______________________________ DENIED: December 16, 1992 ______________________________ GSBCA 9556, 9598 AIR INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Kenneth K. Takahashi of Takahashi & Associates, Washington, DC, counsel for Appellant. John E. Cornell and Wendy Nevett Bazil, Office of General Counsel, Personal Property Division, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges LaBELLA, Acting Chief Judge, HENDLEY, and VERGILIO. VERGILIO, Board Judge. On July 6 and August 2, 1988, the Board received notices of appeal from Air Inc., which were docketed as GSBCA 9556 and 9598, respectively. The appeals involve one indefinite delivery contract with respondent, the General Services Administration. After the delivery dates had passed for specific delivery orders, with orders unfulfilled, the agency terminated for default contractor's right to proceed further under those orders. Contractor contends that the termination for default in each instance was inappropriate. In particular, it maintains that the cause of delay was beyond its control and that of its suppliers-- namely, delays were fully attributable to typhoons. Additionally, contractor asserts that the determinations to terminate for default were arbitrary and capricious and reflect an abuse of discretion--namely, a proper review of the factors in the default clause makes it apparent that it was not in the Government's best interest to default terminate the orders. Contractor's failure to deliver the items by the due dates was the underlying cause, but not the sole factor, considered by the agency in reaching the decisions to terminate for default. The other factors contributing to that determination were the impact of the default on the agency, and the lack of an excusable delay. Moreover, only the given purchase orders were terminated, not the entire contract. Contractor missed delivery dates; it has failed to establish that the defaults were excusable. Contractor's failure to deliver constitutes a breach of contract. Additionally, despite contractor's assertions, the determinations to terminate for default do not reflect an abuse of discretion or other impropriety. Accordingly, the Board denies the appeals. Findings of Fact The contract 1. With an effective date of June 9, 1987, the agency awarded an indefinite delivery contract for the period through January 31, 1989, for Air Inc. to provide four items under national stock numbers (NSNs) conforming to given commercial item descriptions, at a fixed unit price each. Appeal File, Exhibit 1.[foot #] 1 Of relevance here are pneumatic, portable hammers priced at $207 each. Id. at 9 (items 12, 13). 2. The contract requires that delivery to destination occur no later than 150 calendar days after receipt of an order. Moreover, "If the Contractor fails to make delivery to destination as required . . . the Contractor shall be deemed to have failed to make delivery within the purview of [the default clause]." Appeal File, Exhibit 1 at 32-33. 3. The default clause of the contract provides that the agency may default terminate the contract, in whole or in part, if the contractor fails to deliver the supplies within the time specified in the contract or any extension. Appeal File, Exhibit 1, GSA Form 3507 at 11 ( 51) (48 CFR 52.249-8, Default, Fixed- Price Supply and Services (Apr. 1984)). A termination for default expressly is subject to the following two paragraphs: (c) Except for defaults of subcontractors at any tier, the Contractor shall not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the Contractor. Examples of such causes include (1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather. In each instance the failure to perform must be beyond the ----------- FOOTNOTE BEGINS --------- [foot #] 1 Two appeal files exist in these consolidated cases. Unless otherwise noted, references to an appeal file relate to the appeal file in GSBCA 9556. ----------- FOOTNOTE ENDS ----------- control and without the fault or negligence of the Contractor. (d) If the failure to perform is caused by the default of a subcontractor at any tier, and if the cause of the default is beyond the control of both the Contractor and subcontractor, and without the fault or negligence of either, the Contractor shall not be liable for any excess costs for failure to perform, unless the subcontracted supplies or services were obtainable from other sources in sufficient time for the Contractor to meet the required delivery schedule. Id. Moreover: (g) If, after termination, it is determined that the Contractor was not in default, or that the default was excusable, the rights and obligations of the parties shall be the same as if the termination had been issued for the convenience of the Government. Id. 4. A "waiver of delivery schedule" clause is also included in the contract: (a) None of the following shall be regarded as an extension, waiver, or abandonment of the delivery schedule or a waiver of the Government's right to terminate for default: (i) delay by the Government in terminating for default; (ii) acceptance of delinquent deliveries . . . . (b) Any assistance rendered to the Contractor on