ARMED SERVICES BOARD OF CONTRACT APPEALS 
Appeal of--
Hanley Industries, Inc. 
Under Contract No. W52P1J-05-C-0076 
APPEARANCE FOR THE APPELLANT: 
) 
) 
) 
) 
) 
APPEARANCES FOR THE GOVERNMENT: 
ASBCA No. 56584 
Ryan K. Manger, Esq. 
Manger Law, LLC 
St. Louis, MO 
Raymond M. Saunders, Esq. 
Army Chief Trial Attorney 
Brian E. Bentley, Esq. 
CPT Tudo N. Pham, JA 
Trial Attorneys 
OPINION BY ADMINISTRATIVE JUDGE PAUL 
This is a timely appeal of a contracting officer's (CO's) decision terminating 
appellant Hanley Industries, Inc.'s (Hanley's) 
supply contract for default. The Contract 
Disputes Act of 1978, 41 U.S.C. §§ 7101- 7109 is applicable. In a decision promulgated 
on 29 November 2012, the Board denied the government's motion for summary 
judgment. 13 BCA ii 35,195. Familiarity with that decision is presumed. 
Subsequently, a five-day hearing was held in St. Louis, Missouri. 
FINDINGS OF FACT 
1. On 29 September 2005, the U.S. Army Sustainment Command (Army) issued 
Contract No. W52P1J-05-C-0076 to Hanley to supply 37,718 MK45-1 Electric Primers 
(R4, tab 1 at 1-3). The MK45 primer initiates the 
propelling charge for shells fired from 
U.S. Naval warships (compl. and answer ii 2). 13 BCA ii 35,195 at 172,685. The 
firm-fixed-price contract had a total contract amount of $1,870,812.80 with a unit price of 
$49.60 for each of the primers. The negotiated contract included four option years with 
unit prices as follows: FY06, $49.63; FY07 $51.30; FY08 $53.04; and FY09, $54.84. 
(R4, tab 1 at 1-3) 
2. The contract incorporated standard FAR and DF ARS clauses by reference, 
including FAR 52.249-8, DEFAULT (FIXED-PRICE SUPPLY AND SERVICE) (APR 1984) (R4, 
tab 1 at 36). The contract specifically provided that FAR and DFARS clauses which 

were incorporated by reference, "the full text of which will be made available upon 
request, [have ] ... the same force and effect as if set forth in full text" (id. at 15). 
3. The contract included, in full text, the Local 52.246-4506, ST A TEMENT OF 
WORK FOR STATISTICAL PROCESS CONTROL (FEB 1999) clause, also known as SPC. That 
clause described in great detail Hanley's responsibilities including its "commitment to 
continuous process improvement." Various subsections of the clause set forth 
requirements for, inter alia, "SPC Training," "Manufacturing Controls," "Determination 
of SPC Use," "Process Stability and Capability," "Control Chart Policy," 
"Vendor/Subcontractor Purchase Controls," "SPC Audit System," "SPC Records," and 
"Control of Process/Operation Parameters or Characteristics" (id. at 8-10). 
4. Also included in the contract was the 
Local 52.209-4511, FIRST ARTICLE TEST 
(GOVERNMENT TESTING) (MAY 1994) clause, which provided: 
a. The first article shall consist of: ONE HUNDRED 
THIRTY MK 45 MOD 1 PRIMERS AND 5 EACH OF 
EVERY COMPONENTS PART AND SUBASSEMBLY 
(LESS EXPLOSIVE COMPONENTS) PER MIL-P-18714 
REV D, AMENDMENT 1 AND ADL 10001-2434755K; 
which shall be examined and tested in accordance with 
contract requirements, the item specification(s), the Quality 
Assurance Provisions (QAPS) and drawings listed in the 
Technical Data Package. 
b. The first article shall be delivered to: 
SEVENTY-FOUR COMPLETE MK 45 MOD 1 PRIMERS 
TO: NAVAL SURFACE WARFARE CENTER, 
DAHLGREN DIVISION, 17320 DAHLGREN ROAD, 
DAHLGREN, VA 22446-5100/FITY [sic ]-SIX COMPLETE 
PRIMERS AND FIVE EACH OF EVERY COMPONENT 
PARTS AND SUBASSEMBLY (LESS EXPLOSIVE 
COMPONENTS) TO: NAVAL SURF ACE WARF ARE 
CENTER, IDIAN [sic] HEAD DIVISION, 101 STRAUSS 
A VENUE, INDIAN HEAD, MD 20640. The first article 
shall be delivered by the Contractor Free on Board (FOB) 
destination except when transportation protective service or 
transportation security is required by other provision of this 
contract. If such is the case, the first article shall be delivered 
FOB origin and shipped on Government Bill of Lading. 
2 

c. The first article shall be representative of items to 
be manufactured using the same processes and procedures as 
contract production. All parts and materials, including 
packaging and packing, shall be obtained from the same 
source of supply as will be used during regular production. 
All components, subassemblies, and assemblies in the first 
article sample shall have been produced by the Contractor 
(including subcontractors) using the technical data package 
provided by the Government. 
d. Prior to delivery, each of the first article assemblies, 
subassemblies, and components shall be inspected by the 
Contractor for all contract, drawing, QAP and specification 
requirements except for any environmental or destructive 
tests indicated below: NI A. The Contractor shall provide to 
the Contracting Officer at least 15 calendar days advance 
notice of the schedule date for final inspection of the first 
article. Those inspections which are of a destructive nature 
shall be performed upon additional sample parts selected 
from the same lot(s) or batch( es) from which the first article 
as selected. Results of contractor inspections (including 
supplier's and Vendor's inspection records when applicable) 
shall be verified by the Government Quality Assurance 
Representative (QAR). The QAR shall attach to the 
contractor's inspection report a completed DD Form 1222. 
One copy of the contractor's inspection report with the DD 
Form 1222 shall be forwarded with the first article; two 
copies shall be provided to the Contracting Officer. Upon 
delivery to the Government, the first article may be subjected 
to inspection for all contract, drawing, specification, and QAP 
requirements. 
e. Notwithstanding the provisions for waiver of first 
article, an additional first article sample or portion thereof, 
may be ordered by the Contracting Officer in writing when (i) 
a major change is made to the technical data, (ii) whenever 
there is a lapse in production for a period in excess of 90 
days, or (iii) whenever a change occurs in the place of 
performance, manufacturing process, material used, drawing, 
specification or source supply. When conditions (i), (ii), or 
(iii) above occurs, the Contractor shall notify the Contracting 
3 

Officer so that a determination can be made concerning the 
need for an additional first article sample or portion thereof, 
and instructions 
provided concerning the submission, 
inspection and notification of results. Costs of the first article 
testing resulting from production process change, change in 
the place of performance, or material substitution shall be 
borne by the Contractor. 
f. Rejected first articles or portions thereof not 
destroyed during inspection and testing will be held at the 
government first article test site for a period of 30 days 
following the date of notification of rejection, pending receipt 
of instructions from the Contractor for the disposition of the 
rejected material. The Contractor agrees that failure to 
furnish such instructions within said 
30 day period shall 
constitute abandonment of said material by the Contractor 
and shall confer upon the Government the right to destroy or 
otherwise dispose of the rejected items at the discretion of the 
Government without liability to the Contractor by reason of 
such destruction or disposition. 
(R4, tab 1at15-16) 
5. In addition, the contract contained the Local 52.245-4537, ACCEPTANCE 
INSPECTION EQUIPMENT (AIE) (FEB 2002) clause, which stated: 
a. Acquisition, maintenance, and disposition of 
Acceptance Inspection Equipment (AIE) shall be in 
accordance with ANSl/NCSL Z540-1 or ISO 10012-1. AIE 
shall 
be used to assure conformance of components and end 
items to contract requirements. AIE shall include all types of 
inspection, measuring, and test equipment whether 
Government furnished, contractor designed, or commercially 
acquired, along with the necessary specifications, and the 
procedures for their use. 
b. The Contractor shall provide all Acceptance 
Inspection Equipment (AIE) necessary, except for the 
Government Furnished Equipment (GFE) listed in paragraph 
(g.8). The GFE shall be provided in accordance with the 
Government Property clause of this contract. The Contractor is 
responsible for contacting NSWC Corona at least 45 days in 
4 

advance of the date the GFE is required to schedule delivery. 
Government furnished AIE shall not be used by the contractor 
or his subcontractor in lieu of in-process or work gages. 
c. Contractor AIE designs, specifications, and 
procedures for Critical, Major, Special, and Minor 
characteristics shall.be submitted to the Government for 
review and approval in accordance with the Contract Data 
Requirements List, DD Form 1423. All Contractor AIE 
documentation requiring Government approval shall contain 
sufficient information to permit evaluation of the AIE's 
ability to test, verify or measure the characteristic or 
parameter with the required accuracy and precision. 
Contractor designed AIE requiring Government approval 
shall be made either in accordance with the equipment 
drawings specified in section C of contract 
(Description/Specification Section), or in accordance with 
any other design documentation provided that it is approved 
by the Government. The Government will approve the AIE 
documentation or provide requirements for approval within 
45 days of receipt. The Contractor shall be responsible for 
any delays resulting from late submission of AIE 
documentation to the Government for approval, and any 
delays resulting from the submission of inadequate or 
incomplete AIE documentation. 
d. The contractor must ensure that all AIE is approved 
and available for use prior to First Article Submission, if First 
Article is required, or prior to initiation of production under 
this contract. 
e. Resubmission of AIE design, specification, and 
procedure documentation for approval on a follow-on 
contract is not required provided inspection characteristic 
parameters specified in the current technical data package and 
the previously approved AIE documentation remain 
unchanged. The contractor shall provide the contract number 
and identify previously approved AIE documentation that 
meets the above prerequisites. 
5 

f. The Government reserves the right to disapprove at 
any time during the performance of this contract, use of any 
AIE not meeting the requirements of the approved design, 
specification, or procedure documentation. 
g. Navy Special Interface Gage Requirements (NSIG) 
1. The Navy Special Interface Gages listed under this 
clause will be forwarded to the Contractor for joint use by the 
Contract Administration Office (CAO) and the Contractor. 
2. The Contractor may substitute contractor designed 
and built AIE for the NSIG noted as applicable in paragraph 
(g)(8). However, the designs require Government approval 
and the contractor AIE hardware requires Government 
certification. AIE designs shall be submitted in accordance 
with paragraph (c). The contractor shall notify NSWC Corona 
prior to submission of AIE for certification. Two copies of 
each Government approved contractor AIE drawing shall 
accompany the contractor AIE hardware sent to the 
Government for certification. The Government shall perform 
the contractor AIE certification, return the hardware and 
provide notification of acceptance or rejection to the 
Contractor within 45 days of receipt of the contractor AIE. 
The contractor shall be responsible for any delays resulting 
from late submission of documentation or hardware. The 
Contractor shall also submit the calibration periods for each 
contractor AIE for approval. The Government shall affix 
Calibration stickers to the contractor AIE for Quality 
Assurance Representative (QAR) identification. 
3. The NSIGs are provided for verification of selected 
interface dimensions and do not constitute sole acceptance 
criteria of production items or relieve the Contractor of 
meeting all drawing/specification requirements under the 
contract. 
4. Items that fail to be accepted by the applicable 
NSIGS may be inspected by another means to determine 
acceptance or rejection, provided the alternate inspection 
method is acceptable to the government approval authority. 
6 

5. The Government shall not be responsible for 
discrepancies or delays in production items resulting through 
misuse, damage or excessive wear to the NSIGs. 
6. Calibration and repair of the NSIGs shall only be 
performed as authorized by the Naval Surface Warfare Center 
(NSWC), Corona Division. Repair is at no cost to the 
Contractor unless repair is required due to damage to the 
gages resulting from Contractor fault or negligence. 
Damaged, worn, or otherwise unserviceable NSIGs shall be 
brought to the immediate attention of the CAO and NSWC 
Corona. The Contractor shall not make any adjustments, 
alterations or add permanent markings to NSIG hardware 
unless specified by the NSIG operating instructions or 
authorized by the Designated Technical 
Activity. 
7. Within 45 days after final acceptance of all 
production items, the NSIGs shall be shipped to NSWC, 
Corona Division, ATTN: Receiving Officer, Bldg 575, Gage 
Laboratory, 1999 Fourth St., Norco, CA 92860-1915. 
The following specifications are applicable: 
(i) Shipping, MIL-STD-2073, "DOD Standard Practice 
for Military Packaging" 
(ii) Marking, MIL-STD-129, "Marking for Shipment 
and Storage". 
8. The following NSIGs shall be provided and are 
mandatory for use except as noted by an (x) for paragraph 
(g.2) applicability. 
7 

