B-157319, JUN. 22, 1966, 45 COMP. GEN. 823

B-157319: Jun 22, 1966

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CONTRACTS - DEFAULT - PROCUREMENT FROM ANOTHER SOURCE - EXCESS COST LIABILITY WHERE THE SUPPLIES DELIVERED PURSUANT TO THE EXTENDED DELIVERY PROVISIONS OF A CONTRACT FAILED TO MEET SPECIFICATIONS AND THE CONTRACT WAS TERMINATED UNDER THE DELIVERY PROVISION OF THE DEFAULT ARTICLE RATHER THAN THE PROVISION RELATING TO FAILURE TO PERFORM ON A BASIS OTHER THAN DELIVERY AND EXTENDING 10 DAYS TO THE CONTRACTOR TO CURE THE FAILURE. THE CONTRACTOR IS NOT RELIEVED OF LIABILITY FOR EXCESS REPROCUREMENT COSTS. "DELIVERY" WAS NOT ACCOMPLISHED WITHIN THE MEANING OF THE DEFAULT ARTICLE. THE FAILURE TO TIMELY DELIVER CONFORMING SUPPLIES IS AN ADEQUATE AND PROPER GROUND FOR CONTRACT TERMINATION. A RIGHT THAT IS NOT WAIVED WHEN A CONTRACTOR IS ALLOWED TIME TO CORRECT DEFICIENCIES.

B-157319, JUN. 22, 1966, 45 COMP. GEN. 823

CONTRACTS - DEFAULT - PROCUREMENT FROM ANOTHER SOURCE - EXCESS COST LIABILITY WHERE THE SUPPLIES DELIVERED PURSUANT TO THE EXTENDED DELIVERY PROVISIONS OF A CONTRACT FAILED TO MEET SPECIFICATIONS AND THE CONTRACT WAS TERMINATED UNDER THE DELIVERY PROVISION OF THE DEFAULT ARTICLE RATHER THAN THE PROVISION RELATING TO FAILURE TO PERFORM ON A BASIS OTHER THAN DELIVERY AND EXTENDING 10 DAYS TO THE CONTRACTOR TO CURE THE FAILURE, THE CONTRACTOR IS NOT RELIEVED OF LIABILITY FOR EXCESS REPROCUREMENT COSTS, ABSENT JUDICIAL PRECEDENT TO THE CONTRARY, THE SUPPLIES NOT HAVING MET SPECIFICATION REQUIREMENTS,"DELIVERY" WAS NOT ACCOMPLISHED WITHIN THE MEANING OF THE DEFAULT ARTICLE, AND THE FAILURE TO TIMELY DELIVER CONFORMING SUPPLIES IS AN ADEQUATE AND PROPER GROUND FOR CONTRACT TERMINATION, A RIGHT THAT IS NOT WAIVED WHEN A CONTRACTOR IS ALLOWED TIME TO CORRECT DEFICIENCIES, AND TIMELY DELIVERY OF NONCONFORMING SUPPLIES NOT ENTITLING THE CONTRACTOR TO THE 10-DAY "CURE PERIOD" PROVIDED IN THE DEFAULT CLAUSE, THE TERMINATION OF THE CONTRACT WAS PROPERLY ACCOMPLISHED AND THE GOVERNMENT'S RIGHTS ARISING FROM THE ACTION MAY BE ENFORCED.

TO LOLA DICKERMAN, JUNE 22, 1966:

IN YOUR LETTER OF JULY 20, 1965, AND IN SUBSEQUENT CORRESPONDENCE, YOU ASK THIS OFFICE TO REVIEW A DECISION OF THE DEPARTMENT OF COMMERCE APPEALS BOARD (HEREAFTER REFERRED TO AS THE BOARD"), DOCKET NO. NBS-9, DATED JULY 12, 1965, WHICH HELD THAT HYPERION INDUSTRIES, INC., IS LIABLE FOR EXCESS COSTS INCURRED BY THE GOVERNMENT IN PURCHASING FIVE TIME CODE GENERATORS HYPERION WAS TO HAVE SUPPLIED PURSUANT TO CONTRACT NO. CST-7439 WITH THE NATIONAL BUREAU OF STANDARDS, WHICH CONTRACT WAS TERMINATED FOR DEFAULT.

