ARMED SERVICES BOARD OF CONTRACTAPPEALS
Appeal of--

Third CoastFresh Distribution, L.L.C.

Under Contract No. SPE300-14-D-P245

APPEARANCES FORTHE APPELLANT: ) ) ) ) )

APPEARANCES FORTHE 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'RiordanBethel Law Firm, LLP Washington, DC

Daniel K. Poling, Esq.

DLA ChiefTrial Attorney John F. Basiak, Jr., Esq. Keith J. Feigenbaum, Esq. Kari L. Scheck, Esq.

Trial Attorneys DLA Troop Support Philadelphia, PA

OPINION BYADMINISTRATIVE JUDGE MELNICK ON THE GOVERNMENT'S MOTION TO DISMISS FORLACK OF JURISDICTION AND MOTIONFOR SUMMARYJUDGMENT

This appeal involves a small business set-aside contract awarded to appellant, Third Coast Fresh Distribution, L.L.C (TCF), for delivery offresh produce around Dallas, Texas. After award, the Small Business Administration (SBA) found that TCF had not been complying with an element ofthe "NonmanufacturerRule" 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 summaryjudgment.

The Boardpossessesjurisdiction overTCF's challenge to the default termination, but not its request for contract costs since they have not been the subject ofa claim submitted to the contracting officer. Therefore, the motion to dismiss forlack 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 summaryjudgment. 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 summaryjudgment is granted.

STATEMENT OF FACTS (SOF) FORPURPOSES OF THE MOTIONS

1. On 16 January 2013, DLA issued commercial items Solicitation No. SPM300-l3-R-0046 for the purchase ofa full line offresh fruits and vegetables for the "Dallas TX Zone." The solicitation was a small business set-aside. (R4, tab 1at 1, 4, 9) Accordingly, the solicitation incorporated FAR 52.219-6, NOTICE OFTOTAL SMALL BUSINESS SET-ASIDE (ALTERNATE I) 

### (Nov2011) (R4, tab 1at47). Paragraph (b)(1) ofthat 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 explainedthat the "Dallas TX Zone" contained two groups. Group 1contained Department ofDefense (DoD) customers, while Group 2 was non-DoD, including schools andtribes. 

### It stated the government intended to award

one indefinite-quantity contract to include both groups, butreserved 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 ofthe contract, including base and optionperiods, was not to exceed 54 months. (R4, tab 1at 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 (compI.**~** 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 contractbecause ofits affiliations with other entities, and that TCF had failed to comply with the NonmanufacturerRule located at 13 C.F.R. § 121.406(b). (R4, tab 9) That rule conditions small business status for a nonmanufacturer seekingto supply manufactured items upon, among other things, the nonmanufacturertaking ownership

orpossession ofthe 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 sizeprotest, determining that TCF was "a 'small business' for the subjectprocurement" 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 NonmanufacturerRule because TCF would take "ownership

2and possession ofthe 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, orwill 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 ofthe 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 ofthe solicitation to TCF, which became Contract No. SPE300-14-D-P245 (R4, tabs 14-15). The contract incorporated the terms and conditions ofthe 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) ofthe clause noted the contractor "shall be liable for default unless nonperformance is caused by an occurrence beyondthe reasonable control ofthe 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 ofparagraph (m) permittedthe government to "terminate [the] contract, orany part hereof, for cause in the event ofany default by the Contractor, orifthe Contractorfails to comply with any contractterms and conditions." 

### It also providedthat ifit was "determinedthat the Government improperly terminated [the] contract for default, such termination shall be deemed a termination for convenience." (R4, tab 1at 45)

6. According to TCF's chiefoperating officer, had it received award ofthe solicitation's entire set ofrequirements, it would have performedthe contract as it had represented, by transporting produce using its owntrucks 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. (CompI. 

### i!i! 12-13; Abess decl. 

### i!i! 6-7, 16; R4, tab 20 at 430-31)

7. During the first month ofperformance, the contracting officerbecame aware that Brothers Produce was making deliveries underthe contract (gov't statement offacts

3

### ii 5; compl. 

### iJ 22). On 16 April 2014, Mr. George Finch ofTCFparticipated in aphone conversation with DLA. On 22 April, Mr. Finch confirmed by email the accuracy ofa description ofthat conversationpreparedby Ms. Debbie Vaughan ofDLA. Ms. Vaughan stated that Mr. Finch was requested to confirm the places ofcontract performance that TCF had provided underthe contract's FAR52.215-6, 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 subcontractorto 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'sperformance [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 AreaV Regional Office issued a size determination superseding its prior determination of 14 February and concluding that TCF was '"otherthan small' for the subjectprocurement" (R4, tab 20). SBA first quoted statements it said TCF presented in response to the priorprotest, where it said:

