ARMED SERVICES BOARD OF CONTRACT APPEALS 

Appeal of--

Third Coast Fresh Distribution, L.L.C. 

Under Contract No. SPE300-14-D-P245 

APPEARANCES FOR THE APPELLANT: 

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APPEARANCES FOR THE GOVERNMENT: 

ASBCA No. 59696 

Kenneth A. Martin, Esq. 

The Martin Law Firm 

McLean, VA 

Carol L. O'Riordan, Esq. 

Anthony J. Marchese, Esq. 

The O'Riordan Bethel Law Firm, LLP 

Washington, DC 

Daniel K. Poling, Esq. 

DLA Chief Trial Attorney 

John F. Basiak, Jr., Esq. 

Keith J. Feigenbaum, Esq. 

Kari L. Scheck, Esq. 

Trial Attorneys 

DLA Troop Support 

Philadelphia, PA 

OPINION BY ADMINISTRATIVE JUDGE MELNICK ON THE GOVERNMENT'S 

MOTION TO DISMISS FOR LACK OF JURISDICTION AND MOTION FOR 

SUMMARY JUDGMENT 

This appeal involves a small business set-aside contract awarded to appellant, 

Third Coast Fresh Distribution, L.L.C (TCF), for delivery of fresh produce around 

Dallas, Texas. After award, the Small Business Administration (SBA) found that TCF 

had not been complying with an element of the "Nonmanufacturer Rule" located at 

13 C.F.R. § 121.406(b), and therefore could not be considered small for the 

procurement. The government terminated the contract for cause and appellant now 

seeks conversion to a termination for convenience, plus costs. The government has 

filed motions to dismiss the appeal for lack of jurisdiction and for failure to state a 

claim. Alternatively, it seeks summary judgment. 

The Board possesses jurisdiction over TCF' s challenge to the default 

termination, but not its request for contract costs since they have not been the subject 

of a claim submitted to the contracting officer. Therefore, the motion to dismiss for 
lack of jurisdiction is granted in part and denied in part. On the merits, because the 

government's motion relies upon matters outside the pleadings, it is treated as one for 

summary judgment. The undisputed facts demonstrate the termination for cause was 

justified, and TCF has failed to present sufficient evidence to establish that it was 

excusable. Accordingly, the government's motion for summary judgment is granted. 

STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTIONS 

1. On 16 January 2013, DLA issued commercial items Solicitation 

No. SPM300-l 3-R-0046 for the purchase of a full line of fresh fruits and vegetables for 

the "Dallas TX Zone." The solicitation was a small business set-aside. (R4, tab 1 at 1, 

4, 9) Accordingly, the solicitation incorporated FAR 52.219-6, NOTICE OF TOTAL 

SMALL BUSINESS SET-ASIDE (ALTERNATE I) (Nov 2011) (R4, tab 1at47). Paragraph 

(b )( 1) of that clause provided that offers were "solicited only from small business 

concerns," and "[o]ffers received from concerns that [were] not small business concerns 

[would] be considered nonresponsive" and therefore rejected. 

2. The solicitation explained that the "Dallas TX Zone" contained two groups. 

Group 1 contained Department of Defense (DoD) customers, while Group 2 was 

non-DoD, including schools and tribes. It stated the government intended to award 

one indefinite-quantity contract to include both groups, but reserved the right to make 

multiple awards based upon technically acceptable offers for each group. For that 

reason, offerors were instructed to submit separate best proposals for each group. The 

total length of the contract, including base and option periods, was not to exceed 

54 months. (R4, tab 1 at 9, 76) 

3. TCF submitted a proposal in response to the solicitation stating that it would 

use a cross-dock facility to make deliveries to customers in the Dallas/Ft. Worth area 

(comp I. ~ 42). 

4. After DLA announced that TCF was the apparent awardee for Group 1, an 

unsuccessful offeror filed a size protest against TCF on 23 December 2013. The 

protest alleged that TCF did not qualify as a small business entitled to a set-aside 

contract because of its affiliations with other entities, and that TCF had failed to 

comply with the Nonmanufacturer Rule located at 13 C.F.R. § 121.406(b). (R4, tab 9) 

That rule conditions small business status for a nonmanufacturer seeking to supply 

manufactured items upon, among other things, the nonmanufacturer taking ownership 

or possession of the item(s) with its personnel, equipment or facilities in a manner 

consistent with industry practice. On 14 February 2014, the SBA Area V Regional 

Office denied the size protest, determining that TCF was "a 'small business' for the 

subject procurement" and was therefore "eligible for contract award" (R4, tab 13 at 

386). Along with rejecting the allegation about TCF's affiliations, SBA found that 

TCF complied with the Nonmanufacturer Rule because TCF would take "ownership 

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and possession of the produce from the manufacturer/growers at its 65,000 square foot 

Houston location," and planned "to warehouse and deliver the produce itself' (R4, 

tab 13 at 384). SBA observed that: 

TCF will allow one day for travel and the second for 

delivery, or will use a cross-dock location that TCF will 

lease in Dallas. At the cross dock location, the delivery 

trucks from Houston will unload and reload onto local 

trucks that will be operated by TCF. In either instance, 

TCF will use its own trucks and drivers for delivery. TCF 

may use subcontractors for portions of the delivery but 

largely plans to deliver with its own personnel. 

