Board of Contract Appeals
                    General Services Administration
                         Washington, D.C. 20405
 
 
 
                   __________________________________
 
                        GRANTED:  June 30, 1998
                   __________________________________
 
 
                           GSBCA 12503, 13051
 
 
                      PRODUCTS ENGINEERING CORP.,
 
                                                Appellant,
 
                                   v.
 
                    GENERAL SERVICES ADMINISTRATION,
 
                                                Respondent.
 
        Jack  Rephan of  Hofheimer    Nusbaum,  P.C.,  Norfolk,  VA,
   counsel for Appellant.
 
        Michael  J.   Noble,  Office  of  General  Counsel,  General
   Services Administration, Washington, DC, counsel for Respondent.
 
   Before Board Judges PARKER, HYATT, and WILLIAMS.
 
   HYATT, Board Judge.
 
        Appellant, Products  Engineering Corp.  (PEC), has  appealed
   the termination  for default  of its contract  for the  supply of
   combination squares  (GSBCA 12503) and the  contracting officer's
   subsequent  decision  assessing  excess  costs  of  reprocurement
   (GSBCA 13051).   PEC's  contract was terminated  for default  for
   failure  to   timely   deliver   products   conforming   to   the
   specifications  and for  failure to  maintain  plant quality  and
   process controls.  For the  reasons stated below, the appeals are
   granted.  
 
                            Findings of Fact
 
   Background
 
        1.   PEC  is a manufacturer of precision measuring tools and
   the  largest manufacturer  of fixed  combination  squares in  the
   world.   PEC has been in business since 1960 and has been selling
   combination squares to the General Services Administration  (GSA)
   since the early 1970s.  Transcript at 461-62, 473.  
 
        2.   On July 31, 1992,  the General Services  Administration
   (GSA) awarded to PEC  fixed-price contract number GS-00F-50322 to
   provide the Government its  requirements for combination squares,
   under National Stock Numbers (NSNs) 5210-00-540-3513 and 5210-00-
   078-8949, for  the period August  1, 1992 through July  31, 1994.
   The  contract required that  the combination squares  comply with
   Federal  Specification GGG-S-656D, dated September 25, 1987.  The
   contract  also provided that  orders for the  combination squares
   were subject to the  sampling and testing procedures of  MIL-STD-
   105.    Delivery was  required to be  made at  destination within
   seventy-five calendar days  after receipt of  the order.   Appeal
   File,[foot #] 1   Exhibit   1;    Appellant's   Hearing   Exhibit
   20.  
 
        3.         A  combination square is a multipurpose precision
   tool consisting of a ruler, or blade, and an assortment  of heads
   used  for a variety of measuring tasks and calculations,  such as
   checking  square and  marking straight  cuts across boards.   See
   Transcript at 466-70.   The applicable specification, GGG-S-656D,
   defined the basic  Type VI  combination blade  for machinists  to
   consist of  a graduated blade  and a square  and miter  head with
   blade-clamping device, level glass, and scriber.  If requested by
   the purchaser, a center head  and a protractor head will  also be
   furnished   with  each   unit.[foot #] 2     For   the  Type   VI
   square, the  center  head attachment  is  used to  determine  the
   location of  a hole in a round piece of  steel.  The squares were
   required to  conform to  stated dimensions set  forth in  a table
   accompanying   the  specification.     Section   6.2   of     the
   specification  states that  the squares  and  attachments defined
   therein are to be used by carpenters, diemakers,  machinists, and
   others in  layout  of  angles  and  in  determining  angles  when
   fabricating  parts   from  wood,  metal,   or  other   materials.
   Supplemental Appeal File, Exhibit 1 at 11; Transcript at 469.  
 
 
 
   Contract Provisions
 
        4.   Included  among  the general  specification  provisions
   applicable  to the squares  delivered under the  subject contract
   are the following:
 
             3.5  Finish  and  coatings.     All  utile or
             machine-ground and polished  surfaces bearing
             graduations . . .  shall have a finish of  32
             microinches   roughness   height   rating  or
             better.  Determination  of surface finish  of
                                                                    
                   ----------- FOOTNOTE BEGINS ---------
 
        [foot #] 1   All references are  to the appeal file in GSBCA
   12503, unless otherwise specified.
 
        [foot #] 2    The  combination  squares supplied  under this
   contract included a center head and a protractor head.
 
                   ----------- FOOTNOTE ENDS -----------
 
 
 
             blade  edges shall be made by use of standard
             surface finish masters for visual comparison.
             Graduations and  figures shall have  a finish
             which will make it possible for easy accurate
             reading.
 
             3.6  Graduations.  All graduation lines shall
             be etched or machine cut to a width and depth
             . . . as  specified for each type and  class.
             The edges of graduation lines shall be sharp,
             straight, legible, and permanent.  
 
   Supplemental Appeal File, Exhibit 1.
 
        5.   Some  of the  specific requirements  applicable  to the
   Type VI blades are as follows:
 
             3.18.2  Blade.  The blade shall be steel,  of
             uniform  thickness . . . .   Edges  and faces
             shall be straight and true.
 
             3.18.5  Center   head.     The   inside   arm
             surfaces,  including   their  adjacent   side
             surfaces, shall be finished straight and true
             and  square.    The arm  shall  include  a 90
             degree  angle  with  a   tolerance  of  +  15
             minutes,  the vertex  of  which shall  center
             with the edge of the blade.
 
             3.18.7.1  Scale  accuracy.   The scale  error
             taken  at the  one-half inch  graduation from
             each  end shall not exceed  . . . +0.005 inch
             or -0.0035 inch in 12 inches.
 
             3.18.7.5  Center  head.     The  blade  shall
             bisect the  included angle,  as measured,  of
             the center  head within  a tolerance  of +  3
             minutes.
 
             3.23  Workmanship.  The squares shall be free
             of  all   burrs,  fins,   sharp  projections,
             excessive  surface  roughness, or  any  other
             imperfections   which   may    impair   their
             durability, serviceability, and appearance.
 
   Supplemental Appeal File, Exhibit 1.
 
        6.   Under the  contract, PEC  was required  to maintain  an
   inspection  system in compliance with all requirements of Federal
   Standard 368 and   acceptable to the Government  for the supplies
   to  be  provided.    Supplies  tendered  to  the  Government  for
   acceptance must have been inspected  under that system and  found
   to be in  conformance with contract  requirements.  Although  the
   Government   would   normally   rely   upon   the    contractor's
   certification as to the quality  of supplies shipped, it reserved
   the  right  under  Federal  Acquisition  Regulation (FAR)  clause
   52.246-2  (Inspection of Supplies -- Fixed  Price) to inspect and
   test before acceptance, all supplies provided under the contract.
   The contract inspection clauses further provided that:
 
 
             During  the  contract  period,  a  Government
             representative   may   periodically    select
             samples  of  supplies   produced  under  this
             contract    for    Government    verification
             inspection and testing. . . .  Samples from a
             rejected  lot   will  be   returned  to   the
             Contractor or  disposed  of  in  a  time  and
             manner agreeable to  both the Contractor  and
             the Government.
 
   Appeal File, Exhibit 1 at 12-13.
 