Para. 
g.2 
applies Drawing Rev Char NSIG Qty Dimensions Weight Value 
685477 N Ml05 6117015 3 l .75xl 21b $1,000 
Pitch Dia. .7286 
M106 6117009 3 1.75x3 2lb $1,500 
o dia.006 
M107 6117015 3 1.75xl 2lb $1,000 
o dia.005 
1275047 N Ml07 3030384 3 10x10x12 60lb $4,200 
o dia.001 
M108 3236972 3 3x5 5lb $2,000 
o dia.002 
MllO 3030939 3 3x3x3 2lb $190 
Mill 3236972 3 3x5 $2,000 
o dia.002 
Ml21 3236972 3 3x5 5lb $2,000 
o dia.005 
M122 3236973 lx2.5 llb $200 
o dia.005 
Ml18 6117014 3 .75xl .12 llb $200 
o dia.005 
2434755 M Ml04 3030396 3 lxlx3 llb $200 
.000 Min 
M105 3030936 3 lxlx3 llb $200 
.018MAX 
(R4, tab 1at16-17) 
6. Also contained in the contract was the Local 52.246-4506, STATISTICAL PROCESS 
CONTROL (SPC) (FEB 2004) clause, which provided: 
a. In addition to the quality requirements of the 
technical data package, the Contractor shall implement 
Statistical Process Control (SPC) in accordance with a 
government accepted SPC Program Plan. Control chart 
techniques shall be in accordance with the American National 
Standards 
Institute (ANSI) Bl, B2 and B3. Alternate SPC 
charting methods may be proposed and submitted to the 
Government for review. 
8 

b. The SPC Program Plan developed by the contractor 
shall consist of a general plan and a detailed plan. The plans 
shall be structured as delineated on the Data Item Description 
referenced in the DD Form 1423. The general and the 
detailed plans shall be submitted to the government for 
review per DD Form 1423 requirements. Notification by the 
Government of acceptance or nonacceptance of the plans 
shall be provided in accordance with the timeframes specified 
on the DD Form 1423. Once a general plan for a facility has 
been approved by this Command, the approval remains in 
effect for subsequent contracts as long as the contractual 
requirements remain substantially unchanged from contract to 
contract. Therefore, resubmission of a previously accepted 
general SPC plan is not required if current SPC contract 
clause and Data Item Description (DID) requirements are 
fulfilled. If this Command has previously accepted the 
general SPC plan under essentially the same SPC contractual 
requirements, so indicate by providing the Contracting 
Officer with the following 
information: 
Date of Acceptance ______ _ 
Contract Number(s) _____ _ 
c. The contractor is responsible for updating the 
general plan to current SPC contractual requirements. If 
errors or omissions are encountered in a previously accepted 
SPC general plan, opportunities for improvement will be 
identified by the Government, and corrective action shall be 
accomplished by the contractor. 
d. A milestone schedule will be submitted for those 
facilities that do not have, or have never had, a fully 
implemented SPC program and will not have a fully 
operational SPC program once production is initiated. The 
milestones shall provide a time-phased schedule of all efforts 
planned relative to implementation of an SPC program 
acceptable to the Government. A milestone schedule shall 
include implementation start and complete dates for those 
SPC subjects addressed in Part II of this clause. The 
milestone schedule shall only include those actions that 
cannot be accomplished prior to first article or the initiation 
9 

of production, if a first article is not required. Milestones 
shall be developed for each commodity identified for SPC 
application. Milestones shall be submitted through the 
Government Quality Assurance Representative to the 
Contracting Officer for review and acceptance. Any 
deviations from the accepted milestones, to include 
justification for such deviations, shall be resubmitted through 
the same channels for review. The Government reserves the 
right to disapprove any changes to the previously accepted 
milestones. Notification by the Government of the 
acceptance or non-acceptance of the milestones shall be 
furnished to the Contractor by the Contracting Officer. 
e. The Contractor shall review all process and 
operation parameters for possible application of SPC 
techniques. This review shall include processes and 
operations under the control of the prime contractor and those 
under the control of subcontractor or vendor facilities. A 
written justification shall be included in the detailed plan for 
each process and operation parameter that controls or 
influences characteristics identified as critical, special, or 
major which have been deemed impractical for the 
application of SPC techniques. A pamphlet on application of 
SPC for short production runs is available through the 
Contracting Officer. 
f. Statistical evidence in the form of control charts 
shall be prepared and maintained for each process or 
operation parameter identified in the detailed plan. These 
charts shall identify all corrective actions taken on statistical 
signal. During production runs, control charts shall be 
maintained in such a manner to assure product is traceable to 
the control charts. At the conclusion of the production run, a 
collection of charts traceable to the product, shall be 
maintained for a minimum of three years. The control charts 
shall be provided to the Government for review at any time 
upon request. 
g. When the process or operation parameter under 
control has demonstrated both stability and capability, the 
Contractor may request, in writing, through Administrative 
Contracting Officer (ACO) and Contracting Officer (CO) 
10 

channels to the Product Assurance and Test Directorate, that 
acceptance inspection or testing performed in accordance 
with contract requirements be reduced or eliminated. Upon 
approval by the CO, acceptance shall then be based upon the 
accepted SPC plan, procedures, practices and the control 
charts. 
h. The Government will not consider requests for 
reduction or elimination of 100% acceptance inspection and 
testing .. .if any one of the following conditions exists: 
( 1) The existing process currently utilizes a fully 
automated, cost effective, and sufficiently reliable method of 
100% acceptance inspection or testing for an attribute-type 
critical parameter or characteristic. 
(2) The 
Contractor utilizes attribute SPC control chart 
methods for the critical parameter or characteristic. 
(3) The 
critical parameter or characteristic is a first 
order, single point safety failure mode (nonconformance of 
the critical parameter or characteristic in and of itself would 
cause a catastrophic failure). 
i. The Government will only consider reduction or 
elimination of the 100% acceptance inspection or test 
requirement for other critical parameters or characteristics if 
either of the following conditions is met: 
(1) The process is in a state of statistical control 
utilizing variable control chart methods for the critical 
parameter or characteristic under control and the process 
performance index (Cpk) is at least 2.0. The 
Contractor shall 
maintain objective quality evidence through periodic audits 
that the process performance index is being maintained for 
each production delivery. 
(2) The critical parameter or characteristic is 
conclusively shown to be completely controlled by one or 
more process or operation parameters earlier in the process, 
and those parameters are in a state of statistical control 
utilizing variable data, and the product of the probability of 
11 

the conformance for each earlier parameter associated to the 
critical characteristic is better than or equal to a value 
equivalent to that provided by a Cpk of at least 2.0. The 
Contractor shall maintain objective quality evidence through 
periodic audits that the process performance indexes are 
being maintained for each production delivery. 
j. For characteristics other than critical, requests for 
reduction or elimination of acceptance inspection and testing 
shall be considered when the process performance index is 
greater than or equal to a Cpk of 1.33 for variables data. 
Requests shall be considered for attributes data when the 
percent beyond the specification limits is less than or equal to 
.003 (Cpk=l.33). 
k. Process or operation parameters under reduced or 
eliminated inspection or testing that undergo a break in 
production less than 6 months in length, may continue to 
operate under reduced or eliminated inspection or testing 
provided there has been no degradation below a Cpk of 1.33 
(2.0 for criticals). Any break in production greater than 6 
months shall require resubmission of the request for reduction 
or elimination of inspection or testing through the same 
channels cited in paragraph (g) above. 
1. Not used. 
m. Immediately following a change to a process or 
operation parameter under reduced or eliminated inspection, 
the process capability (Cp) or process performance indexes 
(Cpk) shall be recalculated and documented for variable data; 
the grand average fraction defective shall be recalculated for 
attribute data. If any of these values have deteriorated, 
immediate notification shall be made to the Government 
along with the associated documentation. Return to original 
inspection and test requirements may be imposed as 
stipulated in paragraph n below. 
n. The Government reserves the right to withdraw 
authorization to reduce or eliminate final acceptance 
inspection or testing and direct the Contractor to return to 
original contract inspection or test procedures at any 
12 

indication of loss of process control or deterioration of 
quality. 
(R 4, tab 1 at 1 7-19) 
7. In addition, the contract included the Local 52.246-4530, SUBMISSION OF 
PRODUCTION LOT SAMPLES (GOVERNMENT TESTING) (MAY 1994) clause, which provided: 
a. A lot acceptance test sample is required to be 
submitted by the Contractor from each production lot 
tendered to the Government for acceptance. This sample 
shall consist of: ONE HUNDRED FIVE MK 45 MOD 1 
PRIMERS PER MIL-P-18714 REV D, AMENDENT 1 AND 
ADL 10001-2434755K. The sample units shall be delivered 
by the Contractor Free on Board (FOB) destination, except 
when transportation protective service of transportation 
security is required by other provision of this contract. When 
such is the case, the sample units shall be delivered FOB 
origin and shipped to the test facility identified below on a 
Government Bill of Lading for the following tests: 
TEST 
AS SPECIFIED IN TABL 1 OF MIL-P-18714 REV D 
W/AMEND 1 DETAIL STRIP, BLACK POWDER AND 
PACKING 
REQUIREMENTS 
RADIOGRAPHIC, ELECTRICAL RESISTANCE, 
FUNCTIONAL, BALLISTIC 
SAMPLE-
FORTY-NINEMK45MOD1 PRIMERS TONSWC 
DAHLGREN AND FIFTY-SIX MK 45 MOD 1 PRIMERS 
TO NSWC INDIAN HEAD 
TEST FACILITY: 
NAVAL SURF ACE WARF ARE CENTER, 
DAHLGREN DIVISION 
13 

17320 DAHLGREN ROAD 
DAHLGREN, VA 22446-5100 
NAVAL SURFACE WARFARE CENTER, INDIAN HEAD 
DIVISION 
101 STAUSS AVENUE 
INDIAN HEAD, MD 20640 
b. When the production lot sample consists of 
components parts which require uploading at a Government 
Load, Assemble, and Pack (LAP) facility, and a shipping 
address is provided 
below, the contractor shall ship the 
sample units as specified above directly to the LAP facility. 
The LAP facility, upon completion of the uploading, will be 
responsible for shipping the samples to the tests facility 
indicated above in paragraph (a). 
LAP FACILITY: NIA 
c. The sample units shall be randomly selected from 
the entire lot by or in the presence of the Government Quality 
Assurance Representative. Unless otherwise specified, the 
sample units are considered to be destructively tested and are 
in addition to the units deliverable under the contract. 
d. Prior to selection of the sample units, the lot shall 
have been inspected to and meet all other requirements of the 
contract. A sample shall not be submitted from a lot rejected 
for nonconforrnance to the detailed requirements of the 
specifications) and drawing(s) unless authorized by the 
Contracting Officer. 
e. Unless authorized by the Contracting Officer, the 
lot from which the samples are drawn shall not be shipped 
until official notification has been provided by the 
Contracting Officer that the tested units have satisfactorily 
met the established requirements. Final acceptance of the lot 
shall not proceed until such notification has been provided. 
f. If the production lot sample contains samples for 
ballistic testing, the test samples shall be identified as such on 
the outer packs and the applicable Ballistic Test Request 
14 

(BTR) number shall be stenciled on all outer packs and 
included on all shipping documents. 
g. The Contracting Officer shall by written notice to 
the Contractor within 45 days after receipt of the sample units 
by the government, approve, disapprove, or conditionally 
approve the lot acceptance sample. 
h. If the production lot sample fails to meet applicable 
requirements, the Contractor may be required at the option of 
the Government, to submit an additional production lot test 
sample for test. When notified by the Government to submit 
an additional production lot test sample, the Contractor shall 
at no additional cost to the Government make any necessary 
changes, modifications, or repairs and select another sample 
for testing. The additional test sample shall be furnished to 
the Government under the terms and conditions and within 
the time specified in the notification. The Government shall 
take action on this test sample within the time limit specified 
in paragraph (g) above. All costs associated with the 
additional testing shall be borne by the Contractor. 
i. If a ballistic test sample fails to meet contractual 
performance or functional requirements, the Contractor shall 
reimburse the Government for transportation costs associated 
with the failing sample, including the cost of transportation 
protective service and transportation security requirements 
when such security is required by other provision of this 
contract. An exception to this requirement for reimbursement 
of Government transportation costs will occur if the 
Government determines that the functional test samples failed 
to meet contractual performance requirements through no 
fault of the contractor. 
j. If the Contractor fails to deliver any production lot 
test sample(s) for test within the time or times specified, or if 
the Contracting Officer disapproves any production lot test 
sample(s), the Contractor shall be deemed to have failed to 
make delivery within the meaning of the Default clause of 
this contract. Therefore, this contract may be subject to 
termination for default. Failure of the Government in such an 
event to terminate this contract for default shall not relieve 
15 

the contractor of the responsibility to meet the delivery 
schedule for production quantities. 
k. In the event the Contracting Officer does not 
approve, conditionally approve, or disapprove the production 
lot test sample(s) within the time specified in paragraph g 
above, the Contracting Officer shall equitably adjust the 
delivery or performance dates, or the contract price, or both, 
and any other contractual provision affected by such delay in 
accordance with the procedures provided in the Changes 
clause. Failure to agree to any adjustment shall be a dispute 
concerning a question of the fact within the meaning of the 
clause of this contract entitled Disputes. 
(R4, tab 1 at 19-20) 
8. In addition, the contract contained the Local 52.246-4528, REWORK AND 
REPAIR OF NONCONFORMING MATERIAL (MA y 1994) clause. It stated: 
(a) Rework and Repair are defined as follows: 
( 1) Rework - The reprocessing of nonconforming 
material to make it conform completely to the drawings, 
specifications or contract requirements. 
(2) Repair - The reprocessing of nonconforming 
material in accordance with approved written procedures and 
operations to reduce, but not completely eliminate, the 
nonconformance. The purpose of repair is to bring 
nonconforming material into a usable condition. Repair is 
distinguished from rework in that the item after repair still 
does not completely conform to all of the applicable 
drawings, specifications or contract requirements. 
(b) Rework procedures along with the associated 
inspection procedures shall be documented by the Contractor 
and submitted to the Government Quality Assurance 
Representative (QAR) for review prior to implementation. 
Rework procedures are subject to the QAR's disapproval. 
( c) Repair procedures shall be documented 
by the Contractor and submitted on a Request for 
16 

