ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeal of -- ) ) Capy Machine Shop, Inc. ) ASBCA No. 59133 ) Under Contract No. SPE4A7-13-M-D099 )
APPEARANCE FOR THE APPELLANT: Mr. Salvatore Capacchione President
APPEARANCES FOR THE GOVERNMENT: Daniel K. Poling, Esq. DLA Chief Trial Attorney Edward R. Murray, Esq. Adrienne D. Bolton, Esq. Trial Attorneys DLA Aviation Richmond, VA
OPINION BY ADMINISTRATIVE JUDGE TUNKS
This is an appeal from the default termination of a contract to supply aircraft parts. The parties have elected to submit the appeal on the record pursuant to Board Rule 11.
FINDINGS OF FACT
1. On 9 July 2013, Mr. John Vlachos, general manager of Capy Machine Shop, Inc. (Capy), accepted Order No. SPE4A7-13-M-D099 1 (hereinafter the contract) in the amount of $52,232.85 to supply 27 splice fairings to the Defense Logistics Agency Aviation (DLA Aviation or government) (R4, tab 1 at 1, 2). The date of contract award was 10 July 2013 (R4, tab 9). The first article was due 180 days after award or 6 January 2014 (R4, tab 1 at 3). The delivery date for the production quantity was 3 September 2014 (R4, tab 1 at 1-2, 9).
2. The contract incorporated FAR 52.249-8, DEFAULT (FIXED-PRICE SUPPLY AND SERVICE) (APR 1984) which provided, in part, as follows:
(a)(l) The Government may ... terminate this contract in whole or in part ifthe Contractor fails to-
1 The contract resulted from a Request for Quotations issued by the government on 3 June 2013 (R4, tabs 3, 4). (i) Deliver the supplies or to perform the services within the time specified in this contract or any extension;
(ii) Makes progress, so as to endanger performance of this contract ... ; or
(iii) Perform any of the other provisions of this contract. ...
(R4, tab I at 18)
3. Following contract award on 23 September 2013, Banner Metalcraft, Inc. (Banner), Capy's subcontractor, amended its quotation to Capy to include a one-time tooling charge of$26,512.00. Banner's original quote of 12 June 2013 did not have the tooling charge (attach. 1 to appellant's 12 March 2015 hr.). This cost was not included in Capy's original quotation to the government at which time Capy erroneously believed tooling was otherwise available. Capy was unable to locate this tooling. (Bd. corr. file, attach. to notice of appeal)
4. On 7 November 2013, Mr. Vlachos emailed the contracting officer (CO) as follows:
Please cancel the above contract at no cost to Capy Machine. Our forming vendor can't locate his tooling[.]
(R4, tab 6)
5. On 13 November 2013, the CO issued a show cause notice:
Because you have indicated in an e-mail dated 07 NOV 2013 citing an inability to locate tooling on contract SPE4A7-13-M-D099 within the time required by its terms and thereby requesting termination for conv.enience, the Government is considering terminating this contract under the provisions for default. Pending a final decision in this matter, it will be necessary to determine whether your failure to perform arose from causes beyond your control and without your fault or negligence. Accordingly, you are given the opportunity to present, in writing, any facts bearing on the question to me ... within 10 days after receipt of this notice.
(R4, tab 7)
2 6. On 26 November 2013, Mr. Vlachos emailed Mr. Len DuPilka, the contract administrator, advising as follows:
The cost of new tooling is $26,512.00 total which wasn't included on the quote. That is the reason for asking to cancel this contract.
(R4, tab 8)
7. On 12 December 2013, the CO terminated the contract for default, stating as follows:
You are hereby notified that contract SPE4A7-13-M-D099 is terminated for default effective immediately. Your right to proceed further with performance of this contract is terminated. The termination is based on your failure to perform in accordance with the terms and conditions of the contract. The terminated supplies may be procured against your account and you will be held liable for excess costs.
(R4, tab 10) How Capy had failed to perform was not explained.
8. On 9 January 2014, Capy timely appealed the final decision to this Board. We docketed the appeal as ASBCA No. 59133.
9. On 4 April 2014, the government moved for summary judgment on the ground of anticipatory repudiation, citing Capy's 7 November and 26 November 2013 requests for a no-cost cancellation. We denied the motion on 22 October 2014. Capy Machine Shop, Inc., ASBCA No. 59133, 14-1BCA~35,784.