        7.   Section 4.2 of the  specification sets forth guidelines
   for sampling lots  to determine conformance  with specifications.
   For specification items  to be tested, the proper  sample size is
   thirteen.  For other features to be examined, the proper sampling
   size is  eight.   Section 4.3 of  the specification  provides for
   visual  and dimensional examination of the squares selected under
   the sampling procedures for the  various defects listed in  table
   XIII.  Listed as major defects under table XIII are the following
   items:
 
             101  Type, length, and  width (of blade)  not
                  as specified.
 
             122  Graduations   or   figures    illegible,
                  incorrect,  not  sharply   defined,  not
                  straight, not  uniform, graduations  not
                  etched, 
 
                  machine  cut  or  stamped,  inch  graduations  not
   numbered, 
                  or graduations not as specified (except type IX). 
 
 
   Supplemental Appeal File, Exhibit 1.
 
        7.   Section  4.4 of  the specification  governs  testing of
   samples  for conformance  to visual and dimensional requirements.
   Section 4.4.1 states that each combination square shall be tested
   to  determine  conformance with  the  specification's dimensional
   requirements, as follows:
 
             4.4.1     Dimensions.    Each  sample  square
             shall  be  tested  at  a  temperature  of  68
             degrees   F.     Whenever   practicable,   to
             determine  conformance  with  the  applicable
             dimensional     requirements      of     this
             specification,   readings   taken   at  other
             temperatures shall be adjusted  to 68 degrees
             F.
 
             4.4.2     Out-of-squareness.      All  sample
             squares shall  be tested  to determine  their
             squareness.   Squareness shall  be determined
             by means of  a surface plate and  a precision
             cylinder square used with a comparator-square
             or with a master square of known accuracy.  
 
             4.4.3     Squareness  test for  inside.   All
             sample squares  shall be tested  to determine
             their accuracy.   A surface  plate and  angle
             plate  may be used  with a thickness  gage to
             measure the error.
 
             4.4.4     Angular trueness.   All sample type
             VI  squares with  protractor  heads shall  be
             tested for angular intervals.   This shall be
             determined by  means  of  either  a  circular
             measuring machine,  sine bar, precision angle
             blocks,  or   other  methods   of  equivalent
             accuracy.
 
             4.4.5     Miter accuracy.  Samples  of type I
             and  VI squares  shall  be  tested for  miter
             accuracy.  This shall be determined by  means
             of  either  universal  angle   gages  or,  an
             approved master  miter of known  accuracy may
             be used.
 
             4.4.6     Hardness.   Hardness testing  shall
             be performed in accordance with ASTM E 18.
 
             4.4.7     Bevel Accuracy.   Bevel accuracy of
             the types IV, V, and VII blades and the miter
             of the type III, style 2 beam shall be tested
             for bevel accuracy.  This shall be determined
             by means  of a universal protractor  of known
             accuracy reading to 5 minutes.
 
             4.4.8     Accuracy.  Type IX  square shall be
             checked   for  accuracy  by   the  use  of  a
             coordinate  measuring  machine  or  by  other
             means approved by the Government.
 
   Supplemental Appeal File, Exhibit 1.  
 
        8.   The standard  clause applicable to  default termination
   of a fixed-price  supply or service contract was  included in the
   contract.   Among other things, this clause permitted termination
   of  the contract  for  default for  the  contractor's failure  to
   deliver supplies within the time  specified under the contract or
   any   extension  thereof.    The  contract  provisions  governing
   inspection of  supplies also stated  that the  contract could  be
   terminated  for  default  if  subsequent  Government  inspections
   disclosed  that plant quality or  process controls were not being
   maintained,  that supplies  not conforming  to the  specification
   requirements were  being shipped,  or if there  was a  failure to
   comply with  any other  requirement  of the  inspection clause.  
   Appeal File, Exhibit 1.
 
   Contract Performance and Administration
 
        9.   PEC had a quality assurance system that was approved by
   GSA.   PEC's quality assurance  specialist had a checklist, which
   included  numerous characteristics  to be  verified, to  complete
   when  product was  ready for  shipment.     Under this  system, a
   variety of instruments, including those referenced in section 4.4
   of the specification, were  used to test the combination  squares
   for conformance with  applicable tolerances.  Transcript  at 481-
   83; Supplemental Appeal File, Exhibits 1, 30.
 
        10.  The contract  required first  article testing.   Appeal
   File,  Exhibit 1.    GSA  witnessed the  first  article tests  on
   September  10, 1992,  and  by letter  dated  September 14,  1992,
   notified  PEC  that  its  first article  and  first  article test
   reports had  been approved.  Appeal File,  Exhibit 2; Appellant's
   Hearing Exhibit 20.
 
        11.  On September 2, 1992, GSA notified PEC of its intention
   to invoke its right to  inspect orders filled under the contract.
   Subsequently, on September 16, 1992, GSA inspected the first such
   order, number FWJ-92151.  Samples were selected from the lot, and
   shipped  to the  GSA  National Laboratory  in  San Francisco  for
   evaluation.   Under  the sampling  plan  as interpreted  by  GSA,
   thirteen  squares were  tested.  Five  of these  thirteen squares
   were rejected for failing  the length of blade requirement  under
   the specification.   Appeal  File, Exhibit 3.   The  samples were
   tested with a coordinate measuring machine  (CMM), which had been
   purchased by the GSA laboratory in 1986.  Transcript at 62-63.
 
 
        12.  GSA's testing laboratory  was certified and  accredited
   by  the   American  Association   of  Laboratory   Accreditation.
   Transcript at 78-80.  During the period relevant to this dispute,
   1992-1993, the  equipment used  was calibrated  annually in  May.
   Respondent's  Hearing Exhibits  2-3;  Transcript  at  105.    The
   operators  of the  equipment had  training  in various  metrology
   methods and  in the use of the CMM.   Transcript at 56-57, 77-78.
 
        13.  GSA's  materials engineer,  who operated  the equipment
   and conducted the tests on  PEC's squares, testified that the CMM
   was  used  instead of  the  usual  metrology methods  to  achieve
   enhanced  repeatability and to  minimize the effects  of operator
   dependency.   He  stated that under  the older  metrology methods
   results  depended  heavily  on  the  experience  of  the  analyst
   conducting  the  test.     Transcript  at  103-04.     On  cross-
   examination, he admitted that he  had no familiarity with the use
   of the cylinder gauge to test angularity, and stated that the GSA
   laboratory did not have such a gauge.  Transcript at 222.
 
        14.  The applicable  specification does not  mention testing
   with a CMM except with respect to the testing of Type IX squares,
   see   Finding 7,  which consist of  a blade  and a beam,  with no
   center head  or miter attachment.   For Type IX  squares, section
   4.4.8  provides that accuracy shall  be checked with  a CMM or by
   other  means approved  by the  Government.   Supplemental  Appeal
   File, Exhibit 1.
 
        15.  The laboratory  checked with  the specification  writer
   and  was  assured  that  the  use  of  the  CMM  to  test various
   characteristics of the  combination squares was  not inconsistent
   with  the  specification's  testing   provisions.    Respondent's
   Hearing Exhibit 22; Transcript at 98-100.
 
        16.  The  tests were  conducted pursuant  to  a written  GSA
   policy, FSS P 2900.6, CHGE 9, that provided the following general
   guidance with respect to the extent of testing of supplies by GSA
   laboratories:
 
             (2)  Complete testing shall  be the objective
             of  the laboratory.   The laboratory head may
             permit  reduced  testing  only  when  he  has
             determined  that   a  sufficient   number  of
             samples under the same specification from the
             same supplier have been completely tested and
             accepted.   However, all  key characteristics
             of salient features must be tested each time.
 
             (3)  Complete testing  shall be  performed on
             bid samples,  preproduction samples,  quality
             approved  manufacturer verification  samples,
 
             qualification samples,  and the first  lot of
             any  contract  not  previously  subjected  to
             preproduction or qualification inspection.
 