(R4, tab 13 at 385) 

5. On 27 February 2014, DLA awarded the Group I component of the 

solicitation to TCF, which became Contract No. SPE300-14-D-P245 (R4, tabs 14-15). 

The contract incorporated the terms and conditions of the solicitation (R4, tab 15 at 

405). Those terms included, with some modifications, FAR 52.212-4, CONTRACT 

TERMS AND CONDITIONS-COMMERCIAL ITEMS (FEB 2012) (R4, tab I at 44). 

Paragraph ( f) of the clause noted the contractor "shall be liable for default unless 

nonperformance is caused by an occurrence beyond the reasonable control of the 

Contractor and without its fault or negligence." Paragraph (I) reserved to the 

government "the right to terminate this contract...for its sole convenience." As in the 

standard clause, the modified version of paragraph (m) permitted the government to 

"terminate [the] contract, or any part hereof, for cause in the event of any default by 

the Contractor, or if the Contractor fails to comply with any contract terms and 

conditions." It also provided that if it was "determined that the Government 

improperly terminated [the] contract for default, such termination shall be deemed a 

termination for convenience." (R4, tab 1 at 45) 

6. According to TCF's chief operating officer, had it received award of the 

solicitation's entire set of requirements, it would have performed the contract as it had 

represented, by transporting produce using its own trucks and drivers from its Houston 

facility to its Dallas cross-dock location, and then delivering the product (app. opp'n, 

ex. 1, Abess decl. i! 4G)). However, because the government only awarded TCF 

Group 1, TCF did not find it economically feasible to use the cross-dock facility. 

Instead, TCF ordered product directly from growers, suppliers, and wholesalers, and 

used third parties such as Brothers Produce to ship the produce directly to customers in 

the Dallas area. (Comp I. i!i! 12-13; Abess decl. i!i! 6-7, 16; R4, tab 20 at 430-31) 

7. During the first month of performance, the contracting officer became aware 

that Brothers Produce was making deliveries under the contract (gov't statement of facts 

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ii 5; compl. iJ 22). On 16 April 2014, Mr. George Finch ofTCF participated in a phone 

conversation with DLA. On 22 April, Mr. Finch confirmed by email the accuracy of a 

description of that conversation prepared by Ms. Debbie Vaughan of DLA. Ms. Vaughan 

stated that Mr. Finch was requested to confirm the places of contract performance that 

TCF had provided under the contract's FAR 52.215-6, PLACE OF PERFORMANCE 

(OCT 1997) clause. Mr. Finch concurred that TCF had identified its facility in Houston 

and a cross-dock location in Dallas. Mr. Finch was informed that a DLA representative 

had reported that she had "never seen [TCF] make any deliveries." Mr. Finch "confirmed 

that was true and added that [TCF] uses Brothers Produce as a subcontractor to make 

deliveries." (R4, tab 16) 

8. On 6 May 2014, the contracting officer commenced a post-award size 

protest ofTCF with SBA. The contracting officer described DLA's 16 April 2014 

conversation with Mr. Finch, as well as SBA's 14 February 2014 size determination. 

He suggested that "TCF's performance [was] in stark contrast with the statements" 

that SBA had attributed to TCF in its prior determination and therefore sought "an 

opinion from the SBA regarding TCF's compliance with the underlying small business 

rules." (R4, tab 17 at 420-21) 

9. On 30 May 2014, the SBA Area V Regional Office issued a size 

determination superseding its prior determination of 14 February and concluding that 

TCF was '"other than small' for the subject procurement" (R4, tab 20). SBA first 

quoted statements it said TCF presented in response to the prior protest, where it said: 

Third Coast Fresh will not be dependent on any third party 

distribution provider, large or small, for the performance of 

DLA's contract. The Third Coast Fresh company 

purchases its inventory to satisfy its customers' 

requirements, including DLA's requirements. Third Coast 

Fresh is not dependent on any other entity, large or small, 

to obtain purchasing, warehousing, or distribution support, 

and it will not utilize subcontractors to perform primary 

and vital requirements of the contract. 

[ .... ] 

For its performance of the contract Third Coast Fresh will 

service these accounts from its Houston, Texas warehouse. 