Deviation/Waiver, DD Form 1694, to the Contracting Officer 
for review and written approval prior to implementation. 
( d) Whenever the Contractor submits a repair or 
rework procedure for Government review, the submission 
shall also include a description of the cause for the 
nonconformance and a description of the action taken or to be 
taken to prevent recurrence. 
( e) The rework or repair procedure shall also contain a 
provision for reinspection which will take precedence over the 
Technical Data Package requirements and shall, in addition, 
provide the 
Government assurance that the reworked or 
repaired items have met reprocessing requirements. 
(R4, tab 1 at21) 
9. Also, the contract included the Local 52.246-4550, CRITICAL CHARACTERISTICS 
(FEB 2004) clause. It provided: 
(a) The contractor's processes shall be designed to 
prevent the creation or occurrence of critical nonconformances. 
The contractor shall establish, document and maintain specific 
procedures, work and handling instructions and process controls 
relating to any critical characteristics. 
(b) The contractor shall assure his critical processes 
are robust in design such that product and performance are 
relatively insensitive to design and manufacturing parameters. 
A robust design anticipates changes and problems. Robust 
processes shall be designed to yield less than one 
nonconformance in one million. 
( c) An inspection/verification system shall be 
employed that will verify the robustness of your critical 
processes. Maximum use should be made of automated 
inspection equipment to accomplish verification of product 
quality. Mistake proofing techniques of your material 
handling and inspection systems are encouraged. 
( d) Previous Practices/Special Characteristics. As a 
result of previous practices, the governments technical data 
17 

may refer to Critical (not annotated with I or II) and Special 
characteristics. Characteristics classified as Critical (not 
annotated with a I or II) shall be subject to all requirements 
herein associated with Critical (I) characteristics and level I 
Critical nonconformances. Unless otherwise stated in Section 
C, characteristics classified as Special shall be subject to all 
requirements herein associated with Critical (II) and Level 
(II) Critical nonconformances. 
( e) Contractor Identified Critical Characteristics List 
(CICCL). Not including critical characteristics defined in the 
governments technical data (drawings, specifications, etc.), 
the contractor shall identify and document all material, 
component, subassembly and assembly characteristics whose 
nonconformances may result in hazardous or unsafe 
conditions for individuals using, maintaining or depending 
upon the product. All additional critical characteristics 
identified by the contractor shall comply with the critical 
characteristic requirements of the technical data package, 
supplemented herein. The contractors additional critical 
characteristics shall be classified as Critical (I) or Critical (II), 
and shall be reviewed and approved by the procuring activity 
prior to manufacturing (Dl-SAFT-80970A). The following 
definitions are provided. 
Level I critical nonconformance. A nonconformance of a 
critical characteristic that judgment and experience indicate 
would result in hazardous or unsafe conditions for individuals 
using, maintaining or depending upon the product; or a 
nonconformance that judgment and experience indicate 
would prevent performance of the tactical function of a 
weapon system or major end item. 
The following (as a minimum) are classified as Level I 
critical nonconformances: 
( 1) A nonconformance that will result in a hazardous or 
unsafe condition (often referred to as a single point failure). 
(2) A nonconformance that will remove or degrade a 
safety feature (such as those in a safe and arm device or 
fuzing system). 
18 

(3) A nonconformance that will result in violation of 
mandatory safety policies or standards. 
Level II critical nonconformance: A nonconformance of a 
critical characteristic, other than Level I. This includes the 
nonconformance of a characteristic that judgment and 
experience indicate may, depending upon the degree of 
variance from the design requirement, the presence of other 
nonconformances or procedural errors: 
( 1) result in a hazardous or unsafe conditions [sic] for 
individuals using, maintaining or depending upon the product, or 
(2) prevent performance of the tactical function of a 
major end item. 
( f) In the event that a Critical nonconformance is found 
anywhere in the production process, the contractor, as part of 
his quality system, shall have procedures in place to ensure: 
( 1) The nonconformance is positively identified and 
segregated so that there is no possibility of the item 
inadvertently reentering the production process. This control 
shall be accomplished without affecting or impairing 
subsequent defect analysis. 
(2) The operation that produced the defective 
component or assembly and any other operations 
incorporating that component or assembly are immediately 
stopped. 
(3) The government is immediately notified of the 
critical nonconformance (telephonically and electronic mail.) 
(Dl-SAFT-80970A). 
(4) Any suspect material (material in process that may 
contain the same defect) is identified, segregated and 
suspended from any further processing. 
( 5) An investigation is conducted to determine the 
cause of the deficiency and required corrective actions. A 
19 

report of this investigation shall be submitted to the 
government (DI-SAFT-80970A). The use of the DID report 
shall not delay notification to the government. 
(6) A request to restart manufacturing or to use any 
suspect material associated with the critical nonconformance is 
submitted to the government (DI-SAFT-80970A). Restart of 
production shall not occur until the investigations are complete 
or upon authorization from the procuring contracting officer. 
All objective evidence of the investigations to date shall be 
available for review at the time of restart. Suspect materiel 
found to be nonconforming shall not be used without 
Government approval. 
(g) The contractor may develop alternative plans and 
provisions relative to government or contractor identified 
Critical level (I) and Critical Level (II) characteristics. The 
provisions shall be submitted to the government for advanced 
approval and shall address the following: 
(1) Complete explanation of potential failure mode(s) 
together with supporting historical and statistical data. 
(2) Pre-established plan of action (POA) to be taken 
when a critical nonconformance occurs and a description of 
controls to ensure there is no possibility of the nonconforming 
item inadvertently entering the production process. 
(3) Means of tracking nonconformance rate, 
investigative results and corrective actions taken. 
( 4) Method to immediately verify that a produced 
critical nonconformance is consistent with the identified 
failure mode(s) and does not exceed the historical 
nonconformance rate. The contractor can resume production 
without specific government approval based upon the 
pre-approved alternate plans and provisions for Critical 
(I) characteristics and level (I) Critical nonconformances and 
Critical (II) characteristics and level (II) Critical 
nonconformances. 
20 

(h) If a critical nonconformance is discovered during 
further processing or loading, the original manufacturer who 
introduced the critical nonconformance shall bear 
responsibility for the nonconformance. 
(i) The Government Quality Assurance Representative 
will perform the surveillance actions necessary to ensure 
compliance with this clause. 
(R4, tab 1 at 22-23) 
10. The version of the contract contained at tab 1 of the Rule 4 file contains the 
full text of the CRITICAL CHARACTERISTIC clause. The document at tab 1 contains the 
CO's electronic signature but is not signed by the contractor. (R4, tab 1 at 1) A virtually 
identical copy of the contract appears at tab 313 of the Supplemental Rule 4 file. This 
copy is manually signed by both parties and incorporates the clause by reference. (R4, 
tab 313 at 1, 22) In addition, a copy of the solicitation, which was also signed by the 
contractor, included the full text of the clause (R4, tab 255 at 1, 21-22). 
11. The contract also included DFARS 252.223-7007, SAFEGUARDING SENSITIVE 
CONVENTIONAL ARMS, AMMUNITION, AND EXPLOSIVES (SEP 1999), which provided: 
(a) Definition. "Arms, ammunition, and explosives 
(AA&E)," as used in this clause, means those items within 
the scope (chapter 1, paragraph B) ofDoD 5100.76-M, 
Physical Security of Sensitive Conventional Arms, 
Ammunition, and Explosives. 
(b) The requirements ofDoD 5100.76-M apply to the 
following items of AA&E being developed, produced, 
manufactured, or purchased for the Government, or provided 
to the Contractor as Government-furnished property under 
this contract: 
NOMENCLATURE 
1390-00-877-5245 
NATIONAL STOCK NUMBER 
primer, Electric 
SENSITIVITY /CATEGORY 
IV 
21 

( c) The Contractor shall comply with the requirements 
ofDoD 5100.76-M, as specified in the statement of work. 
The edition ofDoD 5100.76-M in effect on the date of 
issuance of the solicitation for this contract shall apply. 
(d) The Contractor shall allow representatives of the 
Defense Security Service (DSS), and representatives of other 
appropriate offices of the Government, access at all reasonable 
times into its facilities and those of its subcontractors, for the 
purpose of performing surveys, inspections, and investigations 
necessary to review compliance with the physical security 
standards applicable to this contract. 
( e) The Contractor shall notify the cognizant DSS 
field office of any subcontract involving AA&E within 
10 days after award of the subcontract. 
(f) The Contractor shall ensure that the requirements 
of this clause are included in all subcontracts, at every tier 
(1) For the development, production, 
manufacture, or purchase of AA&E; or 
(2) When AA&E will be provided to the 
subcontractor as Government-furnished property. 
(g) Nothing in this clause shall relieve the Contractor 
of its responsibility for complying with applicable Federal, 
state, and local laws, ordinances, codes, and regulations 
(including requirements for obtaining licenses and permits) in 
connection with the performance of this contract. 
(R4, tab 1 at 40) 
12. The Security Statement of Work (SSW) outlined the physical security 
requirements ofDoD 5100.76-M which were referenced in DFARS 252.223-7007. It 
was attached to the contract as Attachment 9. It required that the "command will make a 
Suitability Determination of structural adequacy on production and storage facilities used 
by the contractor." It also stated that the "contractor shall implement a control system 
that ensures accountability and control of storage structure locks and keys." Moreover, 
the SSW required that "[ d]uring periods when the production line is unattended, the 
22 

contractor shall remove sensitive A&E [ammunition and explosives] to approved storage 
areas or protect the production line." (R4, tab 1 at 46, 50-51) 
13. The contract also contained an extensive Automated Data List (ADL) which set 
forth various technical requirements (R4, tab 1 at 62-76). Included was military 
specification MIL-T-15119A which governed the round, seamless alloy steel tubing to be 
used in the production of the primers (id. at 65). Paragraph 4.3 of the specification stated: 
"A lot shall consist of homogeneous tubing produced from the same heat and the same heat 
treatment" (R4, tab 2 at 93). Dr. Christopher Ramsay, appellant's expert witness, defined a 
"heat lot" as "that original batch of steel that comes out of the electric arc furnace" (tr. 
21194-95). His testimony was 
corroborated by Mr. Jerry Hahin, a U.S. Navy engineer, who 
testified that a "heat lot" was "basically one steel billet that is sent through the heat treater 
at a steel mill." For purposes of this contract, Mr. Hahin further distinguished a "heat lot" 
from a "production lot." Here, a production lot was a lot of finished primers. He also 
confirmed that the specification required that there be only one heat lot per production lot. 
(Tr. 3/152-53) Paragraph 6.1 of the specification was titled "Intended use" and provided: 
"The seamless alloy steel tubing covered by this specification is manufactured 
into primer 
tubes subjected by explosive charges to high internal gas pressures of short duration." 
Paragraph 3. 7 stated: "The tubing shall not break or permanently increase in diameter 
more than 0.003 inch when subjected to the hydrostatic test of 4.9." The latter paragraph 
described this test 
in some detail: 
All tubing shall be subjected to the minimum hydrostatic 
pressure specified in the contract or purchase order (see 6.2). 
The test shall be performed on tubing lengths up to 12 feet. 
The outside diameter of each test length shall be gaged in the 
same location before and after application of the specified 
pressure. Failure of the tubing to meet the requirements of 
3.7 shall be cause for rejection of the lot. 
Paragraph 6.2 required that the "[p ]rocurement documents," inter alia, "should specify" the 
"[h]ydrostati[c] test pressure (see 4.9 and 6.3)." Paragraph 6.3 of the specification detailed 
the "[h]ydrostati[c] test fiber stress" in these terms: 
It is intended that the tubes covered by this specification be 
subjected by the hydrostatic pressure test to a fiber stress no 
greater than 75,000 pounds per square inch as calculated from 
the following formula: 
bz + az 
s = p b2 2 -a 
23 

S = Fiber stress in pounds per square inch 
P =Hydrostatic test pressure in pounds per square inch 
a= Outside radius of the tube in inches 
b =Inside radius of the tube in inches. 
(R4, tab 2 at 92-95) 
14. With respect to quality control, Hanley was also required to comply with 
ISO 9001-2000 (R4, tab 1 at 20-21 ). However, it submitted a quality control program 
pursuant to MIL-Q-9858A which Mr. Hahin found "to be adequate as a reasonable 
alternative to ISO 900[1-]2000 for this contract" (tr. 3/212).1 Paragraph 1.2 of 
MIL-Q-9858A stated: 
This specification requires the establishment of a quality 
program by the contractor to assure compliance with the 
requirements of the contract. The program and procedures 
used to implement this specification shall be developed by the 
contractor. The quality program, including procedures, 
processes and product shall be documented and shall be 
subject to review by the Government Representative. The 
quality program is subject to the disapproval of the 
Government Representative whenever the contractor's 
procedures do not accomplish their objectives. The 
Government at its option, may furnish written notice of the 
acceptability of contractor's quality program. 
In addition, paragraph 3 .4 of the specification provided: 
The contractor shall maintain and use any records or data 
essential to the economical and effective operation of his 
quality program. These records shall be available for review 
by the Government Representative and copies of individual 
records shall be furnished him upon request. Records are 
considered one of the principal forms of objective evidence of 
quality. The quality program shall assure that records are 
complete and reliable. Inspection and testing records shall, as 
a minimum, indicate the nature of the observations together 
1 Paragraph 1.5 ofMIL-Q-9858A stated in part: "ISO 9001 and ANSI/ASQC Q9001 are 
alternative model quality system requirements to this specification" (R4, tab 4 at 1 ). 
24 

with the number of observations made and the number and 
type of deficiencies found. Also, records for monitoring work 
performance and for inspection and testing shall indicate the 
acceptability of work or products and the action taken in 
connection with deficiencies. The quality program shall 
provide for the analysis and use of records as a basis for 
management action. 
(R4, tab 4 at 112-14) 
15. Pursuant to MIL-Q-9858A, Hanley forwarded a Quality Assurance Program to 
the government in January 2004. The manual was approved in March 2004. (R4, tab 316 
at 1) Hanley stated the purpose of the manual in these terms: 
(Id. at 5) 
The QA Program Manual is designed to assure 
adequate controls throughout all areas of contract 
performance. Hanley will insure all supplies and services 
under contract, regardless where manufactured or performed, 
shall be controlled at all points necessary for conformance to 
contractual requirements. This program will provide for the 
prevention and ready detection of discrepancies and for 
timely and positive corrective action. Hanley will document 
evidence of quality conformance and make such 
documentation available to the Government representative. 
This program will delegate authority, responsibility, 
and accountability for decisions affecting quality in clear and 
precise manner, which assures the proper functioning of the 
quality program. By delegating, Hanley intends to promote 
prevention or early detection of quality failures to reduce 
correctives action costs. 
Additionally, Hanley will collaborate and coordinate 
closely with DOD contract 
and administrative personnel to 
ensure contract compliance. 
16. Paragraph 5.2 of the manual was entitled "PURCHASING DATA." It stated: 
Prior to the issuance of any Hanley purchase order for 
services or materials a Hanley "Purchase Order Request" 
form will be completed defining the article or 
services to be 
procured. The QA Manager examines and approves all 
25 

purchase orders to insure that they define the articles or 
services to be procured. All Purchase Order Request [sic] 
may include the following items: 
1) The applicable Government contract number, name 
and address of the subcontractor and the consignee. 
2) A clear, concise description of the supplies or 
services ordered. 
3) Specification numbers, drawing numbers and 
revisions, and process requirements. 
4) Packaging, shipping and preservation requirements. 
5) Classification of defects or other inspection 
requirements. 
6) Requirements for qualification or other 
Government or contractor approval. 
7) Provisions for direct shipment from the 
subcontractor's or vendor's plant to Government. 
8) Contractor or Government source inspection 
requirements. 
Document changes will be controlled by procedures 
outlined in Chapter 4, section 4.1 Drawings, Documentation 
and Changes. 
(R4, tab 316 at 20) Ms. Cheryl Nielsen, the CO for the contract, testified that item 6, 
"Requirements for qualification or other Government or contractor approval" required that 
quality clauses relating to Acceptance and Inspection Equipment (AIE), Statistical Process 
Control (SPC), and First Article Testing (FAT), would be included in purchase orders. In 
addition, item 8 required that "Contractor or Government source inspection requirements" 
were to be included in purchase orders as well. This alerted subcontractors that 
government inspectors could be required to conduct inspections at their facilities. 
(Tr. 5/13, 32-34) Ms. Nielsen's testimony was corroborated in part by paragraph 7.1 of 
Hanley's manual which provided: 
26 

