance of goods by the Government." Z.A.N. Co., ASBCA 25488, 86-1 BCA 18,612 (1985). To avoid the conclusive effect of its acceptance of the notepads, then, GSA must prove either that the defects were latent or that the warranty clause applied. Recovery Under the Warranty Provision To avoid the conclusiveness of acceptance through application of the warranty provision, respondent must meet its burden to show that the warranty applied. Camrex Reliance Paint Co., GSBCA 6166, 83-1 BCA 16,485, at 81,958; Joseph Penner, GSBCA 4646, 80-2 BCA 14,604, at 72,019. To do so, it must prove the three elements of a warranty claim. First, GSA must show that "furnishing the defective materials or workmanship was the responsibility of the contractor." Joseph Penner, 80-2 BCA at 72,019. The Government need not be explicit on this score -- it is sufficient for it to show "by a preponderance of the evidence, that defective material or workmanship was the most probable cause of the failure when considered with any other possible causes." Id. The evidence in the record is inconclusive on this point. The pads passed periodic pre- shipment inspections made by GSA, and some of GSA's technicians believed that the pads met specifications. See Findings 13, 14, ----------- FOOTNOTE BEGINS --------- [foot #] 4 Respondent's Reply Brief at 7; see also _________ Transcript at 100. In California Power Systems, Inc., GSBCA ________________________________ 7462, 86-1 BCA 18,598 (1985), the Board sua sponte found acceptance had occurred where the parties failed to argue this key point. The Board reasoned, "the Government is after all, trying to get its money back." Id. at 93,366. In addition, the ____ __ Government, by taking possession of and using the products contracted for, has acted in a way inconsistent with a claim that the goods were not accepted. ----------- FOOTNOTE ENDS ----------- 17, 20. Respondent admits that "it does not know exactly why Appellant's notes passed the periodic initial inspections performed by the [GSA quality assurance team], yet lacked sufficient adhesion when used by GSA's customers." Respondent's Reply Brief at 6. What we have are thirty-three verified complaints and an unquantified number of oral complaints that the ABM product was not satisfactory and was not functionally equivalent to the 3M product. This evidence does not persuade us that the most probable cause of the customers' dissatisfaction was defective material, workmanship, or failure to meet the specification.[foot #] 5 Second, respondent must show that "the required notice was given within the time periods prescribed by the warranty clause." Joseph Penner, 80-2 BCA at 72,019. The warranty in the contract required notification of defects within a period of twelve months ----------- FOOTNOTE BEGINS --------- [foot #] 5 On this record, we are not persuaded that the Government has made the requisite showing that ABM's supplies failed to meet the specification. The supplies invariably met quality assurance standards whether inspected by Barton Nelson or by GSA. Findings 13, 14. The ACO, at one point, frankly conceded that the specification was vague and difficult to measure against -- expressing concern that customer dissatisfaction was not enough to reach the conclusion the product was nonconforming. Appeal File, Exhibit 9. Additionally, appellant makes some persuasive criticisms of the Government's practice of changing the tests to reach the result it believed was correct -- that the ABM notepads were not equal to 3M's. Thus, appellant makes much of the fact that after its product passed initial tests, Appeal File, Exhibits 17, 18, the GSA chemist tried a new approach -- making up new tests as he went along. Transcript at 38; Finding 22. As appellant further points out, these latter tests cannot be duplicated because the test data and pads used were destroyed. Id. In essence, the __ tests appear to have been developed to attempt to duplicate the failures experienced by GSA's users, and not to test the specification at all. Transcript at 95. And, the tests were performed comparing ABM pads manufactured in August of 1985 to 3M pads potentially manufactured as late as December 1986. Thus, it is not even possible to be sure that the 3M pads were manufactured to the same specification used by 3M in August of 1985. Finally, respondent's chemist testified that he conducted the tests using the top sheet on each pad. Transcript at 25. These sheets, which contained the company's logo, were designed with less adhesion, Transcript at 127, a fact which by itself could explain the discrepancies in test results. Regardless of the evidence of consumer dissatisfaction, the Board cannot discount appellant's criticisms of the tests employed by respondent to prove that the ABM product did not meet the specification, which at one point respondent itself was inclined to regard as too vague to be enforced. ----------- FOOTNOTE ENDS ----------- after acceptance. Again, respondent has not alleged that it met this condition, and from the record it appears clear that at least some note pads were accepted more than one year prior to the date on which GSA gave notice of its decision to require reimbursement of the full contract price to appellant. Finding 25; Appeal File, Exhibit 147. The record does not permit us to determine which note pads were still covered by warranty when GSA notified appellant of its intent to revoke acceptance of the goods. Finally, GSA must show that "it did not cause or contribute to the failures or defects." Joseph Penner, 80-2 BCA at 72,019. Although the record gives us no particular reason to conclude that GSA in any way harmed the note pads, it is still GSA's burden to offer some proof that