             (4)  With the exception of  the testing cited
             in  (3), above, testing shall be performed to
             the point of  major failure; i.e., a  failure
             that would  cause the material to be rejected
             regardless  of  the  outcome  of  other  test
             results.   
 
   Respondent's Hearing  Exhibit 1.   The samples  taken from  PEC's
   shipments  under this contract were quality approved manufacturer
   verification samples, for  which the  policy prescribes  complete
   testing.  Transcript at 424-25.   Nonetheless, the GSA laboratory
   consistently stopped testing at the  point at which a failure was
   first  identified and  did not  test for  further defects  in the
   sample  units.   Supplemental Appeal  File, Exhibits 16-26.   The
   employee  who conducted  the tests  of   PEC's squares  under the
   defaulted  contract testified that this practice had been adopted
   to expedite sample turnaround time.  Transcript at 93-94.
 
        17.  On  October 21, 1992,  a quality deficiency  notice was
   issued to PEC with respect to the combination squares under order
   FWJD-92151 that had been tested by GSA's laboratory.  The quality
   deficiency notice explained  that five of  the blades were  below
   the minimum length  requirement.  Appeal  File, Exhibit 3.   As a
   result   of  these  failures,   PEC  was  placed   on  lot-by-lot
   inspection.   Appeal File, Exhibit 4.
 
        18.  In response to the quality deficiency notice, PEC wrote
   to  GSA  explaining   that  it  had  reinspected  its  stock  and
   determined that  a small  percentage of  twelve inch  blades were
   under the minimum length requirement.  Although 100% of machinist
   blades were checked for length, the nonconforming blades were not
   caught because of a random error  in PEC's digital  caliper.   To
   avoid  the possibility  of  future errors  in  blade length,  PEC
   switched to an  electronic height  gauge to  measure the  overall
   length of the blades.  Appeal File, Exhibit 4; Transcript at 498,
   553.  
 
        19.  After the initial  rejection of  order FWJD-92151,  GSA
   tested samples from two additional lots, and found that blades in
   the  lots  were   similarly  not  in  conformance   with  section
   3.18.7.1's stated tolerances for length of blade.  The laboratory
   reports for samples from  two orders which were taken on November
   2,  1993, and  received in  the laboratory  on November  4, 1993,
   reflect that  two of  thirteen blades failed  the test  for scale
   accuracy for one  lot and one  of thirteen failed  for the  other
   lot.  The  tests also reflect that  GSA did not test  the samples
   for any other  deficiencies.  Supplemental Appeal  File, Exhibits
   16-17; Respondent's Hearing Exhibit 4.   
 
        20.  GSA  submitted  these  same   samples  to  an   outside
   laboratory for verification.  The reports provided to GSA by this
   laboratory confirmed the determination of the GSA laboratory that
   the sample  squares did  not meet  the specification's  tolerance
   requirements for  scale accuracy.  Respondent's  Hearing Exhibits
   5-6; Transcript at 96, 109.  
 
        21.  On January 14,  1993, GSA issued a cure  letter to PEC.
   That  letter points  out  that  after  issuance  of  the  quality
   deficiency notice concerning scale accuracy, and receipt of PEC's
   response on October 29, two subsequent  samples taken on November
   2, see  Finding 16, failed testing for the same characteristic.  
   As  a result, GSA stated its concern  that efforts to correct the
   situation  had  been  ineffective, causing  the  agency  to doubt
   whether PEC's quality control system was adequate to identify and
   correct deficiencies.   The cure  letter asked PEC to  respond in
   ten  days with  a written  and  detailed plan  showing the  steps
   implemented to remedy the "unsatisfactory condition," and  warned
   that  recurrences of the noted deficiencies, i.e., scale accuracy
   and  blade length discrepancies,  could result in  termination of
   the contract without further notice.  Appeal File, Exhibit 4.
 
        22.  By letter dated  January 19, 1993, PEC responded to the
   cure notice.  In this letter, PEC took issue with the sample size
   taken for  purposes of inspecting  for scale accuracy.   PEC took
   the  position that  length of  blade was  a visual  and dimension
   defect under  specification section  4.3, rather  than a  testing
   deficiency under section  4.4, and under the  applicable military
   standard, the proper sample size was eight, rather than thirteen,
   combination squares.  As such,  PEC argued, one of thirteen would
   not  have failed.   PEC also made  a request, in  this letter, to
   witness  dimension inspection and  testing of samples  taken from
   three additional lots.  Appeal File, Exhibit 5.
 
        23.  GSA  responded  to  PEC's  letter  in  a  letter  dated
   February 24, 1993.  This  letter  addressed PEC's contention that
   GSA used the wrong sample  size to reject its combination squares
   and that if the  proper sample size had been used,  the lot would
   have passed  inspection.    In  GSA's view,  to  determine  scale
   accuracy,  testing,   as  opposed   to  dimensional   and  visual
   examination,  is required and called for under the specification.
    In addition,  GSA pointed  out that  PEC itself  tested thirteen
   samples  for scale  accuracy under  its  own inspection  program.
   This  letter also expressed  GSA's understanding and  approval of
   PEC's efforts to correct  deficiencies and stated that under  the
   circumstances GSA did not "see the benefit of a lab visit at this
   time."  Appeal File, Exhibit 6.
 
        24.   On  March  3,  1993,  the  administrative  contracting
   officer wrote to PEC addressing three orders sampled and rejected
   under the subject contract:
 
        P.O. No.       Date Sampled   Due Date  Rejection Date
        FWJD710-1          1/6/93            1/28/93    2/17/93
 
        SWJD706-1          1/6/93            1/28/93    2/24/93
        FWJD785-1          1/13/93           2/14/93    2/24/93
 
   The letter required  PEC to respond within five  days, explaining
   the  basis  for  the  "delinquent  status"of  these  orders,  and
   providing    details   of   the   conditions   leading   to   the
   "delinquencies."  The  letter further stated that  the Government
   did not  intend to waive its  rights under the contract.   Appeal
   File, Exhibit 10.  
 
        25.  The record contains at least ten test reports issued by
   the GSA laboratory with respect  to the results of inspecting and
   testing   PEC's   combination   squares   for   compliance   with
   specifications.     Test  reports for  samples  received  in  the
   laboratory  on November  4,  1993,  from  two  different  orders,
   reflect  rejections based  on  failure  to  pass  scale  accuracy
   requirements.    These tests  were conducted   on November 19 and
   20; the reports were issued on December 11.   Supplemental Appeal
   File, Exhibits 16-17.  A  sample from yet another order, received
   in the laboratory   on   November 12, and  tested on December  4,
   passed  all of  the tests  and  was determined  to be  compliant.
   Supplemental  Appeal File, Exhibit  18.  Laboratory  test reports
   issued on January  28, February 11, February 12,  and February 17
   similarly reflect rejections  based on problems with  scale error
   and other imperfections in the  blades.  Once these problems were
   determined,  testing  was  halted.    Supplemental  Appeal  File,
   Exhibits 19-22.  Laboratory reports issued on March 30, April 27,
   and May 6  found all squares in the samples, which  were received
   in  the  laboratory  on    March  12,  March  25,  and  April  5,
   respectively,  to be  compliant in  all  respects.   Supplemental
   Appeal File, Exhibits 23-25.  
 