YOU MAINTAIN THAT HYPERION MAY NOT BE CHARGED WITH EXCESS COSTS INCURRED IN REPROCUREMENT FROM ANOTHER SOURCE, BECAUSE THE TERMINATION OF THE SUBJECT CONTRACT WAS ISSUED PURSUANT TO SUBPARAGRAPH 11 (A) (I) OF THE GENERAL PROVISIONS OF THE CONTRACT INSTEAD OF SUBPARAGRAPH 11 (A) (II) THEREOF. YOU APPEAR TO HAVE RESTRICTED YOUR APPEAL BEFORE THE BOARD TO THIS QUESTION OF CONTRACT INTERPRETATION, AND APPARENTLY DO NOT, FOR PURPOSES OF THE REVIEW YOU REQUEST FROM THIS OFFICE, DISPUTE THE FACTS OF THE CASE AS SET FORTH IN THE BOARD'S DECISION.

IN THIS CONNECTION, WE NOTE THAT THE RECORD OF THE PROCEEDINGS BEFORE THE BOARD, WHICH HAS BEEN FURNISHED THIS OFFICE BY THE DEPARTMENT OF COMMERCE, SHOWS THAT YOUR APPEAL WAS TAKEN FROM THE CONTRACTING OFFICER'S TERMINATION OF YOUR CONTRACT FOR DEFAULT. ALTHOUGH THE "CANCELLATION RDER" DATED SEPTEMBER 10, 1963, AND THE CONTRACTING OFFICER'S LETTER TO YOU DATED SEPTEMBER 11, 1963, REFERRED TO THE FACT THAT THE CONTRACT ITEMS WERE BEING PROCURED FROM ANOTHER SOURCE, WE FIND NO FURTHER RECORD CONCERNING SUCH REPROCUREMENT, NOT DETERMINATION OF EXCESS COSTS INCURRED, AND NO NOTICE TO YOU OR DEMAND FOR EXCESS COSTS.

IN THIS SITUATION, AND SINCE IT MAY WELL BE THAT THE DETERMINATION AND ASSESSMENT OF EXCESS COSTS CHARGEABLE AGAINST YOU AS A RESULT OF THE DEFAULT, IF ANY, MAY GIVE RISE TO A FURTHER DISPUTE BETWEEN YOU AND THE DEPARTMENT WHICH WOULD BE FOR RESOLUTION UNDER THE DISPUTES CLAUSE OF THE CONTRACT, THERE IS SOME DOUBT AS TO THE NECESSITY FOR OR PROPRIETY OF OUR UNDERTAKING AT THIS TIME TO RENDER A DECISION WHICH WOULD NOT NECESSARILY BE DISPOSITIVE OF THE ULTIMATE ISSUE OF YOUR LIABILITY IN DOLLARS AND CENTS, AND WHICH WOULD NOT CONSTITUTE EITHER A FINAL SETTLEMENT OR ADJUSTMENT OF A CLAIM, OR AN AUDIT ACTION WITH RESPECT TO A DISBURSEMENT OR RECEIPT OF MONEY BY THE TREASURY, OR AN ADVANCE DECISION UPON AN AUTHORIZED REQUEST BY A DEPARTMENT OR AGENCY HEAD OR AN ACCOUNTABLE OFFICER.

HOWEVER, SINCE WE ARE INFORMALLY ADVISED THAT THE DEPARTMENT HAS ASCERTAINED THE AMOUNT OF EXCESS COSTS RESULTING FROM THE REPROCUREMENT AND HAS WITHHELD FURTHER ACTION IN THE MATTER ON THE ASSUMPTION THAT WE WERE UNDERTAKING REVIEW THEREOF, WE WILL IN THIS INSTANCE, TO AVOID FURTHER DELAY, CONSIDER THE QUESTION PRESENTED AS THOUGH IT HAD BEEN SUBMITTED BY THE DEPARTMENT.

