Discount Co. v. United States

Davis, Judge,

delivered the opinion of the court:

This contract case is before us under the Wunderlich Act, 41 U.S.C. §§ 321-22 (1970), for scrutiny of a decision by the Department of Agriculture Board of Contract Appeals (Board). Plaintiff, Discount Company, Inc., appealed its termination for default to the Board, requesting that the termination be considered for the convenience of the Government.¹ The Board decided that the default termination was appropriate and Discount subsequently requested a rehearing, which was denied with an opinion. Plaintiff then brought suit here to review the Board’s decision, and Trial Judge Browne has recommended that the administrative determination in favor of the Government be reversed. We conclude, however, that the Board’s upholding of the default termination should stand.

In May, 1968, the Forest Service awarded plaintiff a contract to construct the Mona Campground and Lookout Boating Site in the Willamette National Forest, Oregon. For a contract price of $104,399.99, Discount was to complete a boat launching ramp, parking lot and campgrounds within 180 days of the notice to proceed, which was issued on June 24, 1968.

From the beginning, plaintiff encountered difficulties on the job.² Discount was nonetheless on schedule at the time work was suspended (due to adverse weather conditions) in December, 1968. In October, 1968, the contracting officer had decided that plaintiffs work on the parking area and boat ramp was not in accordance with specifications and directed the contractor to remove the structures during the next construction season.³ In addition, the contracting officer reminded plaintiff that during the next construction season the boat ramp area would be partially covered by the rising water level in the Lake Mona Reservoir. In fact, the water level limited Discount’s access to the boat ramp and parking lot for most of the 1969 building season.

Prior to the resumption of work for the 1969 season, Discount and the Government’s representatives had two conferences to decide on the best way to proceed with the removal of the nonconforming structures and to plan the remaining work under the contract. The contractor agreed to wait until September 1969 (when the boat ramp would no longer be under water) to work on the allegedly nonconforming structures but to begin its campground construction on June 2, 1969.⁴

On June 2, the contracting officer submitted to Discount a change order which designated an alternative borrow site and also gave plaintiff a partial work resumption order for the campground construction agreed to at the second preseason conference. Plaintiff returned the order unsigned and alleged that it could not proceed because of problems with the Government’s restaking of the area and certain clearing and grubbing difficulties. When the restaking was completed, the work order was reissued and signed on June 24, 1969, effective the next day. No work, however, was begun on the campground.

On July 14, 1969, the Forest Service ordered a full resumption of work, effective July 15. This full work resumption order took into account the Government’s anticipated "as is” acceptance of the boat ramp (see footnote 3, supra) and required work to resume on all other phases of the project (particularly the campground). Despite this order (and the previous partial resumption order of June 24), which required work on the campground area (unaffected by the high water level), the Government alleges that no substantial amount of work was performed on the job site during the summer of 1969. Because of this alleged lack of progress, the Government, on July 23, 1969, sent Discount a 10-day cure notice demanding that work be resumed so as to ensure the project’s completion before the expiration of the total contractual time remaining. It also requested a schedule for the work not yet begun or completed. When Discount neither resumed work nor provided a schedule, the contract was terminated for default on August 12th.

It should be inserted here that an additional point of contention between the parties arose during the summer of 1969. In June of that year, the Government submitted to plaintiff Pay Invoice No. 6, representing an estimated progress payment for work done in the previous year. Plaintiff disputed the estimated percentage of work completed and refused to sign; when the parties finally agreed, on August 4, 1969, to the amount due, the Government decided that Discount was in default of the 10-day cure notice, and was likely to be terminated; payment was therefore withheld to protect the sureties. This dispute over Pay Invoice No. 6 has resurfaced as an important point in the Trial Judge’s decision and in the Government’s objections to it.

Unlike the Trial Judge, we consider that the Board’s factual findings were neither arbitrary, capricious, so erroneous as to imply bad faith, or unsupported by substantial evidence in the record as a whole — and that the Board’s ultimate determination was permissible. The fundamental issue before the administrative tribunal, and now before the court, is whether Discount made so little progress on its contract in the summer of 1969 that a default termination was justified. The Government’s notice of termination stated that at the time it defaulted Discount the extent of plaintiffs work was inadequate indication of the diligent performance required to assure completion of the project within the contractual time. The Board found that plaintiff failed to perform sufficient work during the summer of 1969 and that its failure was unexcused, and then concluded that based on Discount’s entire performance the termination was warranted. We hold these determinations to be adequately supported under the Wunderlich Act.