Third Coast Fresh will take ownership and possession of 

the produce at its Houston, Texas warehouse. 

[ .... ] 

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Third Coast Fresh will then transport DLA's skip day 

orders of good[s] from its Houston warehouse to the Troop 

sites utilizing one of two delivery options. It will either 

use its own personnel and trucks, allowing one day for 

travel and the second for delivery; or, as an alternative, 

Third Coast will utilize a cross-dock location the company 

will lease in Dallas, Texas. Again using its own trucks and 

drivers, Third Coast Fresh will transport the goods from its 

Houston warehouse to the cross-dock location in Dallas, 

and from that point, Third Coast Fresh will deliver the 

goods to the Troop sites from that location as required. 

(R4, tab 20 at 429-30) "Based on these statements," SBA stated that its previous 

determination had found "TCF was taking ownership or possession of the produce and 

TCF was in compliance with ... the Nonmanufacturer Rule" (R4, tab 20 at 430). 

10. SBA then noted the contracting officer's current claim that "TCF was using 

Brothers Produce exclusively to perform all the work on the contract." SBA stated 

that TCF had provided the following response to that accusation: 

During the initial solicitation, TCF had every intention of 

opening the cross-dock facility in Dallas. Consequently, 

for the portion of the solicitation awarded to TCF, it is not 

economically feasible for TCF to deliver via the Dallas 

cross-dock facility. TCF initially bid to utilize the Dallas 

cross-dock based on the entire contract potential and 

therefore was accurate in representing that delivery model. 

TCF does purchase its own inventory, and is not dependent 

upon any other entity for purchasing, warehousing, or 

distribution from its Houston warehouse. For the 

subsequent small award for the Dallas solicitation, TCF 

would financially suffer to perform delivery via the Dallas 

cross-dock, and therefore is using Brothers Produce as the 

subcontractor for the business. 

SBA also quoted TCF to say: 

TCF does not argue the fact that Brothers Produce is 

providing the distribution services for the four awarded 

locations near Dallas of the Dallas solicitation to TCF, but 

TCF is delivering the three locations south of Houston of 

the Dallas Solicitation. TCF will not be using the 

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cross-dock facility in Dallas to deliver the four customers 

as it will create a financial hardship .... 

(R4, tab 20 at 430-31) SBA added that "[a] chart submitted by TCF illustrates that 

95% of the contract has been fulfilled by Brothers Produce and 5% has been fulfilled 

by TCF" (id. at 431). 

11 . Based upon the evidence provided by TCF, SBA found that TCF failed to 

comply with the element of the Nonmanufacturing Rule located at 13 C.F.R. 

· § 121.406(b)(l)(iii), requiring a firm to take "ownership or possession of the item(s) 

with its personnel, equipment or facilities in a manner consistent with industry 

practice." SBA based its conclusion upon the fact that "TCF openly admits that 

Brothers Produce is providing the produce and delivery service to the Dallas 

locations." Thus, SBA ruled that "TCF ... cannot be considered small for the 

procurement." SBA recognized that under 13 C.F.R. § 121.404(d), size should be 

determined as of the date of submission of a contractor's final proposal revision, but 

found that "[i]n this unique situation, [it] must use information available after the date 

the final proposals were due since the information supplied in TCF's proposal and 

response to the initial size protest have not been TCF's method of operation once the 

contract was awarded." (Compl. ~ 28; R4, tab 20 at 431) TCF did not appeal this 

decision to SBA's Office of Hearings and Appeals (OHA) (compl. ~ 29). 

12. On 26 June 2014, the contracting officer sent TCF a "Show Cause Notice," 

stating that TCF had exclusively relied upon Brothers Produce to perform all contract 

work, noting SBA's conclusion that TCF did not qualify as small for the procurement, 

and that TCF had departed from its prior representations (R4, tab 21 ). The letter 

informed TCF that the contracting officer was considering terminating the contract for 

cause, and provided TCF an opportunity "to present reasons for TCF's failure to 

comply with the terms outlined in its proposal and relied upon by DLA Troop Support 

in making the instant award" (id. at 434). TCF's response conceded that Brothers 

Produce was "providing the distribution services for the four locations near Dallas," 

but noted TCF was delivering to locations near Houston. It requested "that the terms 

of the contract be revised to allow the current delivery method." (R4, tab 22) 

13. On 25 August 2014, the contracting officer issued a modification terminating 

the contract for cause (R4, tab 23). The contracting officer also sent TCF a Notice of 

Termination stating it had "failed to perform in the manner in which it represented to 

both [SBA] and the Contracting Officer," stressing SBA's conclusion that TCF did not 

qualify as a small business for the procurement (R4, tab 24 ). TCF appealed the 

termination to this Board on 21 November 2014. TCF's complaint seeks conversion of 

the termination for cause to a termination for convenience, "and further requests that the 

Board order [the government to] pay to TCF its contract costs incurred through the date 

of the wrongful termination," as well as legal fees (compl. at 9). 