THE RECORD ESTABLISHES THAT THE SUBJECT CONTRACT REQUIRED DELIVERY OF THE FIRST OF THE FIVE GENERATORS ON JULY 22, THE SECOND ON JULY 29, AND THE REMAINING THREE ON AUGUST 12, 1963. THE SEQUENCE OF EVENTS LEADING UP TO THE TERMINATION ARE SET FORTH IN THE BOARD'S DECISION AS OLLOWS:

2. BY LETTER DATED JULY 29 (THE FIRST TWO SCHEDULED DELIVERIES HAVING BY THEN NOT BEEN MADE), THE CONTRACTOR WAS NOTIFIED AS FOLLOWS:

THE OVERDUE UNITS MUST BE SHIPPED IMMEDIATELY AND THE BALANCE OF THE SHIPPING SCHEDULES MET. THIS LETTER HEREBY GIVES NOTICE THAT IF THE BALANCE OF THE UNITS ARE NOT RECEIVED BY SIX WEEKS FROM DATE OF AWARD WE WILL INSTIGATE DEFAULT PROCEEDINGS. . . .

3. THE FIRST TWO UNITS ARRIVED ON JULY 30 AND AUGUST 1, EIGHT (8) AND THREE (3) DAYS LATE, RESPECTIVELY, BUT WITHOUT THE REQUIRED BATTERY PACKS. ON AUGUST 1, BY PHONE, THE CONTRACTOR WAS ADVISED OF THE MISSING BATTERY PACKS, OF CERTAIN PERFORMANCE DEFICIENCIES, AND AGAIN ALERTED TO THE URGENCY OF TIMELY AND ACCEPTABLE DELIVERY. ALSO, IN THAT CONVERSATION THE CONTRACTOR REQUESTED AN EXTENDED DELIVERY DATE AND, WHILE HIS REASONS THEREFOR WERE NOT CONSIDERED EXCUSABLE BY THE GOVERNMENT, IT WAS AGREED THAT HE WOULD BE GIVEN UNTIL AUGUST 22 TO DELIVER ALL FIVE (5) UNITS. THIS ARRANGEMENT WAS CONFIRMED BY LETTER TO THE CONTRACTOR, DATED AUGUST 2, REITERATING THE NEED FOR THE FIVE (5) COMPLETE UNITS IN "PERFECT OPERATING CONDITION" BY AUGUST 15 (CORRECTED TO AUGUST 22, BY LETTER OF AUGUST 14) AND STATING THAT ANY DELAY IN DELIVERY OF "ACCEPTABLE" ITEMS BEYOND THAT DATE WOULD REQUIRE TERMINATION OF THE CONTRACT.

4. SHORTLY THEREAFTER, ON AUGUST 5 AND 6, THE CONTRACTOR'S ENGINEER PARTICIPATED IN THE PERFORMANCE TESTING OF THE FIRST TWO DELIVERED UNITS AT THE GOVERNMENT'S INSTALLATION IN BOULDER, COLORADO, AND AFTER RETURNING TO THE CONTRACTOR'S PLANT IN BOSTON, THE ENGINEER, BY LETTER DATED AUGUST 14, SUGGESTED CERTAIN REQUIRED CHANGES IN THE OPERATION OF SUCH UNITS AS REFLECTED IN THE TESTS AND ALSO ADVISED OF THE SHIPMENT OF CERTAIN PARTS THEREFOR.

5. BY AUGUST 22, THE EXTENDED DELIVERY DATE, ALL UNITS HAD BEEN RECEIVED, BUT UPON INSPECTION AND TEST WITHIN THE NEXT FEW DAYS WERE FOUND DAMAGED AND DEFICIENT IN CERTAIN OTHER RESPECTS. BY LETTER OF AUGUST 27, REFERRING TO AN EARLIER PHONE REPORT FROM THE GOVERNMENT OF SUCH DEFICIENCIES, THE CONTRACTOR ADVISED,". . . WE WANT TO PROMPTLY REPAIR THE DAMAGED EQUIPMENT ALONG WITH ANY DISCREPANCIES BETWEEN YOUR SPECIFICATIONS AND THE PERFORMANCE OF OUR EQUIPMENT.' AND, TO THAT END, THE CONTRACTOR STATED HE WAS PREPARED PROMPTLY TO SEND ONE OF HIS FIELD ENGINEERS TO THE GOVERNMENT'S INSTALLATION.

