_______________________________________________ DENIED: September 26, 1995 _______________________________________________ GSBCA 13154 GENERAL CUTLERY, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Carleton Reitz of General Cutlery, Fremont, OH, appearing for Appellant. David L. Frecker, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), BORWICK, and WILLIAMS. BORWICK, Board Judge. This appeal concerns the General Services Administration's (GSA's) termination for default of one item--paring knives--in General Cutlery's indefinite delivery/indefinite quantity (IDIQ) supply contracts for forks and a variety of kitchen knives. Paring knives were one of the largest estimated items in the contracts, with an estimated peak monthly requirement of 16,704. While the appeal involves no cutting edge legal issues, it does illustrate--for General Cutlery at least--the old adage "be careful for what you wish; your wish might come true, to your ultimate sorrow." GSA was a reluctant customer of General Cutlery. GSA had negatively evaluated General Cutlery's production and financial capabilities to perform these contracts and was prepared to find the firm non-responsible. GSA nevertheless awarded the contracts to General Cutlery after the Small Business Administration either issued, or told GSA that it would issue, a certificate of competency for the company. GSA's doubts about General Cutlery's ability to perform the contracts were well founded. Purchase orders--particularly for paring knives[foot #] 1--came with stabbing regularity, and General Cutlery quickly became delinquent in timely filling the orders. Upon receiving the first group of orders, General Cutlery immediately requested an extension of the delivery dates of those orders. General Cutlery stated that it lacked the supplies, personnel, and manufacturing capability to fill its obligations on the GSA IDIQ contracts and obligations on other Government and commercial contracts. General Cutlery promised to improve, and based on those promises, GSA granted extensions of the delivery dates. During the year and one-half time frame involved in this appeal, GSA's administration of these contracts involved the following sequence of events, which occurred with depressing regularity: A group of purchase orders issued to General Cutlery would become delinquent as to delivery dates, GSA would request an explanation for the delay in filling the purchase orders, General Cutlery would provide its litany of excuses, and GSA would grant extensions of the delivery dates. Not to put too fine a point on the matter, General Cutlery struggled to fill delinquent orders at the same time that it was faced with new orders, and could never catch up. In December of 1994, a group of purchase orders for paring knives became delinquent, and GSA, tired of the mess, default terminated that item. General Cutlery appealed the default termination as to that item. The parties have chosen to submit their dispute on the written record, pursuant to Board Rule 11. We conclude that General Cutlery has not shown excusable causes of default under the Termination for Default clause of its contract, and sustain the decision of the contracting officer. Findings of Fact On May 5, 1993, GSA awarded two IDIQ contracts for kitchen knives and utensils to General Cutlery. Contract GS-07F-67820 was for items one through twenty-eight and items thirty-two through thirty-eight. Appeal File, Exhibit 1 at 33- 34.[foot #] 2 Contract GS-07F-67810 was a small business set-aside contract for items twenty-nine through thirty- one. The contract items were designated by national stock number (NSN) and further subdivided by delivery destination. For example, items twenty through twenty-three were paring knives, NSN 7340-00-488-7939, to be delivered to Fort Worth TX, Burlington NJ, Lathrop CA, and Stockton CA, respectively. Id. at ----------- FOOTNOTE BEGINS --------- [foot #] 1 One of the unanswered questions in this appeal is why the Government had such an insatiable appetite for paring knives. [foot #] 2 Respondent has hand-numbered pages consecutively within each exhibit; our page references are to the hand-numbered pages. ----------- FOOTNOTE ENDS ----------- 34. The term of these contracts was from May 5, 1993 through February 28, 1995. Id., Exhibit 3. The estimated value of the contracts was $942,838.32. Appeal File, Exhibit 1 at 29. The estimated peak monthly requirements were high for some items. For paring knives, items twenty through twenty-three, the estimated peak monthly requirements were 4,320, 6,912, 1,152, and 