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14. The government moves to dismiss the appeal, or seeks summary judgment. 

It contends the Board lacks jurisdiction because TCF failed to appeal SBA's 30 May 

2014 SBA size determination to OHA. It also argues the appeal should be dismissed 

for failure to state a claim or rejected upon summary judgment. 

DECISION 

I. Background 

To address these motions some background review is necessary. 

Under the Small Business Act, a portion of the government's contracts for property 

and services is set aside for award to small-business concerns. 15 U.S.C. §§ 63 l(a), 

644(a); see Rotech Healthcare Inc. v. United States, 71 Fed. Cl. 393, 412 (2006). The 

SBA is granted the authority to establish standards for determining whether a firm 

qualifies as a small business. See 15 U.S.C. § 632; 13 C.F.R. §§ 121.101-121.102; 

FAR 19.102(a). Generally, it assigns North American Industrial Classification System 

(NAICS) codes to particular economic sectors and then identifies a maximum number 

of employees or annual receipts that a firm in that sector can have and remain qualified 

as small. 13 C.F .R. §§ 121.101, 121.201; FAR 19 .102(b ); see generally DSE, Inc. v. 

United States, 169 F.3d 21, 25-26 (D.C. Cir. 1999); Rotech Healthcare, 71 Fed. Cl. at 

407. An agency pursuing a procurement that has been set aside for small business 

selects the appropriate NAICS code "which best describes the principal purpose of the 

product or service being acquired" and provides it in the solicitation. 13 C.F.R. 

§ l 2 l.402(b ). That code's corresponding size standard becomes the size limit for 

consideration as a small business entity for the procurement. 13 C.F.R. § 121.402(a). 

In addition to the size requirements applicable to a particular procurement, to 

qualify for a small business set-aside, a nonmanufacturing firm providing 

manufactured products or supplies must comply with the Nonmanufacturer Rule 

contained at 13 C.F.R. § 121.406. The section provides the following in pertinent part: 

(a) General. In order to qualify as a small business 

concern for a small business set-aside ... to 

provide manufactured products or other supply 

items, an offeror must either: 

( 1) Be the manufacturer or producer of the 

end item being procured (and the end item 

must be manufactured or produced in the 

United States); or 

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(2) Comply with the requirements of 

paragraph (b ), ( c) or ( d) of this section as a 

nonmanufacturer, a kit assembler or a supplier 

under Simplified Acquisition Procedures. 

(b) Nonmanufacturers. 

( 1) A firm may qualify as a small business 

concern for a requirement to provide 

manufactured products or other supply items 

as a nonmanufacturer if it: 

(i) Does not exceed 500 employees; 

(ii) Is primarily engaged in the retail or 

wholesale trade and normally sells the type of 

item being supplied; 

(iii) Takes ownership or possession of the 

item(s) with its personnel, equipment or 

facilities in a manner consistent with industry 

practice; and 

(iv) Will supply the end item of a small 

business manufacturer, processor or producer 

made in the United States, or obtains a waiver 

of such requirement..)11 

The Nonmanufacturer Rule prevents firms "from acting as mere conduits for the 

products of large manufacturers on small business set-aside procurements." Rotech 

Healthcare, 71 Fed. Cl. at 412 (discussing the rule's origins including its statutory 

codification at 15 U.S.C. § 637(a)(l7)). According to 13 C.F.R. § 121.404(d), "[s]ize 

status for purposes of compliance with the nonmanufacturer rule .. .is determined as of 

the date of the final proposal revision for negotiated acquisitions and final bid for 

sealed bidding." 

To receive an award of a small business set-aside contract, an offeror must represent 

in good faith that it is a small business. FAR 19.301-l(a). Typically, the contracting 

officer shall accept that representation. FAR 19.301-l(b). However, a firm's small 

business status may be protested by, among others, unsuccessful offerors, or by the 

1 DLA obtained a waiver of this fourth component for this procurement (R4, tab 1 at 

4, tab 8 at 235, tab 20 at 431 ). 