When Government source inspection is required, under 
authorization of the Government Representative the purchase 
order shall contain the following statement: 
"Government inspection is required prior to shipment 
from your plant. When material is ready for inspection 
notify, if practical, ten (10) days in advance, the Government 
Representative who normally services your plant." 
When under 
authorization of the Government 
Representative, copies of the subcontract are to be furnished 
directly by the subcontractor to the Government 
Representative at his facility rather than through Government 
channels, the purchase order shall contain the following 
statement: 
"On receipt of this order, promptly furnish a copy to 
the Government Representative who normally services your 
plant, or, if none, to the nearest Government Inspection 
Office in your locality. In the event the Representative or 
office cannot be located, our purchasing agent should be 
notified immediately." 
Government inspection shall not constitute acceptance 
nor shall it in any way replace contractor inspection or 
otherwise relieve the contractor of his responsibility to 
furnish an acceptable end item. 
All applicable purchasing documents will be provided 
to the Government Representative at the supplier's plant upon 
request. 
(R4, tab 316 at 28)2 Ms. Teresa S. Johnson, the government's product quality manager, 
testified that, despite the contract's various quality control provisions, Hanley failed to 
2 In addition, MIL-P-18714D, paragraph 4.1 stated: "Unless otherwise specified in the 
contract or purchase order (see 6.2), the contractor is responsible for the 
performance of all inspection requirements (examinations and tests) specified 
herein. Except as otherwise specified in the contract or purchase order, the 
contractor may use his own or any other facilities suitable for the performance of 
the inspection requirements specified herein, unless disapproved by the 
Government. The Government reserves the right to perform any of the inspections 
27 

I 
l 
·~ 
j 
"push down" these requirements to its subcontractors. This resulted in various problems. 
(Tr. 4/126-27, 141-42) 
17. Pursuant to the requirements of DoD 5100.76-M (see finding 12), the 
Defense Security Service (DSS) conducted a pre-award survey "to evaluate the 
protection afforded items of AA&E [Arms, Ammunition and Explosives]." DSS 
concluded that the two buildings proposed by Hanley as manufacturing sites for the 
primers were non-compliant. They had been built to an unknown standard, did not have 
the required "high security locks and hasps on the access doors," and lacked compliant 
key and locks procedures. In addition, privately owned vehicles were parked within 
100 feet of the buildings. (R4, tab 289)3 
18. On 9 December 2005, the CO informed Hanley that, inter alia, the deficiencies 
listed by DSS were endangering its "ability to perform this contract" (R4, tab 297). In a 
response of 20 December 2005, Hanley's president, Mr. T. Gaynor Blake, stated that 
Hanley had selected a different building within which to manufacture the primers and that 
any "deficiencies that are identified will be corrected or brought up to current 
requirements." He concluded that approval [by DSS] "will be requested upon completion 
and prior to use under this contract." (R4, tab 296) On 21 December 2005, the CO replied 
to Hanley's letter. Ms. Nielsen outlined the various inspections which DSS would have to 
conduct in order to approve use of the newly proposed building (R4, tab 298). On 
16 February 2006, Ms. Darlene Jones, DCMA's administrative contracting officer (ACO), 
informed Hanley that its new site plan could not be approved "due to lack of detailed 
information regarding the proposed loading, assembly and packaging operations being 
performed" in its proposed building. She listed seven items "that were missing or not 
clearly stated." (R4, tab 299) Later that month, DCMA personnel conducted a site visit to 
review Hanley's "facility site plan and the set-up of the Mk 45 Primer Manufacturing 
operation." DCMA concluded "that very little progress was being made towards finalizing 
the site plan on the day of the visit." It made four "observations" regarding deficiencies 
and noted that 
"proper installation of all production equipment could not be verified" due 
to the building's renovation not being completed. (R4, tab 300) On 8 March 2006, the 
Army informed Hanley that its proposed use of military security locks manufactured by 
H.O. Boehme, Inc., did not comply with the requirements ofDoD 5100.76-M. It noted that 
the regulation required use of high security locks. (R4, tab 306) On 17 April 2006, the 
Army informed Hanley that it had satisfactorily addressed the various deficiencies cited by 
DSS and that the Army was issuing "a favorable suitability determination" (R4, tab 302). 
set forth in this specification where such inspections are deemed necessary to 
ensure supplies and services conform to prescribed requirements." (R4, tab 3 at 5) 
3 DSS also noted that Hanley's facility had not previously been involved with the 
requirements ofDoD 5100.76-M (R4, tab 289). 
28 

I 
There is no persuasive evidence demonstrating that government officials overreached in 
their efforts to require Hanley to comply with the requirements of DoD 5100. 7 6-M. 
19. At the hearing, Mr. Blake, Hanley's president, generally described the 
production process for the MK.45-1 primer as follows: 
There are three subassemblies that go together at the final 
assembly. So I'll talk about each of the subassemblies 
separately. 
This is the primer stock or head stock. This part gets 
a[n] insulator pressed into here, and it's staked in. If you 
know what staking is, it's where you take a metal punch and 
push into the metal, and it squeezes metal and it grips the 
insulator that goes in there. Then that insulator is drilled, 
that's subassembly. 
Course before you can do that, of course you have to 
purchase the parts and they have to all go through your 
receiving inspection. 
This is the tube and this tube is still open. This tube is 
made from the 12 foot length of tubing that we talked about 
earlier.l41 And these holes are cross drilled in it. And there's 
a counterbore on this end, smooth on the inside, it's threaded 
on the outside and there's a groove on the inside of this end. 
We buy that tube, it goes through receiving inspection 
and we put the paper liner in it, which you can see showing 
through the holes. And then we fill all these holes with 
purple laquer [sic] and that's going to seal them against 
moisture. Then that subassembly is set aside. 
Well no, I'm sorry I missed this, the brass plug gets 
pressed into there. And you can see it won't go in there 
without a tremendous amount of a force. So that becomes 
this subassembly then. The 
heart of the Mk45 gun primer is 
the igniter. And the igniter is an assemblage of brass and 
4 The 12 foot long tubes were eventually cut into 2-foot lengths, the size of the completed 
primers (tr. 3/100-01). 
29 

plastic parts. That assembly, that parts pressed together and 
then it gets a fillet of red epoxy to seal it. 
And then it gets slotted with a jeweler's saw. Into that 
slot we put a wire and we solder it in the left, right and the 
center. Such as there are two bridge wires on this unit. 
That's for redundancy if one of them would fail that there 
would still be another one that would do the job. That's 
assembled into this cup with a spacer and some black powder 
and it's got a closure foil on the top, and it's crimped. So that 
makes 
that subassembly. 
At the final assembly then the igniter is put into the 
head stock and there's some sealant put in there. And then 
the tube is screwed onto the head stock and tightened up to a 
specified torque. And that crushes the igniter and makes a 
seal, that's the next step. 
Then this is filled with black powder according to 
weight, which it comes up to about this full, somewhere in 
here. Then there's a paper cup pushed in and that paper cup 
then you pour varnish into here, which is going to seal around 
the edges of that cup. 
You invert it let the excess varnish drip out, you let it 
dry. And then you put in another cup very similar to this one 
you put into the end, and seal that with varnish. Then it's 
ready for final inspection and testing. 
(Tr. 1151-53) Mr. Blake also testified that it did not manufacture any of the components; 
instead, it purchased all of them from various suppliers (tr. 1/53-54). Moreover, the 
government was aware of this fact, as it was stated in Hanley's proposal (R4, tab 256 at 3; 
tr. 1/54-55). 
20. Much of the tubing which Hanley used in the FAT and the first production lot 
was purchased from Propellex, the prior contractor for the primers, and had been 
purchased by Propellex from Plymouth tubing. The tubes had been prepared for storage 
with oil and had been stored by Propellex in a closed warehouse for approximately a 
decade. All of the tubes had been hydrostatically tested and some of them had been 
drilled. (Tr. 217-8) Hanley also purchased several pieces of old production equipment 
from Propellex (tr. 1171). 
30 

21. Regarding the production and machinery of the tubing, Mr. Blake testified: 
The tubing comes from the mill with a certification of the 
chemistry of the steel. And the heat treating and the physical 
properties of the steel. Just like you purchase anything, 
there'll be a certification on it. 
So this tube then is 12 feet long and the first operation 
is to centerless grind it. Tubes these days are relatively 
straight and smooth but they have to be exceptionally straight 
and smooth to be able to go through the process. They go 
through what's called a Swiss machine. And if this tube had 
any bulges or irregularities in it, it would not feed properly 
through the Swiss machine. 
So this centerless grinding operation is not required by 
the Government. It's a step that we did in order to improve 
the quality of the part. 
(Tr. 1/55-56) Hanley thus expended time and energy on a process which it admitted was 
not required by the contract. 
22. In December 2005, Hanley purchased additional Plymouth tubing from Gormac 
(R4, tab 315). Unlike the tubing which it had purchased from Propellex, this tubing had to 
undergo the entire machining process which Mr. Blake described in these terms: 
So the tubing came in and Gormac had that tubing shipped to 
their supplier, which was Banner. Banner is a very large 
machining operation in that area and their only, well I say 
only, I don't know their only business. They're known for 
their centerless grinding, that's their specialty. 
So we bought the tubing, had it shipped to Banner for 
Gormac. Gormac had it centerless ground and then the tube 
went to Gormac where it was hydrostatically tested. It's 
tested in 12 foot lengths, in a machine with a calibrated gauge 
that gives it 18,000 PSI, to ensure that no tube fails. 
After the hydrostatic test the part would then go to 
Gormac' s Swiss machine. And it would feed into the 
31 

(Tr. 1/57-58) 
machine. Does everybody know what a lathe is, it turns the 
metal horizontally. 
You feed it into the machine and the machine would 
then drill the holes and put the counterbore in the end, thread 
this end and cut off this end. The part is essentially done, then 
it goes to plating which will make the diameter just a little bit 
larger. The plating does have a measurable thickness. 
Then after inspection steps it would be, there's a cap 
that goes on the thread. I thought I had it here, but there's a 
plastic cap that goes on the thread to protect it during 
shipping and then it comes to Hanley. 
23. Pursuant to Local 52.209-4511 which was included in the contract (finding 4), 
Hanley was required to produce a first article for testing (FAT). The first article comprised 
130 primers, as well as "5 EACH OF EVERY COMPONENT PART AND 
SUBASSEMBLY (LESS EXPLOSIVE COMPONENTS)" (id.). Ms. Teresa S. Johnson, 
the Army's product quality manager, was involved in Hanley's two FATs (tr. 4/125-26, 
129). The first FAT was conducted in August 2006, and the second FAT took place in 
December 2006 (R4, tab 321; tr. 5/177-78). There were several issues with respect 
to 
Hanley's first FAT, according to Ms. Johnson. There were "some 
failures of the primer 
tube." In addition, there were "some gauges that...were either not available or we had to go 
and get them calibrated." Finally, there were parts that were "not clearly marked" (see 
finding 5; tr. 4/130). With respect to the primer tubing, Ms. Johnson testified: 
I remember that I checked that part myself. I also remember 
that in the tubes, the holes has [sic] to be straight across from 
the other side and you have to put a pin through it, whatever 
gauge identified. But the primer tubes that I looked at 
the 
first day the pin wouldn't go through the holes. 
(Tr. 4/130-31) Ms. Johnson testified further regarding Hanley's deficiencies: 
Instead of failing Hanley because we had been working 
together and trying to get through with this, we allowed 
Hanley to provide us with five original, ten was [sic] the from 
a new producer they had to identify they were going to go to a 
new producer. They gave us ten tubes and the agreement was 
they would give us ten tubes at the point of introducing the 
32 

i 
I I j 
(Tr. 4/131) 
tube and all the assembly up to completion. However we 
would allow them to keep the ballistics samples that they had 
built up with the original and that they would use these tubes. 
And when they got those ready, when we would come back 
and look at it and they would not use the tubes that they had 
already produced for production for the first first [sic] article. 
24. Ms. Johnson's testimony regarding Hanley's FAT deficiencies was 
corroborated by a letter forwarded to the contractor by the CO, Ms. Nielsen, on 
10 August 2006: 
Reference Contract W52PlJ-05-C-0076, First Article 
Testing (FAT) for the Electric, Primer MK45-l on 1 Aug 
2006. 
After reviewing the results of your FAT, there are 
areas of concern that need to be addressed prior to the return 
of the team for the completion of the First Article test. The 
following comments are recommended for your use to assist 
Hanley Industries in completing the FAT: 
1. Request Hanley post work instructions at the site 
where the work is to be performed. 
2. Develop Inspection Instructions. (Gage usage, 
number of samples, identify what characteristic is being 
checked, and directions on how to perform the inspection, 
etc)[.] 
3. Ensure all characteristics are listed on data sheets. 
Example MlOl and Ml02 are missing from PN 2847020. 
4. Clarify CofC's. 
5. Request Hanley position all gages that will be used 
in production where they will he used during the process. 
Ensure non-necessary gages are not included. 
33 

l 
6. Ensure correct gages are called out on the 
inspection sheets. Example PN 1275047Ml10 Hanley sheet 
calls out 3236973, contract calls out 3030939. 
7. Verify receipt of or request Gage 3030396. 
8. Obtain AIE approval for characteristics not 
inspected/listed at FAT. 
9. Submit and get approval for Gage modifications 
and additions including 
those for checking radius. If gages 
are modified, change drawing to reflect the modification and 
add a revision level to the drawing or a dash number to 
indicate a change. Document change in calibration system. 
10. Ensure all gages are calibrated and have a current 
sticker. Ensure calibration records are available. When 
calibrating gages, document gage dimensions being checked 
and calibration standard[.] 
11. Ensure gage identification is not duplicated for 
two or more gages. Example PN 685475 there were two 
gages #685475-1, one was incorrectly marked. Had .7489 
diam stenciled on the side. 
Reference a new supplier of the primer tube: 
12. Have available for inspection the 10+ primer tubes 
and associated data at 
the component level from the new 
supplier as agreed. 
13. Have available for inspection all assemblies and 
sub assemblies and associated data containing the primer tube 
as agreed. 
14. Ensure all certs are available for the new primer 
tube with emphasis on hydrostatic testing cert as agreed. 
In reference to the new supplier of the primer stock 
insulator drawing number 451563. 
34 