10. The parties have agreed to submit the appeal on the written record pursuant to Board Rule 11. Both parties submitted briefs. The government attached Mr. DuPilka's 5 March 2015 declaration to its brief as exhibit 3. Mr. DuPilka's declaration states, in part, as follows:
Capy has a history of obtaining awards by quoting low prices, then requesting cancellation when they cannot perform the contract at that price. I have included as Exhibit 1 e-mails from Capy, all received after September 24, 2013, requesting cancellation after award on 13 orders in addition to the two contracts identified above ....
3 When we cancel a contract, it has an adverse impact on DLA Aviation. A buyer and Contracting Officer must start the process all over again, by issuing a new solicitation, obtaining quotes, and making a new award. This takes time. Not only does it increase DLA Aviation's administrative costs, it also means we will take longer to get the parts to our military customers. In many instances it also leads to them going without the parts they need.
The government also submitted Capy' s answers to government interrogatories, in part, as follows:
Interrogatory 4: In your January 9, 2014, Notice of Appeal/Complaint you state "[W]e cannot afford to complete this order." Explain what you meant by "cannot afford to complete this order."
Answer: The cost of tooling exceeded the price of the contract therefore making the contract unconscionable.
Interrogatory 5: Identify the date when you decided you could not afford to complete the order.
Answer: On 11/06/13.
Interrogatory 7: At the time the contract was terminated for default, did you intend to fulfill the contract at the existing price?
Answer: Due to the circumstance we were unable to fulfill the contract.
DECISION
A termination for default is "a drastic sanction which should be imposed ... only for good grounds and on solid evidence." JD. Hedin Construction Co. v. United States, 408 F .2d 424, 431 (Ct. Cl. 1969) (citations omitted). The government bears the burden of proving that the termination was justified. If the government establishes a prima facie case that the termination was proper, the burden of production-or going forward-shifts to the contractor. Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987).
4 The government argues that its termination for default was justified because( 1) Capy anticipatorily repudiated the contract, and (2) Capy's routine practice of bidding low and requesting a no-cost cancellation when it cannot perform adversely impacts DLA's ability to supply needed parts to the field and increases its administrative costs. Capy argues that the termination was improper because its supplier increased the cost of tooling after award, making it unconscionable for Capy to perform at the contract price.
The government further argues that Capy anticipatorily repudiated the contract because it twice requested the CO to cancel the contract after award.
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ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeal of -- ) ) Capy Machine Shop, Inc. ) ASBCA No. 59133 ) Under Contract No. SPE4A7-13-M-D099 )
APPEARANCE FOR THE APPELLANT: Mr. Salvatore Capacchione President
APPEARANCES FOR THE GOVERNMENT: Daniel K. Poling, Esq. DLA Chief Trial Attorney Edward R. Murray, Esq. Adrienne D. Bolton, Esq. Trial Attorneys DLA Aviation Richmond, VA
OPINION BY ADMINISTRATIVE JUDGE TUNKS
This is an appeal from the default termination of a contract to supply aircraft parts. The parties have elected to submit the appeal on the record pursuant to Board Rule 11.
FINDINGS OF FACT
1. On 9 July 2013, Mr. John Vlachos, general manager of Capy Machine Shop, Inc. (Capy), accepted Order No. SPE4A7-13-M-D099 1 (hereinafter the contract) in the amount of $52,232.85 to supply 27 splice fairings to the Defense Logistics Agency Aviation (DLA Aviation or government) (R4, tab 1 at 1, 2). The date of contract award was 10 July 2013 (R4, tab 9). The first article was due 180 days after award or 6 January 2014 (R4, tab 1 at 3). The delivery date for the production quantity was 3 September 2014 (R4, tab 1 at 1-2, 9).
2. The contract incorporated FAR 52.249-8, DEFAULT (FIXED-PRICE SUPPLY AND SERVICE) (APR 1984) which provided, in part, as follows:
(a)(l) The Government may ... terminate this contract in whole or in part ifthe Contractor fails to-
1 The contract resulted from a Request for Quotations issued by the government on 3 June 2013 (R4, tabs 3, 4). (i) Deliver the supplies or to perform the services within the time specified in this contract or any extension;
(ii) Makes progress, so as to endanger performance of this contract ... ; or
(iii) Perform any of the other provisions of this contract. ...
