Board of Contract Appeals General Services Administration Washington, D.C. 20405 ______________________________ DENIED: March 3, 1999 ______________________________ GSBCA 14665 WELLINGTON HOUSE, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Jewon Wright, General Manager of Wellington House, Albany, GA, appearing for Appellant. Robert T. Hoff, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), BORWICK, and NEILL. NEILL, Board Judge. Appellant, Wellington House (Wellington), a small business concern, contests the termination for default of its contract with the General Services Administration (GSA). Pursuant to Board Rule 109, the parties have informed the Board in writing of their election to have this case decided on the record without a hearing. They are in agreement that the original appeal file, as prepared and submitted by Government counsel, requires no supplementation. On review of the record before us, we conclude that the termination of Wellington's contract for default was proper. The appeal, therefore, is denied. Findings of Fact The Contract 1. On February 11, 1998, GSA awarded a firm fixed price requirements contract to Wellington, a small business concern, for the supply of kitchen-type rolled paper towels to GSA distribution centers at the following locations: Palmetto, Georgia; Fort Worth, Texas; Burlington, New Jersey; and Stockton, California. Delivery was to be made within thirty-five days after receipt of a delivery order. Appeal File, Exhibit 1 at 1- 11, 25-26. 2. The estimated dollar value of the contract was $1,213,785. The contract was to run from time of award to December 31, 1999. Under the contract, the Government also had the right to extend the contract through the exercise of three twelve-month renewal options. Appeal File, Exhibit 1 at 8, 11. 3. Pursuant to Wellington's bid and, therefore, the contract which resulted from its acceptance, Wellington planned on delivering paper towels manufactured by Fort Howard[foot #] 1 and supplied to Wellington by one of Fort Howard's distributors, Unisource Worldwide, Inc. (Unisource). Appeal File, Exhibit 1 at 6, 23. 4. Two provisions of contract clause 52.212-4, CONTRACT TERMS AND CONDITIONS -- COMMERCIAL ITEMS (MAY 1997) which are relevant to this dispute read as follows: (f) Excusable delays. The Contractor shall be liable for default unless nonperformance is caused by an occurrence beyond the reasonable control of the Contractor and without its fault or negligence such as, acts of God or the public enemy, acts of the Government in either its sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes, unusually severe weather, and delays of common carriers. The Contractor shall notify the Contracting Officer in writing as soon as it is reasonably possible after the commencement of any excusable delay, setting forth the full particulars in connection therewith, shall remedy such occurrence with all reasonable dispatch, and shall promptly give written notice to the Contracting Officer of the cessation of such occurrence. . . . . (m) Termination for cause. The Government may terminate this contract, or any part hereof, for cause in the event of any default by the Contractor, or if the Contractor fails to comply with any contract terms and ----------- FOOTNOTE BEGINS --------- [foot #] 1 The manufacturer is identified in various ways throughout the record. We have no reason to believe, however, that the different names used do not refer to the same basic entity. The contract lists the manufacturer as "Fort Howard." Elsewhere, however, the manufacturer is referred to as "James Fort Howard," "Fort Howard James," "Fort Howard James Corporation," "Fort James," and "Fort James Paper Mill." Appeal File, Exhibits 1 at 2, 5, 6, 12, 22, 24. ----------- FOOTNOTE ENDS ----------- conditions, or fails to provide the Government, upon request, with adequate assurances of future performance. In the event of termination for cause, the Government shall not be liable to the Contractor for any amount for supplies or services not accepted, and the Contractor shall be liable to the Government for any and all rights and remedies provided by law. If it is determined that the Government improperly terminated this contract for default, such termination shall be deemed a termination for convenience. Appeal File, Exhibit 1 at 15-16. 