Third Coast Fresh will not be dependent on any thirdparty 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 obtainpurchasing, warehousing, or distribution support, and it will not utilize subcontractors to performprimary and vitalrequirements ofthe contract.
[



## ....]

For its performance ofthe contract Third CoastFresh will service these accounts from its Houston, Texas warehouse. Third CoastFresh will take ownership and possession of the produce at its Houston, Texas warehouse.
[



### ....]

4

### Third Coast Fresh will then transport DLA's skip day orders ofgood[s] from its Houston warehouse to the Troop sites utilizing one oftwo 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 CoastFresh will transportthe goods from its Houston warehouse to the cross-dock location in Dallas, and from thatpoint, Third Coast Fresh will deliverthe 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 ofthe produce and TCF was in compliance with

...the NonmanufacturerRule" 

### (R4, tab 20 at 430).

10. SBAthen notedthe contracting officer's current claim that "TCF was using Brothers Produce exclusivelyto perform all the work on the contract." SBA stated that TCF hadprovidedthe 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 ofthe solicitation awarded to TCF, it is not economically feasible for TCF to deliver viathe Dallas cross-dock facility. TCF initially bid to utilize the Dallas cross-dock based on the entire contractpotential and therefore was accurate in representingthat 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 sufferto perform delivery viathe 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 nearDallas ofthe Dallas solicitation to TCF, but TCF is delivering the three locations south ofHouston of the Dallas Solicitation. TCF will notbe using the

5cross-dock facility in Dallas to deliverthe 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% ofthe 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 ofthe Nonmanufacturing Rule located at 13 C.F.R.

· § 121.406(b)(l)(iii), requiring a firm to take "ownership or possession ofthe 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 providingthe produce and delivery service to the Dallas locations." Thus, SBA ruled that "TCF

...cannotbe considered small for the procurement." SBA recognized that under 13 C.F.R. 

### § 121.404(d), size should be determined as ofthe date ofsubmission ofa contractor's final proposal revision, but found that "[i]n this unique situation, [it] must use information available afterthe date the final proposals were due since the information supplied in TCF'sproposal and response to the initial size protesthave not been TCF's method ofoperation once the contract was awarded." (Compl.**~** 28; R4, tab 20 at 431) TCF did not appeal this decision to SBA's Office ofHearings 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 priorrepresentations (R4, tab 21). The letter informed TCF that the contracting officerwas considering terminatingthe contract for
cause, and provided TCF an opportunity "topresentreasons 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 "providingthe distribution services for the four locations near Dallas," but noted TCF was delivering to locations near Houston. Itrequested "thatthe terms ofthe contractbe 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 "failedto 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 causeto a termination for convenience, "and further requests that the Board order [the government to] pay to TCF its contract costs incurred through the date ofthe wrongful termination," as well as legal fees (compl. at 9).

614. The government moves to dismiss the appeal, or seeks summaryjudgment. Itcontends the Board lacksjurisdiction 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 summaryjudgment.

DECISION

I. Background

To address these motions some backgroundreview is necessary. Underthe Small Business Act, a portion ofthe 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 RotechHealthcare Inc. v. UnitedStates, 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 ofemployees 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); seegenerallyDSE, Inc. v. UnitedStates, 169 F.3d 21, 25-26 (D.C. Cir. 1999); RotechHealthcare, 71 Fed. Cl. at 407. An agency pursuing a procurementthat has been set aside for small business selects the appropriate NAICS code "whichbest describes the principal purpose ofthe product or service being acquired" and provides it in the solicitation. 13 C.F.R. § l 2l.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 aparticularprocurement, 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 orderto qualify as a small business

concern for a small business set-aside

...to provide manufacturedproducts or other supply items, an offerormust either:
(1) Be the manufacturer or producer ofthe end item beingprocured (and the end item must be manufactured orproduced in the United States); or

7(2) Comply with the requirements of paragraph (b), (c) or (d) ofthis section as a nonmanufacturer, a kit assembler ora supplier under SimplifiedAcquisition Procedures.

(b)Nonmanufacturers.

(1) A firm may qualify as a small business

concern for arequirement to provide manufactured products or other supply items

as a nonmanufacturer ifit:

(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 orpossession ofthe item(s) with its personnel, equipment or facilities in a manner consistent with industry practice; and

(iv) Will supply the end item ofa small business manufacturer, processor orproducer made in the United States, or obtains a waiver ofsuch requirement..) 11

The Nonmanufacturer Rule prevents firms "from acting as mere conduits for the products oflarge manufacturers on small business set-asideprocurements." 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 ofcompliance with the nonmanufacturerrule

...is determined as of the date ofthe final proposal revision for negotiated acquisitions and final bid for sealed bidding."