6. ON AUGUST 28, PRIOR TO RECEIVING THAT AUGUST 27 LETTER, THE CONTRACTING OFFICER SENT THE CONTRACTOR TELEGRAPHIC NOTICE OF TERMINATION FOR DEFAULT BECAUSE OF FAILURE TO MEET PECIFICATIONS; AND ON AUGUST 29, THE CONTRACTOR SENT A TELEGRAPHIC ACKNOWLEDGMENT AND REPLY AS FOLLOWS:

REFERENCE YOUR TELEGRAM ADVISING TERMINATION FOR DEFAULT BE RESCINDED INASMUCH HYPERION INDUSTRIES WILL AT NO ADDITIONAL COST TO THE GOVERNMENT HAVE SUBJECT EQUIPMENT MEET APPLICABLE SPECIFICATIONS.

IN THIS REGARD WE WOULD APPRECIATE SENDING ONE OF OUR ENGINEERS TO YOUR FACILITIES WEDNESDAY SEPTEMBER 4 TO MAKE NECESSARY CHECKS AND CONDUCT EQUIPMENT ACCEPTANCE TESTS WITH YOUR TECHNICAL PERSONNEL. YOUR CONSIDERATION AND PROMPT REPLY WILL BE APPRECIATED.

LATER THAT SAME DAY, AUGUST 29, ALSO BY TELEGRAM, THE CONTRACTING OFFICER GAVE THE CONTRACTOR ,UNTIL 4:00 P.M., SEPTEMBER 6 TO MEET CONTRACT SPECIFICATIONS, OTHERWISE DEFAULT CANCELLATION STANDS.'

7. BY LETTER TO THE CONTRACTOR, DATED SEPTEMBER 5, THE CONTRACTING OFFICER CONFIRMED THE ABOVE-NOTED "TERMINATION NOTICE" TELEGRAMS, AND LISTED THE DEFICIENCIES IN THE EQUIPMENT WHICH HAD, AS INDICATED ABOVE IN PARAGRAPH NUMBERED 5, EARLIER BEEN MADE KNOWN TO THE CONTRACTOR. THIS LETTER FURTHER ACKNOWLEDGED THE PRESENCE OF THE CONTRACTOR'S ENGINEER AT THE GOVERNMENT'S INSTALLATION AND HIS EFFORTS TO BRING THE EQUIPMENT UP TO SPECIFICATIONS, AND INDICATED NO ADDITIONAL EXTENSION OF TIME WOULD BE GIVEN BEYOND SEPTEMBER 6, AT 4:00 P.M.

8. NONE OF THE EQUIPMENT WAS OPERATING TO THE GOVERNMENT'S SATISFACTION AT 4:00 P.M., SEPTEMBER 6, WHEREUPON AT CLOSE OF BUSINESS THAT DAY, THE GOVERNMENT PLACED A REPURCHASE ORDER, HAVING EARLIER CONTACTED THE NEXT LOWEST BIDDER FOR THAT PURPOSE.

9. ON SEPTEMBER 10, THE GOVERNMENT ISSUED ITS CONFIRMING TERMINATION NOTICE INCLUDING A STATEMENT OF ITS INTENTION TO ASSESS THE CONTRACTOR WITH EXCESS REPURCHASE COSTS. AND, ON OCTOBER 10, THE CONTRACTING OFFICER ISSUED HIS FORMAL FINDINGS OF FACT AND DETERMINATION, FROM WHICH THIS APPEAL WAS TAKEN IN DUE TIME.

THE SUBJECT CONTRACT SPECIFICALLY INCORPORATED GENERAL SERVICES ADMINISTRATION FORM 32, SEPTEMBER 1961,"GENERAL PROVISIONS," WHICH INCLUDES THE FOLLOWING PERTINENT ARTICLES:

5.INSPECTION

(A) ALL SUPPLIES (WHICH TERM THROUGHOUT THIS CLAUSE INCLUDES WITHOUT LIMITATION RAW MATERIALS, COMPONENTS, INTERMEDIATE ASSEMBLIES, AND END PRODUCTS) SHALL BE SUBJECT TO INSPECTION AND TEST BY THE GOVERNMENT, TO THE EXTENT PRACTICABLE AT ALL TIMES AND PLACES INCLUDING THE PERIOD OF MANUFACTURE, AND IN ANY EVENT PRIOR TO ACCEPTANCE.