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contracting officer before or after contract award. 13 C.F.R. §§ 121.lOOl(a)(l), 

121.1004(b); FAR 19.302. The protest is initially decided by the SBA government 

contracting area office serving the area where the headquarters of the protested concern is 

located. 13 C.F.R. §§ 121.1003, 121.1009(a); FAR 19.302(g)(2). That determination is 

appealable to OHA within 15 calendar days of its receipt. See 13 C.F.R. §§ 121.1101; 

134.102(k), 134.304(a); FAR 19.302(i). Ifno appeal is taken, then the area office 

determination is SBA's final decision. 13 C.F.R. § 121.1 lOl(a); FAR 19.302(g)(2). Size 

protests are within the exclusive jurisdiction of SBA. Its rulings are binding on the 

contracting officer and controlling here. FAR 19.301-l(c); J.H King, Inc., ASBCA 

Nos. 30587, 34846, 89-1BCAif21,396 at 107,865; see also WH. Smith Hardware Co., 

ASBCA No. 34532, 89-2 BCA if 21,606 at 108,774 (noting that "this Board will not 

second-guess [SBA' s] determinations"). 

Significantly, after a small business set-aside contract is awarded, if the 

contracting officer receives a determination from the area office that a concern is not an 

eligible small business for the procurement, and no appeal is filed with OHA, "the 

contracting officer shall terminate the award." 13 C.F.R. § 121.1009(g)(2)(i). Once a 

final decision has been issued (either a determination that was not timely appealed or an 

appellate decision), SBA cannot reopen a size determination. 13 C.F .R. § 121.1009(h). 

II. Jurisdiction 

A. TCF's Challenge to the Termination for Cause 

The government argues the Board lacks jurisdiction to entertain TCF's 

challenge to the termination for cause because TCF did not appeal the 30 May 2014 

SBA area office determination, finding TCF was other than small, to OHA. It 

contends that because TCF failed to do that, this Board does not have jurisdiction to 

review the merits of the size determination. 

TCF has not attempted to directly appeal the SBA size determination. It has 

appealed the contracting officer's final decision terminating the contract for cause.2 

The Board's jurisdiction to consider such an appeal is governed by the Contract 

Disputes Act (CDA), 41 U.S.C. §§ 7101-7109. Within 90 days of receiving a 

contracting officer's final decision a contractor may appeal to this Board. 41 U.S.C. 

§ 7104(a). TCF's 21November2014 appeal was within 90 days of the contracting 

officer's 25 August 2014 Notice of Termination. Accordingly, the Board possesses 

jurisdiction to consider TCF's challenge to its termination. The government's 

contentions about the binding effect of SBA' s size ruling relate to the appeal's merit, 

not the Board's jurisdiction to consider it. 

2 As part of its challenge to its termination for cause, TCF does attempt to re-litigate 

certain matters presented to SBA. Those arguments are rejected below. 

9 
B. TCF's Request for Costs 

One component of the appeal over which the Board lacks jurisdiction is TCF' s 

additional request for an order to the government to "pay to TCF its contract costs 

incurred through the date of the wrongful termination." Though the contracting 

officer's decision terminating the contract is ripe for review by the Board, there is no 

monetary claim from TCF in the record seeking any of its contract costs. In the absence 

of such a monetary claim, the Board does not have jurisdiction to entertain that portion 

of the complaint. Starwin Indus., Inc., ASBCA No. 56720 et al., 10-1BCA~34,424. 

III. Summary Judgment3 

Summary judgment should be granted when there are no genuine issues of 

material fact and the moving party is entitled to judgment as a matter of law. Celotex 

Corp. v. Catrett, 477 U.S. 317, 322 (1986). A non-movant seeking to defeat summary 

judgment by suggesting conflicting facts "must set forth specific facts showing that there 

is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) 

(quoting First Nat. Bank of Arizona v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968)). 

As observed, the government bears the initial burden of proving this termination for 

cause was justified and if it does TCF must show that its default was excusable. Double B 

Enters., 01-1BCA~31,396 at 155,110. The government was entitled to "terminate [the] 

contract, or any part [of it], for cause in the event of any default by the Contractor, or if the 

Contractor fails to comply with any contract terms and conditions" (SOF ~ 5). The 

3 The government also contends that the appeal should be dismissed for failure to state 

a claim because the allegations of TCF's complaint establish a prima facie case 

that the government's termination for cause was proper. Typically, a motion to 

dismiss for failure to state a claim is employed to defeat a complaint that fails to 

plausibly suggest a showing of entitlement or raise a right to relief above the 

speculative level. Am. Gen. Trading & Contracting, WLL, ASBCA No. 56758, 

12-1 BCA ~ 34,905 at 171,640. However, this appeal from a termination for 

cause is a government claim. The government bears the initial burden of 

proving the termination was justified. Double B Enters., Inc., ASBCA Nos. 

52010, 52192, 01-1BCA~31,396 at 155,110. Although the Board's rules 

normally require appellants to file a complaint, the underlying burden of proof 

remains with the government. See Beechcraft Def Co., ASBCA No. 59173, 

14-1 BCA ~ 35,592. Because the government's motion relies upon matters 

outside the pleadings to meet its burden, it is considered as one for summary 

judgment. See FED. R. CIV. P. 12(d). 