To receive an award ofa 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 beprotested by, among others, unsuccessful offerors, or by the

1 DLA obtained a waiver ofthis fourth component for this procurement (R4, tab 1at 4, tab 8 at 235, tab 20 at 431).

8contracting officerbefore or after contract award. 13 C.F.R. §§ 121.lOOl(a)(l), 121.1004(b); FAR 19.302. Theprotest is initially decided by the SBA government contracting area office servingthe area where the headquarters ofthe protested concern is located. 13 C.F.R. §§ 121.1003, 121.1009(a); FAR 19.302(g)(2). Thatdetermination is appealable to OHA within 15 calendar days ofits 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 exclusivejurisdiction ofSBA. 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., ASBCANo. 34532, 89-2 BCAif 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, ifthe contracting officerreceives 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 lacksjurisdictionto entertain TCF's challengeto the termination for cause because TCF did not appeal the 30 May 2014 SBA area office determination, finding TCF was otherthan small, to OHA. It contends that because TCF failed to do that, this Board does nothavejurisdictionto review the merits ofthe size determination.

TCF has not attempted to directly appeal the SBA size determination. It has appealedthe contracting officer's final decision terminating the contract for cause.2 The Board'sjurisdictionto consider such an appeal is governed by the Contract Disputes Act (CDA), 41 U.S.C. §§ 7101-7109. Within 90 days ofreceiving 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 ofthe contracting officer's 25 August 2014 Notice ofTermination. Accordingly, the Boardpossesses jurisdictionto considerTCF's challengeto its termination. The government's contentions aboutthe binding effect ofSBA's size ruling relate to the appeal's merit, not the Board'sjurisdictionto consider it.

2 Aspart ofits challenge to its termination for cause, TCF does attempt to re-litigate certain matters presentedto SBA. Those arguments are rejected below.

9B. TCF'sRequest for Costs

One component ofthe appeal overwhich the Board lacksjurisdiction is TCF's additional request for an order to the governmentto "pay to TCF its contract costs incurred through the date ofthe 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 ofits contract costs. In the absence ofsuch a monetary claim, the Board does not havejurisdictionto entertain thatportion ofthe complaint. StarwinIndus., Inc., ASBCA No. 56720 etal.,**10-1BCA~34,424.**
III. SummaryJudgment3

Summaryjudgment should be granted whenthere are no genuine issues of material fact and the moving party is entitled tojudgment as a matter oflaw. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A non-movant seekingto defeat summary judgmentby suggesting conflicting facts "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. LibertyLobby, Inc., 477 U.S. 242, 248 (1986) (quotingFirstNat. Bankof Arizona v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968)).

As observed, the government bears the initial burden ofproving this termination for

cause wasjustified and ifit does TCF must showthat its default was excusable. Double B Enters.,**01-1BCA~31,396** at 155,110. The government was entitledto "terminate [the] contract, or anypart [ofit], for cause in the event ofany default bythe Contractor, orifthe Contractor fails to comply with any contractterms 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 ofTCF'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 complaintthat fails to plausibly suggest a showing ofentitlement orraise a right to reliefabove the speculative level. Am. Gen. Trading & Contracting, WLL, ASBCANo. 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 provingthe termination wasjustified. DoubleB Enters., Inc., ASBCANos. 52010, 52192,**01-1BCA~31,396** at 155,110. Although the Board's rules normally require appellants to file a complaint, the underlying burden ofproof remains with the government. See BeechcraftDefCo., ASBCANo. 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).

10government maintains thatTCF failed to complywith the contract's requirement that TCF be a small business, as found by SBA's 30 May 2014 second size determination that TCF

was otherthan 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) (requiringtermination 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 contractbe 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 offor convenience under FAR 52.212-4(1), andthat it has not defaulted upon its contractual obligations (app. opp'n at 22).

Itis undisputedthat 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 subjectto protest by the contracting officerto 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 inthe first sizeprotest that TCF was small, after award it superseded that ruling, finding TCF had failed to comply with the NonmanufacturerRule (SOF

### iii! 4, 9-11). Given SBA'spost-award determination that TCF was not an eligible small business for this procurement, and TCF's failure to appeal thatruling, the contracting officerwas required to terminate the contractby 13 C.F.R. § 121.1009(g)(2)(i).