        26.  By letter dated  March 8, 1993, PEC  responded to GSA's
   March 3  letter .   In its  response, PEC  pointed out  that each
   order had been delivered approximately three to four weeks before
   the contract delivery date,  and that the "delinquencies" were  a
   direct result of the laboratory's delays in testing and notifying
   PEC  of rejections.    In  addition, PEC  explained  that it  was
   actively  working  with  the  agency  to  clear  up problems  and
   redeliver conforming squares.  Appeal File, Exhibit 8.  
 
        27.  In  a letter  dated  March 15,  1993,  PEC updated  the
   administrative contracting officer on its progress in identifying
   and resolving problem  areas with respect  to the rejected  lots.
   PEC requested  GSA to allow resubmission of the lots by March 31,
   1993.   Appeal  File, Exhibit 8.  In response, the administrative
   contracting  officer agreed to modify the contract to reestablish
   the delivery  due dates on  the affected orders by  extending the
   delivery dates to March 31 in exchange for a mutually agreed upon
   consideration of  $200.   The letter  cautions that the  delivery
   clause  of the contract is not automatically negotiable, however,
   and that failure to make  timely delivery under the  modification
   or on future  orders could result in termination  of the contract
   for default.  Appeal File, Exhibit 9.
 
        28.  PEC  redelivered the  lots forming  the  basis for  the
   modification of  the contract.   On April  5, 1993,  samples from
   order FWJD-7101 were received in  the GSA laboratory.  Tests were
   conducted on May 10, 1993.   The report issued by the  laboratory
   on May  19 reflects that  various features were tested,  and that
   the lot was  rejected because one of the  thirteen squares tested
   failed the  tolerance  for center  head  accuracy of  the  bisect
   angle.  The tolerance  for the bisect angle was +  3 minutes; the
   CMM found a deviation of more than  thirteen minutes.   The angle
   of the center head arms was not tested.  Appeal File, Exhibit 11.
 
        29.  PEC's vice  president and  general manager,  Paul Wien,
   testified  that PEC's inspector  used a cylinder  gauge to verify
   the included angle of the center heads.  This gauge had been used
   successfully for many years and PEC had no reason to believe that
   the angle of the center heads would not pass GSA's  inspection at
   the  time of delivery.   Transcript at 484-85.   Mr. Wien further
   attested that  a variance of  the center head's bisect  angle for
   specified tolerances is minor in  nature and would not render the
   product  unusable for  its intended  purpose.   Additionally,  he
   confirmed that  the defects could  have readily and  quickly been
   corrected by  replacement of any  center heads that did  not meet
   the tolerance.  Transcript at 506, 542-43.  
 
        30.  The CMM used by GSA to test for center head accuracy is
   a large granite plate with  two bars across and an I-beam  across
   the  top.  Attached to the machine  is a probe with a little ball
   on the end.  The probe is operated to touch the part to be tested
   in various places  to determine an angle.   Transcript at 536-37.
   Mr.  Wien also  stated that the  customary use  of the CMM  is to
   check machined  products,  to measure  holes,  such as  valve  or
   piston holes, and   to measure the angles of a block -- e.g., the
   block of a car.  Transcript at 513.  
 
        31.  Specifically   with   respect   to   the  center   head
   measurement, Mr. Wien testified that  the CMM can repeat a single
   reading,  but to test  properly the reading should  be of a plane
   under the specification which refers to the edge of the  blade to
   one  arm.   According to  Mr. Wien, the  variance within  the CMM
   itself was 2.8 minutes, while the  tolerance for the bisect angle
   was only three minutes.  Thus, if the angle was within tolerance,
   but slightly off, the variance  within the CMM itself could cause
   a finding that  the center head bisect angle  error exceeds three
   minutes.  Transcript at 537-38.   Mr. Wien further testified that
   the  use of  the CMM can  also result in  inaccurate and variable
   readings due to operator practices.  For example, with respect to
   the  bisect angle  of  the  center head,  he  explained that  the
   reading will  vary depending  on how tightly  the center  head is
   affixed to  the blade.   The clamping motion required  to tighten
   the blade  and center  head can  change  the angle  and thus  the
   reading.  Transcript at 565-66.
 
        32.  On May 25,  1993, the GSA quality  assurance specialist
   (QAS)   assigned  to  PEC  issued  a  quality  deficiency  notice
   informing  appellant of  the rejection  of  order FWJD-710-1  for
   failure to meet  the tolerance specified for the  bisect angle of
   the center head.   In a letter dated June 10, 1993,  PEC wrote to
   GSA's   Assistant  Commissioner   for   Quality     and  Contract
   Administration to express its concerns about the practices of the
   GSA laboratory.  The letter  raised a number of issues, including
   the rejection  of  the resubmitted  order FWJD-710-1.   PEC  took
   exception  to  GSA's insistence  that  it request  copies  of the
   laboratory reports  under the Freedom of Information Act in order
   to obtain  access to  these documents, and  also objected  to the
   practice of discontinuing testing  after the rejection of  a unit
   based on one characteristic.  PEC explained that  these practices
   frustrated   the  company's   desire  to  investigate   and  take
   expeditious action  to correct  any problems  with its  products.
   With  respect  to  the  rejection of  this  specific  order,  PEC
   acknowledged that  the QAS had shown it  a copy of the laboratory
   test, and  stated that in  its view the  test had been  conducted
   improperly because the angle of the center head arms had not been
   measured.   Supplemental Appeal File, Exhibit 28.
 
 
        33.  The Assistant Commissioner responded to PEC's letter on
   June 29, 1993.  In addressing PEC's concerns, he stated that  (1)
   complete testing  is preferred, (2) in the future it would not be
   necessary  to invoke  the Freedom  of Information  Act to  obtain
   copies  of laboratory test  reports, and (3)  that the laboratory
   had been advised to permit  the contractor to observe testing and
   to  discuss testing  techniques and  procedures.   He  disagreed,
   however, with  PEC's contention  that the  test to  determine the
   bisect  angle had been conducted improperly.  Supplemental Appeal
   File, Exhibit 29.
    
        34.  On  June 18, 1993, GSA terminated contract number 50322
   based on PEC's failure to  deliver conforming Type VI combination
   squares  under order number  FWJD-710-1 by the  extended delivery
   due date.  The  letter noted that the rejection of this reoffered
   order,  based on  the failure  of the  bisect angle  to meet  the
   specified tolerance, constituted the second rejection of this lot
   and that  eight out of  twelve laboratory tests conducted  on PEC
   shipments had been  rejected for various defects  (scale accuracy
   and length  of blade),  leading the Government  to conclude  that
   PEC's   quality  control  system  did  not  conform  to  contract
   requirements.    Appeal  File, Exhibit  12.    The administrative
   contracting officer, in  a memorandum of position  addressing the
   reasons  for terminating the  contract for default,  made similar
   observations  concerning  PEC  's delivery,  on  eight  of twelve
   occasions, see Finding 25, of nonconforming combination  squares,
   which  caused him  to conclude  that PEC  had failed  to practice
   effective quality control.  Appellant's Hearing Exhibit 20.
 
        35.  The letter terminating PEC's  contract for default  was
   signed by  contracting officer  William Lacey,  on behalf  of the
   assigned  contracting  officer,  Paul  Swanson,  because  of  Mr.
   Swanson's unavailability.   Transcript  at  420.   Mr. Lacey  was
   authorized  to sign  the  letter on  behalf of  Mr. Swanson.   In
   addition, Mr.  Lacey was himself  informed about the  decision to
   terminate for default  and had independent  knowledge of the  GSA
   laboratory  tests finding that PEC's combination squares were not
   meeting specification tolerances.  Transcript at 420-23.
 