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government maintains that TCF failed to comply with the contract's requirement that TCF 

be a small business, as found by SBA's 30 May 2014 second size determination that TCF 

was other than small for this procurement. The government says the contracting officer was 

required to terminate the contract by 13 C.F.R. § 121.1009(g)(2)(i) (requiring termination in 

the event an SBA area office finds a concern to not be small and there is no appeal to 

OHA), and it was appropriate for the termination to be for cause. 

TCF does not deny that SBA's size determination dictated that its contract be 

terminated under 13 C.F.R. § 121.1009(g)(2)(i). However, TCF contends that nothing in 

that regulation required a termination for cause, instead of for convenience under 

FAR 52.212-4(1), and that it has not defaulted upon its contractual obligations (app. opp'n 

at 22). 

It is undisputed that this procurement was set-aside for award only to small business 

concerns (SOF ii 1). See FAR 19.301-l(a), 52.219-6(c). An offeror's small business status 

is subject to protest by the contracting officer to SBA at any time, and SBA's 

determination is binding. 13 C.F.R. §§ 121.lOOl(a), 121.1004(b); FAR 19.301-l(c). 

Though SBA found in the first size protest that TCF was small, after award it superseded 

that ruling, finding TCF had failed to comply with the Nonmanufacturer Rule (SOF iii! 4, 

9-11). Given SBA's post-award determination that TCF was not an eligible small business 

for this procurement, and TCF's failure to appeal that ruling, the contracting officer was 

required to terminate the contract by 13 C .F .R. § 121.1009(g)(2 )(i ). 

The remaining question is whether TCF's failure to perform the contract in 

accordance with the Nonmanufacturer Rule, prompting SBA to rule that it was other 

than small for this procurement, constitutes a default or failure to comply with any 

terms and conditions of the contract, justifying a termination for cause. The 

component of the rule that SBA found TCF failed to follow was 13 C.F .R. 

§ 12 l.406(b )(1 )(iii), requiring a firm to take "ownership or possession of the item(s) 

with its personnel, equipment or facilities in a manner consistent with industry 

practice" (SOF ii 11 ). This rule imposes requirements upon contract performance. 

SBA held that, instead of taking ownership of the produce itself at its Houston facility 

and shipping to customers in Dallas, as it represented it would during the first protest, 

TCF used Brothers Produce to provide and deliver the goods, which did not comply 

with section l 21.406(b )(1 )(iii) (SOF iii! 9-11 ). However, TCF maintains that it was 

only required to represent to SBA in good faith at the time of award that it would 

comply with this rule. It suggests that, because 13 C.F .R. § 404( d) says that size is 

determined at the time of proposal, it did not have to follow through upon its 

representation and perform in accordance with it (app. statement of facts ,-i 64). SBA 

obviously disagreed with that theory. It acknowledged the language of section 404(d), 

but still revoked its recognition that TCF qualified as a small concern for this 

procurement (SOF ii 11). As also already noted, if a firm's small business status is 

11 
challenged, SBA's evaluation is binding upon this Board. FAR 19.301-l(c); WH. 

Smith Hardware, 89-2 BCA ~ 21,606 at 108,775. 

Additionally, "[t]he clear purpose of the non-manufacturer rule is 'to prevent 

brokerage-type arrangements whereby small 'front' organizations are set up to bid [on] 

government contracts, but furnish the supplies of a large concern."' Rotech Healthcare, 

71 Fed. Cl. at 412 (quoting Size Appeal of BNF Mfg. Corp., SBA No. 633 (1973)). It 

would be senseless if contractors could merely say they will comply with section 

121.406(b)(l)(iii) at the time of proposal, but not have to perform accordingly. Qualifying 

as a small concern was a condition of the contract. FAR 52.219-6(c). "Tak[ing] 

ownership or possession of the item(s) with its personnel, equipment or facilities" was a 

condition for TCF to qualify as a small concern. 13 C .F .R. § 121.406(b )( 1 )(iii). SBA 

found that TCF failed to do that. Accordingly, the undisputed facts demonstrate that TCF 

did not comply with a condition and performance requirement of the contract. See Barton 

Chem. Corp., ASBCA No. 29302, 87-1BCA,-r19,623 (acknowledging that a contractor's 

proposal after award to perform in a manner SBA found would have made it other than 

small was properly rejected by the contracting officer because it failed to comply with the 

contract's terms). TCF's response to the government's show cause notice essentially 

conceded it had not complied with the contract when it requested "that the terms of the 

contract be revised to allow the current delivery method" (SOF ,-i 12). The government 

has therefore established a prima facie case that the termination for cause was proper. 