Theremaining question is whetherTCF's failure to perform the contract in accordance with the NonmanufacturerRule, prompting SBAto rule that it was other than small for this procurement, constitutes a default or failure to complywith any terms and conditions ofthe contract,justifying a termination for cause. The component ofthe rule that SBAfound TCF failed to follow was 13 C.F.R. § 12l.406(b)(1)(iii), requiring a firm to take "ownership orpossession ofthe item(s) with its personnel, equipment orfacilities in a mannerconsistent with industry practice" (SOF

### ii 11). This rule imposes requirements upon contract performance. SBA held that, instead oftaking ownership ofthe produce itselfat its Houston facility and shippingto customers in Dallas, as it represented it would during the first protest, TCF used Brothers Producetoprovide and deliverthe goods, which did not comply with section l21.406(b)(1)(iii) (SOF

### iii! 9-11). However, TCF maintains that it was only required to representto SBA in good faith at the time ofaward that it would complywith this rule. It suggests that, because 13 C.F.R. § 404(d) says that size is determined atthe time ofproposal, it did nothave to follow throughupon its representation andperform in accordance with it (app. statement offacts ,-i 64). SBA obviously disagreed with that theory. Itacknowledged the language ofsection 404(d), but still revoked its recognition that TCF qualified as a small concern for this procurement (SOF 

### ii 11). As also already noted, ifa firm's small business status is

11challenged, 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 clearpurpose ofthe non-manufacturerrule is 'toprevent brokerage-type arrangements whereby small 'front' organizations are set up to bid [on] government contracts, but furnish the supplies ofa large concern."'Rotech Healthcare, 71 Fed. Cl. at 412 (quoting SizeAppealof BNFMfg. Corp., SBA No. 633 (1973)). It would be senseless ifcontractors could merely say they will comply with section 121.406(b)(l)(iii) at the time ofproposal, but not have to perform accordingly. Qualifying

as a small concern was a condition ofthe contract. FAR52.219-6(c). "Tak[ing] ownership or possession ofthe 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 ofthe contract. See Barton Chem. Corp., ASBCANo. 29302, 87-1BCA,-r19,623 (acknowledging that a contractor's proposal after award to perform in a manner SBA found would have made it otherthan small was properly rejected by the contracting officerbecause 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 "thatthe terms ofthe contract be revised to allow the current delivery method" (SOF 

### ,-i 12). The government has therefore established aprima facie case that the termination for cause was proper.

Given that the government has carried its initial burdento demonstrate that the termination for cause wasjustified, to obtain a conversion ofthe termination for causeto

one for convenience TCF must show its default was causedby an occurrence beyond its control and without its fault ornegligence, orthat the contracting officer decision was arbitrary or capricious oran abuse ofdiscretion. 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 summaryjudgment, TCF must "make a showing sufficientto establish the existence ofan element essential to" any matter "on which [TCF] will bearthe burden ofproofat trial." Celotex, 477 U.S. at 322-23.

TCF relies upon the requirement that a default termination must follow an exercise ofdiscretion, suggestingthe contracting officer exercised none here. See Nuclear Research Corp. v. UnitedStates, 814 F.2d 647, 649 (Fed. Cir. 1987) (observing that the contracting officer "isrequired to exercise his discretion, to make sure that termination is in the best interests ofthe Government"); see also McDonnellDouglas Corp v. United States, 182 F.3d 1319, 1326 (Fed. Cir. 1999) (concluding atermination for default must be related to contractperformance); DCX, Inc. v. Perry, 79 F.3d 132, 135 (Fed. Cir. 1996) (acknowledging that a contracting officermay not abuse his discretion). The contracting officerpossesses broad discretion in deciding to terminate and the decision will only be overturned when it is arbitrary, capricious or an abuse ofdiscretion. ADT Construction Grp., Inc., ASBCA No. 55358, 13 BCA

### ,-i 35,307 at 173,312. Accordingly,

12the burden ofproving abuse ofdiscretion is very high. Empire EnergyMgmt. Sys., Inc., ASBCA No. 46741, 03-1BCAii32,079 at 158,553. Four factors are relevant to that analysis: 1) whetherthe government official acted with subjective bad faith; 2) whether the official had a reasonable, contract-related basis supporting the decision; 3) the amount ofdiscretion vested in the official whose action is being reviewed; and 4) whether a proven violation ofrelevant statutes orregulations can renderthe decision arbitrary and capricious. ADTConstruction, 13 BCA

### ii 35,307 at 173,312.

TCF contends the government's briefadmits that the contracting officer did not exercise any discretion because he wrongly believedhe had no choice but to terminate for default (app. opp'n at 23). However, the government's briefsays only that it was required to terminate the contract under 13 C.F.R. § 121.1009 (gov'tmot. at 14). It does not suggestthat 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 McDonnellDouglas, 182 F.3d at 1326.