(B) IN CASE ANY SUPPLIES OR LOTS OF SUPPLIES ARE DEFECTIVE IN MATERIAL OR WORKMANSHIP OR OTHERWISE NOT IN CONFORMITY WITH THE REQUIREMENTS OF THIS CONTRACT, THE GOVERNMENT SHALL HAVE THE RIGHT EITHER TO REJECT THEM (WITH OR WITHOUT INSTRUCTIONS AS TO THEIR DISPOSITION) OR TO REQUIRE THEIR CORRECTION. SUPPLIES OR LOTS OF SUPPLIES WHICH HAVE BEEN REJECTED OR REQUIRED TO BE CORRECTED SHALL BE REMOVED OR, IF PERMITTED OR REQUIRED BY THE CONTRACTING OFFICER, CORRECTED IN PLACE BY AND AT THE EXPENSE OF THE CONTRACTOR PROMPTLY AFTER NOTICE, AND SHALL NOT THEREAFTER BE TENDERED FOR ACCEPTANCE UNLESS THE FORMER REJECTION OR REQUIREMENT OF CORRECTION IS DISCLOSED. IF THE CONTRACTOR FAILS PROMPTLY TO REMOVE SUCH SUPPLIES OR LOTS OF SUPPLIES WHICH ARE REQUIRED TO BE REMOVED, OR PROMPTLY TO REPLACE OR CORRECT SUCH SUPPLIES OR LOTS OF SUPPLIES, THE GOVERNMENT EITHER (I) MAY BY CONTRACT OR OTHERWISE REPLACE OR CORRECT SUCH SUPPLIES AND CHARGE TO THE CONTRACTOR THE COST OCCASIONED THE GOVERNMENT THEREBY, OR (II) MAY TERMINATE THIS CONTRACT FOR DEFAULT AS PROVIDED IN THE CLAUSE OF THIS CONTRACT ENTITLED "DEFAULT.' UNLESS THE CONTRACTOR CORRECTS OR REPLACES SUCH SUPPLIES WITHIN THE DELIVERY SCHEDULE, THE CONTRACTING OFFICER MAY REQUIRE THE DELIVERY OF SUCH SUPPLIES AT A REDUCTION IN PRICE WHICH IS EQUITABLE UNDER THE CIRCUMSTANCES. FAILURE TO AGREE TO SUCH REDUCTION OF PRICE SHALL BE A DISPUTE CONCERNING A QUESTION OF FACT WITHIN THE MEANING OF THE CLAUSE OF THIS CONTRACT ENTITLED "DISPUTES.'

11. DEFAULT

(A) THE GOVERNMENT MAY, SUBJECT TO THE PROVISIONS OF PARAGRAPH (C) BELOW, BY WRITTEN NOTICE OF DEFAULT TO THE CONTRACTOR, TERMINATE THE WHOLE OR ANY PART OF THIS CONTRACT IN ANY ONE OF THE FOLLOWING CIRCUMSTANCES:

(I)IF THE CONTRACTOR FAILS TO MAKE DELIVERY OF THE SUPPLIES OR TO PERFORM THE SERVICES WITHIN THE TIME SPECIFIED HEREIN OR ANY EXTENSION THEREOF; OR

(II) IF THE CONTRACTOR FAILS TO PERFORM ANY OF THE OTHER PROVISIONS OF THIS CONTRACT, OR SO FAILS TO MAKE PROGRESS AS TO ENDANGER PERFORMANCE OF THIS CONTRACT IN ACCORDANCE WITH ITS TERMS, AND IN EITHER OF THESE TWO CIRCUMSTANCES DOES NOT CURE SUCH FAILURE WITHIN A PERIOD OF 10 DAYS (OR SUCH LONGER PERIOD AS THE CONTRACTING OFFICER MAY AUTHORIZE IN WRITING) AFTER RECEIPT OF NOTICE FROM THE CONTRACTING OFFICER SPECIFYING SUCH FAILURE.