Given that the government has carried its initial burden to demonstrate that the 

termination for cause was justified, to obtain a conversion of the termination for cause to 

one for convenience TCF must show its default was caused by an occurrence beyond its 

control and without its fault or negligence, or that the contracting officer decision was 

arbitrary or capricious or an abuse of discretion. See Gen. Injectables & Vaccines, Inc. v. 

Gates, 519 F .3d 1360, 1363 (Fed. Cir. 2008); Shubhada Indus., Inc., ASBCA No. 54016, 

08-1 BCA ~ 33,733 at 167,017. To defeat summary judgment, TCF must "make a 

showing sufficient to establish the existence of an element essential to" any matter "on 

which [TCF] will bear the burden of proof at trial." Celotex, 477 U.S. at 322-23. 

TCF relies upon the requirement that a default termination must follow an exercise 

of discretion, suggesting the contracting officer exercised none here. See Nuclear 

Research Corp. v. United States, 814 F .2d 64 7, 649 (Fed. Cir. 1987) (observing that the 

contracting officer "is required to exercise his discretion, to make sure that termination is 

in the best interests of the Government"); see also McDonnell Douglas Corp v. United 

States, 182 F.3d 1319, 1326 (Fed. Cir. 1999) (concluding a termination for default must 

be related to contract performance); DCX, Inc. v. Perry, 79 F.3d 132, 135 (Fed. Cir. 

1996) (acknowledging that a contracting officer may not abuse his discretion). The 

contracting officer possesses broad discretion in deciding to terminate and the decision 

will only be overturned when it is arbitrary, capricious or an abuse of discretion. ADT 

Construction Grp., Inc., ASBCA No. 55358, 13 BCA ,-i 35,307 at 173,312. Accordingly, 

12 
the burden of proving abuse of discretion is very high. Empire Energy Mgmt. Sys., Inc., 

ASBCA No. 46741, 03-1BCAii32,079 at 158,553. Four factors are relevant to that 

analysis: 1) whether the government official acted with subjective bad faith; 2) whether 

the official had a reasonable, contract-related basis supporting the decision; 3) the amount 

of discretion vested in the official whose action is being reviewed; and 4) whether a 

proven violation of relevant statutes or regulations can render the decision arbitrary and 

capricious. ADT Construction, 13 BCA ii 35,307 at 173,312. 

TCF contends the government's brief admits that the contracting officer did not 

exercise any discretion because he wrongly believed he had no choice but to terminate 

for default (app. opp'n at 23). However, the government's brief says only that it was 

required to terminate the contract under 13 C.F.R. § 121.1009 (gov't mot. at 14). It 

does not suggest that the contracting officer failed to exercise proper discretion in 

choosing default, nor has TCF otherwise presented evidence that the termination was a 

mere pretext unrelated to its failure to perform as promised. See McDonnell Douglas, 

182 F.3d at 1326. 

TCF also stresses that it represented itself in good faith to be a small business. 

Regardless of whether TCF originally meant to meet the criteria of a small business, 

SBA found that it did not, and TCF concedes that its decision to alter its manner of 

performance was a voluntary one made for business reasons. According to TCF's 

chief operating officer, TCF originally intended to perform the contract as it initially 

represented to SBA in the first size protest, using its own trucks and Dallas cross-dock 

facility to deliver produce. But, after the government split the contract and limited 

TCF's award to Group 1, TCF decided to change its manner of performance and order 

product from suppliers who drop-shipped them to customers. (SOF ii 6; Abess decl. 

iii! 4-7) The solicitation informed TCF that the government might not award all of the 

groups to a single contractor (SOF ,-i 2). That event did not relieve TCF from 

complying with the Nonmanufacturer Rule. Given SBA's determination that TCF was 

other than small for this procurement, the contracting officer also possessed a 

reasonable, contract related basis for the decision. 

TCF also contends that the contracting officer delayed terminating the contract 

an unreasonable amount of time, which constituted an abuse of discretion and a waiver 

of the government's right to terminate for cause. It is well-established that the 

government may waive its right to terminate a contract for default when it "allows 'a 

delinquent contractor to continue [substantial] performance past a due date,' under 

circumstances that justify a conclusion that the default has been excused." State of 

Fla. Dept. of Ins. v. United States, 81F.3d1093, 1096 (Fed. Cir. 1996) (quoting 

De Vito v. United States, 413 F.2d 1147, 1153-54 (Ct. Cl. 1969)). The waiver doctrine 

protects contractors led to believe time is no longer of the essence. Id. TCF's contract 

was not terminated for failing to meet a delivery deadline. Instead, it failed to qualify 

13 
as a small concern for this procurement. TCF has not cited any precedent applying the 

waiver doctrine to this type of default. 

