B-170873, APR 8, 1971

B-170873, APR 8, 1971

CONTRACTS - DEFAULT - TERMINATION REPORTING THAT THERE IS NO LEGAL BASIS TO QUESTION THE TERMINATION OF THE CONTRACT OF HERLEY INDUSTRIES, INC., AWARDED BY THE NAVY FOR FIELD CHANGE KITS FOR MODULATOR DUMMY LOADS ON THE AN/SPS-39/42 RADAR SERIES PURSUANT TO THE DEFAULT CLAUSE. WHILE ARMED SERVICES BOARD OF CONTRACT APPEALS GAVE ONLY LIMITED CONSIDERATION TO THE VERIFICATION VISITS AND DID NOT ADDRESS ITSELF TO THE QUESTION OF WHETHER ACTUAL OR CONSTRUCTIVE NOTICE OF HERLEY'S DEVIATION FROM THE DESIGN PROVISIONS WAS GIVEN, THE EVIDENCE IS NOT SO PERSUASIVE AS TO IMPUTE AN EARLY NOTICE AND TO CONCLUDE THAT THE CONTRACTING OFFICER SHOULD BE REGARDED AS HAVING ACQUIESCED IN THOSE DEVIATIONS.

TO MR. JACOB H. FISCHMAN:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 14, 1970, REQUESTING OUR REVIEW OF THE DECISION DATED MARCH 23, 1970, OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS (ASBCA) DENYING THE APPEAL IN THE MATTER OF APPEAL OF HERLEY INDUSTRIES, INC. (HERLEY), ASBCA NO. 12592 (70- IBCA 8209). THE CLAIM ASSERTED WAS FOR THE CONVERSION OF A TERMINATION FOR DEFAULT INTO ONE FOR THE CONVENIENCE OF THE GOVERNMENT, AND REMISSION OF A DEMAND FOR REFUND OF $20,006.71 IN UNLIQUIDATED PROGRESS PAYMENTS, UNDER A DEPARTMENT OF THE NAVY CONTRACT NOO189-67 0059-A, HELD BY HERLEY TO SUPPLY 63 FIELD CHANGE KITS FOR MODULATOR DUMMY LOADS ON THE AN/SPS- 39/42 RADAR SERIES, AND ASSOCIATED EQUIPMENT. THE BOARD'S RECORD MADE AVAILABLE TO OUR OFFICE INCLUDES A DECISION DATED JUNE 24, 1970, IN WHICH THE BOARD AFFIRMED ITS EARLIER DECISION. THE BASIS FOR THE REQUEST FOR REVIEW HERE IS THAT THE EARLIER DECISION IS ERRONEOUS IN ITS DISPOSAL OF A QUESTION OF LAW WHICH WAS RAISED BY THE PLEADINGS AND, AS TO QUESTIONS OF FACT, THE DECISION IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.

THE CONTRACT WAS AWARDED TO HERLEY ON JULY 19, 1966, UNDER A TWO-STEP PROCUREMENT FOR DELIVERY OF THE FIRST FIVE ARTICLES FOR PROTOTYPE TESTING 110 DAYS AFTER AWARD, AND DELIVERIES OF THE PRODUCTION UNITS COMMENCING WITHIN 60 DAYS AFTER FIRST ARTICLE APPROVAL AT STIPULATED RATES UNTIL COMPLETION. THE PREPRODUCTION TEST UNITS WERE NEVER ASSEMBLED, SUBMITTED FOR TESTING OR TESTED RESULTING IN THE DEFAULT TERMINATION OF JUNE 14, 1967, FROM WHICH A TIMELY APPEAL WAS SUBMITTED TO THE BOARD. PARAGRAPH (D) OF THE FIRST ARTICLE APPROVAL CLAUSE SPECIFICALLY PROVIDES THAT IF THE CONTRACTOR FAILS TO DELIVER ANY FIRST ARTICLE FOR TEST WITHIN THE TIME SPECIFIED, THE CONTRACTOR SHALL BE DEEMED TO HAVE FAILED TO MAKE DELIVERY WITHIN THE MEANING OF THE DEFAULT CLAUSE AND THE CONTRACT SHALL BE SUBJECT TO TERMINATION FOR DEFAULT.

THE TWO ISSUES UPON WHICH THE DECISION WAS ADJUDICATED WERE AGREED TO BY STIPULATION (TR. PAGES 358, 359), WHICH MAY BE SUMMARIZED AS FOLLOWS:

1. WHETHER THE ADMITTED DEVIATIONS FROM THE TECHNICAL PROPOSAL SUBMITTED BY HERLEY WERE CONTRACT CHANGES AUTHORIZED BY THE ACTS OF THE GOVERNMENT, OR BY SPECIFIC CONSENT OF PERSONS AUTHORIZED TO GRANT THE DEVIATIONS, OR BY PERSONS THAT THE CONTRACTOR HAD A RIGHT TO BELIEVE WERE AUTHORIZED TO MAKE SUCH CHANGES?

