_____________________________________________ GRANTED: February 10, 1993 _____________________________________________ GSBCA 11876 THE INTERLAKE COMPANIES, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Edward H. Gorens, Senior Project Manager of Interlake Companies Inc., Lisle, IL, appearing for Appellant. Kurt Summers and John Cornell, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges HENDLEY and BORWICK. BORWICK, Board Judge. Background In this appeal, filed on June 8, 1992, appellant, the Inter- lake Companies, Incorporated, contests the General Services Ad- ministration's (GSA) refusal to accept a computerized graphic diagnostic system (CGDS) as conforming to contract requirements. The CGDS was added as modification eighteen to appellant's con- tract for the supply and installation of a material handling system at GSA's Southeast Distribution Center (SEDC) in Palmetto, Georgia. See Finding 1. The modification called for a diagnos- tic system for the material handling equipment "installed at the southeastern distribution center." After installation and a month of testing, the CGDS did not work to the satisfaction ei- ther of the contracting officer's technical representative (COTR) or the contracting officer. Appellant maintained that SEDC per- sonnel made changes to the material handling system, and that the changes disrupted and made useless the logic stream programmed into the CGDS. Appellant requested acceptance of the CGDS and payment of the full invoice price. The contracting officer refused to accept the CGDS. Since the CGDS was embedded in the material handling system, the con- tracting officer offered appellant $19,650.62 based on hardware costs plus an 8.75 % estimate of the usefulness that the Govern- ment expected to obtain from the CGDS. The modification price was $54,563.28, making the amount claimed by appellant $34,- 912.66. On August 17, appellant elected the accelerated procedure for this appeal. Rule 14. The parties elected to submit the case on the record pursuant to Rule 11. We grant the appeal. We conclude that the CGDS was not fully functional because of sub- stantial changes, such as substitution of foot switches for hand switches, addition of motors, and by-pass of conveyors, which SEDC personnel had made to the material handling system. Modifi- cation eighteen called for a diagnostic system to monitor the material handling system appellant had installed, not the materi- al handling system that GSA had modified. As these changes were without the knowledge and beyond the control of appellant, rejec- tion of the CGDS was improper. Findings of Fact 1. Appellant had installed a material handling system at GSA's Southeast Distribution Center, in Georgia. The system consisted of three principal mechanical parts: (1) a package handling conveyor system, (2) an overhead trash and tote delivery system, and (3) a flow rack system. In addition, the system had computerized control designed to monitor all materials flow ac- tivities from receiving through shipping. Appeal File, Exhibit 1, C.2. The material handling system was accepted, subject to completion of punch list items, on August 25, 1989. Appellant's Supplemental Appeal File, Exhibits 4, 7; Declaration of Appel- lant's Senior Project Manager, Edward H. Gorens (Gorens Declara- tion), dated Dec. 3, 1992, at 14. 2. By letter of February 27, 1990, GSA requested a quota- tion from appellant for a "DIAGNOSTIC SYSTEM FOR THE MATERIAL HANDLING EQUIPMENT INSTALLED AT THE SOUTHEASTERN DISTRIBUTION CENTER, PALMETTO GEORGIA." Appeal File, Exhibit 13. The purpose of the system "was to facilitate the operations of a Government operator in detecting motor overloads throughout the entire sys- tem on a real time basis." Id. GSA specified that: Alarm situations shall be annunciated by a flashing CRT border and an audible signal generated by the computer. Accessible by maintenance personnel shall be an alarm screen which shall contain messages detailing the in- formation concerning the alarms. Animated graphic symbols shall be displayed on a graphic representation of the system layout which will allow a prompt visual location of operating errors and/or alarm devices. Id. 3. The CGDS was to interface with the Programmable Logic Controller (PLC) computer built into the electrical system of the material handling system. Appeal File, Exhibit 13. The basic equipment of the CGDS included an AT-compatible computer with a minimum twenty megabyte hard disk drive, EGA color monitor diag- nostics system software, and engineering of detailed diagnostic screens and messages. Id. 4. On April 11, appellant provided its proposal "in accor- dance with the requirements stated in [the] letter of February 27. . . ." Appeal File, Exhibit 16. Appellant's total price was $54,563.28, of which $32,744.28 was for hardware, software, and labor; $288 for warranty; $12,959 for overhead; and $8,572 for profit. Id. 5. On May 15, 1990, GSA and appellant executed modifica- tion eighteen to the material handling system contract at appel- lant's asking price. Appeal File, Exhibit 21.[foot #] 1 The contract contained the standard form clause FAR 52.246-2 INSPECTION OF SUPPLIES FIXED-PRICE. Appeal File, Exhibit 1, Solicitation Provisions at 94. The Inspection clause gave the Government the right "to inspect and test all supplies called for by the contract, at all places and times, including the period of manufacture, and in any event before acceptance." Id. Under the clause, the Government had the right to reject or require correction in-place of non-conforming sup- plies after notice and at the expense of the contractor. Id. The clause further provided in pertinent part: Unless the Contractor corrects or replaces the supplies within the delivery schedule, the Contracting Officer may require their delivery and make an equitable price reduction. Failure to agree on a price reduction shall be a dispute. Id. 6. The monitor of the CGDS was programmed to show differ- ent colors at its borders keyed to the condition of the material handling system conveyors being monitored. The colors were: ----------- FOOTNOTE BEGINS --------- [foot #] 1 The modification also settled appellant's out- standing claims involving hardware delivery of the material han- dling system itself. Id. __ ----------- FOOTNOTE ENDS ----------- Color Status Blue Stopped Conveyor White Energy Management Yellow Overloaded Conveyor Motor Red Jammed Conveyor Green Running Conveyor Statement of Contracting Officer's Technical Representative Mi- chael Wayne (Wayne Declaration), dated Dec. 3, 1992, at 2. 