this contract or acceptance by the Government of delinquent goods or services hereunder, will be solely for the purpose of mitigating damages, and is not to be construed as an intention on the part of the Government to condone any delinquency, or as a waiver of any rights the Government may have under subject contract. Appeal File, Exhibit 1 at 33. "Performance" and terminations for default 5. The agency issued purchase orders, here at issue, with delivery dates of February 21 and 23, March 13 and 15, and April 14, 1988. Appeal File, Exhibit 13 ( 4-13). Delivery of the purchase order involved in GSBCA 9598 was originally due on March 15. In response to a contractor-request dated December 7, 1987, the agency modified the delivery date on December 24, 1987, to require partial delivery by March 15, 1988, with the remainder by April 14, 1988. Id., GSBCA 9598, Exhibit 3. Contractor did not deliver items under the purchase orders by the given dates, Appeal File, Exhibit 13 ( 4-13), or at any time prior to the termination for default, Id., Exhibit 8; Appeal File, GSBCA 9598, Exhibits 7, 9. 6. Although contractor states that it anticipated receiving the necessary handles (a component of the hammers) by January 21, 1988, Transcript at 26-27, 88, no contemporaneous documents in the record support that assertion. Moreover, not until shortly before (for some) or after (for others) delivery due dates, did contractor inform the agency of contractor's inability to deliver items timely. 7. During a telephone conversation on March 8, 1988, the contractor informed the agency's administrative contracting officer (ACO) that it would be late in the delivery of two purchase orders in dispute in GSBCA 9556 (as well as a third order not here relevant) due to the non-receipt of parts from a supplier. In fact, the delivery due dates had already elapsed. The ACO requested that contractor send, in writing, a request for an extension and a proposed date for delivery, and further noted that such a request would be considered. Agency's Exhibit 1. Contractor made no such submission. Transcript at 90. 8. In a report of an agency on-site visit to contractor's plant on March 11, 1988, the quality assurance specialist lists as "delinquent orders" the four purchase orders involved in GSBCA 9556, and designates them as "late." For each of the orders, the report indicates the delivery due date and a proposed available date: Order Due date Proposed date 1 February 21 March 28 2 February 23 April 5 3 March 13 April 5 4 March 15 April 5 Appeal File, Exhibit 7. The record does not suggest the origin of the proposed available dates for each delinquent order. The specialist concluded in this report: "Recommend termination of delinquent purchase orders." Id. 9. The ACO made inquiries of the agency's item managers as to the quantity of items on hand, projected demands, and the feasibility of a termination for default of the four orders. Agency's Exhibit 2; Transcript at 93-94. The ACO concluded that these factors permitted the agency to satisfy its mission if the purchase orders at issue were terminated for default. Transcript at 93-94. 10. In a letter dated April 5, 1988, the agency informed the contractor that: "A review of your contract file reveals a history of unsatisfactory delivery performance. On January 19, 1988, you were informed that delivery extensions were not automatic and that subsequent failure to adhere to delivery schedules may lead to the termination of purchase orders." Appeal File, Exhibit 8. The letter specifies the four purchase orders in dispute in GSBCA 9556; it notes that delivery dates are past with deliveries delinquent. It goes on: You have demonstrated by your continuous actions an inability to meet the delivery commitments required by your contract, therefore, since your firm has failed to perform its contractual obligations within the time prescribed above, it is the determination of the undersigned that your failure to perform did not arise out of causes beyond your control and without your fault or negligence. Id. The letter terminates for default contractor's "right to proceed further with performance of" the specified purchase orders. Id. 11. Regarding the purchase order involved in GSBCA 9598, by letter dated April 14, 1988, Air Inc. informed the ACO of its inability to meet the delivery dates: As you are aware, we have had ongoing problems with the supplier of the Handle Castings. Due to the delays we have experienced, we offer the delivery schedule as shown below. If you will consider modifying the contract, we will offer a consideration of $250.00 DATE DATE PROPOSED PARTIAL/ QUANTITY RECEIVED DUE DELIVERY COMPLET E 32 ea. 10/23/87 3/15/88 6/06/88 Partial 41 ea. 10/23/87 4/14/88 6/06/88 Complete Appeal File, GSBCA 9598, Exhibit 7.[foot #] 2 ----------- FOOTNOTE BEGINS --------- [foot #] 2 The calculated "date due" for the thirty-two item order is incorrect--150 days after October 23, 1987, is March 21, (continued...) ----------- FOOTNOTE ENDS ----------- 12. The ACO concluded that "ongoing problems with a supplier" do not, by themselves, constitute an excusable delay. Thereafter, the ACO made inquiries of the agency's item manager as to the quantity of items on hand, projected demands, and the feasibility of a termination for default of the order. Agency's Exhibit 4; Transcript at 106-08. The ACO concluded that these factors permitted the agency to satisfy its mission if the purchase order at issue were terminated for default. Transcript at 107-08. 