First, the record demonstrates that the Board could allowably find that, despite two resumption-of-work orders and plaintiffs assurances that work would soon resume, no substantial progress was actually made on campground construction during the 1969 work season. As of August 4, 1969 — weeks after the order to resume work had issued and a day after the 10-day cure notice had expired— plaintiff had neither begun more-than-piddling construction activities at the campground, nor assured the Government that it could meet the completion deadline. Nor was any substantial work thereafter undertaken. The significant job left to do was the preparation and completion of the campground, and there was sufficient affirmative proof that Discount did practically nothing toward that goal.⁵ Plaintiff impliedly admits as much when it repeatedly says in its brief that it could not grade the campground without borrow, but that it had no proper place from which to obtain borrow (a cardinal point we discuss later). Discount did do some minor work on other aspects (e.g. on a waterline and some plumbing) but there is very little doubt that it performed little or nothing on the central component — the clearing and grading of the campground.⁶

The next question is: did the contractor have adequate justification for this failure to make progress on the campground work? Before the Board and the court, plaintiff has contended that progress was impeded because of the unsuitability (allegedly amounting to a changed condition) of the material at the originally designated borrow site. The borrow site problem was disputed throughout 1968 (see footnote 2, supra), and in June 1969 a change order was issued designating an alternative site for the contractor’s use. It is worth noting, however, that the material at the initial site was not so unsuitable as to make performance impossible and the contractor therefore had a duty to continue performance during the processing of its claim. See, e.g., Penker Constr. Co. v. United States, 96 Ct. Cl. 1, 37 (1942). In fact, that part of plaintiffs work which required material from the first site (i.e., the boat ramp) was accepted "as is” by the Government. See footnote 3, supra. The first borrow site seems to have been no longer wholly available in the summer of 1969 (because partially covered by water), but the remaining borrow material needed for the 1969 campground construction could readily have been taken from the alternate site designated early that June.⁷ The plaintiffs only answer is that it rejected this proposed change order and was never officially ordered to use the alternate site. Discount’s objection was not that the new borrow was unusable — on the contrary, it is quite clear that it was adequate — but that the change order should include an upward equitable adjustment because of higher transportation costs.⁸ This is precisely the kind of controversy to be handled under the "disputes” mechanism by appeal to the Board if necessary. Meanwhile plaintiff was required by its contract to continue performance under the change order. See Penker Constr. Co. v. United States, supra. But, Discount now says, the change order was merely a proposal, the defendant never took the further step of unilaterally ordering it to use the alternate location despite its objections, and without such a further unilateral order the contractor would have waived its right to the equitable adjustment it desired. This hypertechnical contention — wholly divorced from the realities of the situation — can hardly be accepted as a proper excuse for refusing to make use of the alternate borrow site. In the circumstances here, it is immaterial whether the designation of the new borrow place was merely a government proposal or a fully operative and effective change order. Plaintiff knew that the designation of the alternate borrow site came to it in June 1969 on a form labeled "Contract Change Order Or Data Sheet Covering Amendments” as "Change Order Number 3”; it also knew that the new site was available, that the Government was willing to have it used and wanted it used if it became the only suitable borrow open to the contractor. Moreover, plaintiff was aware, or should have known, that it could have protected its right to an equitable adjustment by simply saying so— that it would comply with Change Order Number 3 but would still pursue its alleged right to an increase in the contract price. Plaintiff never asked for the additional unilateral order it now calls an absolute prerequisite, nor did it tell the defendant, when it was being repeatedly pressed in the summer of 1969 to proceed with the work, that the main obstacle was that it could not safely use the alternate borrow site without such an additional order. We must infer that this excuse, the major one proffered us, is an afterthought, not a real justification for failing to proceed with the campground work in the 1969 summer.

Discount also has insisted that construction during the 1969 season was impeded due to an alleged failure by the Government to properly restake the area. There is, however, enough evidence (though not undisputed) showing that the Government agreed (at the pre-work conferences) to restake the area and that this work was sufficiently completed in mid-June. The Mona Campground construction, scheduled for the 1969 season, could have gone forward by the end of that month. Accordingly, the Board’s finding that the staking difficulties did not preclude Discount’s resumption of work throughout the entire season is supported by substantial evidence.