it did not. Even giving respondent the benefit of the doubt on this point, however, the Government has still failed to prove all of the elements requisite to revocation of acceptance based on a warranty claim and it cannot thus avoid the conclusiveness of acceptance. Latent Defects The Government will also be permitted to avoid final acceptance in circumstances where it can demonstrate that the product purchased contained a latent defect when accepted. A latent defect is one "which cannot be discovered by observation or inspection made with ordinary care." See Santa Barbara Research Center, ASBCA 27831, 88-3 BCA 21,098, at 106,515. This Board has further elaborated that a patent defect is one that is "discernable by the inspection (and testing) prescribed in the contract". California Power Systems, Inc., GSBCA 7462, 86-1 BCA 18,598, at 93,367 (1985). To determine whether the deficiencies complained of in the note pads were latent, then, we first consider whether the inspection system provided for in the contract would have uncovered the defects. Appellant, through Barton Nelson, bore the primary responsibility for inspecting these goods. Finding 4. Appellant was therefore entitled to rely on the supplier in the first instance for ensuring that the note pads complied with the contract specifications. The contract's certification requirement gave GSA further reason to rely on the quality control system of the supplier. See Finding 7. For purposes of determining whether a defect is latent or patent, the effect of a certification by a contractor is that it becomes "reasonable" for the Government "to conduct a more limited inspection of the goods in reliance on the certificate." See Harrington & Richardson, Inc., ASBCA 9839, 72-2 BCA 9507 ("the existence of the contractually-specified procedure, requiring the use of certificates of compliance tends to negate an understanding that such a defect is patent"); J. Nash & R. Cibinic, Administration of Government Contracts 609 (1985).[foot #] 6 The existence of the inspection certifications in this case is therefore probative evidence that these defects were not patent. Moreover, it appears that the extensive inspection system of the Barton Nelson quality assurance personnel and the GSA employee who did random tests would likely have uncovered a defect had it been patent. See Findings 11-13. Finally, the testimony of the ACO, who was satisfied with her own use of the product until nearly a year after final deliveries had been made, Finding 18, corroborates that the problem was not patent. This alone is not enough, however. To justify setting aside acceptance on a latent defect theory, the Government must prove, by a preponderance of the evidence, that the defect existed, but could not reasonably have been detected, at the time of final acceptance. See Santa Barbara Research Center, 88-3 BCA at 106,516; see also Makoor Products Mfg. Co., GSBCA 5779, 81-1 BCA 15,135, at 74,867. The Armed Services Board of Contract Appeals, similarly faced with a latent defect claim, observed that it is not sufficient, in attempting to prove the existence of a latent defect within the meaning of the contract's inspection clause, for the Government to rely on the mere fact of the defect: In his opening statement, respondent's counsel stated that the thrust of respondent's case was that "something happened in the vendor's manufacturing process that led to some defective devices being delivered" to appellant, but that respondent was not in a position to identify specifically what it was. This theory sounds like res ipsa loquitur. . . . Santa Barbara, 88-3 BCA at 106,516. It is simply not enough to point to subsequent failures and suggest that this must mean the products contained a defect at the time of acceptance. There must be some probative evidence that the defect existed at the time of acceptance but could not readily have been discerned. Such evidence is lacking here. The evidence is simply inconclusive -- in essence, respondent's position at best requires the Board to adopt a res ipsa loquitur approach. We ----------- FOOTNOTE BEGINS --------- [foot #] 6 Some cases have dealt with the existence of defects despite a certification under the "gross mistakes amounting to fraud" exception to the finality of acceptance. See ___ Boston Pneumatics, Inc., GSBCA 3122, 72-2 BCA 9682. In this ________________________ case, however, there is a genuine conflict in the evidence as to whether the pads were defective. Moreover, the evidence shows that the goods were satisfactory to the Government for an initial period. Even the ACO conceded that she was unable, in her own usage of the note pads, to verify complaints before December 1986. Finding 18. With this room for dispute, it seems unlikely that the appellant's certification could fairly be termed a "gross mistake amounting to fraud." ----------- FOOTNOTE ENDS ----------- agree with the Armed Services Board that it would not be appropriate for us to do so. Return of Goods Even if GSA had met its burden of proving that acceptance was not conclusive under the latent defect exception, its next step in pursuing a remedy would be to revoke acceptance and sue for the return of the contract price. On this record, we are not persuaded that GSA revoked acceptance properly. It cannot, therefore, regain the contract price. The contract between ABM and GSA does not directly address the means by which acceptance may be revoked. In these circumstances, to determine if there was a proper revocation, the Board has turned to the provisions of the Uniform Commercial Code (UCC). See Camrex Reliance Paint Co., GSBCA 6166, 83-1 BCA 16,485 (Board referred to the provisions of the UCC to find that the buyer wrongfully rejected goods and the seller was entitled to UCC damages); Robert Komor, GSBCA 5418, 80-2 BCA 14,687; John Maney, GSBCA 6550, 83-2 BCA 16,744. In order to rightfully revoke acceptance, the goods in question must have a non-conformity that "substantially impairs" the value of the goods to the buyer and the buyer must have accepted the goods (a) on the reasonable assumption that its non- conformity would be cured and it has not been seasonably cured; or (b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances. UCC 2-608(1). Subsection (b) is arguably applicable here.