4,320, respectively. Id. at 51. For boning knives, items one through three, the peak monthly supply potential was 2,592, 648, and 2,488, respectively. Id. In its bid, General Cutlery left blank the space for filling in its peak monthly supply potential. In accordance with the monthly supply potential clause, therefore, General Cutlery committed to supplying 125% of GSA's peak monthly supply potential. Id. at 79. For paring knives, that amounted to a commitment to supply 20,880 paring knives per month, if ordered. Under the monthly supply potential clause, General Cutlery was required to honor any order exceeding the monthly supply potential unless General Cutlery returned the order to the ordering office within five days of receipt. Id. at 80. The contracts required General Cutlery to make delivery at destination sixty calendar days after receipt of an order. Appeal File, Exhibit 1 at 61. The contracts incorporated by reference the clauses found at GSA Form 3507, A-FSS-23 (May 1992) Supply Contract Clauses. Id. at 41. That form contains the standard Termination for Default Clause (Fixed Price Supply and Service) (APR 1984)[foot #] 3, which provides in pertinent part: (a)(1) The Government may, subject to paragraphs (c) and (d) below, by written notice of default to the Contractor, terminate this contract in whole or in part of the Contractor fails to-- (i) Deliver the supplies . . . within the time specified in this contract or any extension[.] (ii) Make progress, so as to endanger performance of this contract (but see subparagraph (a)(2) below). (iii) Perform any of the other provisions of this contract (but see subparagraph (a)(2) below). (2) The Government's right to terminate this contract under subdivisions (1)(ii) and (1)(iii) above, may be exercised if the Contractor does not cure such failure within 10 days (or more if authorized in writing by the Contracting Officer) after receipt of the notice from the Contracting Officer specifying the failure. ----------- FOOTNOTE BEGINS --------- [foot #] 3 48 CRF 52.249-8 (1993). ----------- FOOTNOTE ENDS ----------- . . . . (d) If the failure to perform is caused by the default of a subcontractor at any tier, and if the cause of the default is beyond the control of both the Contractor and subcontractor, and without the fault or negligence of either, the Contractor shall not be liable for any excess costs for failure to perform, unless the subcontracted supplies or services were obtainable from other sources in sufficient time for the Contractor to meet the required delivery schedule. Id. at 25. Prior to award, GSA negatively evaluated General Cutlery's plant facilities and financial responsibility, and made a "no award" recommendation. Appeal File, Exhibit 1 at 31. GSA made the award to General Cutlery only after referral to the Small Business Administration (SBA) for a certificate of competency (COC) and after SBA indicated that it would issue a COC. Id. at 30. By August 6, 1993, GSA had issued eleven purchase orders to General Cutlery. Appeal File, Exhibit 5 at 2. General Cutlery requested extensions on the delivery dates of the purchase orders because, allegedly, there was a considerable delay in the award of the GSA contract, which caused General Cutlery to pursue other business opportunities as a subcontractor. Consequently, General Cutlery was busy filling orders for Army bayonet knives and Navy diving knives. Id., Exhibit 6 at 4. General Cutlery also cited problems with steel production--the special steel required was not available except on special order--an inability to ramp up production for the quantity of goods ordered, and a shortage of boxes to ship the goods. Id. GSA granted an extension for contractor consideration of $502.80, id., Exhibit 5 at 4, and modified the contract accordingly. Id., Exhibit 6. On September 1, 1993, General Cutlery requested extensions on seven other purchase orders and a second extension on a purchase order in the first group extended, reciting the same reasons as the first request for extension: i.e., the failure of the box supplier to supply boxes, delay in the delivery of special steel needed for the blades, and alleged delay in the awarding of contracts which resulted in the large number of unexpected orders. Appeal File, Exhibit 10 at 1. On September 27, 1993, GSA granted General Cutlery extensions on nineteen purchase orders covering eight NSNs. Id., Exhibit 12 at 3. On October 15, 1993, GSA advised General Cutlery that it was delinquent on thirty-seven purchase orders and that GSA was considering terminating those purchase orders for