                  ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                   )
                                               )
Capy Machine Shop, Inc.                        )      ASBCA No. 59133
                                               )
Under Contract No. SPE4A7-13-M-D099            )

APPEARANCE FOR THE APPELLANT:                         Mr. Salvatore Capacchione
                                                       President

APPEARANCES FOR THE GOVERNMENT:                       Daniel K. Poling, Esq.
                                                       DLA Chief Trial Attorney
                                                      Edward R. Murray, Esq.
                                                      Adrienne D. Bolton, Esq.
                                                       Trial Attorneys
                                                       DLA Aviation
                                                       Richmond, VA

                    OPINION BY ADMINISTRATIVE JUDGE TUNKS

      This is an appeal from the default termination of a contract to supply aircraft parts.
The parties have elected to submit the appeal on the record pursuant to Board Rule 11.

                                    FINDINGS OF FACT

       1. On 9 July 2013, Mr. John Vlachos, general manager of Capy Machine Shop,
Inc. (Capy), accepted Order No. SPE4A7-13-M-D099 1 (hereinafter the contract) in the
amount of $52,232.85 to supply 27 splice fairings to the Defense Logistics Agency
Aviation (DLA Aviation or government) (R4, tab 1 at 1, 2). The date of contract award
was 10 July 2013 (R4, tab 9). The first article was due 180 days after award or
6 January 2014 (R4, tab 1 at 3). The delivery date for the production quantity was
3 September 2014 (R4, tab 1 at 1-2, 9).

      2. The contract incorporated FAR 52.249-8, DEFAULT (FIXED-PRICE SUPPLY AND
SERVICE) (APR 1984) which provided, in part, as follows:

                       (a)(l) The Government may ... terminate this
                contract in whole or in part ifthe Contractor fails to-



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    The contract resulted from a Request for Quotations issued by the government on
         3 June 2013 (R4, tabs 3, 4).
                     (i) Deliver the supplies or to perform the services
              within the time specified in this contract or any extension;

                      (ii) Makes progress, so as to endanger performance
              of this contract ... ; or

                     (iii) Perform any of the other provisions of this
              contract. ...

(R4, tab I at 18)

        3. Following contract award on 23 September 2013, Banner Metalcraft, Inc.
(Banner), Capy's subcontractor, amended its quotation to Capy to include a one-time
tooling charge of$26,512.00. Banner's original quote of 12 June 2013 did not have the
tooling charge (attach. 1 to appellant's 12 March 2015 hr.). This cost was not included in
Capy's original quotation to the government at which time Capy erroneously believed
tooling was otherwise available. Capy was unable to locate this tooling. (Bd. corr. file,
attach. to notice of appeal)

       4. On 7 November 2013, Mr. Vlachos emailed the contracting officer (CO) as
follows:

              Please cancel the above contract at no cost to Capy
              Machine.
              Our forming vendor can't locate his tooling[.]

(R4, tab 6)

       5. On 13 November 2013, the CO issued a show cause notice:

                       Because you have indicated in an e-mail dated
              07 NOV 2013 citing an inability to locate tooling on
              contract SPE4A7-13-M-D099 within the time required by
              its terms and thereby requesting termination for
              conv.enience, the Government is considering terminating
              this contract under the provisions for default. Pending a
              final decision in this matter, it will be necessary to
              determine whether your failure to perform arose from
              causes beyond your control and without your fault or
              negligence. Accordingly, you are given the opportunity to
              present, in writing, any facts bearing on the question to
              me ... within 10 days after receipt of this notice.

(R4, tab 7)

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      6. On 26 November 2013, Mr. Vlachos emailed Mr. Len DuPilka, the contract
administrator, advising as follows:

              The cost of new tooling is $26,512.00 total which wasn't
              included on the quote.
              That is the reason for asking to cancel this contract.

(R4, tab 8)

       7. On 12 December 2013, the CO terminated the contract for default, stating as
follows:

              You are hereby notified that contract SPE4A7-13-M-D099
              is terminated for default effective immediately. Your right
              to proceed further with performance of this contract is
              terminated. The termination is based on your failure to
              perform in accordance with the terms and conditions of the
              contract. The terminated supplies may be procured against
              your account and you will be held liable for excess costs.

(R4, tab 10) How Capy had failed to perform was not explained.

      8. On 9 January 2014, Capy timely appealed the final decision to this Board. We
docketed the appeal as ASBCA No. 59133.

       9. On 4 April 2014, the government moved for summary judgment on the ground
of anticipatory repudiation, citing Capy's 7 November and 26 November 2013 requests
for a no-cost cancellation. We denied the motion on 22 October 2014. Capy Machine
Shop, Inc., ASBCA No. 59133, 14-1BCA~35,784.

        10. The parties have agreed to submit the appeal on the written record pursuant to
Board Rule 11. Both parties submitted briefs. The government attached Mr. DuPilka's
5 March 2015 declaration to its brief as exhibit 3. Mr. DuPilka's declaration states, in
part, as follows:

              Capy has a history of obtaining awards by quoting low
              prices, then requesting cancellation when they cannot
              perform the contract at that price. I have included as
              Exhibit 1 e-mails from Capy, all received after
              September 24, 2013, requesting cancellation after award on
              13 orders in addition to the two contracts identified
              above ....