There are other assertions made on plaintiffs behalf to demonstrate that the default termination was improper. One is that the termination, which was in effect one for anticipated failure to complete, was wrongful because the contractual time had not yet run. The Trial Judge distinguished the instant case from those in which the contractor was already at the end of the contract’s time period when the termination notice issued. Of course, the distinction is factually correct but the default clause in this contract did not require a finding that completion within the contract’s time limitations was impossible. Rather, under this contract default termination was appropriate if a demonstrated lack of diligence indicated that the Government could not be assured of timely completion. It is therefore proper, once this lack of diligence has been found, to rely upon cases involving abandoned or repudiated contracts, as well as other decisions similar to the one at bar which have upheld "failure to make progress” terminations. See, e.g., Universal Fiberglass Corp. v. United States, 210 Ct. Cl. 206, 537 F.2d 393 (1976); American Dredging Co., ENGBCA 2920, 72-1 BCA ¶9316, aff’d, 207 Ct. Cl. 1010 (1975).⁹

The Trial Judge also found that, because the contractual time had not yet expired, Discount was in fact wrongfully terminated on a technicality — its failure to provide a \york schedule at the last hour (requested by the contracting officer but not explicitly required under the contract) outlining proposed plans for further work progress. The record is plain, however, that the default termination was not based on this demand per se but rather on the over-all evidence of Discount’s failure to prosecute diligently its work under the contract. The function of the work schedule was to show that the contractor was ready, willing and able to make progress; Discount’s failure to furnish such a schedule merely served to bolster the Government’s position that it was justifiably insecure about the contract’s timely completion.

Another contention on plaintiffs behalf is the effect of the much-disputed Pay Invoice No. 6. Discount did not directly contend, either in its brief or on oral argument before .us, that the Government’s failure to pay the full amount requested by plaintiff precluded it from proceeding during the 1969 construction season. Further, the Board determined that there was no evidence before it sufficient to prove that the failure to proceed under the contract was connected with Discount’s non-receipt of government payments. The Trial Judge, however, emphasized Discount’s financial difficulties and found that the Government’s refusal to pay under Invoice No. 6 so severely hampered plaintiffs performance that its lack of progress was excusable. We do not think that this conclusion can stand against the Board’s contrary finding. If the plaintiff had been in dire financial straits it could have accepted the amount offered under the invoice and disputed the remainder. In addition, this court has held that financial difficulties create excusable delays only if precipitated by Government actions.¹⁰ The non-payment here was not' as a result of the Government’s wrongful withholding of money clearly due but rather resulted from a good faith controversy, which was handled through appropriate channels, over the amount owed. It is true that the amount was finally settled on August 4, 1969, but defendant still refused to pay because the 10-day cure period had expired and the Forest Service personnel felt that the contract was likely to be terminated for default. We do not decide whether or not the Government was right in retaining the check at that late point for the benefit of the surety¹¹ because it seems clear that the failure to pay after August 4th did not trigger plaintiffs default which, as the Board found, had already existed and continued for some time.¹²

There is one final point to be mentioned. The Trial Judge has raised the issue of Government prejudice against plaintiff and has suggested that this prejudice tainted the default termination. Although it is obvious that theirs was not a friction-free relationship, the contractor did not argue prejudice before the Board or the Trial Division of this court. The Trial Judge does not point to any evidence in the record (except perhaps Discount’s own accusations of prejudice in very late self-serving letters to the contracting officer) sufficient to meet the high burden of demonstrating the Government’s bad faith.¹³ On the contrary, this assertion of prejudice seems to us unfounded in the record. The Government officials appear to have acted in the full and honest belief that plaintiff had no proper excuse for failing to go forward with the work, and at the very least they had much support in plaintiffs attitude and actions. As for the Board, though it decided this case against Discount (as we have held, allowably so), it determined another appeal, very shortly before, in its favor.¹⁴

In sum, we accept the Board’s findings and conclusion, as our review of the case reveals that the Board’s determination was supported by substantial evidence on the record and is in harmony with relevant contract law. The Board’s decision is therefore affirmed. Defendant’s motion for summary judgment is granted, plaintiffs motion is denied, and the petition is dismissed.

1 A termination for convenience is generally more favorable to a contractor than one for default. Under a termination for convenience, a contractor may receive his costs and any profit to date. If terminated for default, the contractor loses compensation for unpaid work-in-progress, and may be liable for delay or liquidated damages and excess costs of reprocurement. See, e.g., G.L. Christian and Assoc. v. United States, 160 Ct. Cl. 1, 312 F.2d 418, cert. denied, 375 U.S. 954 (1963); R. Nash & J. Cibinic, Federal Procurement Law, pp. 651-90, 755-778, 2d ed. (1969).