7. The CGDS was programmed to display colors according to logic statements generated by signals from the PLC. For example, for the monitor's border to show "yellow," the following condi- tions of the material handling system had to be present: (1) the main control panel for the conveyor system has been started, as indicated by a master control relay into the PLC; (2) the PLC is instructing the affected motor to run (a control circuit is closed, causing the motor starter coil to energize, closing all starter contacts); and (3) the PLC input for the affected motor does not indicate the presence of a signal through the affected motor's auxiliary contact. When those conditions were met, it was assumed that the motor is overloaded. Declaration of Mr. Robert Frye (Frye Declaration), dated Dec. 11, 1992, at 1-2. 8. The CGDS was installed on or about September 27, 1990. Appellant's Supplemental Appeal File, Exhibit 8. Appellant's engineer noted that respondent's personnel at SEDC had turned off a "hand-off-auto" (HOA) selector switch on the material handling system, thus generating false status readings on the CGDS. Id. The engineer felt that the false readings were due to misuse of the conveyor system, and that those readings were not appellant's responsibility. The engineer did rewrite logic statements when the CGDS generated colors that were false according to the infor- mation processed by the system diagnostics. Id. 9. As of February 19, appellant was still debugging soft- ware loaded on the CGDS. Appeal File, Exhibit 25. Appellant and the Government arranged for final installation and acceptance testing of the CGDS for March 11, 1991. Id., Exhibit 28. During this initial debug, the CGDS was tested by starting each panel and checking system display screen colors against the known oper- ating condition of the conveyors. To test the overload condi- tion, the manual stop button was pressed on the overload block that emulates an overload condition. False overload readings were noticed at the places on the system where SEDC personnel had replaced the HOA switches with foot switches. The overload logic of the affected conveyors was removed from the CGDS to run the test. Appellant's Record Submission at 12 (Frye Declaration, dated Nov. 30, 1992, Declaring to Item #C, Point 3.) 10. Appellant's installation engineer suggested that in- stead of removing logic circuits it would be better to leave the diagnostics intact and generate a new circuit for the system. GSA's response was that money was not available to make design changes to the system. Frye Declaration at 3. 11. On March 14, the COTR reported to the contracting offi- cer that some rewire revisions, manuals and repair of a printer were due from appellant, but that "all functional requirements have been met per the contractual agreement for the diagnostics package." The COTR, however, requested further testing until he was satisfied that all bugs had been worked out. Appeal File, Exhibit 29. The contracting officer agreed to a month testing period. Id., Exhibit 30. 12. On April 29, the contracting officer advised appellant: Motor overloads are indicated when no motor has over- loaded, causing our maintenance personnel to look for an overload where none exists. In our opinion, this may be a matter which can be eliminated by proper de- bugging of the diagnostic system software. Appeal File, Exhibit 35. The contracting officer also told ap- pellant that different screens presented by the computer had static electricity. Id. 13. Appellant's Senior Project manager responded by letter of August 12, 1991, denying responsibility for the motor overload readings. Appellant explained that the false overload readings were a result of GSA's changes to the material handling system, including elimination of the system's repack loop and conveying operation, disconnection of sorter lanes, the addition of Hytrol turntables, and disconnection and shut-off of many HOA mainte- nance switches to divert cartons. The Senior Project Manager stated that: [T]he [CGDS] was specified and quoted as an add-on to the [material handling system] as installed at [SEDC] by [appellant], as accepted by GSA in August 1989. The system functions exactly per the requirements and the alarms activate per [appellant's] design. Appeal File, Exhibit 36. The Senior Project Manager requested final acceptance of the system and full payment according to its invoice. Id. 14. In response, the COTR informed the contracting officer that false overload readings had occurred on the material han- dling system in places where SEDC personnel had made no changes to that system. The COTR did not deny that the SEDC personnel had, in fact, changed the material handling system that appellant had installed; he denied that those changes were the reasons for the malfunction of the CGDS. Appeal File, Exhibit 37. 15. Appellant identified numerous changes made by GSA to the material handling system installed in the SEDC by appellant: In the bulk module, GSA eliminated about 2100 feet of accumula- tion conveyor from system operation, eliminated the repack opera- tion and associated conveyor system, added a hydro turntable, revised conveyor system speeds, added electric motors, installed several foot switches replacing HOA switches, installed TanData scale/scanner units, deactivated conveyor sections, and added conveyor oiler units. Appellant's Record Submission Memorandum, Attachment B. The Government admits that it eliminated the en- tire repack loop, disconnected the lower sorter lanes, including United Parcel Service and shipping lanes, added the Hytrol turn- tables, and disconnected or shut-off many hand-off maintenance switches to divert cartons. Respondent's Record Submission at 11, 8. 