default. Appeal File, Exhibit 15. GSA requested an explanation of the delinquencies within ten days. Id. General Cutlery responded with its list of reasons for the delay, including delay in obtaining steel, problems with suppliers of forgings, inability to obtain boxes from suppliers, and problems in converting tooling machines to manufacture items. Id., Exhibit 16. On November 1, 1993, General Cutlery reported to GSA that it was installing equipment and working overtime so that by mid- December it would be current with existing orders and those to come. Appeal File, Exhibit 17. On November 9, the GSA quality assurance specialist (QAS) noted several bottlenecks to General Cutlery's production of goods: (1) the sixty-day production time required to harden, heat-treat, and form the blades; (2) the time required for grinding the blades; and (3) the fact that General Cutlery had only one plastic molder capable of producing one thousand handles per eight hour shift. Appeal File, Exhibit 18. On November 30, 1993, the QAS reported that, as of that date, General Cutlery had shipped 2,160 scimitar knives, 11,736 boning knives, 17,712 paring knives, and 3,120 pie and cake servers, and that in the next two weeks General Cutlery would ship 1,000 cook's knives, leaving 5,700 purchase orders for cook's knives delinquent. Appeal File, Exhibit 19. On December 3, 1993, GSA advised General Cutlery that it was delinquent on thirty-seven purchase orders covering numerous stock numbers, and that the Government might terminate the purchase orders for default unless it shipped all delinquent orders by the re-established date of December 13. The largest delinquent item was paring knives, NSN 7340-00-488-7939; GSA had placed eight purchase orders for delivery of 44,784 of them. Appeal File, Exhibit 22. General Cutlery responded by proposing a revised schedule for deliveries. It justified the delay by claiming that its work force had come down with the flu and that "it has been difficult to keep on schedule especially when our regular trade has increased their [sic] demands very considerably. We are simply trying to keep everyone happy." Appeal File, Exhibit 24. General Cutlery proposed revised shipment dates of January 24 and February 14 for the delinquent items. Id. By letter of January 22, 1994, General Cutlery proposed yet another extension for seventy-eight pending purchase orders, suggesting revised shipping dates between February 14 and March 29, 1994. Appeal File, Exhibit 24. On February 8, GSA granted a contract extension to dates as late as March 11 for outstanding purchase orders. Id., Exhibit 26. As of February 16, there were 706 delinquent backorders for 21,820 paring knives, 150 delinquent backorders for 4,059 cook's knives, 131 delinquent backorders for 1,253 slicing knives, and 127 delinquent backorders for 1,186 butcher knives. Appeal File, Exhibit 28. On March 2, 1994, General Cutlery assured GSA that it was working on the paring knives and would have the goods produced within two weeks. Appeal File, Exhibit 40 at 2. On March 3, 1994, GSA terminated for default the NSNs for cook's knives (NSN 7340-00-223-771), food preparation forks (NSN 7340-00-292-9487), and slicing knives (NSN 7340-00-406-6531 and 7340-00-406-0863). Id., Exhibit 35. On March 24, GSA extended the delivery date to April 8 for all delinquent purchase orders for the paring knives and again advised General Cutlery that it faced termination for default if it could not meet the new delivery date. Id., Exhibit 40. On April 8, General Cutlery requested yet another extension of the delivery dates for twenty-nine purchase orders, including the paring knives. General Cutlery requested that the delivery dates for the paring knife purchase orders be extended to between April 15 and May 11. Appeal File, Exhibit 43. General Cutlery recited the now familiar litany of excuses, including the lack of production capacity and the desire to fill orders on other contracts. Id., Exhibit 42. Once again, GSA extended the dates. Id., Exhibit 45. As of May 20, GSA's QAS reported that General Cutlery had shipped 46,656 paring knives, 3,384 cook's knives, 4,608 boning knives, and 240 butcher knives. The QAS noted that General Cutlery had received orders for an additional 30,000 paring knives, but that General Cutlery had begun production on a second plastic molder machine for handles. The QAS stated that General Cutlery had made an excellent attempt to meet deadlines. Appeal File, Exhibit 48. On May 20, General Cutlery requested a delivery date extension of thirty days for two purchase