 
        36.  Subsequent  to  the termination  for  default of  PEC's
   contract, GSA conducted  a reprocurement for combination  squares
   to replace  those to  have  been supplied  under contract  number
   50322.  In February  and April of 1994, GSA awarded  contracts to
   PEC's  wholly  owned  subsidiary,  Sigma  West  Corporation,  for
   replacement  combination  squares.    Appeal  File,  GSBCA 13051,
   Exhibits  4-5.   The squares  purchased from  Sigma West  were of
   substantially higher  quality than  those to  have been  supplied
   under  contract  number   50322  and,  as  a   consequence,  were
   considerably more expensive.   Transcript at 544-45.   On October
   12, 1994,  the contracting  officer issued  a decision  assessing
   reprocurement costs in  the total amount  of $114,414.74.   These
   costs  were comprised  of  the  added  costs  of  purchasing  the
   combination   squares  ($96,733.41)   and  administrative   costs
   associated  with the  conduct of the  reprocurement ($17,681.33).
   Appeal File, GSBCA 13051, Exhibits 6-7.  
        37.  After termination of its contract, PEC requested return
   of the  samples of  squares that had  been selected  for testing.
   GSA did not  return the  samples because it  had decided to  hold
   them  at the  laboratory pending  litigation.   During  discovery
   conducted in  the course of this appeal,  the Government informed
   appellant that, except for nine squares,  it no longer had any of
   the samples and could not return  them to PEC.  GSA has  not been
   able to  provide an explanation  as to why the  remaining squares
   are missing.  Transcript at 165, 168, 377-78, 433-45.   
 
   Prior Sales of Type VI Combination Squares
 
        38.  PEC has been selling Type VI combination squares to GSA
   since the late 1960's.   Since 1984, and  exclusive of the  units
   shipped  under   the  subject  contract,  PEC  had  sold  to  the
   Government more  than 43,000 of  the same combination  squares as
   those  purchased under contract number GS-00F-50322.  Since 1987,
   these  sales were subject to the  same specification and sampling
   and testing procedures as those imposed under contract number GS-
   00F-50322.   Transcript  at 473-78.   Copies  of  prior contracts
   under  which  Type  VI  combination  squares  were  sold  to  the
   Government  under  the   same  terms  and  conditions   as  those
   applicable to  contract 50322  have been  provided by  appellant.
   Appellant's Hearing Exhibits 4-17.
 
        39.  Prior to the  rejections experienced by PEC  under this
   contract, PEC was not aware  of any GSA test results showing  its
   product       to      be       nonconforming      under       the
   specification.[foot #] 3         There    is     testimony    and
   evidence  in  the  record  that  on  two  occasions  under  prior
   contracts the  laboratory had  determined that  PEC's combination
   squares had failed the bisect angle tolerance requirement.  These
   two occasions reflect  testing performed in response  to customer
   complaints.    Respondent's   Hearing  Exhibits  30,  31.     The
   laboratory reports generated  show that the dates  of manufacture
   and  contract numbers  are  unknown.   There  are  no reports  or
   letters showing  that this  information was  ever transmitted  to
   PEC.   Although the laboratory  employee who performed  the tests
   testified that  he believed Mr.  Wien had been notified  of these
   test results  during a visit to the laboratory that took place in
   the late 1980s, he had very little recollection of the purpose of
   or  detailed  issues discussed  in  that  visit  and  could  only
   speculate  that  PEC  would  have been  informed  of  these  test
   results.  Transcript at 59-61.     
 
 
        40.  Mr. Wien  testified that the  visit referred to  by the
   laboratory  technician  was  in   connection  with  test  results
   relevant to another tool  altogether and that he was not  at that
   time informed of any testing  taking place on Type VI combination
   squares.  He unequivocally stated that he had no knowledge of the
   use  of  the  CMM to  test  Type  VI squares  prior  to  the 1992
   contract.  Transcript at 473-74.
 
        41.  Since  at least  1984, PEC  has used  the same  type of
   cylinder gauge  and quality assurance  system to ensure  that the
   combination squares shipped to GSA met the tolerance requirements
   of the  specifications.   Throughout this  period, PEC's  quality
   assurance  systems and  testing methods  have  been observed  and
   approved by GSA.  The instruments used by PEC to test the squares
   for compliance were regularly calibrated.  During that period PEC
   shipped and GSA  accepted more than 43,000 squares  with the same
   blade and center  head that were the subject  of rejections under
   contract number  GS-00F-50322.  PEC asserts that  until GSA began
   testing with a CMM under contract number GS-00F-50322, there were
   no   rejections  of  combination  squares  for  failure  to  meet
   tolerance  requirements.    Transcript   at  473-84;  Appellant's
   Hearing Exhibit 25.
 
                               Discussion
 
        It is  well-settled  that a  termination  for default  is  a
   drastic sanction, to  be imposed upon a contractor  only for good
   cause  and on  the basis of  solid evidence.   DeVito   v. United
   States,  413  F.2d  1147  (Ct.  Cl.  1969);  Foremost  Mechanical
                                                                    
                   ----------- FOOTNOTE BEGINS ---------
 
        [foot #] 3     Mr. Wien testified that to  his knowledge the
   only rejection  of a Type  VI combination square supplied  by PEC
   involved a single  item shipped to a  military base in  the early
   1980s.  Transcript  at 473.  This was  an out-of-warranty product
   and  the incident  has  no  relevance to  the  matter before  us.
   Transcript at 478.  
 
                   ----------- FOOTNOTE ENDS -----------
 
 
   Systems, Inc. v. General Services Administration, GSBCA 12335, et
   al., 95-1 BCA   27,382 (1994);   A.J.C.A. Construction v. General
   Services  Administration, GSBCA 11541, et al., 94-2 BCA   26,949,
   at  134,203.    Default  terminations  are  strictly   construed.
   DeVito,  413 F.2d  at 1153.   It  is, moreover,  the Government's
   burden to  prove, by  a preponderance of  the evidence,  that the
   termination  for default was justified.  Lisbon Contractors, Inc.
   v. United States, 828 F.2d 759 (Fed. Cir. 1987).    In evaluating
   whether the  Government is justified  in exercising its  right to
   terminate  a contract  for  default,  we look  to  the facts  and
   circumstances giving rise to the  termination.  In this case, the
   Government  has met  its  initial burden  to produce  evidence in
   support of its decision, but has not sustained the overall burden
   of persuasion that  the default termination of PEC's contract was
   warranted.  
 
 
        The termination for  default of this contract  was initiated
   after  the second  rejection of   order  number FWJD-710-1.   The
   original  due date  for this  order was  January 28,  1993.   PEC
   tendered the  shipment on  January 6, 1993.   Samples  were taken
   promptly, but  were not tested  by the GSA laboratory  until mid-
   February 1993.   Following the  initial rejection of the  lot for
   nonconformance with scale accuracy requirements, and  issuance of
   a cure notice, the delivery due date was extended by agreement of
   the parties  until March 31.   PEC corrected the  problems giving
   rise to  the original  rejection  and redelivered  this order  by
   March 31.   Samples from the order  arrived in the GSA laboratory
   on April 5; tests were not conducted until May 5.  This time, the
   squares were rejected for an entirely different reason -- failure
   of the center head bisect angle  to conform to the tolerances set
   forth in the specification.  
 