Even if the waiver doctrine applies here, nothing gave TCF reason to conclude that 

it was excused from complying with the Nonmanufacturer Rule. The contract was 

awarded on 27 February 2014 (SOF ~ 5). The contracting officer became aware during 

the first month of performance that TCF was using Brothers Produce to perform the work 

(SOF ~ 7). Accordingly, the contracting officer held a 16 April 2014 discussion with 

Mr. Finch ofTCF, who confirmed that TCF was using Brothers Produce to make 

deliveries (id.). On 6 May 2014, the contracting officer initiated a size protest, 

communicating his concern that TCF was not performing in conformance with its prior 

representations, and seeking a determination from SBA about TCF's compliance with the 

small business rules (SOF ~ 8). 

Because the contracting officer lacked authority to rule on TCF's size, he had 

no basis to terminate TCF's contract until the SBA area office issued its 30 May 2014 

determination that TCF had failed to comply with the Nonmanufacturer Rule and was 

therefore other than small for the procurement (SOF ~ 9). Once TCF's 15 days to 

appeal to OHA expired (see 13 C.F.R. § 134.304(a)), the contracting officer was 

required to terminate the contract pursuant to 13 C.F .R. § 121.1009(g)(2)(i). 

Accordingly, on 26 June 2014, the contracting officer issued a "Show Cause Notice," 

informing TCF that he was considering terminating the contract for cause, and 

providing TCF an opportunity to respond. TCF responded and was terminated on 

25 August. (SOF ~~ 12-13) Thus, TCF was consistently on notice of concerns about 

its small business qualification at least as early as 16 April, leading to the contracting 

officer's size protest to SBA, show cause notice, and eventual termination of the 

contract. TCF has presented no evidence demonstrating unreasonable contracting 

officer delay or forbearance. 4 

4 TCF provides the declaration of its chief financial officer, purporting to establish 

issues of fact regarding the events. He asserts that "DLA was aware ... [that 

TCF] would utilize subcontractors to perform portions of the Contract" (Abess 

decl. ~ 13). He declares that "DLA provided [TCF] with input, and ultimately 

approval, prior to assignment of work of [TCF's] subcontractors; including 

Brothers Produce" (id.~ 14(b)). He also claims that from contract award until 

termination the contracting officer "encouraged [TCF] to perform the contract 

as if no problems existed with the manner of performance [TCF] provided" (id. 

~ 21 ). These vague, non-specific statements are inadequate to establish genuine 

issues of fact precluding summary judgment. See Rosemount, Inc., ASBCA 

No. 37520, 95-2 BCA ~ 27,770 at 138,456. Additionally, none of TCF's 

evidence establishes that it was given reason to believe that it need not comply 

with the Nonmanufacturer Rule. 

14 
TCF also advances several challenges to the SBA proceedings and findings 

leading to its determination that TCF was not small for this procurement. It claims the 

contracting officer's representations to SBA were inaccurate ( app. statement of facts 

~~ 49, 52, 55). It challenges the government's assertion, and SBA's determination, 

that TCF made no deliveries itself and delegated performance to Brothers Produce (id. 

~~ 40, 44-45). Similarly, it disputes SBA's conclusion that it failed to take ownership 

or possession of items with its personnel, equipment, or facilities in a manner 

consistent with industry practice, and therefore did not comply with the 

Nonmanufacturer Rule (id. ~ii 19, 42-43, 51-53, 58). TCF contends that SBA ruled in 

its favor in size protests filed in other procurements presenting virtually identical 

circumstances (id. iii! 56-57). All of these contentions seek to re-litigate SBA's size 

determination for this procurement, which TCF did not appeal to OHA. SBA's 

findings are therefore final and binding. Accordingly, TCF has failed to present 

evidence excusing its default. 

CONCLUSION 

The government's motion to dismiss for lack of jurisdiction is granted in part 

and denied in part. 

The government has justified its termination for cause, and TCF has failed to 

present adequate evidence excusing its default. Accordingly, the government's motion 

for summary judgment is granted. The termination for cause is sustained, and the 

appeal is therefore denied. 

Dated: 6 April 2016 

I concur 

~ 

ff~~:~--- MARK N. STEMPLER 

Administrative Judge 

Acting Chairman 

Armed Services Board 

of Contract Appeals 

15 

~~-:2--££ MARK A. MELNICK 

Administrative Judge 

Armed Services Board 

of Contract Appeals 

I concur 

RICHARD SHACKLEFORD 

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. 59696, Appeal of Third 

Coast Fresh Distribution, L.L.C., rendered in conformance with the Board's Charter. 

Dated: 

16 

JEFFREY D. GARDIN 

Recorder, Armed Services 

Board of Contract Appeals