TCF also stresses that it represented itselfin good faith to be a small business. Regardless ofwhether TCF originally meantto meet the criteria ofa 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 chiefoperating officer, TCF originally intended to performthe contract as it initially representedto SBA in the first size protest, using its own trucks and Dallas cross-dock facility to deliver produce. But, afterthe government split the contract and limited TCF's award to Group 1, TCF decided to change its manner ofperformance and order product from suppliers who drop-shipped them to customers. (SOF 

### ii6; Abess decl. iii! 4-7) The solicitation informed TCF that the government might not award all ofthe 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 otherthan small for this procurement, the contracting officer also possessed a reasonable, contractrelated basis for the decision.

TCF also contends that the contracting officer delayed terminating the contract

an unreasonable amount oftime, which constituted an abuse ofdiscretion and a waiver ofthe government's right to terminate for cause. Itis well-established that the government may waive its right to terminate a contract for default when it "allows 'a delinquent contractorto continue [substantial] performancepast a due date,' under circumstances thatjustify a conclusion that the default has been excused." State of Fla. Dept. of Ins. v. UnitedStates, 81F.3d1093, 1096 (Fed. Cir. 1996) (quoting DeVito v. UnitedStates, 413 F.2d 1147, 1153-54 (Ct. Cl. 1969)). The waiver doctrine protects contractors led to believe time is no longer ofthe essence. Id. TCF's contract

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

13as a small concern for this procurement. TCF has not cited any precedent applying the waiver doctrine to this type ofdefault.

Even ifthe waiver doctrine applies here, nothing gave TCF reason to conclude that it was excused from complying with the NonmanufacturerRule. The contract was awarded on 27 February 2014 (SOF**~** 5). The contracting officerbecame aware during the first month ofperformancethat TCF was using Brothers Produceto perform the work (SOF**~** 7). Accordingly, the contracting officerheld 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).

Becausethe 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 otherthan 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 officerwas required to terminate the contractpursuantto 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 ofconcerns about its small business qualification at least as early as 16 April, leading to the contracting officer's size protestto SBA, show cause notice, and eventual termination ofthe contract. TCF has presented no evidence demonstrating unreasonable contracting officerdelay orforbearance.4

4 TCF provides the declaration ofits chieffinancial officer, purportingto establish issues offact regarding the events. He asserts that "DLAwas aware

...[that TCF] would utilize subcontractors to performportions ofthe Contract" (Abess decl.**~** 13). He declares that "DLAprovided [TCF] with input, and ultimately approval, priorto assignment ofwork of[TCF's] subcontractors; including Brothers Produce"**(id.~** 14(b)). He also claims that from contract award until termination the contracting officer "encouraged [TCF] toperform the contract

as ifno problems existed with the manner ofperformance [TCF] provided" (id.**~** 21). These vague, non-specific statements are inadequate to establish genuine issues offact precluding summaryjudgment. See Rosemount, Inc., ASBCA No. 37520, 95-2 BCA**~** 27,770 at 138,456. Additionally, none ofTCF's evidence establishes that it was given reason to believe that it need not comply with the Nonmanufacturer Rule.

14TCF also advances several challenges to the SBA proceedings and findings leading to its determination that TCF was not small for this procurement. Itclaims the contracting officer'srepresentations to SBA were inaccurate (app. statement offacts**~~** 49, 52, 55). Itchallenges the government's assertion, and SBA's determination, that TCF made no deliveries itselfand delegated performance to Brothers Produce (id.**~~** 40, 44-45). Similarly, it disputes SBA's conclusion that it failed to take ownership

or possession ofitems 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 otherprocurements presenting virtually identical circumstances (id. 

### iii! 56-57). All ofthese 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 governmenthasjustified its termination for cause, and TCF has failed to present adequate evidence excusing its default. Accordingly, the government's motion for summaryjudgment is granted. Thetermination 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 ofContract Appeals

15

# ~~-:2--££ MARK A. MELNICK Administrative Judge Armed Services Board ofContractAppeals

I concur

RICHARD SHACKLEFORD Administrative Judge Vice Chairman Armed Services Board ofContractAppealsI certify that the foregoing is a true copy ofthe Opinion and Decision ofthe Armed Services Board ofContract Appeals in ASBCA No. 59696, Appeal ofThird CoastFresh Distribution, L.L.C., rendered in conformance with the Board's Charter.

Dated:

16 JEFFREY D. GARDIN Recorder, Armed Services Board ofContract Appeals