orders because the orders exceeded 125 percent of the monthly supply potential. Appeal File, Exhibit 48. On August 24, General Cutlery requested a sixth extension of delivery dates for eighteen purchase orders, including eight purchase orders for 52,272 paring knives. Appeal File, Exhibit 52. A purchase order for the cook's knives--NSN-7340-00-488- 7959--was six months delinquent. A second purchase order for that same item was delinquent by five months. A purchase order for the paring knives was delinquent for two months, while four purchase orders for that item were a month late. The remaining three purchase orders for paring knives were due in August with General Cutlery unable to deliver them by the specified date. Id. The Government granted the extension. Id., Exhibit 54. On September 21, GSA's QAS reported that General Cutlery had failed to make deliveries every month for the past year and one- half, and that "they would never catch up." The QAS recommended termination of both contracts for default. Appeal File, Exhibit 56. On September 28, General Cutlery requested a seventh extension of delivery dates for nineteen purchase orders, including the purchase orders for paring knives on which it had previously sought extensions. Appeal File, Exhibit 57. GSA granted the extensions. Id., Exhibit 59. On December 6, the administrative contracting officer (ACO) reported that General Cutlery was delinquent on its delivery date for seven purchase orders for paring knives and two purchase orders for cook's knives (NSN-7340-00-488-7950). The ACO reported that General Cutlery had a continual problem with production and delivery of those items. Appeal File, Exhibit 64. The ACO requested permission to terminate those items for default. Id. That same day, GSA sent General Cutlery a letter threatening default unless it delivered the items by December 16. Id., Exhibit 62. On December 19, General Cutlery responded to GSA's letter of December 6 by stating that it would ship 4,032 paring knives by December 23, that it would have 4,000 to 5,000 paring knives ready to ship before December 31, and that a lot of 80,000 paring knives "were now in process." Appeal File, Exhibit 66. Despite these promises of improved production, on December 22, General Cutlery once again requested extensions of delivery dates for purchase orders for paring knives and cook's knives until February 1995. Id., Exhibit 70. As of December 23, 1994, General Cutlery was delinquent on purchase orders for paring knives. The purchase orders, due dates, and extended shipments dates are set forth below: PURCHASE ORDER QTY DUE DATE FWFA7431 1584 11-01-94 NWF58293 4032 11-26-94 NWFC2291 6336 11-30-94 SWFD4132 3888 12-14-94 AWFD4131 1584 12-15-94 FWFD4511 4032 12-20-94 NWFD4512 6480 12-20-94 NWF76821 9360 12-16-94 FWF76391 4176 12-23-94 Appeal File, Exhibit 72. On December 23, 1994, GSA denied General Cutlery's request for an extension of delivery dates and terminated all delinquent and outstanding purchase orders for the paring knives. Appeal File, Exhibit 74. Discussion Termination for Default When a contracting officer's decision terminating a contract for default is appealed, the burden is on the Government to prove the basis of default. Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 764 (Fed. Cir. 1987). Termination for default, moreover, is a drastic sanction, to be imposed on a contractor only for good cause and on the basis of solid evidence. Foremost Mechanical Systems v. General Services Administration, GSBCA 12335, 95-1 BCA 27,382, at 136,495. FAR 49.401(a) provides that "[t]ermination for default is generally the exercise of the Government's contractual right to completely or partially terminate a contract because of the contractor's actual or anticipated failure to perform its contractual obligations." In supply contracts, time of delivery is of the essence, and a failure to adhere to a delivery schedule is sufficient reason for termination. Wise Instrumentation and Control, Inc., NASA BCA 1011-12, 75-2 BCA 11,478, at 54,711. When the contract delivery date has not been met and the contract is not default terminated, the Government's subsequent exercise of its rights under the default clause requires the establishment of a new delivery date that must be reasonable and specific. DeVito v. United States, 413 F.2d 1147, 1154 (Ct. Cl. 1969)[foot #] 4; Marci Enterprises, Inc. v. General Services Administration, GSBCA 12197, 94-1 BCA 26,563, at ----------- FOOTNOTE BEGINS --------- [foot #] 4 If the Government does not establish a new delivery date which is reasonable