16. On October 25, the COTR informed the contracting offi- cer that the CGDS was seventy-five percent effective. He report- ed that the console indicated what portion of the material han- dling system was stopped, but did not advise which motor was not working. Appeal File, Exhibit 39. On October 29, the COTR told the contracting officer about false color readings generated by the diagnostic system. This information was passed on to appel- lant's Senior Project Manager, who requested further written information about the false color readings. Id., Exhibit 40. On November 5, appellant's Senior Project Manager again wrote the contracting officer, reviewed the history of the problem, and maintained that the CGDS was substantially completed and in- stalled on March 11, 1991. 17. The contracting officer forwarded appellant's letter to the COTR for review and response. Appeal File, Exhibit 42. The COTR admitted that SEDC employees turned off portions of the material handling system and added motors to the system, but denied that the addition of the motors had any consequence for the diagnostic system: "Motors added to the system by GSA are not wired into the control panels and in no way affect the diagnostic system." Appeal File, Exhibit 43. The COTR thought that improp- er wiring was the cause of the CGDS' failure. Id. 18. There is a dispute of fact as to the cause of the false readings generated by the CGDS. Appellant claims that the false readings were caused by respondent's changes and additions to the material handling system. Respondent claims that the false read- ings were generated by a defect in the CGDS. We find as fact that the false readings were based on changes and additions re- spondent had made to the material handling system. The CGDS was programmed by appellant's engineers to respond in a logical se- quence to signals from the PLC of the material handling system as designed by appellant. Finding 7. SEDC personnel changed the design of the material handling system by halting conveyors and adding foot switches and motors to the material handling system. Finding 15. These changes disrupted the logical sequence pro- grammed in the CGDS. In the case of switches, where SEDC person- nel replaced HOA switches with foot switches, false overload readings were generated because the addition of the foot switches halted a signal to the material handling system motors' auxiliary contact. Frye Declaration at 2; Findings 8, 9. 19. On January 16, appellant, having heard nothing from the Government since its communication of November 5, filed a claim for payment. Appeal File, Exhibit 44. On March 17, 1992, the contracting officer denied the claim, but offered appellant $19,650.62 based on a hardware costs plus "8.75 percent . . . of the usefulness which the Government expected to obtain." Id., Exhibit 48. A timely appeal followed. Discussion This dispute concerns the responsibility for the failure of the CGDS to record accurately the status of the material handling system at the SEDC. Respondent argues that "the [CGDS] design, for which [appellant] was responsible, failed to perform as in- tended. The consequences for that failure rests squarely on [appellant's] shoulders." Respondent's Record Submission Brief at 19. We cannot agree with the Government. The requirement of Modification eighteen was to supply a working CGDS that would accurately monitor the material handling system as installed by appellant. Finding 2. The CGDS was so designed. Finding 7. There is ample evidence in the record that SEDC personnel made numerous changes to the material handling system. Findings 15, 18. Appellant installed the CGDS in a material handling system that was substantially changed by SEDC personnel by their shut- down of conveyors and addition of floor switches and motors. These changes rendered useless the pre-programmed logic of the CGDS which generated the color signals on the monitor and motor overload signals. Findings 7, 9, 18. The Government's position that the failure of the CGDS was caused by improper wiring, Find- ing 17, is conclusory and unsupported by any evidence other than the statement of its maker. The Government may not refuse to accept an item for causes beyond the contractor's control and responsibility. ITT Gilfillan Division, ASBCA 37,834, 92-1 BCA 24,490, at 122,227 (1991). This is what happened here. There is nothing in the record to show that SEDC told appellant of the changes that SEDC had made to the material handling system when it negotiated the modification. If SEDC had told appellant of the changes, appel- lant could have programmed these changes into the logic of the CGDS. Appellant's installation engineers first noticed that there were changes in September 1989 during installation of the CGDS. Finding 8. The changes made to the material handling system generated the false readings, Finding 18, and were beyond the control of the contractor. The Inspections clause allows the Government to reject sup- plies that do not conform to the requirement of the contract. Finding 5. There is no evidence that the CGDS supplied by appel- lant is incapable of monitoring the material handling system appellant had installed in the SEDC. That is all Modification eighteen required. Respondent could have had a working CGDS by ordering appel- lant to make it functional, and then litigating whether the cost of the work involved a constructive change. Respondent did not want to spend extra money, Finding 10, or litigate the question of constructive change. The result is that respondent will now pay full price for a non-functional CGDS. Decision The appeal is GRANTED. Appellant is entitled to the full invoice price for the modification--$54,563.28--plus interest as specified by the Contract Disputes Act of 1978. 41 U.S.C. 611 (1988). _________________________ ANTHONY S. BORWICK Board Judge I concur: _________________________ JAMES W. HENDLEY Board Judge