13. On April 11 and 18, an agency quality assurance specialist visited contractor's site. A report of each visit references a delivery date of the purchase order in GSBCA 9598, and notes that the deliveries have not occurred. The specialist recommends termination of each part of the order. The second report also states that contractor has requested an extension, apparently in reference to the letter noted in Finding 11. Appeal File, GSBCA 9598, Exhibit 8. 14. By letter dated May 2, 1988, the ACO terminated for default a purchase order in dispute in GSBCA 9598, stating: On December 7, 1987, your firm requested an extension of the delivery due date of the [relevant] purchase order to cover the quantity in excess of your firm's Monthly Supply Potential (MSP). Your firm's MSP was calculated to be 41 EA of the total 73 ordered. Modification No. AS02, dated December 24, 1987, was issued to extend 41 EA to April 14, 1988. The balance of 32 EA was to be delivered on the original due date of March 15, 1988. By letter dated April 14, 1988, . . . your Production Control Supervisor stated your firm would not be able to meet the required delivery dates of [the purchase order] due to problems with your supplier. [He] requested the Government consider extending the delivery due date for the total quantity of 73 EA to June 6, 1988. Since your firm has failed to deliver within the required delivery dates as modified . . . your firm's right to proceed with performance of [the purchase order] is hereby terminated for default . . . . ----------- FOOTNOTE BEGINS --------- [foot #] 2 (...continued) 1988. The difference is of no consequence here; delivery did not occur on March 21 or thereafter. ----------- FOOTNOTE ENDS ----------- Appeal File, GSBCA 9598, Exhibit 9. Post-Default 15. In response to a request for admissions, contractor admits, as of February 25, 1989, that the "failure of [contractor's] cylinder supplier to perform its obligations to [contractor], which were necessary for [contractor] to make delivery under [seven purchase orders, including the five orders terminated for default and here at issue] within the times required by the Contract, was caused by receipt of defective material from its steel supplier." Appeal File, Exhibit 15 ( 4). A cylinder is a hammer component distinct from a handle. Id., Exhibit 1, Enclosure 4 at 23. Although appellant denies that the "receipt of defective material described in the preceding request for admission was caused by circumstances within the control of or due to the fault or negligence of [contractor's] cylinder supplier's steel supplier," Id., Exhibit 15 ( 5); Contractor's Letter to Board (Nov. 6, 1989), contractor did not develop this assertion. The record lends no support to contractor's alleged basis of excusability. 16. By letter dated September 26, 1989, an operations manager of the handle supplier informed Air Inc.: We had scheduled your order for shipment by 1/21/88 as requested and were proceeding accordingly. Unfortuneately, our tooling for this item had been severely damaged by the flood during the period of typhoon Gerald engulfed the southern Taiwan on September 9 and typhoon Lynn sideswiped the eastern and southern Taiwan on October 24 (some typhoon photos and stories enclosed as evidence). We ran parts from the damaged tooling trying to meet your delivery requirement, but its had a high rejective rate. Due to the high rejective rate we were forced to remanufacture the tooling which put us behind another 3 months in making parts. We sincerely apologize that this situation has created any problems to you with your customer. Under penalty of purge [sic], I state that the above statements are true and correct. Appeal File, Exhibit 21. The letter also has a notary block, partially written in English, noting, in part: "Attested on the Oct. 6 1989." Id. The photographs and newspaper accounts referenced in the letter fail to establish a nexus between the storms and the damage alleged. 17. The operations manager produced this letter at the request of contractor's president who detailed the excusable delays enunciated in the termination for default clause. The president characterized his conversation with his handle supplier: "if there is an explanation that falls within these parameters, then that is the only thing that is going to do me much good." Transcript at 31-33, 39-40. 18. The record contains no contemporaneous information which lends credence to the assertions in the letter of the handle supplier. For example, although the stated anticipated delivery date was January 21, 1988, the record reveals no communications between the handle supplier and contractor, or contractor and the agency prior to or at the time the unfulfilled delivery date elapsed. Calls by the contractor to the agency were made after some due dates had passed and only shortly before other delivery dates arrived. Findings 6, 7, 11. Further, the contractor requested and obtained a partial extension of the delivery date of the purchase order in GSBCA 9598 after all of the alleged typhoon-caused damage would have occurred. 