and specific, the Government will be deemed to have waived its termination right under the default clause. Id. ___ ----------- FOOTNOTE ENDS ----------- 132,183; Sun Cal, Inc. v. United States, 21 Cl. Ct. 31, 41 (1990); Jack L. Hartman & Co., AGBCA 84-126-1, 91-1 BCA 23,546, at 118,083. If that new delivery schedule is not met, default is proper. Sermor, Inc., ASBCA 29798, 94-1 BCA 26,303, at 130,836 (contract for the production of smoke grenade launchers was properly terminated for failure to deliver because the contractor failed to make delivery in accordance with the new schedule that it had proposed and that the Government had accepted). Here, GSA advised General Cutlery of the new delivery date--December 16-- for the paring knives. After GSA had set the new delivery date for that item, General Cutlery requested an extension of the delivery dates through February of 1995. The request for an extension was General Cutlery's acknowledgment that it could not meet the re-established delivery date. In this case, therefore, the Government has established that the contractor failed repeatedly to deliver the supplies within the time specified by the delivery clause of its contract. To avoid default, once the Government shows that a contractor failed to perform in accordance with the terms of the contract, the burden shifts to appellant to present evidence of excusable causes. Sierra Tahoe Mfg., Inc. v. General Services Administration, GSBCA 12679, 94-2 BCA 26,771, at 133,157;Jerome Baily, PSBCA 3638, 95-1 BCA 27,447, at 136,742; Robert E. Moore Construction, ASBCA 85-262-1, 90-2 BCA 22,803, at 114,522. In this regard, the FAR provides: [i]f the contractor can establish, or it is otherwise determined that the contractor was not in default or that the failure to perform is excusable, i.e., arose out of causes beyond the control and without the fault or negligence of the contractor, the default clauses prescribed in 49.503 and located at 52.249 provide that a termination for default will be considered to have been a termination for the convenience of the Government, and the rights and obligations of the parties governed accordingly. FAR 49.401(b) (1994). Throughout the course of contract administration, General Cutlery maintained that it could not obtain sufficient steel to ensure timely delivery. However, such supplier delay is only excusable under the default clause if the prime contractor can establish that the performance failures by the supplier were beyond both the prime contractor's control and the supplier's control, and without either's fault or negligence. Bigelow Inc., ASBCA 24,376, 81-2 BCA 15,300, at 75,737. If the problem is due to a shortage of material, the contractor must show that it made every possible effort to obtain the material, but that the material was unexpectedly not available from any source, rendering performance impossible. See Gatewood & Associates, Ltd. v. General Services Administration, GSBCA 9182, 93-1 BCA 25,247, at 125,752 (default not excused because contractor did not prove required chamois was unavailable, despite problems with intended supplier); Pinel Tool Co., GSBCA 4380, 76-2 BCA 57,597, at 57,600 (default termination of contract for supply of hand tools sustained despite alleged shortage of steel required to make the tools). General Cutlery has not made the required showing with respect to the availability of steel and boxes. While General Cutlery may have been surprised by the number of purchase orders at the beginning of the contract term, the volume of those orders was fairly consistent for a year and one-half. General Cutlery has not demonstrated why it could not have learned from its early performance difficulties and made suitable arrangements with its suppliers for sufficient supplies to fill the outstanding purchase orders due on December 16, 1994. If the suppliers could not perform in a timely manner, General Cutlery has not explained why it could not have found other suppliers who could perform in a timely manner. At one point, General Cutlery plead the illness of its workers as an excuse for being late. Neither the illness nor absenteeism of personnel are sufficient to excuse late delivery. Hoppy's Service, GSBCA 4853, 78-1 BCA 12,978, at 63,261; Jerome Baily, 95-1 BCA at 136,742 (default termination of contract for mail transportation was justified because illness of contractor's driver did not excuse contractor from performance); C. Howdy Smith, AGBCA 90-154-1, 92-2 BCA 24,884, at 124,106 (default termination of toilet cleaning and maintenance contract not excused by