(B) IN THE EVENT THE GOVERNMENT TERMINATES THIS CONTRACT IN WHOLE OR IN PART AS PROVIDED IN PARAGRAPH (A) OF THIS CLAUSE, THE GOVERNMENT MAY PROCURE, UPON SUCH TERMS AND IN SUCH MANNER AS THE CONTRACTING OFFICER MAY DEEM APPROPRIATE, SUPPLIES OR SERVICES SIMILAR TO THOSE SO TERMINATED, AND THE CONTRACTOR SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COSTS FOR SUCH SIMILAR SUPPLIES OR SERVICES:PROVIDED, THAT THE CONTRACTOR SHALL CONTINUE THE PERFORMANCE OF THIS CONTRACT TO THE EXTENT NOT TERMINATED UNDER THE PROVISIONS OF THIS CLAUSE.

(F) THE RIGHTS AND REMEDIES OF THE GOVERNMENT PROVIDED IN THIS CLAUSE SHALL NOT BE EXCLUSIVE AND ARE IN ADDITION TO ANY OTHER RIGHTS AND REMEDIES PROVIDED BY LAW OR UNDER THIS CONTRACT.

YOU CONTEND, AS YOU DID BEFORE THE BOARD, THAT IN VIEW OF THE CONCEDED FACT THAT HYPERION TIMELY "DELIVERED" SUPPLIES PURSUANT TO THE CONTRACT DELIVERY DATE PROVISIONS AS EXTENDED, ALTHOUGH THE "SUPPLIES" DELIVERED WERE FOUND NOT TO MEET THE CONTRACT SPECIFICATIONS, THE GOVERNMENT'S TERMINATION OF THE CONTRACT FOR DEFAULT PURSUANT TO SUBPARAGRAPH (A) (I) OF THE DEFAULT ARTICLE WAS IMPROPER, SINCE THE DEFECTS DISCOVERED IN THE SUPPLIES AFTER THE DELIVERY DATE HAD EXPIRED SHOWED A FAILURE TO "PERFORM * * * OTHER PROVISIONS" OF THE CONTRACT WHICH HAD NO BEARING ON A FAILURE "TO MAKE DELIVERY," AS CONTEMPLATED BY SUBPARAGRAPH (A) (I). YOU ASSERT THEREFORE THAT SINCE THE TERMINATION WAS IN FACT BASED ON THE CONTRACTOR'S FAILURE TO PERFORM CONTRACT PROVISIONS REGARDING SPECIFICATIONS, THE TERMINATION SHOULD HAVE BEEN ISSUED PURSUANT TO SUBPARAGRAPH (A) (II) OF THE DEFAULT ARTICLE. YOU CONCLUDE THAT SINCE HYPERION WAS NOT GIVEN THE MINIMUM 10-DAY "CURE PERIOD" REQUIRED BY SUBPARAGRAPH (A) (II) OF THE DEFAULT ARTICLE, AND SINCE THE INSPECTION ARTICLE DOES NOT GIVE THE GOVERNMENT A RIGHT TO TERMINATE A CONTRACT WITHOUT REGARD TO THE PROCEDURAL REQUIREMENTS OF THE DEFAULT ARTICLE, THE ASSESSMENT OF EXCESS COSTS PURSUANT TO SUBPARAGRAPH (B) OF THE DEFAULT ARTICLE WOULD BE IMPROPER AND OF NO LEGAL EFFECT.

THE BOARD REJECTED THESE CONTENTIONS. WHILE WE DO NOT NECESSARILY AGREE WITH ALL OF THE ARGUMENTS ADVANCED BY THE BOARD IN SUPPORT OF ITS POSITION, WE ARE IN COMPLETE ACCORD WITH ITS CONCLUSION ON THE ULTIMATE LEGAL PROPOSITION INVOLVED, WHICH WAS STATED IN THE DECISION AS FOLLOWS: IT IS, IN OUR OPINION, A CONTRACTOR'S OBLIGATION NOT ONLY TO DELIVER ON TIME, BUT ALSO TO DELIVER PRECISELY WHAT IS ORDERED.

