Court Opinion

ID: 3132509
Source: CourtListenerOpinion
Date Created: 2015-10-19 18:00:05.855654+00
Date Added: 2024-06-11T09:54:18.060289
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of--                                  )
                                             )
Capy Machine Shop, Inc.                      )      ASBCA No. 59085
                                             )
Under Contract No. SPE4A6-13-M-S227          )

APPEARANCE FOR THE APPELLANT:                       Mr. Salvatore Capacchione
                                                     President

APPEARANCES FOR THE GOVERNMENT:                     Daniel K. Poling, Esq.
                                                     DLA Chief Trial Attorney
                                                    Edward R. Murray, Esq.
                                                    Adrienne D. Bolton, Esq.
                                                     Trial Attorneys
                                                     DLA Aviation
                                                     Richmond, VA

                OPINION BY ADMINISTRATIVE JUDGE TUNKS

        This is an appeal from the default termination of a contract to supply aircraft
fairings. The parties have elected to submit the appeal on the record pursuant to Board
Rule 11.

                                FINDINGS OF FACT

        1. On 25 September 2013, Mr. John Vlachos, general manager of Capy
Machine Shop, Inc. (Capy), accepted Order No. SPE4A6-13-M-S227 1 (hereinafter the
contract) in the amount of$37,431.60. The contract required Capy to supply 18
aircraft fairings 2 to the Defense Logistics Agency Aviation (DLA Aviation or
government). (R4, tab 1 at 1, 5) The delivery date for the first article was 24 April
2014 and the remaining 17 units were due on 18 February 2015 (R4, tab 2 at 2).

      2. The contract incorporated FAR 52.249-8, DEFAULT (FIXED-PRICE SUPPL y
AND SERVICE) (APR 1984), which provided, in part, as follows:

1
  The contract resulted from a Request for Quotations issued by the government on
       16 August 2013 (R4, tabs 3, 4).
2
  Statement of Facts~ 1 of our decision on the government's motion for summary
       judgment (Capy Machine Shop, Inc., ASBCA No. 59085, 14-1BCA~35,783),
       erroneously stated that the contract was for 27 splice fairings. The contract was
       for 18 fairings, one of which was a first article. (R4, tab 1)
                     (a)(l) The Government may ... terminate this
              contract in whole or in part if the Contractor fails to--

                     (i) Deliver the supplies or to perform the services
              within the time specified in this contract or any extension;

                      (ii) Makes progress, so as to endanger performance
              of this contract ... ; or

                     (iii) Perform any of the other provisions of this
              contract ....

(R4, tab 1 at 23)

       3. On 18 October 2013, Banner Metalcraft, Inc., Capy's subcontractor, revised
its quote to Capy adding a one-time tooling charge of $19 ,64 7 to its quotation (app.
12 March 2015 hr., attachs. 1, 4).

       4. On 7 November 2013, Mr. Vlachos requested a no-cost cancellation of the
contract, stating as follows:

              Please cancel the above contract at no cost to Capy
              Machine.

              Our forming vendor can't locate his tooling[.]

(R4, tab 6)

      5. The contracting officer issued the following show cause notice to Capy on
13 November 2013:

                      Because you have indicated in an e-mail dated
              07 NOV 2013 citing an inability to locate tooling on
              contract SPE4A6-13-M-S227 within the time required by
              its terms and thereby requesting termination for
              convenience, the Government is considering terminating
              this contract under the provisions for default. Pending a
              final decision in this matter, it will be necessary to
              determine whether your failure to perforin arose from
              causes beyond your control and without your fault or
              negligence. Accordingly, you are given the opportunity to
              present, in writing, any facts bearing on the question to
              me ... within 10 days after receipt of this notice ....

                                            2
                   If you have any questions, please contact
              Len DuPilka, Contract Administrator....

(R4, tab 7)

       6. On 26 November 2013, Mr. Vlachos responded to the show cause notice as
follows:

              The cost of new tooling is $19,647.00 total which wasn't
              included on the quote.
              That is the reason for asking to cancel this contract.

(R4, tab 8)

      7. On 12 December 2013, Capy's contract was terminated for default pursuant
to FAR 52.249-8:

              You are hereby notified that contract SPE4A6-13-M-S227
              is terminated for default effective immediately. Your right
              to proceed further with performance of this contract is
              terminated. The termination is based on your failure to
              perform in accordance with the terms and conditions of the
              contract. The terminated supplies may be procured against
              your account and you will be held liable for excess costs.

(R4, tabs 9-10) How Capy had failed to perform was not explained.

        8. On 19 December 2013, Capy timely appealed the termination of its contract
to this Board, where it was docketed as ASBCA No. 59085.

       9. The government moved for summary judgment on the ground of
anticipatory repudiation on 4 April 2014. We denied the motion on 022 October 2014.
Capy Machine Shop, 14-1 BCA ii 35,783.

       10. The parties have agreed to submit the appeal on the written record pursuant to
Rule 11. Both parties submitted briefs. The government attached Mr. DuPilka's
5 March 2015 declaration to its brief as exhibit 3. His declaration states, in part, as
follows:

              Capy has a history of obtaining awards by quoting low
              prices, then requesting cancellation when they cannot
              perform the contract at that price. I have included as
              Exhibit 1 e-mails from Capy, all received after
              September 24, 2013, requesting cancellation after award on
                                           3
             13 orders in addition to the two contracts identified
             above ....