[foot #] 7 Accepting for the moment that the defects in ABM's self- stick note pads constituted a "substantial impairment" and thus revocation of acceptance was appropriate, the Government must still have completed the proper steps to effect revocation. UCC 2-608-2. In this case, the Government's right to recover is clouded because it did not return the rejected note ----------- FOOTNOTE BEGINS --------- [foot #] 7 The UCC's definition of a non-conformance whose acceptance was "reasonably induced" by its "difficulty of discovery" is similar to the contract's reference to a "latent defect." ----------- FOOTNOTE ENDS ----------- pads.[foot #] 8 Although the return of goods following a revocation of acceptance is not always a prerequisite to successful revocation, in most instances the goods should be returned.[foot #] 9 Even if the rejected items were utterly worthless, which we lack sufficient evidence of here, the contractor is still entitled to reimbursement for their scrap value. See Teltron, Inc., ASBCA 14894, 72-2 BCA 9502, at 44,278; Atlantic Hardware Supply Corp., ASBCA 10450, 66-1 BCA 5378. A buyer is not customarily allowed to demand repayment of the full purchase price and retain ownership of the goods, as the Government seems to be requesting here. See Teltron, Inc., 72-2 BCA at 44,278.[foot #] 10 Even if we were to find, then, that GSA had proven the existence of a latent defect, or entitlement to relief under the ----------- FOOTNOTE BEGINS --------- [foot #] 8 The contract provides that, prior to acceptance, rejected, nonconforming goods will be returned at the contractor's expense. Appeal File, Exhibit 3. There is no reason to suppose that this alternative was not equally feasible with respect to the rejected pads which GSA had accepted. After all, respondent knew where to send its letter demanding reimbursement. Thus, we do not deem respondent's requests for disposition instructions in its letters demanding reimbursement of the full contract value to be adequate to absolve it of any duty to return the goods, particularly since appellant, at least for a time, was attempting to negotiate with respondent to resolve the situation. Indeed, given appellant's struggle to obtain even any samples of the pads complained of, despite numerous requests, we are skeptical that respondent could or would have returned the entire supply of note pads had disposition instructions been given. [foot #] 9 Some UCC cases have held that revocation may nonetheless be valid even absent return of the defective article where it has been shown that the goods are a necessity. E.g., ____ Pavesi v. Ford Motor Co., 382 A.2d 954 (N.J. Sup. Ct. 1978) __________________________ (buyer able to show that an automobile was a necessity to him and therefore his continued use of it despite its substantial defects did not prevent him from revoking his acceptance); Cardwell v. ____________ International Housing, Inc., 423 A.2d 355 (Pa. Super. Ct. 1980) ___________________________ (continued occupancy of mobile home after revocation of acceptance deemed reasonable where buyer had no substitute accommodations). [foot #] 10 In Custom Production Mfg., Inc. v. General ___________________________________________ Services Administration, GSBCA 10393, 92-1 BCA 24,688, the ________________________ Board faced a similar situation. In that case, the appellant was appealing the contracting officer's decision to terminate for default its purchase order to supply 168 steel tool boxes. The appeal was denied, but the Board returned the matter to the contracting officer to arrange for the prompt return of the tool boxes to appellant. ----------- FOOTNOTE ENDS ----------- contract's warranty provision, we still have not been persuaded that there was a proper revocation of acceptance. Despite the numerous complaints alleged by respondent, it still appears from the record that only a fraction of the note pads were actually the subject of customer complaints -- it appears that quite a few of the note pads were used without incident. We are simply not persuaded that GSA is entitled to a refund of the entire contract price, which is all that GSA is seeking and the sole relief we could provide on this record. Even if it would be proper to do so, appellant has provided no basis by which we could determine a proper refund of less than the full price. The record lacks sufficient evidence to determine an amount by which the price should be reduced under the circumstances.[foot #] 11 As such, the Government must remain liable for the full contract amount. Decision The appeal is GRANTED. _______________________________ CATHERINE B. HYATT Board Judge We concur: __________________________ _______________________________ VINCENT A. LaBELLA MARY ELLEN COSTER WILLIAMS Board Judge Board Judge ----------- FOOTNOTE BEGINS --------- [foot #] 11 Cf. Zinger Construction Co., GSBCA 6568, 84-3 __ _______________________ BCA 17,537 (Board found that appellant's contract performance had been delayed by the Government but denied the appeal based on appellant's failure to present credible evidence showing the amount due on account of the delay).