5. Also relevant to this dispute is contract clause G-FSS- 908, PLACEMENT OF ORDERS IF CONTRACTOR FAILS TO PERFORM (JUN 1996). It reads in part as follows: (a) Timely delivery in accordance with the terms and conditions of this contract is essential to the accomplishment of the mission of the General Services Administration and the agencies it supports. (b) GSA may defer the placement of delivery orders against this contract at any time when GSA determines, at its sole discretion, that the Contractor has either failed to make progress or becomes delinquent on delivery order(s) which have been issued against the contract. The period of deferment shall last until such time as the Government is satisfied that the Contractor is capable of making timely delivery. (c) During the period of deferment of placement of delivery orders, the Government may procure its requirements from a source other than the Contractor. Appeal File, Exhibit 1 at 32. Wellington's Performance 6. Appellant states that, shortly after contract award, the manufacturer of its towels, Fort Howard, which was to provide the towels to Unisource, Wellington's supplier under the contract, advised Wellington that the prices originally quoted were being raised. Because Fort Howard's new price was equal to what appellant was to charge GSA under the contract, Wellington sought a new manufacturer. Appellant's Complaint at 1.[foot #] 2 7. Towards the close of February 1998, GSA issued its first delivery order under the contract. This was delivery order NWDR5051; it called for delivery on March 30. Appeal File, Exhibit 10. ----------- FOOTNOTE BEGINS --------- [foot #] 2 Appellant has designated, as its complaint, its letter to the Board of September 25, 1998. ----------- FOOTNOTE ENDS ----------- 8. On March 10, 1998, appellant advised the administrative contracting officer (ACO) of a change in manufacturer and inspection point. Appeal File, Exhibits 5-6. The new manufacturer was to be Georgia Pacific Co. (Georgia Pacific). Id. 9. On April 8, Wellington attempted to make a delivery of paper towels produced by its new supplier in response to the outstanding delivery order. The delivery was made to the GSA distribution center at Burlington, New Jersey. It was, however, rejected as non-compliant with contract requirements. Appeal File, Exhibit 9. 10. On that same day, April 8, the ACO issued a show cause notice to Wellington demanding an explanation why delivery order NWDR5051 should not be terminated for default in view of appellant's failure to deliver by the March 30 deadline. Appellant was given until April 16 to reply. Appeal File, Exhibit 10. 11. A few days later, on April 13, 1998, a GSA marketing specialist issued a Performance Evaluation and Facilities Report (PEFR) in which he concluded that Georgia Pacific, Wellington's new supplier, was incapable of providing material meeting contract specifications. The report noted that the supplier did not utilize post-consumer waste to produce its towels although the contract required that items be manufactured with forty percent post-consumer waste content. Appeal File, Exhibit 11; see also Exhibit 1 at 37. 12. On April 15, 1998, appellant's owner and general manager responded to GSA's show cause notice. He advised the ACO orally and in writing that Wellington had decided to revert to the manufacturer originally listed in the contract, namely, Fort Howard. The owner's letter also asked that the ACO "go ahead and process the assignment of claim forms." Appeal File, Exhibit 12. 13. The "assignment of claim forms" referred to by Wellington's owner was a request for the contracting officer to approve a proposed assignment of contract proceeds to Fort Howard's distributor, Unisource. Under the proposed assignment agreement, in exchange for assignment of proceeds under its contract to Unisource, Wellington was to receive from Unisource a line of credit up to $65,000 for performance of its contract with GSA. Appeal File, Exhibit 19. The contracting officer sent the proposed assignment forward for processing. Id., Exhibits 14-15. 14. On April 19, the contracting officer agreed to amend, for consideration, the outstanding delivery order NWDR5051. He and the owner and manager of Wellington agreed that, for the sum of $315, the delivery date would be changed from March 30 to April 25. A contract modification confirming this agreement was issued by the contracting officer on April 22. Appeal File, Exhibit 16. 15. By letter dated April 29, Wellington advised the contracting officer that the inspection point listed in the contract for Fort Howard, its listed manufacturer, was not as stated in the contract, but rather was to be Rincon, Georgia. Appeal File, Exhibit 22. 16. By message dated April 29, 1998, the contracting officer denied approval of the proposed assignment on the ground that Unisource was not a bank or financial institution. Appeal File, Exhibits 18, 20-21. 17. By early May 1998, it was obvious that there were serious problems with the contract. Once again, Wellington had failed to make timely delivery on order NWDR5051. In addition, by May 4, GSA had issued five other delivery orders: FWDR6241, NWDR6242, SWDR6243, AWDR7011, and FWDR7012. An in-house e-mail message to the contracting officer from a GSA official complained that delivery order NWDR5051 was still outstanding and no delivery information was available on the five additional orders. Stock in two areas was said to be already at a critical level. The message suggested to the contracting officer that he consider purchasing from alternative sources pursuant to the contract's "buy around" clause (see Finding 5). Appeal File, Exhibit 24. 