(R4, tab I at 18)
3. Following contract award on 23 September 2013, Banner Metalcraft, Inc. (Banner), Capy's subcontractor, amended its quotation to Capy to include a one-time tooling charge of$26,512.00. Banner's original quote of 12 June 2013 did not have the tooling charge (attach. 1 to appellant's 12 March 2015 hr.). This cost was not included in Capy's original quotation to the government at which time Capy erroneously believed tooling was otherwise available. Capy was unable to locate this tooling. (Bd. corr. file, attach. to notice of appeal)
4. On 7 November 2013, Mr. Vlachos emailed the contracting officer (CO) as follows:
Please cancel the above contract at no cost to Capy Machine. Our forming vendor can't locate his tooling[.]
(R4, tab 6)
5. On 13 November 2013, the CO issued a show cause notice:
Because you have indicated in an e-mail dated 07 NOV 2013 citing an inability to locate tooling on contract SPE4A7-13-M-D099 within the time required by its terms and thereby requesting termination for conv.enience, the Government is considering terminating this contract under the provisions for default. Pending a final decision in this matter, it will be necessary to determine whether your failure to perform arose from causes beyond your control and without your fault or negligence. Accordingly, you are given the opportunity to present, in writing, any facts bearing on the question to me ... within 10 days after receipt of this notice.
(R4, tab 7)
2 6. On 26 November 2013, Mr. Vlachos emailed Mr. Len DuPilka, the contract administrator, advising as follows:
The cost of new tooling is $26,512.00 total which wasn't included on the quote. That is the reason for asking to cancel this contract.
(R4, tab 8)
7. On 12 December 2013, the CO terminated the contract for default, stating as follows:
You are hereby notified that contract SPE4A7-13-M-D099 is terminated for default effective immediately. Your right to proceed further with performance of this contract is terminated. The termination is based on your failure to perform in accordance with the terms and conditions of the contract. The terminated supplies may be procured against your account and you will be held liable for excess costs.
(R4, tab 10) How Capy had failed to perform was not explained.
8. On 9 January 2014, Capy timely appealed the final decision to this Board. We docketed the appeal as ASBCA No. 59133.
9. On 4 April 2014, the government moved for summary judgment on the ground of anticipatory repudiation, citing Capy's 7 November and 26 November 2013 requests for a no-cost cancellation. We denied the motion on 22 October 2014. Capy Machine Shop, Inc., ASBCA No. 59133, 14-1BCA~35,784.
10. The parties have agreed to submit the appeal on the written record pursuant to Board Rule 11. Both parties submitted briefs. The government attached Mr. DuPilka's 5 March 2015 declaration to its brief as exhibit 3. Mr. DuPilka's declaration states, in part, as follows:
Capy has a history of obtaining awards by quoting low prices, then requesting cancellation when they cannot perform the contract at that price. I have included as Exhibit 1 e-mails from Capy, all received after September 24, 2013, requesting cancellation after award on 13 orders in addition to the two contracts identified above ....
3 When we cancel a contract, it has an adverse impact on DLA Aviation. A buyer and Contracting Officer must start the process all over again, by issuing a new solicitation, obtaining quotes, and making a new award. This takes time. Not only does it increase DLA Aviation's administrative costs, it also means we will take longer to get the parts to our military customers. In many instances it also leads to them going without the parts they need.
The government also submitted Capy' s answers to government interrogatories, in part, as follows:
Interrogatory 4: In your January 9, 2014, Notice of Appeal/Complaint you state "[W]e cannot afford to complete this order." Explain what you meant by "cannot afford to complete this order."
Answer: The cost of tooling exceeded the price of the contract therefore making the contract unconscionable.
Interrogatory 5: Identify the date when you decided you could not afford to complete the order.
Answer: On 11/06/13.
Interrogatory 7: At the time the contract was terminated for default, did you intend to fulfill the contract at the existing price?
Answer: Due to the circumstance we were unable to fulfill the contract.