2. WHETHER HERLEY WAS PROCEEDING WITH ITS PROGRAM ACCORDING TO THE SCHEDULES SET UP BY MODIFICATION P-001?

HOWEVER, YOU ASSERT THAT THERE WAS A THIRD ISSUE FRAMED BY THE PLEADING WHICH THE BOARD REFUSED TO CONSIDER, TO WIT:

"WAS THE CONTRACTING OFFICER'S TERMINATION FOR DEFAULT LETTER, DATED JUNE 14, 1967, RULE 4, TAB 12, IN VIEW OF THE CIRCUMSTANCES WHICH LED UP TO ITS ISSUANCE, AN ARBITRARY, CAPRICIOUS AND/OR UNCONSCIONABLE ACT?"

YOU URGE THAT THE BOARD'S REFUSAL TO CONSIDER THE THIRD ISSUE WAS INCORRECT AS A MATTER OF LAW, INASMUCH AS THE STIPULATION SAID NOTHING ABOUT ANY OTHER ISSUES THAT HAD BEEN FRAMED BY THE PLEADINGS, NOR WAS THERE ANY AFFIRMATIVE OR EVEN IMPLIED AGREEMENT THAT THE CASE WAS TO BE DECIDED SOLELY ON THE ISSUES SET OUT IN THE STIPULATION. ALSO, YOU SAY THAT THERE WAS NOTHING THAT WOULD LEAD TO THE CONCLUSION THAT AN ISSUE FRAMED BY THE PLEADINGS IS AUTOMATICALLY DROPPED FROM CONSIDERATION WHEN A STIPULATION IS MADE AS TO OTHER ASPECTS OF THE CASE WHICH HAVE NO BEARING ON THE SPECIFIC ISSUE SO FRAMED.

IN THE BOARD'S ENUNCIATION OF THE STIPULATION IT IS STATED:

" *** IT IS AGREED, AND HAS BEEN TESTIFIED, THAT THE ENGINEERING ABILITY OF HERLEY INDUSTRIES IS NOT THE ISSUE *** AND IT (THE ISSUE) IS ONLY THE QUESTION AS TO WHETHER THE DEVIATIONS WHICH ARE ACKNOWLEDGED WERE AUTHORIZED BY THE ACTS OF THE GOVERNMENT OR BY SPECIFIC CONSENT OF PERSONS AUTHORIZED TO GRANT THE DEVIATIONS AND WHETHER THE CONTRACTOR WAS PROCEEDING WITH ITS PROGRAM ACCORDING TO THE SCHEDULES SET UP BY MODIFICATION P-001. DOES THAT COVER IT?"

IN RESPONSE TO YOUR CONCERN THAT THE ISSUES AS ENUNCIATED DID NOT INCLUDE THE POINT THAT HERLEY HAD A RIGHT TO BELIEVE THAT CERTAIN GOVERNMENT PERSONNEL WERE AUTHORIZED TO MAKE THE CHANGES INVOLVED, THE BOARD STATED:

"WE WILL ADD THAT TO THE STIPULATION AS TO THE ISSUES TO BE RESOLVED. DOES THAT NOW COVER IT ADEQUATELY?"

TO THIS QUESTION, YOU REPLIED "YES."

IN VIEW OF THESE RECORDED STATEMENTS, WE BELIEVE THAT THE RECORD WARRANTS OUR CONCURRENCE WITH THE BOARD'S CONCLUSION THAT THE STIPULATION COVERED ALL ISSUES RAISED BY BOTH THE PLEADINGS AND THE EVIDENCE, AND THAT THE ONLY ISSUES TO BE RESOLVED BY THE BOARD WERE THOSE WHICH WERE SET OUT IN THE STIPULATION. IF YOU HAD INTENDED TO LEAVE THE THIRD ISSUE OPEN FOR ADJUDICATION BY THE BOARD, YOUR INTENTION SHOULD HAVE BEEN MADE MANIFEST AND EXPLICIT AT THE TIME THE STIPULATION WAS ENTERED INTO THE RECORD.

WITH RESPECT TO YOUR CONTENTION THAT THE BOARD'S DECISION IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE CONCERNING THE FIRST STIPULATED ISSUE, YOU URGE THAT THE BOARD CHOSE TO TREAT ALL EVENTS AFTER THE MEETINGS ON AUGUST 3 AND 4, 1966, BETWEEN MR. BLATT OF HERLEY AND PERSONNEL OF THE NAVAL SUPPLY CENTER, NORFOLK, VIRGINIA, AS MEANINGLESS ON THE QUESTION OF THE APPARENT AND REAL AUTHORITY OF THOSE GOVERNMENT PERSONNEL WHO MADE THE SUBSEQUENT VERIFICATION VISITS TO HERLEY'S PLANT. SPECIFICALLY, YOU STATE THAT THE BOARD ERRED WHEN IT FAILED TO CONSIDER ALL OF THE EVIDENCE AND TO RECOGNIZE THAT AUTHORIZED REPRESENTATIVES OF THE CONTRACTING OFFICER KNEW OR SHOULD HAVE KNOWN, AT LEAST FROM THE NOVEMBER 1966 MEETINGS, THAT HERLEY HAD CHANGED ITS PERFORMANCE FROM THE SPECIFICATIONS IN ITS ORIGINAL PROPOSAL, AND THAT HERLEY WAS SO PERFORMING WITH THE TACIT IF NOT ACTUAL AGREEMENT OF THOSE OFFICIALS. YOU INDICATE THAT THE HOLDING IN FOX VALLEY ENGINEERS, INC. V UNITED STATES, 151 CT. CL. 228 (1960), SHOULD BE CONTROLLING AS TO THE FIRST ISSUE IN HERLEY'S APPEAL.