        The Government argues that the foregoing evidence, supported
   by the written records of laboratory testing and the testimony of
   the GSA employees conducting the  tests,  satisfies its burden to
   show the termination was proper based upon failure to make timely
   delivery  of conforming  products  and  failure  to  maintain  an
   adequate quality assurance system.  In  support of this position,
   GSA points to the test results showing the previous rejections of
   squares  for failure to  meet specifications governing  length of
   blade and  to the  final rejection of  order FWJD-710-1  based on
   failure  to  meet the  tolerances  for  the  bisect angle.    GSA
   contends  that the resultant failure to timely deliver conforming
   squares  under order  FWJD-710-1, together  with  the history  of
   rejections  under this  contract,  which demonstrated  unresolved
   problems  with  PEC's  quality  assurance  system,  justified the
   termination for default of the contract.   Although this suffices
   to satisfy  GSA's initial burden  to come  forward with  evidence
   supporting the termination  decision, PEC has raised a  number of
   defenses  to  the default  termination  of its  contract.   These
   include challenges  to the  validity of  the testing  methods and
   procedures used  by  the Government,  a  defense based  on  prior
   course  of dealing, and  the doctrine of  substantial compliance.
   PEC also argues  that GSA's failure to return  the samples tested
   constituted  a  breach   of  the  contract,  placing   PEC  at  a
   disadvantage in  defending itself,  and should  nullify the  test
   results forming the basis for the termination.  
 
   The Testing Method
 
 
        PEC challenges the propriety of  the testing method used  by
   the GSA  laboratory to  determine conformance with  specification
   requirements.   In particular, PEC contends  that the CMM was not
   at the time commonly used to evaluate small precision instruments
   such as the Type VI square, had  a sufficient margin of error due
   to its  own tolerances to  produce skewed results in  testing the
   various characteristics of PEC's squares, and was not the type of
   instrument contemplated to be used  to test Type VI squares under
   the specification.  In particular, PEC takes exception to the use
   of the CMM  to test the center  head bisect angle of  the samples
   and  argues that the  Government's long-standing approval  of its
   inspection system entitled it to rely on the use of the gages and
   instruments  under   that  system  for  testing   conformance  to
   specifications.   
 
        For  its  part,  respondent   maintains  that  the   testing
   provisions   of  specification  GGG-S-656D   do  not  identify  a
   particular   means    of   determining   compliance    with   the
   specification, and that  use of the CMM to  determine whether the
   combination  squares  conformed  to the  specification  was  thus
   within the  prerogative of  the Government.   Respondent  further
   asserts that it has shown through the testimony of its laboratory
   employees that this  method of testing was  reasonably calculated
   to produce accurate test results.  
 
        We address  first the differing  interpretations of  section
   4.4 of the  specification, which addresses testing  of particular
   characteristics .    GSA urges  that the  specification does  not
   delineate or  restrict the Government to any  particular means of
   testing  squares for  compliance  with specification  tolerances.
   PEC  disagrees,  pointing out  that  most  of the  sections  that
   address testing  identify a particular  means of doing so  and at
   most allow for use of an equivalent method.  See Finding 7.   PEC
   also points out that the only mention of a CMM is for the testing
   of the accuracy of  a Type IX square -- a tool that has no center
   head.   Finding 14.  PEC urges that the omission of  the CMM as a
   suitable  instrument   for  testing   other  squares  and   their
   individual  characteristics  supports  the  conclusion  that  the
   specification  writers recognized that  the CMM was  not suitable
   for  testing  other  combination squares.    Neither  position is
   entirely  correct   with  respect  to  the   respective  proposed
   interpretations.   Although we agree  with PEC  that the  testing
   provisions overall are  rather specific as to the  types of gages
   and  instruments to be used  to test certain characteristics, see
   Finding 7, the specification is silent with respect to testing of
   the center  head bisect angle  tolerances.  This does  not permit
   the conclusion, however,  that this characteristic should  not be
   tested or that the Government is limited to the  test method used
   by PEC  to determine  compliance with  this characteristic.   The
   specification sets  forth  tolerances applicable  to  the  bisect
   angle --  as such it is  reasonable to conclude that  the squares
   may   be  inspected   and  tested   for   compliance  with   this
   specification.   Since no particular  test method is specified or
   recommended  for this  characteristic, the issue  becomes whether
   the  test  used  is  reasonable  for  evaluating  conformance  to
   specifications.  See Technics EMS, Inc., GSBCA 6679-COM, 84-1 BCA
     17,060.   
 
 
        In  Technics EMS, the Board determined that the Government's
   test  was reasonable  because  it consisted  of operation  of the
   machine in  the manner in which it was designed  to be used.  The
   individuals  operating  the  machine  were  scientists  who  were
   familiar  with the underlying  theory, function and  operation of
   the machine.  Unlike Technics EMS, the testing procedures used by
   the  parties here did not consist of using the tools to determine
   if  they   functioned  properly.     Rather,  various   precision
   instruments,  subject to their own tolerances and deviations from
   specifications, were used to evaluate the  properties of the Type
   VI combination squares.   
 
        As a general  proposition, the Government is entitled to use
   whatever test  it prefers  to determine  contract compliance,  so
   long as it  does not impose a higher standard  than that included
   in  the  contract.    Nash  Metalware  Co.  v.  General  Services
   Administration,  GSBCA 11951,  94-2 BCA     26,780, (citing  Air,
   Inc.,  GSBCA  9847,  91-1  BCA     23,352);  cf.  Pinay  Flooring
   Products, Inc, GSBCA 9286,  91-2 BCA   23,682  (termination based
   on appellant's inability to test whole roll of  flooring material
   rather than a  limited portion of it  as previously agreed to  by
   the  parties was  improper).   The  evidence of  record does  not
   establish that the CMM would necessarily result in the imposition
   of  a higher  standard of testing  than that provided  for in the
   specification or  established by  prior conduct  of the  parties.
   There is evidence  suggesting that the results of the  CMM may be
   subject to error, particularly with respect to measurement of the
   bisect angle.   At the same  time, at least  with respect to  the
   earlier   rejections,  it  appears  that  there  is  similarly  a
   possibility  that  the  rejections could  be  justified  based on
   potential  errors   in  the  gages   used  by  PEC.     In  these
   circumstances, we do  not hold that the Government  could not use
   the  CMM to  test  the squares  for  compliance  or that  it  was
   required  to notify PEC  in advance of  any decision to  use this
   testing method.   As discussed in more detail below, however, the
   conflicting evidence concerning  the validity of the  CMM results
   does cast  doubt on  the propriety of  the decision  to terminate
   this contract for default.[foot #] 4
                                                                    
                   ----------- FOOTNOTE BEGINS ---------
 
        [foot #] 4   We view the Government's inability to locate or
   return the samples  in a similar light.  Although  PEC makes much
   of the fact that  it has been deprived of the ability to test the
                                                      (continued...)
 
                   ----------- FOOTNOTE ENDS -----------
 
 
   Prior Course of Dealing
 
 
        PEC  has  also  challenged the  default  termination  of its
   contract on the ground that  even if the tolerance deviations for
   the bisect angle  of the center head  were not met, the  facts of
   record   establish  a  prior   course  of  dealing   barring  the
   termination for default of its contract for failure to conform to
   the  specifications.    In  particular,  PEC  contends  that  the
   Government's  previous approval of  PEC's quality  control system
   and methods of testing for compliance with the specification bars
   the use of a completely different method of testing, particularly
   where that  method has  not been  shown to be  equivalent to  the
   approved  method and produces varying results because of built-in
   error in the testing apparatus.   
 