             When we cancel a contract, it has an adverse impact on
             DLA Aviation. A buyer and Contracting Officer must start
             the process all over again, by issuing a new solicitation,
             obtaining quotes, and making a new award. This takes
             time. Not only does it increase DLA Aviation's
             administrative costs, it also means we will take longer to
             get the parts to our military customers. In many instances
             it also leads to them going without the parts they need.

        The government also submitted answers to interrogatories propounded to Capy, in
part, as follows:

             Interrogatory 4: In your January 9, 2014, Complaint you
             state "[We] cannot afford to complete this order." Explain
             what you meant by "cannot afford to complete this order."

             Answer: The cost of tooling exceeded the price of the
             contract therefore making the contract unconscionable.

             Interrogatory 5: Identify the date when you decided you
             could not afford to complete the order.

             Answer: On 11107/13.

             Interrogatory 7: At the time the contract was terminated
             for default, did you intend to fulfill the contract at the
             existing contract price?

             Answer: Due to the circumstance we were unable to fulfill
             the contract.

                                          4
                                        DECISION

        A termination for default is "a drastic sanction which should be imposed ... only for
good grounds and on solid evidence." JD. Hedin Construction Co. v. United States,
408 F .2d 424, 431 (Ct. Cl. 1969) (citations omitted). The government bears the burden of
proving that the termination was justified. If the government establishes a prima facie
case that the termination was proper, the burden of production-or going forward-shifts
to the contractor. Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir.
1987).

       The government argues that its termination for default was justified because
(1) Capy anticipatorily repudiated the contract; and (2) Capy's routine practice of bidding
low and requesting no-cost cancellations when it cannot perform adversely impacts
DLA's ability to supply needed parts to the field and increases its administrative costs.
Capy argues that the termination was improper because its supplier increased the cost of
tooling after award, making it unconscionable for Capy to perform at the contract price.

       The government argues that Capy anticipatorily repudiated the contract because it
requested the CO to cancel the contract after award. We considered and rejected this
argument in our decision on the government's motion for summary judgment. Capy
Machine Shop, 14-1BCA~35,783 at 175,042. We held that Capy's request did not
evince the "positive, definite, unconditional and unequivocal" refusal to perform required
to prove anticipatory anticipation. While the government has submitted additional
evidence, including Capy's answers to interrogatories, we are not convinced that such
responses render its request for a no-cost termination to be a positive, definite,
unconditional and unequivocal refusal to perform. Capy made a request to which the
government never really responded, except to terminate for default.

       The government also argues that the termination should be upheld on the basis of
public policy. In its brief, the government explains as follows:

              Capy routinely asks the Government to cancel its contracts
              after award because it can no longer afford to perform
              them or cannot obtain the part it originally quoted ....
              [T]his ... negatively impacts DLA Aviation.... DLA
              Aviation must essentially start over from scratch and issue
              a new solicitation for the item, review quotes, and make a
              new award, then wait for a new delivery period to pass ....
              Certainly the Government could wait until delivery was
              due for each of Capy's contracts [and] then terminate for
              default...[b]ut that would put the Government even further
              behind in obtaining the parts it needs and hamper its ability
              to effectively prioritize its procurement workload.

(Gov't br. at 8-9)
                                            5
       The government has not pointed to any authority justifying a termination for
default under one contract based upon performance under other contracts. Nor are we
aware of any. This argument is unpersuasive.

       Federal Rules of Evidence (FRE) 406 3 permits the introduction of evidence of
routine practices of an organization to prove that on a particular occasion the organization
acted in accordance with the routine practice. See generally Advisory Committee Notes
to 1972 Proposed Rules; Handbook of Federal Evidence, 7th ed., vol. 3, § 406; Federal
Rules of Evidence Manual, 8th ed., vol. 2, § 406. While perhaps the evidence of routine
practice is sufficient to prove that appellant frequently requests that contracts be
cancelled, it is not sufficient to prove that it is Capy's routine practice to bid or quote
with no intention of performing. Indeed, the evidence in this appeal is that pre-existing
tooling could not be found and would have to be produced at a cost of approximately
50% of the contract price-a fact unknown to Capy at the time of quotation or award.

       The government has not pointed to any authority justifying a termination for
default under one contract based upon a history of performance under other contracts.
Nor are we aware of any. This argument is not persuasive. It is apparent that the
government is frustrated by the number of times Capy has asked for the cancellation of
contracts and considers that Capy has a routine practice of receiving awards it does not
intend to fulfill. That concern is one that perhaps is best addressed in the process of the
award of contracts, not the termination of contracts once awarded.

       Neither of the grounds relied on by the government justify the termination for
default and we have no evidence regarding whether a termination for failure to make
progress was justified.

        The appeal is sustained. The termination for default is converted to a termination
for the convenience of the government.

        Dated: 8 October 2015

                                                  Administrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals
(Signatures continued)

3
    The Board uses the FRE as a guide. Board Rule IO(c) (2014).
                                          6
I concur                                        I concur

                                                     M
                                                RICHARD SHACKLEFORD
Administrative Judge                            Administrative Judge
Acting Chairman                                 Vice Chairman
Armed Services Board                            Armed Services Board
of Contract Appeals                             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. 59085, Appeal of Capy
Machine Shop, Inc., rendered in conformance with the Board's Charter.

      Dated:

                                                JEFFREY D. GARDIN
                                                Recorder, Armed Services
                                                Board of Contract Appeals

                                          7