18. In a reply message, dated May 5, to the GSA official, the contracting officer agreed that the situation was serious. He explained that Wellington had decided to return to its original manufacturer, Fort Howard, but that the production/inspection point had recently been changed. This change would require a new PEFR by quality assurance personnel. In the meantime, given the Government's refusal to approve an assignment of contract proceeds to Unisource, Wellington was now in search of financing for its contract. The contracting officer indicated that he was prepared to give appellant "one last chance to see if he can pull everything together." Pending resolution of these matters, he recommended deferring further orders from Wellington and purchasing from alternative sources pursuant to the contract's "buy around" provision. Appeal File, Exhibit 24. 19. On the same day, May 5, a PEFR was issued regarding Wellington's original supplier. When contacted by phone by a GSA representative, a spokesman for Fort Howard advised the representative that the company would not commit to produce the paper towels for this contract. Appeal File, Exhibit 26. 20. By letter dated May 11, Wellington was formally advised by the contracting officer that it was now delinquent on three orders and that an attempted delivery on one of these orders had been rejected. The contracting officer noted that it was essential GSA and the agencies it supports receive timely delivery of quality product meeting contract specifications. The letter went on to advise Wellington that, pursuant to contract clause G-FSS-908 (Finding 5), the Government would defer further placement of orders until it was satisfied that Wellington was capable of making timely delivery of quality product. The contracting officer served notice that requirements would be procured from another source pending resolution of Wellington's problems. Appeal File, Exhibit 25. 21. On May 27, a spokesperson for Fort Howard confirmed to the contracting officer that Fort Howard had no intention of supplying material for Wellington's contract. Appeal File, Exhibit 28. The contracting officer thereupon advised Wellington that the proposed change in production/inspection point to Fort Howard's plant at Rincon, Georgia, was unacceptable in the absence of a firm commitment in writing from the manufacturer. 22. On May 20, the contracting officer and Wellington's owner agreed to an amendment of the delivery dates on the four outstanding delivery orders which, by then, were delinquent, namely: NWDR5051, FWDR6241, NWDR6242, and SWDR6243. In exchange for Wellington's promise to pay $1475, the contracting officer agreed to change the delivery date of April 25, 1998, on all four orders to June 12, 1998. This agreement was confirmed by a formal contract modification issued on May 28. Appeal File, Exhibit 30. 23. On June 9, GSA issued another show cause notice. This notice demanded an explanation why three additional delivery orders calling for delivery on June 6, 1998, namely, AWDR7011, FWDR7012, and NWDR7013, should not be terminated for default in view of appellant's failure to make delivery by that date. Appellant was given until June 15 to reply. Appeal File, Exhibit 31. 24. On June 15, Wellington sent a telefacsimile message to the contracting officer explaining that it had secured a new manufacturer, Shephard Tissue in Memphis, Tennessee. Because of the change in manufacturer, Wellington asked for an extension of the delivery dates for the seven outstanding delivery orders. Appeal File, Exhibit 33. On June 30, a site visit to the new production/inspection site was conducted by a GSA representative. His PEFR concluded that Shephard Tissue was capable of performing. Id., Exhibit 34. 25. On July 8, 1998, the contracting officer and the president of Wellington agreed to another change in the delivery date of outstanding delinquent orders. In exchange for Wellington's promise to pay $1500, the contracting officer agreed to extend the delivery date on all orders (i.e., NWDR5051, FWDR6241, NWDR6242, SWDR6243, AWDR7011, FWDR7012, and NWDR7013) to July 20, 1998. A formal contract amendment reflecting this agreement was issued on the same date. Appeal File, Exhibit 37. 26. Delivery was not made on July 20. On that date, therefore, GSA issued another show cause notice. This notice demanded an explanation why delivery on the seven orders had not been made. Appellant was given until July 24 to reply. Appeal File, Exhibit 40. 