        Specifically, PEC argues  that the evidence of  record shows
   an established course of dealing under which GSA had, since 1984,
   under previous contracts repeatedly accepted the same  equipment,
   subject  to identical specifications,  based on the  same quality
   control  procedures  implemented by  PEC  without subjecting  the
   equipment to testing  with a CMM.   This long history led  PEC to
   believe that combination squares which were within tolerance when
   tested pursuant to  PEC's own quality  assurance system would  be
   acceptable to GSA.  PEC competed for this contract on this basis.
       
 
        Evidence of  a prior  course of  dealing  may establish  the
   intent of the  parties with respect to  the proper interpretation
   of  contract language.   It  may also  establish that  a contract
   requirement has effectively been waived:  "A contract requirement
   for the benefit of  a party becomes dead if that  party knowingly
   fails to  exact its  performance, over  such an extended  period,
   that the  other side  reasonably believes  the requirement  to be
   dead."  Gresham  & Co. v. United  States, 470 F.2d 542,  554 (Ct.
   Cl.  1972); accord  General Security  Services  Corp. v.  General
   Services  Administration, GSBCA  11381,  92-2  BCA    24,897,  at
   124,169-70.
 
        PEC  relies heavily upon  the Board's decision  in Unlimited
   Supply  Co. v. General Services Administration, GSBCA 12371, 94-3
   BCA    27,170, to support its  claim that the default termination
   was improper.  In Unlimited Supply, the Government terminated for
                                                                    
                   ----------- FOOTNOTE BEGINS ---------
 
        [foot #] 4 (...continued)
   samples for itself, and that the failure to return these articles
   constitutes a breach  of the contract, we do not  regard the loss
   of the  sample units  as an event  invalidating the  test results
   altogether.   The test  results were recorded  in writing  by the
   laboratory at the time the  tests were conducted and supported by
   the testimony of  the GSA employee who  conducted them.   Loss of
   the  samples  and  any  possible prejudice  to  PEC  is, however,
   another factor  to be weighed  in assessing the propriety  of the
   default termination.
 
                   ----------- FOOTNOTE ENDS -----------
 
 
   default a contract for the supply of stainless steel mixing bowls
   on  the ground that the bowls did  not meet the specification for
   capacity.     The  Board   overturned  the   default  termination
   principally because of  the existence of conflicting  evidence in
   the  record as  to whether  the bowls  actually met  the capacity
   requirement; the conflict was resolved against the party with the
   burden of proof.  Additionally, however, the  Board observed that
   a  prior  course  of  dealing  had been  shown  under  which  the
   Government had, under  nineteen prior purchase orders  subject to
   the same provisions as the one that had been terminated, accepted
   the same bowls,  made with the same molds.   The record contained
   no  evidence  that  the Government  had  ever  previously advised
   Unlimited Supply of its discovery  that the bowls did not conform
   to  specifications,  although apparently  some  testing performed
   after  acceptance on earlier contracts had alerted the Government
   to this fact.  Because  appellant relied on the prior unqualified
   acceptances  in pricing  the  terminated  orders, the  Government
   would  not  be   permitted,  without  notice,  to   exact  strict
   conformance with the specifications.  Id. at 135,391, 135,393-94.
 
 
        PEC's  situation is not identical to  the facts of Unlimited
   Supply.   The  PEC contract  was  terminated because  GSA,  after
   testing various  lots, as it was entitled to do under the instant
   contract,  determined that the  combination squares did  not meet
   the specifications.  Although PEC has provided testimony that its
   combination  squares were  accepted  by  GSA  on  numerous  prior
   occasions under  the same  contractual terms  and conditions,  in
   contrast to Unlimited Supply the record does not reflect that GSA
   knowingly accepted nonconforming products.  There is virtually no
   evidence  concerning prior inspections by GSA prior to acceptance
   of the squares under  prior contracts.  At most, it  appears that
   the    agency   accepted    products    based   on    PEC's   own
   inspections.[foot #] 5      Nor   do    we   believe   that   the
                                                                    
                   ----------- FOOTNOTE BEGINS ---------
 
        [foot #] 5    The record  does not  enable  us to  conclude,
   however, as the Government contends, that PEC had reasons to know
   of prior tests conducted with a CMM that identified discrepancies
   in its  combination squares.   The testimony  of GSA's  witnesses
   concerning the two  laboratory reports that predated  the testing
   under the subject contract was inconclusive.  These witnesses had
   no particular recollection of Mr.  Wien's visit to the laboratory
   other  than that  it occurred.    Although they  state that  they
   believe they would have disclosed the use  of the CMM to Mr. Wien
   based  on  their  typical practice,  they  did  not affirmatively
   recall making such a  disclosure.  Findings 37-38.   There is  no
   written evidence  to corroborate any  of this  testimony.     The
   reports were generated not in connection with acceptance testing,
   moreover, but  in response  to customer complaints.   The  record
   does  not show  the  age of  the  squares or  identify  the prior
   contracts  under which  they were  sold to  GSA.  As  such, these
   reports establish  neither prior  knowledge of  defects on  PEC's
   part, nor a waiver of tolerances on GSA's part.  
 
                   ----------- FOOTNOTE ENDS -----------
 
 
   circumstances  warrant extending  the  prior  course  of  dealing
   doctrine   to  bar  the  Government  from  using  different  test
   instruments  from those used  by PEC without  prior notification.
   As we  stated  above, GSA  is entitled  to use  a different  test
   method, if not precluded by the specification, so long as it does
   not impose  a more  rigorous standard than  that provided  in the
   specification.   GSA's knowing  failure to enforce  the tolerance
   requirements is a  prerequisite to the  application of the  prior
   course of  dealing doctrine to these circumstances.  The evidence
   thus  is not  sufficient to  invalidate  the default  termination
   under the prior course of dealing doctrine. Nothing in the record
   suggests that  GSA knowingly accepted  squares that  were out  of
   tolerance  or  that GSA  gave  PEC  reason  to believe  that  the
   Government was willing to waive the tolerance requirements. 
 
   Substantial Compliance Doctrine
 
 
        Finally,  PEC argues  that the  shipments  made were  timely
   because  delivered in  the good  faith belief  that the  products
   conformed to specifications  and would be  accepted.  PEC  points
   out  that delays  on  the  part of  GSA's  laboratory in  testing
   samples  were  contributing  factors in  the  alleged  failure to
   deliver conforming goods on time.  PEC delivered its initial lots
   well in advance of  the delivery date and  the reoffered lot  was
   also delivered by  the reestablished due date.   Findings 24, 28.
   The  shipments were  offered in  the good  faith belief  that the
   products  complied with  the specification.   Finding 29.   Under
   Radiation Technology, Inc.  v. United States, 366  F.2d 1003 (Ct.
   Cl. 1966), PEC argues, it  should not have been summarily default
   terminated,  but rather should have been  granted an extension of
   time to correct minor defects.  
 
        In   Radiation   Technology,   the   Court   addressed   the
   circumstances where timely  delivery of supplies might  give rise
   to  an  entitlement  to  a  reasonable  time  to  cure  where  an
   unexpected  rejection  occurs.    This  decision  delineates  the
   doctrine  of substantial compliance,  which is predicated  on the
   contractor's  ability to  meet certain  prerequisites:   (1)  the
   supplies must  have been delivered  or tendered by the  due date;
   (2) the  contractor must  have had a  reasonable belief  that the
   supplies  conformed to  the contract  requirements;  and (3)  the
   defects must have  been minor in nature  and readily correctable.
   366 F.2d at 1005-06.    
 