DECISION
A termination for default is "a drastic sanction which should be imposed ... only for good grounds and on solid evidence." JD. Hedin Construction Co. v. United States, 408 F .2d 424, 431 (Ct. Cl. 1969) (citations omitted). The government bears the burden of proving that the termination was justified. If the government establishes a prima facie case that the termination was proper, the burden of production-or going forward-shifts to the contractor. Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987).
4 The government argues that its termination for default was justified because( 1) Capy anticipatorily repudiated the contract, and (2) Capy's routine practice of bidding low and requesting a no-cost cancellation when it cannot perform adversely impacts DLA's ability to supply needed parts to the field and increases its administrative costs. Capy argues that the termination was improper because its supplier increased the cost of tooling after award, making it unconscionable for Capy to perform at the contract price.
The government further argues that Capy anticipatorily repudiated the contract because it twice requested the CO to cancel the contract after award. We considered and rejected this argument in our decision on the government's motion for summary judgment. Capy Machine Shop, 14-1 BCA ii 35,784 at 175,044. We held that Capy's requests did not evince the "positive, definite, unconditional and unequivocal" refusal to perform required to prove anticipatory anticipation. While the government has submitted additional evidence, including Capy's answers to interrogatories, we are not convinced that such responses render its request for a no-cost termination to be a positive, definite, unconditional and unequivocal refusal to perform. Capy made a request to which the government never really responded, except to terminate for default.
The government also argues that the termination should be upheld on the basis of public policy. In its brief, the government explains as follows:
Capy routinely asks the Government to cancel its contracts after award because it can no longer afford to perform them or cannot obtain the part it originally quoted .... [T]his ... negatively impacts DLA Aviation.... DLA Aviation must essentially start over from scratch and issue a new solicitation for the item, review quotes and make a new award, then wait for a new delivery period to pass .... Certainly the Government could wait until delivery was due for each of Capy's contracts [and] then terminate for default...[b]ut that would put the Government even further behind in obtaining the parts it needs and hamper its ability to effectively prioritize its procurement workload.
(Gov't hr. at 8-9)
Federal Rules of Evidence (FRE) 406 2 permits the introduction of evidence of routine practice of an organization to prove that on a particular occasion the organization acted in accordance with the routine practice. See generally Advisory Committee Notes to 1972 Proposed Rules; Handbook of Federal Evidence, 7th ed., vol. 3, § 406; Federal Rules of Evidence Manual, 8th ed., vol. 2, § 406. While perhaps the evidence of routine practice is sufficient to prove that appellant frequently requests that contracts be
2 The Board uses the FRE as a guide. Board Rule 10(c) (2014 ).
5 cancelled, it is not sufficient to prove that it is Capy's routine practice to bid or quote with no intention of performing. Indeed, the evidence in this appeal is that pre-existing tooling could not be found and would have to be produced at a cost of approximately 50% of the contract price-a fact unknown to Capy at the time of quotation or award.
The government has not pointed to any authority justifying a termination for default under one contract based upon a history of performance under other contracts. Nor are we aware of any. This argument is not persuasive. It is apparent that the government is frustrated by the number of times Capy has asked for the cancellation of contracts and considers that Capy has a routine practice of receiving awards it does not intend to fulfill. The concern is one that perhaps is best addressed in the process of the award of contracts, not the termination of contracts once awarded.
Neither of the grounds relied on by the government justify the termination for default and we have no evidence whether a termination for failure to make progress was justified.
The appeal is sustained. The termination for default is converted to a termination for the convenience of the government.
Dated: 8 October 2015
~~ LiZETHA. TUNKS Administrative Judge Armed Services Board of Contract Appeals
I concur I concur
NA/-£$ __ _ MARK N. STEMPLE~ _RI_C_H_ARD __S_H_A_C_K_L_E_F_O_RD _ _ __ Administrative Judge Administrative Judge Acting Chairman Vice Chairman Armed Services Board Armed Services Board of Contract Appeals of Contract Appeals
6 I certify that the foregoing is a true copy of the Opinion and Decision of the Armed Services Board of Contract Appeals in ASBCA No. 59133, Appeal of Capy Machine Shop, Inc., rendered in conformance with the Boards Charter.
Dated:
JEFFREY D. GARDIN Recorder, Armed Services Board of Contract Appeals