19. Contractor's president testified both that he received the letter by facsimile on September 26 with the notary block completed, and that the completed notary block was not completed when he initially received the document. Transcript at 34-37, 61. Further, not until February 5, 1991, did contractor inform the agency of the existence of the letter dated February 26, 1989. Transcript at 41. 20. The explanation regarding the typhoon-caused damages and delays is not credible. Factually, the Board cannot conclude that the typhoons led to delays in handle delivery. Discussion Contractor contests the validity of the default terminations. Initially, these disputes focused solely upon contractor's assertion that the defaults were improper because contractor's failure to deliver was caused by circumstances beyond the control and without the fault or negligence of contractor and its suppliers. Air, Inc., GSBCA 9556, et al., 91- 1 BCA 23,596 (1990) (agency motion for summary relief denied). Contractor has also timely asserted that the agency failed to consider factors mitigating against a default, with the result that the default termination reflects an abuse of discretion. Amendment to Complaints (May 26, 1989) and Clarification (Nov. 6, 1989). The parties have developed the record to address this range of issues. Contractor missed the delivery dates for each of the purchase orders in dispute. The record does not establish that any delays in delivery of the given orders were due to causes beyond the control of the contractor and its suppliers. Findings 15-20. In particular, contractor relies upon two independent causes of delay--the steel supplier of contractor's cylinder supplier and typhoons affecting contractor's handle supplier. Contractor admits that delays were caused, in part, by untimely deliveries by its cylinder supplier. Finding 15. No credible evidence in the record permits the Board to conclude that delays in receiving cylinders were excusable so as to invalidate the default termination. Moreover, given the admission, contractor has not suggested that delays from the cylinder supplier were other than an independent cause of its failure to meet delivery dates. Contractor also has failed to support its second alleged cause of delay--typhoon-delayed handles. No credible evidence links the delays to the typhoons. Finding 20. No basis exists in the record for the Board to conclude that the typhoons constituted an excusable basis of delay. Contractor failed to comply with six delivery dates of its purchase orders. By disregarding the provisions of the contract, contractor breached its contract. A valid basis arose to support the terminations for default. The ACO properly characterized contractor's multiple failures to timely deliver as constituting "a history of unsatisfactory delivery performance." Finding 10. The consideration of late deliveries under the various purchase orders was fully in keeping with the factors to be considered in making a default determination. Contractor maintains that, in deciding upon the default terminations, the agency failed to consider all factors set out in the default clause and the Federal Acquisition Regulations (FAR), 48 CFR 49.402 (1988). In particular, contractor contends that: (1) counsel was not consulted prior to the default terminations, thereby violating FAR 49.402-3(a); (2) the agency failed to notify contractor of the possible terminations for default, although such notice was practicable, thereby violating FAR 402-3(e); (3) the agency had waived the delivery dates without establishing a new date, such that the defaults violated FAR 49.402-3(c) and (e); and (4) the agency failed to consider the seven factors enunciated in the default clause, Finding 2 ( (c)) and FAR 49.402-3(f). Assuming that counsel was not consulted prior to the terminations for default, contractor has failed to establish a basis to overturn the defaults. During the development of this record, if not earlier, agency counsel reviewed the determinations; the agency has not wavered from the default determinations. Contractor has put forward no cogent reason to upset the default determination under this scenario; contractor has not been harmed by the alleged inactions of the contracting officer. Contractor relies upon language in the regulations regarding notification of a possible default termination: If termination for default appears appropriate, the contracting officer should, if practicable, notify the contractor in writing of the possibility of the termination. This notice shall call the contractor's attention to the contractual liabilities if the contract is terminated for default, and request the contractor to show cause why the contract should not be terminated for default. The notice may further state that failure of the contractor to present an explanation may be taken as an