2 One such problem, a continuing source of friction between the parties, was plaintiffs contention that a designated borrow pit site held so much unsuitable material that it represented a changed condition. See Plaintiffs Exhibit 5, Letter of July 31, 1968. The contracting officer denied plaintiffs changed condition claim and plaintiff appealed to the Board but the issue was not resolved during the 1969 construction season involved here.

3 The Government claimed that the ramp and lot were nonconforming because the contractor used unsuitable materials and methods in their construction. During the period October, 1968 through July 18, 1969, the parties negotiated an "as is” acceptance of the structures. On July 18, 1969, Change Order No. 5 was issued and the "as is” acceptance confirmed. The record indicates that Discount was fully aware of the ongoing negotiations and was fairly certain of the outcome by the first week of July, 1969.

4 While access to the Lookout Boat site was precluded by the rising water level, conditions at the campground permitted work to resume at any time during the 1969 season.

5 For instance a contemporaneous memorandum (by the contracting officer’s administrative representative) of a meeting of July 31st stated: "In regard to clearing and grading, Mr. Norelius [plaintiffs chief officer] said, 'He will take the necessary steps for preparations, starting on Monday, to resume work.’ * * * I emphasized to Mr. Norelius that all phases of work with the exception of the boat ramp were available and suitable for a resumption of work and the Government’s position was that there was no reason why work could not be resumed in full. Mr. Norelius stated that he is preparing for a full resumption of work on all phases within the next two weeks and that his continuation of work on this contract will depend on talks he is to have with his bonding company on August 1.”

Another contemporaneous memorandum by the same Government official describes a second conference at the site on August 4th, a day after the expiration of the 10-day cure notice:

"We then discussed the planned resumption of work in relation to remaining contract time. Mr. Norelius was completely noncommittal as to any definite plans other than the testing of that section of the waterline already installed. I attempted over a period of approximately one hour to get a firm commitment from Mr. Norelius as to planned equipment and manpower and his schedule of completion of the project. He stated continually that he would commence to make the necessary preparations to resume work. It was apparent that he had no firm commitments at this time. I advised Mr. Norelius again that the 10 day cure period had expired and that we would have to make a decision regarding default of this contract. To be fair to him I would delay this decision one additional day provided he furnish us with a detailed schedule as to the proposed completion of the contract within the remaining time (approximately 46 calendar days remain).

6 Discount complains about the stop order of July 2d prohibiting it from going ahead with the correction of the alleged deficiencies in the boat ramp, but, as we have indicated (footnote 3, supra), that order was issued because the Government was about to accept the boat ramp "as is” — and plaintiff knew that this was so. Furthermore, this stop order had very little to do with the work on the campground which was still open to plaintiff. These were different aspects of the contract work.

7 The Government also offered to select still another borrow site. [Footnote added per order May 27, 1977.]

8 The change order, as transmitted by the Government, provided for no increase in the contract price.

9 Because their facts were so different from those we must accept here, neither Dale Constr. Co. v. United States, 168 Ct. Cl. 692 (1964), nor Schlesinger v. United States, 182 Ct. Cl. 571, 390 F.2d 702 (1968), is pertinent. In the first, the only permissible finding was that a ready, willing, and able contractor was terminated, not for lack of diligence, but because it had submitted a claim for extras. In the latter, the Navy failed to use its own discretion whether or not to terminate but simply buckled under pressure from Congress.

10 See, e.g., Litchfield Mfg. Corp. v. United States, 167 Ct. Cl. 604, 338 F.2d 94 (1964).

11 The surety had not requested that the payment be withheld but there had apparently been some claims by suppliers (and others) of unpaid bills.

12 After August 4, plaintiff does not appear to have inquired about payment of Invoice No. 6 until the afternoon of August 11. The termination was the very next day, August 12.

13 See, e.g., Knotts v. United States, 128 Ct. Cl. 489, 492, 121 F.Supp. 630, 631 (1954), that the presumption of official good faith can be overcome only by 'Veil nigh irrefragable proof.”

14 The plaintiff itself rejected (before the Board) the position that it was financially hampered on the instant contract by its problems on the other one.