IN THE ABSENCE OF ANY CONTROLLING JUDICIAL PRECEDENT TO THE CONTRARY, WE ARE CONSTRAINED TO HOLD THAT A DELIVERY OR TENDER OF ARTICLES NOT MEETING THE CONTRACT SPECIFICATIONS IS NOT ,DELIVERY" WITHIN THE MEANING OF THE DEFAULT ARTICLE, AND THAT A FAILURE TO DELIVER CONFORMING ARTICLES WITHIN THE TIME REQUIRED IS AN ADEQUATE AND PROPER GROUND FOR TERMINATING THE CONTRACT UNDER PARAGRAPH (A) (I) OF THAT ARTICLE. IN THIS CONNECTION WE NOTE THAT THE EXTENDED CONTRACT DELIVERY SCHEDULE FOR ALL FIVE ITEMS WAS A SINGLE DATE--- AUGUST 22. WHEN HYPERION DELIVERED NONCONFORMING ITEMS ON AUGUST 22, AND IT WAS PROMPTLY DETERMINED THAT THEY DID NOT CONFORM TO SPECIFICATIONS, THE FACT THAT THE CONTRACTING OFFICER CHOSE TO GRANT A PERIOD OF GRACE AS CONTEMPLATED BY THE INSPECTION ARTICLE, DURING WHICH HYPERION HAD 8 DAYS TO PROMPTLY CORRECT THE DEFICIENCIES IN THE SUPPLIES, DID NOT CONSTITUTE A WAIVER OF THE RIGHT TO TERMINATE, BUT ONLY A FORBEARANCE OF THAT RIGHT CONDITIONED UPON EFFECTIVE CORRECTION OF ALL DEVIATIONS. YOU MAINTAIN HYPERION WAS ENTITLED TO 10 INSTEAD OF 8 DAYS, ON THE THEORY THAT HYPERION'S DEFAULT WAS NOT A FAILURE AS DESCRIBED BY SUBPARAGRAPH (A) (I) OF THE DEFAULT ARTICLE "TO MAKE DELIVERY OF THE SUPPLIES * * * WITHIN THE TIME SPECIFIED.' WE BELIEVE THIS IS AN EXCEEDINGLY STRAINED INTERPRETATION, SINCE A DELIVERY OF THE SUPPLIES MANIFESTLY REFERS TO SUPPLIES CONFORMING TO THE SPECIFICATIONS IN THE CONTRACT, AND NOT TO ANY SUPPLIES A CONTRACTOR MIGHT CHOOSE TO DELIVER. MOREOVER, THERE ARE SEVERAL ADDITIONAL REASONS FOR REJECTING YOUR VIEW THAT HYPERION DID NOT FAIL "TO MAKE DELIVERY OF THE SUPPLIES.'

IN THE FIRST PLACE, ACCEPTANCE OF YOUR VIEW WOULD ESTABLISH THE GENERAL PROPOSITION THAT THE TIMELY DELIVERY OF NONCONFORMING SUPPLIES AUTOMATICALLY ENTITLES THE CONTRACTOR TO AT LEAST 10 DAYS TO CURE DEFECTS BEFORE HIS CONTRACT MAY BE TERMINATED. THIS PROPOSITION IS CONTRARY TO THE EXPRESS INTENT OF THE INSPECTION ARTICLE WHICH CONTAINS NO AFFIRMATIVE REQUIREMENT THAT THE GOVERNMENT GIVE THE CONTRACTOR ANY OPPORTUNITY, MUCH LESS 10 DAYS, TO CORRECT OR REPLACE NONCONFORMING SUPPLIES AFTER THE REQUIRED DELIVERY DATE.