admission that no valid explanation exists. FAR 49.402-3(e)(1). However, the regulation also states, regarding defaults for failure to make delivery within the time specified, that "no notice of failure or the possibility of termination for default is required to be sent to the contractor before the actual notice of termination (but see paragraph (e) . . . )." FAR 49.402-3(c). In this situation, where contractor failed to deliver within the time specified, the regulation does not mandate advance notification by the agency to the contractor. In any event, in a letter to the contractor dated April 5, 1988, the agency reminded contractor of the potential for termination previously highlighted in January: "subsequent failure to adhere to delivery schedules may lead to the termination of purchase orders." Finding 10. Moreover, contractor has not demonstrated any harm that may have accrued to it that may have resulted from a lack of written notification. In short, even if it were practicable for the agency to provide written notice, contractor has not established a basis to nullify the default determinations. Contractor has failed to establish the factual predicate to its assertion that the agency waived the delivery dates without establishing new dates. On at least two occasions, the agency notified contractor that time extensions were not automatic. The record suggests that contractor never formally requested an extension of the four purchase orders at issue in GSBCA 9556. Contractor requested an extension of the once-extended purchase order at issue in GSBCA 9598 only after the delivery date for partial delivery had passed, and shortly before the delivery date for the final delivery was due. The contract expressly provides that contractor's failure to deliver timely constitutes a basis for default and that the agency's failure to terminate immediately is not to be construed as a waiver of the agency's ability to default terminate. Findings 2, 4. Contractor has established no agency actions which could reasonably be construed to be an extension of any of the final delivery dates. The agency considered its position with respect to its requirements and contractor's actions under the contract, and with reasonable speed rejected contractor's proffered consideration for an extended delivery date. Findings 11-14. Contractor also maintains that the agency failed to consider the seven factors enunciated in the regulations as guidance in administering the default clause, FAR 49.402-3(f). The record demonstrates just the opposite of what contractor maintains. The ACO expressly considered, as numbered in the regulation, (1) the terms of the contract and applicable laws and regulations; (2) contractor's specific failure and its excuses; (3) the availability of supplies from other sources (here the agency's existing and projected supply and usage of the items); (4) the urgency of the need for supplies and time required to obtain them; and (7) other pertinent facts and circumstances--namely, contractor's history of unsatisfactory performance, and the nature of the contract (indefinite delivery) and scope of the default (restricted to the given purchase orders). Findings 9, 10, 12, 14. Implicitly, in considering items (3) and (7) and determining to default less than the entire contract, the agency considered (5) the degree of essentiality of the contractor in the Government acquisition program and the effect of the default upon the contractor's capability as a supplier under other contracts (and purchase orders). Contractor has not suggested that item (6), the effect of default on contractor's ability to liquidate guaranteed loans, progress payments, or advance payments, has any applicability to its situation, or that a consideration of that factor would have compelled a different agency determination. Contractor fails to appreciate the ramifications of the actions of the agency. The terminations of only the purchase orders do not otherwise hinder contractor's ability to satisfy other orders under the contract; in fact, with the terminated items eventually on hand, contractor was in a position to effectuate expeditious delivery of future orders. The default determination clearly placed contractor on notice of the agency's intent to enforce the bargained-for delivery requirements of the contract. The terminations for default were consistent means to encourage contractor to fulfill its contractual obligations. Contractor should not have expected to be able consistently to effectuate late delivery for reduced payment--such an agreement, with a longer period for delivery, was not the bargained for contractual requirement. Decision The Board DENIES the appeals. The agency has established a sufficient basis upholding the terminations for default of the particular purchase orders in dispute; the contractor has failed to demonstrate any factor which would mitigate against the propriety of the terminations for default. ____________________________ JOSEPH A. VERGILIO Board Judge We concur: _____________________________ _____________________________ VINCENT A. LaBELLA JAMES W. HENDLEY Acting Chief Board Judge Board Judge