contractor's medical condition because medical problems not a legal excuse for nonperformance). General Cutlery excused its delinquency in filling purchase orders because it was filling orders on other contracts. Time used to work on a high-priority contract does not justify or excuse a delay in performing a lower-priority contract. The timing factor is foreseeable and within the control of the contractor. Giller Tool Co., GSBCA 3282, 71-2 BCA 8932, at 41,526 (when contractor agreed to accelerate delivery of socket wrenches to GSA, it knew, or should have known, that its production capabilities would not be able to meet the demands of the contracts at the same time, and when it resorted to diverting sockets to meet the requirements of the other contract, without assuring itself that the performance periods of the earlier contract would be extended, it assumed the consequences of its decision); General Electronic Laboratories, Inc., ASBCA 8918, 1964 BCA 4326, at 20,931 (contractor not excused when correcting original priority work became so extensive that contractor was delayed from performing lesser priority work). General Cutlery took on other work while knowing that it might be awarded the GSA contract and that it would have to fill orders placed under that contract. Procedure for default FAR 49.402-3 sets out the procedure for default. FAR 49.402-3(c) provides: Subdivision (a)(1)(i) of the Default clause covers situations when the contractor has defaulted by failure to make delivery of the supplies or to perform the services within the specified time. In these situations, no notice of failure or of the possibility of termination for default is required to be sent to the contractor before the actual notice of termination (but see paragraph (e) below). . . . . (e)(1) If the termination for default appears appropriate, the contracting officer should, if practicable, notify the contractor in writing of the possibility of termination. This notice shall call the contractor's attention to the contractual liabilities if the contract is terminated for default, and request the contractor to show cause why the contract should not be terminated for default. The case before the Board is one where Subdivision (a)(1)(i) of the Default clause is applicable. Thus, no notice was required to be sent to the contractor before the actual notice of termination. See also Brill Brothers, Inc., ASBCA 42573, 94-1 BCA 26,352, at 131,056 (in a contract with standard FAR clauses, there was "no requirement for the service of a cure notice when the reason for a default termination is the contractor's failure to make delivery of supplies, and the Government became entitled to terminate the entire contract when appellant inexcusably missed the delivery date for the first increment.") In this case, the contracting officer did notify the contractor in writing numerous times of the possibility of termination, and requested General Cutlery to show cause why contract items should not be terminated for default. Thus, the Government did more than was required in giving General Cutlery every chance to avoid default. Finally, we note that the volume of purchase orders for paring knives listed by GSA as due in December of 1994 was 29,520, more than the 20,880 per month General Cutlery had committed to supply pursuant to the monthly supply potential clause. The record does not reflect whether any of the defaulted purchase orders were extensions from earlier months, and thus not applicable to General Cutlery's monthly supply commitment for December of 1994. In any event, a contractor's non-performance of orders in excess of its monthly supply commitment is excused under the Termination for Default clause only when the contractor has returned the order to the Government as required by the clause. See Camrex Reliance Paint Co., GSBCA 5771-R, 82-1 BCA 15,737, at 77,855. There is no evidence that General Cutlery rejected any of the terminated paring knife purchase orders in excess of its monthly supply commitment for that item. General Cutlery was aware of its rights under that clause; during the preceding May, General Cutlery requested a delivery date extension of thirty days for two purchase orders because the volume of orders exceeded 125% of the monthly supply commitment. Decision GSA's termination for default is sustained, and General Cutlery's appeal is DENIED. ________________________________ ANTHONY S. BORWICK Board Judge We concur: _______________________________ ________________________________ STEPHEN M. DANIELS MARY ELLEN COSTER WILLIAMS Board Judge Board Judge