(R4, tab 321) 
15. Have available for inspection the primer stock 
insulator and associated data at the component level from the 
new supplier. 
16. Have available for inspection all assemblies and 
sub assemblies and associated data containing the primer 
stock insulator. 
17. Ensure all certs are available for the new primer 
stock insulator. 
In lieu of failing your FAT test, the Government and 
Hanley Industries agreed that FAT Testing should be delayed 
to allow Hanley Industries additional time to correct the items 
listed above. Therefore, this delay in FAT testing is not due 
to any fault of the Government and the Government is not 
responsible for any additional costs that are derived from this 
delay. The test samples that are being sent out to NSWC, 
Dahlgren Division, for testing are at Hanley's risk. The 
Government assumes no responsibility if these samples fail 
their first article test. If the FA testing being conducted at 
Hanley Industries or NSWC, Dahlgren Division, fails for any 
reason, a new FAT test will be required at Hanley' s cost. 
Also, Hanley Industries needs to provide this office the 
date when the Government can complete FA testing on the 
identified areas of concern. 
Thank you for your cooperation in this matter. Please 
reply to the above comments NL T 24 August 2006. 
25. The references by both Ms. Wilson and Ms. Johnson to a "new supplier" 
referred to the fact that the Army concluded that, during inspection of the FAT tubing, the 
pin would not go through the holes because of rust. This apparently resulted from the fact 
the Propellex tubes had sat in storage for approximately a decade. (Tr. 4/133-34) 
Accordingly, the Army determined that Hanley should seek a new supplier for the second 
iteration of the FAT. Hanley complied and purchased new tubing directly from Plymouth 
(id.). These tubes passed the second iteration of the FAT in December 2006 and 
accordingly, were approved for production (tr. 1196, 5/179-80; finding 22). 
35 

j 
26. It was only much later that the Army surmised that Hanley used the rejected 
Propellex tubing in its production lots. Ms. Johnson, accompanied by other government 
employees, traveled to Gormac' s facilities. Their trip report stated, in part: 
Gormac claimed that 8800 pieces were delivered to them 
from Hanley in various states and stages. These pieces were 
primer tubes 
which Gormac "reworked." 
The delivered primer tubes were cut to length with holes 
already cut out. Some of the pieces required cleaning and 
additional work, however; all the pieces received machining 
of threads. These pieces were not hydrostatically tested by 
Gormac. 
(R4, tab 159 at 2) The only identified tubing which had been previously hydrostatically 
tested and required cleaning and rework was the lot which Hanley had purchased from 
Propellex and which had been rejected by the government in the first iteration of the FAT. 
Setting aside the fact that the Propellex tubes had been rejected, the only way Hanley 
could use the tubes in a production lot was to comply with the rework requirements of 
FAR 52.246-4528, REWORK AND REPAIR OF NONCONFORMING MATERIAL (MAY 1994). 
(Findings 8, 20, 22; tr. 4/134-35) Based upon these facts, the Board concludes that Hanley 
used the reworked and rejected tubes 
which it had purchased from Propellex in its 
production lots. 5 
27. Hanley did not deliver the primers comprising production lot 1 in a timely 
manner. Therefore, through a series of contractual modifications, culminating in 
modification No. P00005, the Army extended the delivery date for production lot 1 to 2 
February 2007 (R4, tab 1 at 4, tab 7 at 130, 132, tab 9 at 143, 
145, tab 10 at 152). 
Modification No. P00005 provided: 
SECTION A - SUPPLEMENTAL INFORMATION 
1. The purpose of this modification is the following: 
a. Extend the contract Delivery Schedule as depicted 
in Section B of this modification. 
b. Increase the contract progress payment limitation 
for allowable contract incurred costs. 
5 There is no record evidence demonstrating that Hanley complied with the rework clause 
with respect to the Propellex tubing (findings 8, 24). 
36 

J 
(/d.at151) 
2. The Delivery Schedule is hereby revised IAW the 
Contractors [sic] proposed delivery schedule dated 
November 7, 2006, which is incorporated into Section B of 
this contract. 
3. Clause HS6002, FAR 52.242-4506 Progress Payment 
Limitation Incurred Costs, for the limitation of the Progress 
Payment percentage for incurred allowable costs is changed 
from I 0% to 20%. 
4. As consideration for this extension/progress payment 
percentage increase, the contractor offer [sic] to extend the 
period of performance for exercising the evaluated option for 
Fiscal year 2006 by 6 months. This extended FY06 option 
period is from September 29, 2006 to March 28, 2007 and the 
unit price for FY06 Evaluated Option remains as initially 
quoted in the basic contract. 
5. In consideration for this extension/progress payment 
percentage increase agreed to herein as complete equitable 
adjustment for these contract adjustments, the contractor 
hereby releases the Government from any and all liability 
under this contract for further equitable adjustments 
attributable to such facts or circumstances giving rise to those 
contract adjustments. 
6. All other terms and conditions of this contract remain 
unchanged and in effect. 
28. Through Modification No. P00005, the Army, in return for consideration from 
Hanley, increased the progress payment percentage (R4, tab I 0). An issue later arose as to 
whether the CO had stopped progress payments. In an email forwarded 
to the Army on 
26 September 2007, Mr. Blake went so as far to state: "Cheryl [Nielsen] had previously 
stopped our progress pay." He went on to write: "I CANNOT OVEREMPHASIZE THE 
IMPORTANCE OF THIS MATTER." (Ex. A-13 at 1) However, Ms. Nielsen testified 
that she had never stopped Hanley's progress payments. In addition, she stated: "I 
wouldn't say that it's a stopping of progress payments like they were due to get a progress 
payment, as much as it was [sic] they weren't showing progress to get a payment" 
(tr. 5/137-39). Based upon the number of modifications to this contract which extended 
delivery dates, the Board concludes that whatever problems Hanley allegedly encountered 
37 

in receiving progress payments on this contract resulted from its own inability to make 
progress rather them from any unilateral actions on the Army's part. 
29. On 30 April 2007, the Army executed bilateral Modification No. P00006 
which extended the delivery date for production lot 1 for a fourth time to 12 October 2007 
and also extended the delivery date for production lot 2 to 12 January 2008 (R4, tab 11 at 
158).6 In addition, it exercised the options for periods two and three (id. at 157). Also, the 
modification incorporated three letters by reference which approved the FAT, and 
conditionally approved both Hanley's SPC plan and its AIE. Finally, it incorporated 
various requests for deviation (RFDs) and automated data list (ADL) into the basic 
contract (id.). 
30. On 2 August 2007, the Army executed Modification No. P00007 which 
extended the delivery date for production lot 1 to 11 November 2007 and the delivery date 
for production lot 2 to 11February2008 (R4, tab 12 at 189, 191). Because of various 
problems with production lot 1, it was not accepted by the government until January 2008 
(tr. 2/8-9). 
31. On 19 November 2007, Mr. Larry Harris, the Defense Contract Management 
Agency (DCMA) quality assurance representative (QAR) forwarded to Hanley Corrective 
Action Request (CAR) 0076-002, which stated: 
1) Reference: MIL-P-18714 D, Paragraph 4.7.1 
"Radiographic". The primer shall be subjected to a 
radiographic inspection in accordance with MIL-STD-453. 
The primer shall be mounted in the VERTICAL position with 
the primer stock up ... 
It has come to our attention that Hanley Industries 
radiographed the primers of Lot 001 in a HORIZONTAL 
position. 
2) Reference: MIL-STD-41 OE-Para 4.2 "Personnel" 
Paragraph 4.2. Personnel Qualification and Paragraph 5, 
Detailed Requirements. Paragraph 5 .1.3 Level II individuals 
shall have the skills and knowledge to set up and calibrate 
equipment, conduct tests ... evaluate and document results in 
accordance with procedures approved by the appropriate 
Level III... 
6 The original delivery date for production Lot 2, as set forth in the contract, was 
26 November 2006 (R4, tab 1 at 4). 
38 

1 
Hanley Industries does not have X-Ray personnel qualified to 
Level II. 
Please address all of the questions, A thru E, in the block 
above. [Ellipses in original] 
(R4, tab 278) One of the purposes of the X-ray procedure referenced in the CAR was the 
assessment of black powder levels. Accordingly, the CO wrote the following letter to 
Hanley on 30 November 2007: 
(R4, tab 279) 
In conjunction with Corrective Action Request 
0076-002 it has been determined that Lot l is now suspect of 
having low black powder weights. As a result, prior to 
Government acceptance of this lot, Hanley will need to l 00% 
x-ray the lot to determine sufficient black powder is present 
in each primer at no additional cost to the Government. An 
x-ray and measurement of the black powder column height 
can provide objective evidence that the primers have the 
correct amount of black powder. Any primers that show a 
discrepant amount of black powder present must be removed 
from the lot. If Hanley choses [sic] not to conduct the x-ray 
screening proposed above, the Government will not accept 
the lot. 
In order to complete 
this effort, Hanley is required to 
submit an X-ray screening procedure to be reviewed 
and approved by the Government. Enclosed are 
suggested procedures for reference to help Hanley formulate 
the x-ray screening procedures. The procedures are only 
suggestions and it is Hanley's responsibility to formulate new 
work plans and submit screening procedures to include 
timeline to finish screening process to the Government for 
approval. 
Request screening procedure to be submitted to the 
Government no later than 4 December 2007. 
32. On 29 November 2007, Mr. Harris rejected lot l through another CAR. He 
stated: 
39 

Deficiencies: Out of tolerance powder charge weights. 
1) Reference: Drawing 2434755, Characteristic M107, class 
2 black powder charge shall be 50.5-53.1 grams 
Hanley 
Industries Variable Control Charts sample 
measurements of Lot 001 indicate that there are four primers 
in Lot 001 with low weights (50.2, 50.2, 50.1, 50.1). 
Additionally, there is one measurement in Hanley's records 
that has been recorded over "white-out" and another 
recording that was 
originally recorded as 53.3 and then 
"marked over" to show 51.3. There are no explanations in 
your official records to indicate why those recordings were 
changed. 
Major Characteristics are to be 
accepted on 1 and rejected on 
2 nonconpliances. 
Lot 001 is rejected. 
(R4, tab 281) As of 26 December 2007, Mr. Hahin, the Navy's project engineer, did not 
consider this issue to be closed (R4, tab 284). 
33. On 19 January 2008, Hanley forwarded an RFD to the government in which 
it requested approval to add 
Roberts Automatic Products, Inc., as a vendor for the primer 
stock.7 On 22 January 2008, Mr. Hahin responded as follows: 
This RFD will be considered, however, I wan [sic] to remind 
Hanley that each lot of primers is to be homogeneous in 
accordance with MIL-P-18714, paragraph 4.5 .1. Therefore, 
this deviation will only be considered if this new primer stock 
manufacturer is used for the entire lot 2 quantity. 
(R4, tab 21 at 246-48) In another letter of that date, Mr. Hahin informed Hanley that its 
RFD was not acceptable in its current form. He suggested a number of corrections. (R4, 
tab 24 at 267) 
7 The primer stock was a steel part distinguishable from the tubing itself (tr. 3/155-56). 
40 

I 
34. Prior to this time period, Hanley had also concluded that Plymouth would no 
longer be a reliable supplier of the tubes themselves because it had raised its prices. 
Accordingly, Hanley resolved to purchase tubes for future production lots from another 
firm called Webco. It issued a purchase order to Webco's agent, Steel Trading Co., Inc., 
for 164,000 linear feet of tubing on 31 May 2007 (R4, tab 328). Just as it would later do 
with respect to the primer stock, Hanley was required to seek approval of its new tubing 
vendor through the mechanism of an RFD. However, even though it placed the Webco 
tubes into production, Hanley did not make such a request (tr. 1157, 4/136, 5/27). 
35. On 28 January 2008, Mr. Harris, the QAR, issued another CAR for 
Hanley's failure "to have required SPC data from vendors for each lot of component 
parts, and not conducting in-process SPC." He added: 
A recent inquiry about Lot-002 in-process SPC and SPC data 
from vendors indicates a 
repeat of major deficiencies in 
Hanley's SPC program. Specifically, contractor personnel 
were not 
fully aware that their SPC Detailed Plan required 
variable or attribute data (Xbar & R or P. Charts) from their 
vendors for 15 components. In addition, Hanley was required 
to perform in-process charting on eight component parts, and 
the primer during manufacture. 
Mr. Harris requested that Hanley respond to the CAR by 5 February 2008. It did not 
respond in a timely fashion. (R4, tabs 52, 286; tr. 4/141; finding 6) 
36. On 1 February 2008, the CO executed unilateral Modification No. POOO 10 
which, in conjunction with Hanley's revised delivery schedule spreadsheet, established a 
new delivery date for production lot 2 of 22 April 2008 (R4, tabs 4 7, 48). Despite 
several extensions, Hanley never met this revised date (tr. 5/21). 
37. On 5 February 2008, Hanley informed the government that four primer 
tubes had failed the spin gage test (R4, tab 53; finding 5). On 6 February 2008, 
Mr. Hahin responded to an inquiry from the CO by stating that this was a critical 
failure. He also stated that "Hanley in general do [sic] not seem to grasp the 
seriousness of critical defects." (R4, tab 56) Later that day, the CO forward an email 
to Hanley in which she stated: 
This failure is considered a critical failure in accordance with 
the terms of your contract. As such, Hanley shall follow the 
requirements of the Critical Characteristics Clause of the 
contract. Hanley must cease production from the point of 
failure. Hanley shall investigate the cause of the failure and 
41 