ON THE CONTRARY, WE OBSERVE THAT SECTION 1-14.107 OF THE FEDERAL PROCUREMENT REGULATIONS PROVIDES FOR GRANTING AN OPPORTUNITY TO PROMPTLY CORRECT OR REPLACE NONCONFORMING SUPPLIES IF THE DEFICIENCIES CAN BE ELIMINATED WITHIN THE REQUIRED DELIVERY SCHEDULE. THEREFORE, THE IMPACT OF YOUR VIEW THAT CONTRACTORS ARE ENTITLED TO AT LEAST 10 DAYS TO CORRECT TIMELY DELIVERED SUPPLIES WOULD OFTEN PUT THE GOVERNMENT IN THE UNDESIRABLE POSITION OF HAVING TO REFUSE CONTRACTORS AN OPPORTUNITY TO PROMPTLY CORRECT MINOR ERRORS, WHENEVER DEFECTS IN THE SUPPLIES ARE DISCOVERED WITHIN LESS THAN 10 DAYS OF THE EXPIRATION OF THE DELIVERY DATE.

FINALLY, IT SHOULD BE NOTED THAT YOUR POSITION IS INCONSISTENT WITH THE GENERALLY ACCEPTED UNDERSTANDING BOTH OF THE TERM "DELIVERY" AND OF THE CONSEQUENCES OF TENDERING UNACCEPTABLE SUPPLIES. THE GENERAL ACCEPTANCE OF THIS UNDERSTANDING IS DEMONSTRATED BY THE FOLLOWING SECTIONS OF THE UNIFORM COMMERCIAL CODE:

SEC. 2-106

(2) GOODS OR CONDUCT INCLUDING ANY PART OF A PERFORMANCE ARE "CONFORMING" OR CONFORM TO THE CONTRACT WHEN THEY ARE IN ACCORDANCE WITH THE OBLIGATIONS UNDER THE CONTRACT.

SEC. 2-503

(1) TENDER OF DELIVERY REQUIRES THAT THE SELLER PUT AND HOLD CONFORMING GOODS AT THE BUYER'S DISPOSITION AND GIVE THE BUYER ANY NOTIFICATION REASONABLY NECESSARY TO ENABLE HIM TO TAKE DELIVERY. * * *.

SEC. 2-508

(1) WHERE ANY TENDER OR DELIVERY BY THE SELLER IS REJECTED BECAUSE NON- CONFORMING AND THE TIME FOR PERFORMANCE HAS NOT YET EXPIRED, THE SELLER MAY SEASONABLY NOTIFY THE BUYER OF HIS INTENTION TO CURE AND MAY THEN WITHIN THE CONTRACT TIME MAKE A CONFORMING DELIVERY.

WE FIND NO EVIDENCE, OR REASON TO BELIEVE, THAT THE GOVERNMENT WROTE THE INSPECTION AND DEFAULT ARTICLES INTO ITS PROCUREMENT CONTRACTS WITH THE INTENTION OF DEPARTING FROM TRADITIONAL CONCEPTS IN THIS AREA WHICH ARE GENERALLY FAVORABLE TO THE BUYER.

OUR VIEW IS THAT WHERE THE CONTRACTOR, AFTER HAVING BEEN GIVEN AN OPPORTUNITY TO PROMPTLY CORRECT DEFECTS PURSUANT TO THE INSPECTION ARTICLE, HAS FAILED TO DO SO, HE HAS FAILED TO MAKE ,DELIVERY OF THE SUPPLIES" AS REQUIRED BY THE CONTRACT AND WITHIN THE MEANING OF SUBPARAGRAPH (A) (I) OF THE DEFAULT ARTICLE. CONSEQUENTLY, WITH RESPECT TO THE REJECTED SUPPLIES, HE WOULD NOT BE ENTITLED TO THE MINIMUM 10-DAY "CURE PERIOD" PROVIDED IN SUBPARAGRAPH (A) (II) OF THE DEFAULT CLAUSE.

FOR THE REASONS STATED, WE MUST CONCLUDE THAT THE TERMINATION OF HYPERION'S CONTRACT NO. CST-7439 FOR DEFAULT WAS ACCOMPLISHED IN ACCORDANCE WITH THE PROVISIONS OF THE CONTRACT, AND THAT WE MAY NOT PROPERLY OBJECT TO FURTHER ADMINISTRATIVE ACTION TO ENFORCE THE GOVERNMENT'S RIGHTS ARISING FROM THAT ACTION.