27. On July 20, the contracting officer spoke by telephone with Wellington's owner. Wellington's owner explained that he was attempting to arrange for an assignment of the proceeds from the contract to a bank but that the bank was unwilling to agree to the assignment since the city of Albany, Georgia, now had a lien on his property.[foot #] 3 Without this financing, Wellington's owner contended he could not purchase materials from his supplier. On that same date, Wellington's owner sent a letter to the contracting officer by telefacsimile stating that a further delay of delivery would be necessary owing to problems encountered by the new manufacturer and supplier, Shephard Tissue. Wellington's owner assured the contracting officer, however, that delivery could be made by August 22. Appeal File, Exhibits 41-42. Termination of Wellington's Contract 28. At this point in time, the contracting officer sought the concurrence of procurement officials within the agency to terminate Wellington's contract in its entirety. In seeking their concurrence, he referred to the delays and numerous extensions already given to the contractor, to the continuing problem of obtaining contract financing, and to the compounding of this problem by the city's imposition of a lien on Wellington's property. He concluded that Wellington had ample opportunity to resolve its financial and delivery problems but had failed to do so. He suggested that this gave rise to doubts of whether the contractor would ever be able to resolve these problems in a satisfactory manner. Appeal File, Exhibit 43. 29. On July 28, the GSA procurement officials concurred in the contracting officer's proposal to terminate Wellington's contract in its entirety. Appeal File, Exhibit 44. By letter dated July 29, 1998, the contracting officer notified Wellington that its contract was terminated for cause in its entirety pursuant to paragraph (m) of contract clause 52.212-4, Contract Terms and Conditions - Commercial Items. The termination was said to be based on the contracting officer's conclusion that Wellington's failure to perform did not arise out of causes beyond its control and without its fault or negligence within the meaning of paragraph (f) of the same contract clause. Id., Exhibit 46. ----------- FOOTNOTE BEGINS --------- [foot #] 3 The lending institution with which Wellington was negotiating for an assignment later confirmed this refusal in writing by letter dated July 29, 1998, the date on which the contracting officer actually terminated Wellington's contract. Appeal File, Exhibits 35, 45. ----------- FOOTNOTE ENDS ----------- 30. By letter dated August 4, 1998, Wellington appealed the contracting officer's decision to terminate its contract for default. Wellington's Certificate of Competence 31. Prior to award of Wellington's contract, a financial review and PEFR for this prospective contractor were requested by the contracting officer. Both resulted in a recommendation against award. Wellington's finances were found to be too marginal for the proposed award and the source of supply (Fort Howard) was said to be unable and unwilling to be the inspection point under the contract. Given Wellington's small business status, the matter was referred to the Small Business Administration (SBA). By letter dated February 5, 1998, the contracting officer was advised by SBA that it was issuing a certificate of competence (COC) for Wellington. The decision to issue a COC was said to be based on the follow three facts: 1) Wellington House has a written agreement with Unisource to supply the solicitation requirements. 2) Unisource is a distributor for Fort James Paper Mill. Fort James Paper Mill is the manufacturer of the product. Fort James has agreed to be the source inspection point and maintains a quality system in accordance with the standards of ISO [International Organization for Standardization] 9002. Unisource is also ISO 9002 certified. 3) Unisource has confirmed that they will extend Wellington House a credit limit up to $65,000 for the proposed contract. Appeal File, Exhibit 1 at 4-6. Discussion The termination of a contract for default is a drastic step that the Government should take only when there are good grounds for doing so and when solid evidence supports such action. J. D. Hedin Construction Co. v. United States, 408 F.2d 424 (Ct. Cl. 1969); General Cutlery v. General Services Administration, GSBCA 13154, 96-1 BCA 27,957 (1995). Because of this, the Government bears the burden of proving that a decision to terminate a contract for default was proper. Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987); Environmental Data Consultants, Inc. v. General Services Administration, GSBCA 13244, et al., 96-2 BCA 28,614; Sierra Tahoe Mfg., Inc. v. General Services Administration, GSBCA 12679, 94-2 BCA 26,771. Based upon the record before us, we conclude that the Government has met this burden. In this case, Wellington does not deny that it was in default on seven delivery orders at the time its contract was terminated for default. Rather, it claims that its default was excusable because the default was the result of causes beyond its control. Specifically, Wellington argues that the numerous problems it had with its suppliers and with financing for its contract were problems beyond its control. The Government disagrees and states that contract financing and subcontractor commitments are the ultimate responsibility of the contractor and that, in this case, Wellington had ample opportunity to resolve its finance and delivery problems. Given the circumstances in this case, we find ourselves in agreement with GSA. The contract expressly provides that Wellington shall be liable for default unless nonperformance is caused by an occurrence beyond the reasonable control and without the fault or negligence of the contractor. Finding 4. Almost immediately from the time of contract award, financing and supply arrangements, represented at the time as firm, began to unravel. We are not prepared to accept the fact that this was attributable solely to causes outside Wellington's control or without any fault or negligence on its part. Traditionally, the Government looks to the bidder or offeror on a supply contract to assemble and secure with relative certainty the means and entities necessary to perform in the event the offer is accepted. For this reason, the prime contractor generally is considered primarily responsible for the performance of its subcontractors and an "excusable default" is normally said to be one which is beyond the control, fault or negligence of both the contractor and the subcontractor. 48 CFR 52.249-8(c), (d) (1998) (FAR 52.249-8(c), (d)); Bromion, Inc. v. United States, 411 F.2d 1020, 1023-24 (Ct. Cl. 1969); American Technical Coatings Corp. v. General Services Administration, GSBCA 13052, et al., 96-1 BCA 27,991 (1995). Notwithstanding GSA's concerns regarding Wellington's ability to perform a contract, the SBA saw fit to grant Wellington a COC. This decision of the SBA was based upon three facts. First, Wellington was said to have a "written agreement with Unisource to supply the solicitation requirements." Second, the designated manufacturer was said to have agreed to be the source inspection point. Third, Unisource was said to have confirmed it would extend a credit limit up to $65,000 to Wellington. Following contract award, it was learned that the manufacturer was not prepared to provide the product at an agreed price and, eventually, that it would simply not support Wellington at all. It also emerged that the credit said to have been promised to appellant by Unisource would not be extended unless contract proceeds were assigned to the creditor. Appellant has provided us with nothing to demonstrate that Fort Howard's price change or ultimate refusal to support Wellington's performance of the contract constituted a formal breach of any prior existing agreement or that Unisource's insistence on assignment as a condition to credit amounted to a similar breach. Reluctantly, in the absence of showings such as these, we can only conclude that Wellington's bid package was simply not as firm as it was purported to be. Responsibility for this must ultimately rest with the bidder. Similarly, just as it is primarily the responsibility of the bidder to ensure prior to award that there will be reliable financing and subcontractors, so also is it ultimately the contractor's responsibility to find alternative financing or substitute suppliers in the event original arrangements are found wanting. In this case, the record amply demonstrates that arrangements initially made by Wellington miscarried and that efforts to make alternative arrangements after award failed as well. We cannot conclude that Wellington, as bidder and ultimately as contractor, is totally without fault or negligence for what occurred. GSA's administration of Wellington's contract prior to termination was conscientious. Show cause notices were promptly issued when delivery dates were missed and new delivery schedules were established as required. DeVito v. United States, 413 F.2d 1147, 1154 (Ct. Cl. 1969); Marci Enterprises, Inc. v. General Services Administration, GSBCA 12197, 94-1 BCA 26,563, at 132,183 (1993). When the contract was finally terminated, the Government's action was in accordance with applicable contract provisions. We, therefore, find the termination to have been proper. Decision This appeal is DENIED. ________________________ EDWIN B. NEILL Board Judge We concur: _____________________ ________________________ STEPHEN M. DANIELS ANTHONY S. BORWICK Board Judge Board Judge