I 
prepare a failure analysis and corrective action for 
Government review and approval. Upon Government 
approval of the failure analysis and corrective action, the 
Government will provide Hanley approval to restart 
production in writing. 
(R4, tab 57) Correspondence between the government's engineers demonstrated 
that the gage failure was related to Hanky's SPC deficiencies. In an email of 
4 February 2008, Mr. Wuorinen, the government's product quality manager, stated: 
(R4, tab 51) 
Mr. Harris said that the vendor's 
lot of primer stock will 
probably be rejected for failure of the inner threads to accept 
the go gage. The present CAR did cite failure to have the 
suppliers provide SPC charts with each shipment. SPC would 
have detected this attribute defect, and if managed as 
required, corrective actions implemented to immediately 
address the probable cause (s) to prevent further defective 
product. 
38. On 6 February 2006, representatives of the government and Hanley met to 
discuss a variety of contractual issues. Hanley, inter alia, requested a two-week 
extension until 20 February 2008 to submit its revised SPC plan. (R4, tab 66 at 390) 
39. On 11 February 2008, Hanley responded to the CO's email regarding the ring 
gage failure. It concluded: "The source of rejection is an oversize NOGO thread ring 
gage." (R4, tab 71 at 410) On 13 February 2008, Hanley proposed using certified gages 
from its supplier, Gormac, so that it could proceed with production (R4, tab 75 at 442). In 
response to an additional request from the government's engineers, Hanley responded that 
the root cause of the failure was that the "ring gage had become worn during the 
inspection process" (R4, tabs 77, 81 at 11). Further correspondence between the parties on 
this issue resulted in Hanley submitting a calibration certificate for the gages (R4, 
tabs 84-87). 
40. On 14 February 2008, the CO wrote to Hanley to approve a conditional restart 
of production lot 2. She concluded by stating: "It should be noted that any delay to the 
current contract delivery schedule as a result of the information contained/reported on the 
42 

referenced Failure Analysis is considered to be the responsibility of Hanley Industries, 
Inc." (R4, tab 94)8 
41. As of 27 February 2008, Hanley still had not submitted either a revised SPC 
plan or an updated AIE list despite several missed deadlines (R4, tabs 100, 131). 
42. On 26 February 2008, Hanley informed the government that "high pressure 
testing at Gormac has caused [one] tube to rupture" (R4, tab 101). On that same day, 
the government responded as follows: 
(R4, tab 111) 
This is considered a critical per the Critical Characteristic 
clause of your contract. Therefore Hanley must complete a 
Failure Analysis and Corrective Action Report for 
Government approval before Hanley can utilize any Gormac 
tubes in their process. If the tubes that failed are of the same 
heat of steel as tubes Hanley is currently using in production, 
Hanley must immediately cease use of those tubes until 
Government approval of failure analysis and corrective action 
report. 
43. On 27 February 2008, the contract specialist, Ms. Crosson, requested 
"Government personnel to visit Gormac on 
Tuesday 4 March 2008." She also requested 
"participation of Hanley personnel to accompany the Government to Gormac for the visit." 
(R4, tab 114) On 28 February 2008, Hanley informed 
the government: "Gormac is 
expecting your visit. Hanley will not be sending a representative." (R4, tab 121) 
44. Despite the fact that government representatives were traveling to Gormac to 
investigate the circumstances regarding the burst tube, Hanley informed the government 
on 29 February 2008 that the ruptured tube was being forwarded to Hanley's shop for 
evaluation (R4, tab 127). On 3 March 2008, Mr. Wuorinen forwarded the following email 
to 
Hanley: 
Please confirm ifthat tube is at Gormac or at your plant as 
soon as possible. We should have been informed about your 
plans to ship the tube last Tuesday. Now we have six team 
members going to Gormac today who will [be] conducting an 
8 The CO also instructed Hanley "to identify the previous portion of lot 2 as a separate 
sublot" (id). 
43 

investigation. I was not able to participate in this visit due to 
training all week. 
If it is at your facility, I recommend that any tests conducted 
do not destroy the site of the defect. It is extremely important 
to assure that the tube is not altered to the extent that it would 
significantly impede the Government's evaluation of your 
root cause analysis. 
What tests do you plan on conducting on the tube? 
Spectrographic, atomic adsorption, scanning electron 
microsopicity (SEM), wet chemistry? 
(R4, tab 133) On that same day, Hanley responded that the tube was scheduled to arrive 
at its shop "this morning" (R4, tab 134). The tube was inspected on 4 March 2008, and 
Hanley submitted 
its inspection report to the government on 5 March 2008. Hanley also 
stated that it had forwarded the tube to St. Louis Testing Laboratories for "Scanning 
Electron Microscope (SEM) analysis." (R4, tab 146) 
45. During their 
visit to Gormac's plant on 4 and 5 March 2008, governmental 
representatives learned, for the first time, that Hanley "had switched its steel tube vendor 
from Plymouth to WEBCO" (tr. 4/136). Although Hanley had issued a purchase order to 
Webco in May 2007 and had received tubes from the new supplier in the January to 
February 2008 timeframe, it never informed the government of this fact (finding 34; 
tr. 3/116). Moreover, Plymouth Steel-not Webco-was the tube vendor for the first and 
the second FATs which had been approved by the government (tr. 2/5, 4/135; findings 
22, 25). In addition, Plymouth Steel was also the vendor for production lot 1 which had 
been accepted by the government in January 2008 (tr. 2/5; finding 30). 
46. Also during their visit to Gormac on 4 and 5 March 2008, the government's 
representatives discovered that Gormac was not conducting hydrostatic testing in 
accordance 
with the contract's requirements. On 17 March 2008, the CO forwarded the 
following email to Hanley: 
Your source may have assured you that the hydrostatic tester 
was used on every tube, however, the issue lies with the fact 
that Gormac is not conducting the test in accordance with 
MIL-T-15119 A. According to MIL-T-15119 A, the dimensional 
portion of the hydrostatic test must also be completed on 100% 
of the tubes to satisfy the requirement that there be no more than 
.003 inches of permanent deformation. Gormac has only been 
conducting the dimensional portion of the test on 1 out of every 
44 

10 pieces. I have attached a copy of the record they provided 
the Government team at the approved visit for the dimensional 
test. This will be explained in our response to your restart 
request. 
(Finding 13; R4, tab 161 at 169) Gormac's "Hydrotest Record," which the CO attached 
to her email, confirmed that it had measured only "1 pc each 10 pcs" (R4, tab 161 at 
170). 
47. During their visit, the government's representatives also concluded that 
Gormac was reworking tubes although Hanley had not sought permission to do so 
pursuant to the contract's requirements (finding 8; tr. 41148-49). Finally, in violation of 
the contract's terms, the government's engineers were unable to inspect Gormac's 
hydrostatic testing machine which had been rented and returned to the vendor by Gormac 
(finding 5; tr. 4/146). 
48. All of the tubes forwarded to Gormac had been subjected to centerless 
grinding by another of Hanley's vendors, even though this was not a contractual 
requirement (finding 21). A byproduct of this process was that the heat lot stamps 
engraved on the 12-foot sections of tubing by the steel mill were erased (tr. 41145). Thus, 
the government's engineers were unable to confirm that each production lot was 
comprised of only one heat lot, as required by the contract (finding 13). In a situation 
where there was only one tube vendor, this might not have been a problem. But here 
both Plymouth and Webco had provided tubes to 
Hanley, and there was no way to 
differentiate the various heat lots (tr. 4/162). 
49. Hanley's closure report for production lot 2 demonstrated that the problem 
was even more serious than it first appeared. Hanley stated that the tubes comprising 
production lot 2 contained four heat lots. (R4, tab 206 at 90) Mr. Hahin, the government 
engineer, testified that his analysis of Hanley's closure report revealed that there might 
even have been a fifth heat lot in production lot 2 (tr. 31163-64). 
50. The loss of traceability of the various heat lots was so severe that Dr. Ramsay, 
Hanley's expert, could not discern from which of the lots the tube which burst on 
26 February 2008 had originated (tr. 2/199-200). On 10 March 2008, St. Louis Testing 
Laboratories forwarded their report to Hanley. They 
concluded: 
This analysis suggests that the subject failure condition was 
due to the presence of a lap that had split open during 
subsequent mechanical operations. The presence of cold 
working, rough textured fracture surface (with scale), and an 
45 

angled fracture along the exterior and interior surfaces of the 
tube supports this conclusion. 
Laps are surface defects, which appear as seams and are 
caused by the folding over of hot metal fins that are rolled 
into the metal surface. The condition can become elongated 
during subsequent forming operations. 
This analysis indicates the linear discontinuity observed on 
the exterior surface of the tube was due to mechanical 
gouging of the surface. The presence of a cold worked 
depression in the location of the discontinuity supports this 
conclusion. 
(R4, tab 150 at 89) 
51. On 11 March 2008, Hanley submitted its CAR for the tube failure 
(R4, tabs 154-57). It concluded that it had complied with the requirements of 
MIL-T-15119 A and that the tubes conformed to specifications. It requested the 
CO's permission to restart production on 12 March 2008. (R4, tab 154 at 121) 
52. On 17 March 2008, Hanley wrote to the CO: 
In our recent phone call you stated that only 10% of tubes 
were hydrostatically tested by Gormac. Please check your 
source. Gormac assures us that EVERY tube is and has been 
hydrostatically tested. 
(R4, tab 160) As we have found, the CO rejected this response (finding 46).9 
53. On 19 March 2008, the DCMA QAR, Mr. Conover forwarded a CAR to 
Hanley in which he set forth several deficiencies as follows: 
Contract Requirements: 
1. 150-9000-2000 Paragraph 7.4.2, Purchasing Information 
2. MIL-P-18714D, Primer, Electric, Mark 45 Mod 1, 
Paragraph 4.5.1, Lot formation. Production must consist of 
9 Obviously, Hanley's testing costs would have been lower since Gormac was testing 
only 10 percent of the tubes (tr. 41148). 
46 

not more than 20,000 homogeneous primers plus those 
required for inspection ... and only one tubing heat treat lot. 
3. MIL-T-15119A, Tubing, Round, Seamless Alloy Steel, 
Para 4.3, "A lot shall consist of homogeneous tubing 
produced from the same heat and the same heat treatment." 
4. ED-STD-183A, (invoked by MIL-T-15119A Para 3.8) 
Deficiencies: 
1. Hanley Industries Issued purchase order #6082 to 
Gormac for the processing of Primer Tube PN 685475. 
The lot formation requirements and restrictions of 
MIL-P-18714D were not incorporated into the applicable 
purchase order nor was the required homogeneity of the 
lots maintained. There was no heat lot tracking/control at 
Gormac, nor was Gormac aware that only one heat lot 
was allowed per primer lot, required to maintain 
homogeneous lots. Lot 002 contains 1,800 sections of 
12' tubes from 2 different heat lots, 3 7 pieces from heat 
lot 06N83 and 1526 from heat lot 540325. Thus, 
homogeneity was not maintained as required. 
Requirement: MIL-P-18714D, paragraph 4.1 
Responsibility for Inspection. 
Deficiency: P.O. to Banner and Gormac requires 
delegation statement for Government source inspection 
(GSI). Request the clause stated below be included in all 
purchase orders from Hanley regarding this contract and 
any other P.O. requiring GSI. 
When Government inspection is required, the contractor 
shall add to his purchasing document the following 
statement: "Government inspection is required prior to 
shipment from your plant. Upon receipt of this order, 
promptly notify the Government Representative who 
normally services your plant so that appropriate planning 
for Government inspection can be accomplished." 
47 

Requirements: 
1. MIL-T-15119A, Paragraph 3.7, Hydrostatic Test. 
"The tubing shall not break or permanently increase in 
diameter more than 0.003 inch when subjected to the 
hydrostatic test of 4.9." 
2. MIL-T-15119A, Paragraph 4.9, "The outside diameter 
of each test length shall be gaged in the same location 
before [and] after application of the specified pressure." 
Deficiency: 
Gormac only measured 1 out 10 ( 10%) of the tubes for an 
increase of .003 inch after the hydrostatic test instead of 
the required 100%. 
Requirements: 
1. IS0-9000-2000 Paragraph 7.4.2, Purchasing 
Information 
2. MIL-T-1519A, Paragraph 3.7, Hydrostatic test (Cl) 
3. Contract W52PIJ-05-C-0076, Section E-10, 
Critical Characteristics 
Deficiency: The hydrostatic pressure test is a critical 
characteristic, inspected and tested at the subcontract 
level, and was not identified as such in the purchase order 
with Gormac. In 
addition, the applicable requirements of 
Section E-10 for controlling critical characteristics were 
not incorporated into the purchase order. 
(R4, tab 173 at 208-09) 
54. On 19 March 2008, the CO approved a conditional restart of the primer 
production. She wrote: 
48 

a. Hanley Industries Ruptured Tube Corrective Action 
Report, dated March 11, 2008. 
b. Government visit to Gormac on March 4-5, 2008. 
On February 26, 2008, Hanley informed the 
Government they experienced failure on a critical 
characteristic during high pressure testing 
which caused 
a tube to rupture at Gormac while producing Lot 2. This 
occurance [sic] is classified as a critical characteristic 
per MIL-T-15119A. As a result and in accordance with the 
Critical Characteristics Clause, E-10, Far Clause 52.246-4550 
per contract W52PIJ-05-C-0076, production was 
stopped/discontinued at both Hanley and Gormac on February 
26, 2008. 
The Government has completed the necessary 
technical review of MK-45, Primer Tube 685475 Root Cause 
and Corrective Action Report and has determined that the 
report is insufficient in identifying root cause and subsequent 
corrective action. Notwithstanding the deficient failure 
analysis, the Government is hereby allowing Hanley to restart 
production upon completion of the following conditions: 
1. Reject and segregate ALL tubes that have been 
manufactured by Webco tubing - Primer tubes and Primers. 
2. Per referenced b. Gormac's current procedures 
indicate that Hydrostatic Testing is being conducted on 100% 
of the material. The procedure discusses using a snap gage 
set to .765 to measure the tube for distortion of the O.D. after 
hydro-testing per MIL-T-l 5119A, however, it fails to address 
whether a measurement was taken of the tube prior to 
hydro-testing in order to determine if max .003 distortion was 
not exceeded. Therefore, these procedures shall be revised 
and provided to the Government for approval to reflect that 
beginning measurement of the tube is being recorded prior to 
hydrostatic testing. Also, all Acceptance Inspection 
Equipment (AIE) being utilized at Gormac shall be submitted 
to the Government for review and approval. 
49 