        Looking at  the record  here, we find  that the  doctrine of
   substantial compliance is applicable.  PEC did in fact deliver by
   the extended due  date.  Although the parties disagree  as to the
   reasonableness of PEC's belief that the product would be found to
   be conforming,  we find  that the preponderance  of the  evidence
   supports PEC's  position on  this point.   Mr. Wien  convincingly
   testified that he  had no prior reason  to anticipate that  a CMM
   would be  used to  test the features  of the  combination squares
   supplied  under this  contract, or,  if it  was, that  the center
   heads would not meet the  specified tolerances.  The shipment was
   inspected, with the  instruments customarily used by  PEC to test
   for center head tolerances, and passed PEC's inspection.  PEC had
   focused on resolving discrepancies in the length and  accuracy of
   the blades, which  had been raised by the  laboratory tests under
   prior shipments.   These problems were resolved.   PEC, which had
   not been given copies of the lab reports, had no reason to expect
   that a new  basis for rejection would arise  when testing focused
   on another characteristic  of the squares.   Finally, Mr.  Wien's
   unrebutted testimony establishes that the discrepancy  identified
   in the center  head angular tolerances was minor  in nature, even
   in the face of  what appears to  be a substantial deviation  from
   the  allowable tolerance.  Mr. Wien  stated that the discrepancy,
   if it  existed, would not  affect the functionality of  the tool,
   which would still locate the center of a round piece of steel for
   drilling, and could easily and  readily be fixed by replacing any
   nonconforming  center head attachments.   Although the Government
   contends that  these considerations  are irrelevant  because time
   was of the  essence, this position is weakened by the many delays
   imposed by  the Government itself  in the testing and  is further
   vitiated by the  lengthy time  that passed  in the  reprocurement
   process.  There  is no basis in  the record to conclude  that the
   problem identified was major or  could not have been rectified in
   a reasonable time frame.    
 
       GSA  disagrees  with  PEC's  argument  that  the  substantial
  compliance  doctrine should  apply, urging  that the  Board should
  consider various other  factors.  For  example, GSA  contends that
  while it  did not formally  issue a  cure notice as  to the center
  head bisect angle in the squares under the  reoffered shipment, it
  did not have to.   Citing Technics EMS Inc., GSBCA 6679-COM,  84-1
  BCA   17,060, GSA  argues that the substantial compliance doctrine
  is  inapplicable where  an opportunity  to cure  has  already been
  afforded  or the Government needs  the supplies.    Here, in GSA's
  view, the  contractor had been  previously told  in a cure  notice
  that its  quality control  system  appeared to  be inadequate  and
  that it  would be on lot-by-lot  inspection until the problem  was
  resolved.   In GSA's  view, the termination is  not covered by the
  substantial compliance doctrine because PEC  was already given  an
  opportunity to cure its  quality control system and did not do so.
  In addition, GSA argues that  the substantial compliance  doctrine
  should not apply where  the contractor shows  an unwillingness  to
  cure  the defects.    See Kain  Cattle, ASBCA  17,124, 73-1  BCA  
  9999.   PEC  knew about  the center  head rejection  in advance of
  receiving the termination notice  and did not of its own  volition
  offer  to  replace defective  center  heads.   Finding  21.    GSA
  construes PEC's  failure to  offer explicitly to  cure or  replace
  any  defective  center  heads  as an  unwillingness  to  cure  the
  defects.  
 
       The difficulty  with respondent's arguments  arises from  the
  overall circumstances  in which the  termination for  default took
  place.  Although the record does not establish clearly  one way or
  the  other whether  the  CMM  produced testing  results  that were
  comparable to the results achieved  under PEC's quality  assurance
  system, as PEC points out, its products had  been accepted without
  incident for  many years until GSA  undertook testing with a  CMM.
  Although GSA  informed PEC of  its view  that the quality  control
  system was inadequate, as  a result of GSA's practice of  stopping
  testing at the point of first major failure PEC was aware  only of
  the   prior   bases  for   rejection.[foot #] 6      PEC  had   no
  reason to anticipate that other  characteristics tested under  its
  own quality assurance system  would similarly fail inspection when
  tested   using   the   CMM.[foot #] 7     Finally,   although  GSA
  suggests that PEC did not voluntarily offer to  replace the center
  heads,  the  notice  of  rejection  given  to  PEC  was  initially
  informal and came from the  quality assurance specialist  assigned
  to PEC's plant.   PEC was concerned that the testing of the bisect
  angle had been performed improperly and that the  rejection of the
  squares was  thus improper.  In  addition, PEC apparently did  not
  realize that  GSA was considering  terminating for default.  Until
  PEC's concerns  about the  performance  of the  bisect angle  test
  were resolved,  it would not necessarily  have occurred to PEC  to
  volunteer to  replace the  center heads.   Nothing  in the  record
  suggests  that PEC  was unwilling  to resolve  these deficiencies.
  In sum, although it  is troubling that, as testing continued  with
  the  CMM,  another  discrepancy  was  discovered,  leading  GSA to
  terminate this  contract, the record  before us  does not  support
  respondent's action  in terminating the  contract summarily.   The
  single  rejection of  a  square for  failure  to comply  with  the
  bisect angle tolerance,  without giving PEC an opportunity to cure
  this  minor deficiency,  does not  justify a  summary termination.
  The delays  in testing samples for  compliance, and  the  failures
  to permit PEC to witness testing and to give PEC prompt  access to
  laboratory  test  reports, as  well  as  the conflicting  evidence
 
 
                                                                    
                   ----------- FOOTNOTE BEGINS ---------
 
        [foot #] 6    We  do not  find it  necessary to  resolve the
   issues raised by the parties with respect to the propriety of the
   test  results and  sampling sizes  applicable  to the  rejections
   based on length of blade  and scale accuracy.  PEC conceded  some
   of the  deficiencies identified  and proceeded  to correct  them.
   The deficiencies  did not directly  give rise to  the termination
   for default  action. Although  GSA argues  that these  rejections
   show that the  contractor's quality control system  was deficient
   and  GSA needed prompt  deliveries of conforming  products, these
   arguments are  offset to a  large degree by the  Government's own
   delays in testing the  samples taken from PEC's shipments and  in
   conducting  tests  on  a piecemeal  basis,  which  hindered PEC's
   ability to identify  and correct deficiencies quickly  and resume
   deliver on a timely basis.  
 
        [foot #] 7    This would  seem to be  further exacerbated by
   PEC's inability to obtain prompt copies of test reports issued by
   the laboratory, which would have reflected the fact that only one
   characteristic had been tested, and  by GSA's initial refusal  to
   permit  PEC  to  witness  the  testing  of  its  squares  by  the
   laboratory .  
 
                   ----------- FOOTNOTE ENDS -----------
 
 
  concerning  the suitability  of the  coordinate  measuring machine
  for testing combination squares, are extenuating factors.  
 
       Because we grant the appeal  in GSBCA 12503,  overturning the
  default  termination  of PEC's  contract,  the  Government is  not
  entitled to recover excess reprocurement costs.    
 
 
                               Decision
 
       The  appeals are  GRANTED.   The termination  for default  of
  contract  number  50322 is  converted  to  a termination  for  the
  convenience of the Government.
  _______________________________
 
                                     CATHERINE B. HYATT
                                     Board Judge
 
  We concur:
 
 
  ___________________________
  _______________________________
  ROBERT W. PARKER                   MARY ELLEN COSTER WILLIAMS
  Board Judge                             Board Judge