THE BOARD FOUND THAT ON AUGUST 3 AND 4, 1966, HERLEY HAD NOT DECIDED TO DEVIATE FROM ITS PROPOSAL, AND THAT BLATT DID NOT RELY ON ANY GOVERNMENT OFFICIAL TO APPROVE HERLEY'S SUBSEQUENT DEPARTURE FROM THE CONTRACT. PAGE 7, ITS ORIGINAL DECISION STATED:

"BLATT ACTED IN THE BELIEF THAT, INASMUCH AS APPELLANT WAS BUILDING TO ITS OWN TECHNICAL DESIGN, IT COULD CHANGE THAT DESIGN AT WILL WITHOUT ANYONE'S APPROVAL (T. 68, 69), AS LONG AS THE DESIGN REMAINED AN AIR-COOL APPARATUS (T. 112, 113), AND MET THE GOVERNMENT'S NEEDS (T. 344) ... "

WE AGREE WITH YOUR CONTENTION THAT THE BOARD'S DECISION GIVES ONLY LIMITED CONSIDERATION TO THE VERIFICATION VISITS AFTER AUGUST 3 AND 4, AND DOES NOT ADDRESS THE QUESTION OF WHETHER ACTUAL OR CONSTRUCTIVE NOTICE OF YOUR DEVIATION FROM THE DESIGN PROVISIONS FOR 750-WATT RESISTORS, ETC., PRIOR TO THE VERIFICATION VISIT OF FEBRUARY 1 AND 2, 1967. HOWEVER, FROM OUR REVIEW OF THE RECORD WE DO NOT FIND THE EVIDENCE SO PERSUASIVE ON THIS POINT AS TO IMPUTE AN EARLY NOTICE TO THE CONTRACTING OFFICER OF HERLEY'S DEVIATIONS FROM THE DESIGN SET OUT IN ITS PROPOSAL, AND TO CONCLUDE THAT THE CONTRACTING OFFICER SHOULD BE REGARDED AS HAVING ACQUIESCED IN THOSE DEVIATIONS.

WE HAVE PREVIOUSLY NOTED YOUR REFERENCE TO, AND RELIANCE ON, THE FOX VALLEY CASE. WE BELIEVE THAT CASE IS ESSENTIALLY DIFFERENT FROM THE PRESENT MATTER. IN FOX VALLEY THE RECORD SHOWED THAT THE CONTRACTOR'S WORK MET CONTRACT SPECIFICATIONS, BUT THE CONTRACTING OFFICER'S REPRESENTATIVE LATER DETERMINED THAT THE WORK SHOULD BE DONE IN SUCH A WAY THAT IT WOULD MEET HIGHER TECHNICAL STANDARDS. THE CONTRACTOR PERFORMED IN ACCORDANCE WITH SUCH INSTRUCTIONS AND THE COURT HELD THAT AN APPROPRIATE CHANGE ORDER PROVIDING FOR SUCH WORK AND COMPENSATION FOR IT SHOULD HAVE BEEN ISSUED TO THE CONTRACTOR, SINCE THE CONTRACTOR WAS JUSTIFIED IN RELYING ON THE REPRESENTATIONS MADE BY THE CONTRACTING OFFICER'S REPRESENTATIVE AS HAVING BEEN MADE WITH FULL AUTHORITY. HERE, AT THE CONTRACTOR'S OWN DECISION, THE ITEM WAS NOT BEING CONSTRUCTED IN ACCORDANCE WITH THE CONTRACT SPECIFICATIONS, AND WHEN THE GOVERNMENT BECAME AWARE OF THIS FACTOR AND PRODUCTION WAS BEHIND SCHEDULE THE CONTRACT WAS TERMINATED FOR DEFAULT.

THEREFORE, FOR THE REASONS STATED, WE FIND NO LEGAL BASIS TO QUESTION THE TERMINATION OF YOUR CONTRACT PURSUANT TO ITS DEFAULT CLAUSE, AND YOUR REQUEST THAT THIS OFFICE CONVERT THE TERMINATION INTO ONE FOR THE CONVENIENCE OF THE GOVERNMENT IS DENIED.