3. Only material obtained from the qualified tube 
vendor that was approved at First Article (FAT) can be 
utilized in production. If Hanley wishes to submit Webco or 
any other vendor as a source of supply for tubing for 
Government approval, Hanley shall submit a request for a 
"modified" FAT to qualify a new vendor(s). Please note, 
however, that the recent rupture makes Webco a questionable 
source of tubing. Therefore, a detailed root cause analysis 
would be required in addition to FAT request in order for the 
Government to consider Webco as a qualified source. 
4. Only tubing that is certified to MIL-T-15119A, 
TABLE I, paragraphs 3.7 and 4.9 can be utilized in 
production. Hanley's qualified tubing vendor(s) must supply 
the proper certification. 
5. Hanley shall revise all their procedures to ensure 
that flowdown of applicable quality contractual requirements 
are included in subcontractor purchase orders. This shall be 
validated by DCMA QAR. 
It should be noted that any delay to the current contract 
delivery schedule as a result of the critical failure is 
considered to be the responsibility of Hanley Industries, Inc. 
As a result of this authorization to resume production, 
it is requested that Hanley provide necessary delivery 
schedule revisions to include their offer of consideration to 
the Government for any delays. 
(R4, tab 169 at 195-96) The CO, Ms. Nielsen, testified that she was not required to issue 
a conditional restart in this instance. She testified further "I was trying to do what I could 
to help Hanley keep moving and making progress." (Tr. 5/49) 
55. On 26 March 2008, Hanley forwarded to the government a "Root Cause and 
Corrective Action Report" in which it concluded: 
All the investigation, evaluation data and reports 
provided show only one 12 foot section of tubing is 
non-conforming. Whole Lot is not non-conforming[.] 
50 

1 
Webco has provided the steel per AMS-T-6736 which has the 
same chemical composition as the MIL-T-1511-9A. No 
requirement for pressure testing. 
Material is Non Destruct Tested: Electric tested to 
ASTM A450 or A1016 & applicable test method 
E309 or E426 per certification[.] 
Gormac has 100% pressure tested the tubes prior to 
just prior [sic] to going into production (found only 1 
ruptured 12 foot section of non-conforming tube was 
removed from being placed in use). 
Saint Louis Testing report stated embrittlement is not 
the cause of the rupture of the tube. 
All processing at Hanley Industries has been per 
procedure. 
All final assemblies have passed manufacturing and 
x-ray processing as deliverable product[.] Please review the 
previously submitted documentation for approval. 
This is a also [sic] request to restart production at 
Hanley Industries[.] 
If at all possible list Effectivity date for 3/26/08 for 
this request[.] 
(R4, tab 172 at 206) 
56. On 7 April 2008, the CO informed Hanley in writing that its CAR was 
insufficient and that "the entire lot of Webco tubing is considered rejected." She 
indicated that the government might consider accepting 
the rejected lot if Hanley 
successfully complied with these requirements: 
1. Prepare a fault tree/root cause analysis of the 
critical failure and identify what has been done or will be 
done to investigate the various possible causes of the 
failure .... 
2. Provide documentation of Traceability of all Heat 
Lots in Lot 2 .... 
3. Provide documentation that all tubes were 
Hydrostatic tested in accordance with MIL-T-15119 A and 
met all the 
requirements .... 
51 

I J 
J 
4. In addition to the above mentioned requirements for 
the existing tubes, to qualify Webco as a supplier will require 
a Modified FAT .... 
5. Also, in order to accept the tube stock from Webco 
in lot 2, Hanley will need to submit two Requests for 
Deviation. 
(R4, tab 180 at 1-3)10 
57. On 23 April 2008, Hanley stated it intended to use Webco as its tube vendor. 
The government responded that Hanley 
would have to qualify Webco through a full FAT. 
(R4, tab 187 at 251) Hanley never met this requirement (tr. 5/52). On 29 April 2008, 
Hanley submitted two RFDs to the government: one related to the certification of a 
different type of steel; the other sought to allow multiple heat lots of tubes in production 
lot 2 (R4, tab 192 at 266-67). 
stated: 
58. On 2 June 2008, the CO forwarded a show cause notice to Hanley. She 
Since you have failed to perform Contract 
W52PIJ-05-C-0076 within 
the time required by its terms, 
or cure the conditions endangering performance under 
Contract W52PIJ-05-C-0076 as described to you in the 
Government's letter date[d] 19 March 2008, the Government 
is considering terminating 
the contract under the provisions 
for default of this contract. Pending final decision in this 
matter, it will be necessary to determine whether your failure 
to perform arose from causes beyond your control and 
without fault or negligence on your part. Accordingly, you 
are given the opportunity to present, in writing, any facts 
bearing on the question to Ms. Cheryl Nielsen; HQ, ASC, 
ATTN: AMSAS-ACA- M; 1 Rock Island Arsenal; Rock 
Island, IL 61299-6500, within ten (10) days after receipt of 
this notice. Your failure to present any excuses within this 
time may be considered as an admission that none exist. 
Your attention is invited to the respective rights of Hanley 
Industries, Inc. and the Government and the liabilities that 
10 At the hearing, the CO testified that Hanley never complied with items 2 and 3 
(tr. 5/56-57). 
52 

may be invoked if a decision is made to terminate for default 
in accordance with clause 52.249-8, Default. 
Effective 22 April 2008 subject contract's delivery 
schedule became delinquent due to a critical failure that 
occurred on 26 February 2008. Hanley's inability to provide 
a realistic schedule is directly tied to their inability to meet 
the conditions of production restart as follows: 
a. Hydrostatic Test the primer tubes in accordance with 
TDP requirement MlL-T-15119A which requires 
measurement to be taken prior to Hydrostatic Testing. 
b. Government approval on Acceptance Inspection 
Equipment (AIE) utilized at Hanley's subcontractor 
Gonnac in accordance with FAR clause 52.245-4537, 
Acceptance Inspection Equipment (AIE) and CDRL 
A009. 
c. Government approval on a FAT plan to qualify a new 
vendor for steel tubing in accordance with CDRL 
AOlO. Only material obtained from the qualified steel 
tube vendor that was approved by First Article Testing 
(FAT) can be utilized in production. Hanley 
purchased tubes without the Government's knowledge 
from an unqualified 
vendor that produced the critical 
failure. Hanley failed to use steel tubing that is 
certified to MIL-T-15119A in production. 
d. Revise procurement procedures to ensure that 
flowdown of applicable quality contractual 
requirements are included in subcontractor purchase 
orders in accordance with FAR clause 52.246-4550, 
Higher-Level Contract Quality Requirement, ISO 
9001-2000. 
Any assistance given to you on this contract or any 
acceptance by the Government of delinquent goods or 
services will be solely for the purpose of mitigating damages, 
and it is not the intention of the Government to condone any 
delinquency or to waive any rights the Government has under 
the contract. 
53 

(R4, tab 264) 
If Hanley Industries, Inc. fails to provide any response 
satisfactory to the Government within ten (10) days of the 
date of this letter, the Government reserves the right to assert 
its rights under this contract to include terminating the 
contract for default in accordance with FAR clause 52.249-8. 
59. Hanley responded to the show cause notice on 14 June 2008. With respect to 
"a"; the hydrostatic testing, Hanley stated: 
The government's letter of 4/7/08 address [sic] this topic is 
paraphrased as follows: 
Provide documentation that all tubes were Hydrostatic 
tested in accordance with 
MIL-T-15119 or tube stock 
that has not been machined will need to be Hydrostatic 
tested and the DCMA representative to verify, and all 
tube stock that has been processed into tubes checked 
to insure not expanded beyond. 003 or provide 
documentation that all tube stock and/or primer tubes 
that the outer diameter could not have experienced a 
permanent deformation of greater than . 003" [.] 
Hanley submitted documentation in support of the 
third option on 5/27 /08. The documentation showed 
statistically that there was less tha[ n] 1 in a million 
possibility that a tube had swelled more than .003." 
The use of statistics to evaluate a characteristic is well 
understood and used extensively in quality 
determinations by the Government. Hanley provided 
an explanation that we thought was suitable for 
persons with a passing understanding of statistical 
methods. Attached is documentation and calculations 
providing engineering evidence that the .003 
requirement is met and tubes at Hanley Industries have 
been measured with Government [oversight] and meet 
the drawing requirements. Ifthere is need of a more 
detailed explanation, we would be happy to provide it. 
Hanley requests that the Government clarify in what 
way the documentation was insufficient. (Reference 
Master Restart Index Items 11-14). 
54 

Regarding "b"; the AIE requirements, Hanley asserted: 
Hanley submitted documentation in support of the AIE 
requirement on 5/27 /08. Hanley requests that the 
Government clarify in what way the documentation was 
insufficient. (Reference Master Restart Index Item 60) 
As for "c"; the FAT plan to qualify Webco as a new vendor, Hanley stated in part: 
In regards the use of tubing from Plymouth, Hanley was made 
to understand the critical nature of the need. We understand 
our Navy needs top quality Mk45 gun primers immediately. 
We have governed our actions accordingly and attempted to 
get production restarted as soon as possible. Obtaining 
material from Plymouth (vendor #1) will introduce a delay of 
many weeks. Perhaps we should not have assumed that the 
Government wanted quick delivery. Please note that all the 
tubing needed for Lot 3 has already been produced by Webco, 
and that production can begin immediately when the 
Government is satisfied with the provided documentation. 
Hanley did purchase tubing from a vendor that had not been 
prequalified by the Government, and we apologize for that. 
This, however, in no way was related to the critical failure. 
The process for qualifying a new vendor requires the 
examination of 5 tubes with QAR oversight. The tubes, had 
they been submitted in advance of use on Lot 2, would have 
passed. In fact, we could have presented 10,000 tubes to the 
QAR, and each would have passed. Please note that the 
vendor for Lot 1, Plymouth, is not immune to having tubes 
burst. Hanley has interviewed the retired Government QAR 
who had oversight at Propellex when the previous 
Mk45s were manufactured. He confirms that there was 
an occasional tube burst, and that burst tubes were discarded, 
with production continuing. In addition please note that 
Plymouth Tube declines to quote tubing to MIL-T-[15119A]. 
In addition, it is our understanding that the only significant 
difference between the AMS-T-6736A specification and the 
MIL-T-[ 15119 A] specification is the Hydrostatic testing. 
With the accomplishment of the Hydrotest, MIL-T-[15119A] 
requirements have been met. 
55 

If the government insists, we will order tubing from 
Plymouth. The tubing will take many weeks longer to get, 
cost more, will still be subject to rare hydrostatic test 
failures and will not be certified by the manufacturer to 
MIL-T-15119A. Hanley requests clear direction on this 
question, as the government's requirement for prompt 
delivery seems to be at odds with the Governments [sic] 
desire to use Plymouth tubing, without achieving any 
demonstrated improvement in quality. 
Hanley submitted documentation in support of the Webco 
FAT requirement on 5/27 /08. Hanley requests that the 
Government clarify in what way the documentation was 
insufficient. (Reference Master Restart Index Items 14-16) 
With respect to "d"; Revising procurement procedure to reflect flowdown of applicable 
quality requirements, Hanley asserted: 
Procurement procedures have been revised and submitted to 
the Government QAR. Hanley requests that the Government 
clarify in what way the documentation was insufficient. 
Concerning the reference to the delivery schedule, Hanley has 
pointed out a critical issue that must be resolved. Since a heat 
lot of tubing may extend over several lots of Primers, and the 
failure of one tube calls into question the entire heat lot, does 
the government intend that every tube for the entire contract 
be Hydrostatically tested before machining begins on any 
tube? Otherwise a burst tube in Lot 8 could reject Lot 4 from 
a year earlier. When the tube burst issue first came up, I 
asked why not just throw the bad tube away and continue 
production. The answer was that a burst tube could indicate 
hydrogen embrittlement that could affect the entire heat. We 
promptly sent samples to St. Louis Test Labs where the 
definitive answer was given that there was no hydrogen 
embrittlement. In response to further government questions, 
further metallurgical testing was conducted. The test results 
concluded that the failure was an anomaly. This information 
was submitted to the government 5/5/08, and is apparently 
still under review. 
56 

j 
In consultations with W ebco we have educated ourselves 
about the methods of Non Destructive Testing (NOT) suitable 
for tubing. There are two types, Eddy Current and Ultrasonic, 
neither [of] which is a requirement of the contract. Eddy 
Current is suitable for finding flaws of some types, but not of 
the type that was encountered in Lot 2. Ultrasonic is suited 
for the type of flaw that was encountered; however it cannot 
be used on such a small tube as we are using. Webco and 
Hanley have developed a plan by which the tubing can be 
ultrasonically tested before being drawn down to the final 
diameter. This testing is available as an option from the 
vendor, starting with Lot 4, and the government may want to 
consider including this testing in the specification. 
In effect, Hanley provided the CO with little new information, preferring to recycle 
arguments and data which it had already forwarded to the government. (R4, tab 243) 
60. On 16 July 2008, the CO forwarded to Hanley her determination to terminate 
its contract for default. She wrote, in pertinent part: 
Reference: 
a. Contract No. W52P1J-05-C-0076 
b. Letter. HQ, Army Sustainment Command, subject: 
Show Cause letter, dated 02 June 2008. 
c. Letter, Hanley Industries, Inc. not dated, received 
electronically June 13, 2008 Re: Show Cause Notice; 
Contract Number W52P1J-05-C-0076 
d. Request for Deviation (RFD) for Primer, Electric 
MK 45 MODI, RFD No. 0076-D-0023, dated 02 May 2008, 
Procuring Activity Number R08U7038 entitled: Material 
Certification Change for Lot 2 Primer Tubes (enclosure) 
The Government has reviewed Hanley Industries, Inc. 
response to the Government's Show Cause letter, which was 
provided in the Hanley Industries letter in reference c. above. 
The Government has also reviewed and considered all 
information and matters relevant to the Show Cause. As a 
result of this review, it is the determination of the Contracting 
57 

