Request for Relief of Default Costs

The Veterans Administration (VA) requested a determination as to the propriety of granting relief to a firm from a termination for default order issued by the VA. When the firm failed to deliver gold emblems, VA terminated the firm for default and reprocured the contract items from another firm. The firm in default requested relief from assessment of the reprocurement costs. The firm's stated reasons for failing to meet its contractual obligations were: (1) the unexpected and unprecedented increase in the price of gold, and (2) the apparent unwillingness of the firm's gold supplier to ship the necessary gold on time. Further, the firm contended that its nonperformance of this contract is excusable on the basis of commercial impracticability as defined in the Uniform Commercial Code (UCC) and also on the basis of an exculpatory contract provision which it believes controls in this situation. Finally, it argued that relief may be granted on the theory that its contract was unconscionable. The fixed-price contract between the firm and VA contained no specific provision for escalation of the contract price in the event of an increase in raw material costs. The fact that performance of a contract becomes burdensome does not entitle the contractor to relief. GAO did not agree that the UCC was applicable to this contract. VA stated that the gold market had been unstable for several months preceding the bidding on the contract at issue. Thus, the firm appeared to have had warning of the rise in prices when it submitted its bid. The firm did not show that the needed gold was actualy unavailable, because it dealt with only one supplier even after the supplier would not or could not meet the firm's needs. GAO could not conclude that the rise in gold prices was an unforeseen occurrence and that the contract should not have been enforced. While the contract clause cited by the firm provides examples which could permit price adjustment, the examples are one-time, extraordinary, emergency types of contingencies. To show that a contract is unconscionable, it must be demonstrated that the mistake is so great that the Government, by enforcing the contract, would receive something for nothing. There was no evidence that the contract price was unreasonable at the time of bid opening or award. Accordingly, the firm's claim for relief was denied.