Officer that the above referenced contract is hereby 
terminated for default, pursuant to the Default Clause 
52.249-8 of the contract. The reasons therefore and further 
instructions in regard to the Default action are set forth below. 
I. Review and Relevant Facts. 
As a result of this review, the following is the 
Government's response to the assertions in referenced c. 
letter. The assertions of Hanley Industries are shown in the 
bold print, followed by the Government position: 
a. Primer Tubes met the .003 requirement and 
measured with Government oversight and meet the 
drawing requirements. Hanley Industries has not provided 
objective evidence that all tubes were Hydrostatic tested in 
accordance with MIL-T-15119A (OS) and met all the 
requirements nor provided the Government revised work 
procedures to ensure Hydrostatic Test would be performed on 
new material in accordance with MIL-T-15119 A. This would 
include providing objective evidence that all tubes met the 
expansion requirement ofMIL-T-5119A that none of the 
tubes expand more than 0.003 inches after hydrostatic testing. 
Hanley cites their outer diameter maximum after grinding is 
0.763 +/- 0.001 and their lower specification limit after 
grinding at 0.762. Contractor has not provided any objective 
evidence that proves all tubes met the 0.762 limit (100% 
inspection data not provided), and a maximum 
growth after 
testing of 0.765. The snap gage at Gormac was set at 0.765. 
Hanley did not test/inspect in accordance with paragraph 4.9 
ofMIL-T-15119A. An unknown quantity oftubes could 
have been less than 0.762; therefore, the data presented is not 
acceptable. It has not been shown that tubes comply with the 
0.003 requirement ofMIL-T-15l19A paragraph 3.7. Banner 
provided data demonstrating conformance with the diameter 
specification .763 +/- .001. This data was not taken with 
approved procedures using approved AIE. To date Hanley 
has not provided the Government revised work procedures to 
ensure Hydrostatic Test would be performed on new material 
in accordance with MIL-T-15119 A which is a condition for 
restart of production. 
58 

b. Revised Acceptance Inspection Equipment (AIE) 
has been submitted for Government approval. The 
Government has reviewed Hanley's AIE submission dated 
May 28, 2008 and it only provided Gormac's work 
instructions (procedures) and make and model of the 
equipment Gormac used during the investigation of the 
ruptured tube. It failed to specifically identify all equipment 
used to perform and verify the hydrostatic test requirement as 
specified in MIL-T-15119 A, as well as provide a detailed 
procedure and log sheet for this characteristic. Hanley also 
failed to submit AIE approval for two hydrostatic test 
machines used at Gormac. 
c. Hanley did purchase tubes from vendor that had 
not been pre-qualified by the Government, however, in no 
way was related to the critical failure. Government disagrees 
with Hanley's assertion that changing the vendor was not 
related to the critical failure. Hanley purchased tubes without 
the Government's knowledge from an unqualified vendor that 
produced the critical failure. The purchased steel tubing used 
in production was not certified to MIL-T-l 5 
l l 9A. Hanley has 
not qualified Webco or any other steel supplier via the First 
Article Test (FAT) process per FAR Clause 52.209-4511, First 
Article Test 
(Government Testing). 
d. Hanley has revised procurement procedures to 
ensure flowdown of applicable quality contractual 
requirements. DCMA QAR issued a Level II 
Corrective Action Report (CAR) 0076-006 in violation of 
MIL-Q-9858, paragraph 5.2 Purchasing Data. Even though 
Hanley has provided revised procedures that appear to be 
adequate, to date, Hanley has not provided corrected purchase 
orders for Government verification. 
e. Lot 002 can be submitted by Hanley 2 weeks 
after restart approval. The Government provided Hanley 
conditional restart to utilize new material. To date, Hanley 
has not provided a revised delivery schedule. Hanley's 
assertion that they can deliver 2 weeks after restart is 
contingent upon obtaining Government approval to use 
material purchased from Webco. Per letter dated April 7, 
59 

j 
2008, the Government stipulated the conditions that Hanley 
would need to meet in order to gain Government approval to 
use material utilized in Lot 002 from Webco as follows: 
( 1) Prepare root cause analysis of critical failure[.] 
(2) Provide documentation of traceability of all Heat 
Lots in Lot 002[.] 
(3) Provide documentation that all tubes were 
Hydrostatic tested in accordance with contract which requires 
diametrical measurements to be taken b~fore and after 
Hydrostatic Testing. 
(4) Qualify Webco as a supplier via a modified First 
Article Test[.] 
(5) Submit Requests for Deviation to get approval for 
the steel 
purchased to AMS-T-6736 in lieu of contract 
requirement ofMIL-T-15119A and to allow the use of 
multiple heat lots within Lot 002 of primers. 
Hanley has failed to provide the required objective evidence 
needed to gain Government approval to use the W ebco 
material for the following reasons: 
a. Hanley's corrective action report provided in 
response to the critical failure involving Webco tubing was 
insufficient in identifying root cause and subsequent 
corrective action. The root cause analysis failed to investigate 
the supplier or foundry that produced the steel billets. Hanley 
has not thoroughly evaluated the foundry processes therefore, 
root cause analysis of the non-metallic inclusion is 
incomplete. As result of this omission, Hanley has failed [to 
provide] adequate root cause and corrective action for the 
critical failure. 
b. Hanley has failed to adhere to sampling 
requirements ofMIL-T-15119A (OS); MIL-P-18714D, 
paragraph 4.5.1 Lot Formation; and MIL-Q-9858A paragraph 
3 .4 Records, as Lot 002 contains up to four known heats of 
primer tubes (two Webco heat lots and two Plymouth heat 
lots) and Hanley is unable to provide objective evidence to 
determine/distinguish the heat lots of the entire quantity of 
primer tubes in Lot 002. 
60 

c. As stated in paragraph la. above, Hanley Industries 
has not provided objective evidence that all tubes were 
Hydrostatic tested in accordance with MIL-T-15119A (OS) 
and met all the 
requirements. 
d. Hanley failed to qualify Webco as a supplier. 
e. The RFD to obtain Government approval for steel 
purchased to an alternative specification (0076-D-0023Rl) 
is disapproved (see enclosure) as none of the proposed 
alternative specifications would meet the required mechanical 
properties required. Hanley has not submitted an official 
copy of the RFD to allow use of multiple heat lots to the 
Government. 
As a result ofHanley's continued persistence on restarting 
production with Webco material, Hanley's inability to provide 
a realistic schedule is directly tied to their failure to meet the 
conditions of production restart and makes them incapable of 
meeting their proposed delivery of 2 weeks after restart. 
Included in their response, Hanley also posed the 
following question to the Government: 
"Since a heat lot of tubing may extend over several 
lots of Primers and the failure of one tube calls into 
question the entire heat lot, does the Government intend 
that every tube for the entire contract be Hydrostatically 
tested before machining begins on any tube?" 
The Government does not dictate production processes. The 
requirements for hydrostatic testing is [sic] provided in 
MIL-T-15119A, paragraph 3.7 Hydrostatic Test Cl, (Cl 
designation means that this requirement is critical defect 1 
and therefore must be 100% inspected) and paragraph 4.9 
Hydrostatic Test. It is Hanley's responsibility to develop the 
process for meeting these specification requirements. 
II. Government Termination Decision 
Based upon Hanley Industries failure to show the 
Government reasonable cause not to terminate their contract 
61 

(R4, tab 249) 
for default, this letter is a Notice of Termination of Contract 
Number W52PIJ-05-C-0076 awarded September 29, 2005 to 
Hanley Industries, Inc., for the remaining quantity of 84,630 
MK.45 Electric Primers for a total dollar amount 
$4,327,743.76. The Government exercises its right under 
contract clause 52.249-8 Default (Fixed-Priced Supply and 
Service) of the aforementioned contract. The act of failing to 
deliver in accordance with the contract schedule, provide 
supplies that conform to the TDP, use of approved vendors, 
and to meet the criterion for quality in the subject contract 
which is a failure to meet the following provisions in Hanley 
Industries contract: 
a. Higher Level Contract Quality Requirement 
(Government Specified) 52.246-4550 (Feb 2004) 
b. MIL-T-15119A(OS) dated October 20, 1976 
c. Drawings/Specifications (Government Specified) 
52.210-4501(March1988); TDP for the MK-45 Electric 
Primer, 2434755K 
d. Statement of Work for Statistical Process Control 
(Government Specified) 52.246-4506 (Feb 1999) 
e. First Article Test (Government Test) (Government 
Specified) 52.209-4511(May1994) 
f. Acceptance Inspection Equipment (AIE) 
(Government Specified) 52.245-4537 (Feb 2002) 
g. Contract Data Requirements List (CDRL) AOlO 
Test/Inspection Reports, First Article Inspection & Test, 
Identification Number DI-NDTI-80809B 
h. MIL-P-18714D, 24 January 1994 
i. Section B Delivery Schedule - Modification POOO 10 
j. MIL-Q-9858A dated March 15, 2004 
Hanley Industrie' s [sic] failure to meet 
the criteria listed 
above violated the terms of their contract and thereby 
constitutes the default. 
61. This timely appeal followed. 
62 

DECISION 
The law in this area is well settled. A default termination is "a drastic sanction 
which should be imposed ... only for good grounds and on solid evidence." J.D. 
Hedin Construction Co. v. United States, 408 F.2d 424, 431 (Ct. Cl. 1969) (citations 
omitted). Accordingly, the government bears the burden of proving that the 
termination was justified. If the government establishes a prima facie case in this 
regard, the burden of production-or going forward-shifts to the contractor. Lisbon 
Contractors, Inc. v. United States, 828 F.2d 759, 764-65 (Fed. Cir. 1987); New Era 
Contract Sales, Inc., ASBCA No. 56661 et al., 11-1BCAif34,738 at 171,022. Here, 
the government has met its burden. 
Initially, the Board notes that Hanley failed to meet the delivery date of 22 April 
2008 for production lot 2 which was set forth in Modification No. POOOlO (finding 36). 
The government had previously extended the delivery dates for both the FAT and 
production lot 1 multiple times (findings 23, 27-30). Similarly, the government had 
extended, on several occasions, the delivery date for production lot 2 from 28 November 
2006 to 22 April 2008 (findings 29, 30, 36). 
Although, as executed, Modification No. POOO 10 was unilateral, the revised delivery 
date was contained in a spreadsheet which Hanley itself prepared and which was forwarded 
to the CO for incorporation into the modification (finding 36). Because the revised 
delivery date was proposed by Hanley in its spreadsheet, it was "both reasonable and 
specific from the standpoint of the performance capabilities of the contractor." McDonnell 
Douglas Corp. v. United States, 323 F.3d 1006, 1019 (Fed. Cir. 2003). 
The CO gave Hanley more than adequate notice of the reasons underlying the 
default termination. On 19 March 2008, she approved a conditional restart of the 
primer production even though she was under no contractual obligation to do so. The 
CO referred to gaps in Hanley's hydrostatic testing procedures. In addition, she 
stressed that Webco was not an approved tube supplier and that Hanley needed to pass a 
modified FAT ifit desired to use Webco's tubes. (Finding 54) Hanley did not comply 
with these requirements in its CAR of 26 March 2008 (findings 55-56). On 7 April 
2008, the CO informed Hanley that its report was insufficient. She rejected the Webco 
tubing, but once again, stated the prerequisite conditions for its acceptance. These 
included preparing a root cause analysis of the critical tube failure, providing 
documentation of traceability of all heat lots in production lot 2, and qualifying Webco 
as a vendor through a modified FAT. (Finding 56) In a response of23 April 2008, 
Hanley simply stated that it intended to use Webco as a 
tube supplier (finding 57). 
On 2 June 2008, the CO replied 
by issuing a show cause letter in which she stated that 
Hanley had failed to "cure the conditions endangering performance" under the contract. 
She, once again, referred to the need for a modified FAT, government approval of 
63 

Hanley's AIE for hydrostatic testing, the need for appropriate hydrostatic testing, and 
the flowdown of adequate quality requirements to subcontractors. The CO gave Hanley 
10 days to cure these deficiencies. (Finding 58) On 14 June 2008, Hanley responded to 
the cure notice, for the most part, by referring to information which it had previously 
forwarded to the CO and which she had already deemed to be inadequate (finding 59). 
Accordingly, the CO acted 
reasonably in terminating the contract for default on 16 July 
2008 (finding 
60). 
Hanley makes a host of arguments designed to show that the default was improper. 
Initially, we simply note that its repeated references to other contracts performed either 
by itself or by other contractors are misguided. Testimony regarding other contracts is 
simply irrelevant to the issues of contractual performance raised by the termination of 
this contract. 
The Board also disagrees with Hanley' s contention that the CO acted 
unreasonably by declining to accept Webco as an alternate vendor (app. br. at 59-63). 
Hanley never complied with the reasonable steps set forth by the CO to qualify Webco. 
Further, the CO was acting responsibly when she demanded strict compliance with 
contractual specifications. Mission Valve and Pump Co., ASBCA Nos. 13552, 13821, 
69-2 BCA iJ 8010 at 37,243. 
We also reject Hanley's belated argument that its difficulties were the result of the 
government's defective technical data package (app. br. at 65). This issue was not raised 
during contractual performance. The Board also notes that Hanley successfully 
completed production of the FAT and lot 1, using the package at issue. 
Hanley's argument that the CO acted in bad faith is also unfounded (app. br. at 
66-68). As we have concluded, the CO acted reasonably in defaulting the contract after 
Hanley failed to cure it deficiencies. Further, the record contains no 
evidence of bias 
against Hanley by any government official. See Am-Pro Protective Agency, Inc. v. 
United States, 281F.3d1234, 1240 (Fed. Cir. 2002). 
We have carefully reviewed Hanley's other contentions and reject them. 
64 

l 
CONCLUSION 
The appeal is denied. 
Dated: 12 August 2014 
I concur 
~~~Apd 
Administrative Judge 
Acting Chairman 
Armed Services Board 
of Contract Appeals 
--
MICHAEL T. PAUL 
Administrative Judge 
Armed Services Board 
of Contract Appeals 
I concur 
Administrative Judge 
Vice Chairman 
Armed Services Board 
of Contract Appeals 
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. 56584, Appeal of Hanley 
Industries, Inc., rendered in conformance with the Board's Charter. 
Dated: 
65 
JEFFREY D. GARDIN 
Recorder, Armed Services 
Board of Contract Appeals