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              When we cancel a contract, it has an adverse impact on
              DLA Aviation. A buyer and Contracting Officer must start
              the process all over again, by issuing a new solicitation,
              obtaining quotes, and making a new award. This takes
              time. Not only does it increase DLA Aviation's
              administrative costs, it also means we will take longer to
              get the parts to our military customers. In many instances
              it also leads to them going without the parts they need.

        The government also submitted Capy' s answers to government interrogatories, in
part, as follows:

              Interrogatory 4: In your January 9, 2014, Notice of
              Appeal/Complaint you state "[W]e cannot afford to
              complete this order." Explain what you meant by "cannot
              afford to complete this order."

              Answer: The cost of tooling exceeded the price of the
              contract therefore making the contract unconscionable.

              Interrogatory 5: Identify the date when you decided you
              could not afford to complete the order.

              Answer: On 11/06/13.



              Interrogatory 7: At the time the contract was terminated
              for default, did you intend to fulfill the contract at the
              existing price?

              Answer: Due to the circumstance we were unable to fulfill
              the contract.

                                        DECISION

        A termination for default is "a drastic sanction which should be imposed ... only for
good grounds and on solid evidence." JD. Hedin Construction Co. v. United States,
408 F .2d 424, 431 (Ct. Cl. 1969) (citations omitted). The government bears the burden of
proving that the termination was justified. If the government establishes a prima facie case
that the termination was proper, the burden of production-or going forward-shifts to the
contractor. Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987).



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       The government argues that its termination for default was justified because( 1)
Capy anticipatorily repudiated the contract, and (2) Capy's routine practice of bidding
low and requesting a no-cost cancellation when it cannot perform adversely impacts
DLA's ability to supply needed parts to the field and increases its administrative costs.
Capy argues that the termination was improper because its supplier increased the cost of
tooling after award, making it unconscionable for Capy to perform at the contract price.

       The government further argues that Capy anticipatorily repudiated the contract
because it twice requested the CO to cancel the contract after award. We considered and
rejected this argument in our decision on the government's motion for summary
judgment. Capy Machine Shop, 14-1 BCA ii 35,784 at 175,044. We held that Capy's
requests did not evince the "positive, definite, unconditional and unequivocal" refusal to
perform required to prove anticipatory anticipation. While the government has submitted
additional evidence, including Capy's answers to interrogatories, we are not convinced
that such responses render its request for a no-cost termination to be a positive, definite,
unconditional and unequivocal refusal to perform. Capy made a request to which the
government never really responded, except to terminate for default.

       The government also argues that the termination should be upheld on the basis of
public policy. In its brief, the government explains as follows:

               Capy routinely asks the Government to cancel its contracts
               after award because it can no longer afford to perform
               them or cannot obtain the part it originally quoted ....
               [T]his ... negatively impacts DLA Aviation.... DLA
               Aviation must essentially start over from scratch and issue
               a new solicitation for the item, review quotes and make a
               new award, then wait for a new delivery period to pass ....
               Certainly the Government could wait until delivery was
               due for each of Capy's contracts [and] then terminate for
               default...[b]ut that would put the Government even further
               behind in obtaining the parts it needs and hamper its ability
               to effectively prioritize its procurement workload.

(Gov't hr. at 8-9)

       Federal Rules of Evidence (FRE) 406 2 permits the introduction of evidence of
routine practice of an organization to prove that on a particular occasion the organization
acted in accordance with the routine practice. See generally Advisory Committee Notes
to 1972 Proposed Rules; Handbook of Federal Evidence, 7th ed., vol. 3, § 406; Federal
Rules of Evidence Manual, 8th ed., vol. 2, § 406. While perhaps the evidence of routine
practice is sufficient to prove that appellant frequently requests that contracts be

2   The Board uses the FRE as a guide. Board Rule 10(c) (2014 ).

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cancelled, it is not sufficient to prove that it is Capy's routine practice to bid or quote
with no intention of performing. Indeed, the evidence in this appeal is that pre-existing
tooling could not be found and would have to be produced at a cost of approximately
50% of the contract price-a fact unknown to Capy at the time of quotation or award.

       The government has not pointed to any authority justifying a termination for
default under one contract based upon a history of performance under other contracts.
Nor are we aware of any. This argument is not persuasive. It is apparent that the
government is frustrated by the number of times Capy has asked for the cancellation of
contracts and considers that Capy has a routine practice of receiving awards it does not
intend to fulfill. The concern is one that perhaps is best addressed in the process of the
award of contracts, not the termination of contracts once awarded.

        Neither of the grounds relied on by the government justify the termination for
default and we have no evidence whether a termination for failure to make progress was
justified.

        The appeal is sustained. The termination for default is converted to a termination
for the convenience of the government.

       Dated: 8 October 2015




                                                  ~~
                                                  LiZETHA.          TUNKS
                                                   Administrative Judge
                                                   Armed Services Board
                                                   of Contract Appeals

 I concur                                          I concur


  NA/-£$ __ _
 MARK N.    STEMPLE~                              _RI_C_H_ARD
                                                          __S_H_A_C_K_L_E_F_O_RD
                                                                              _ _ __
 Administrative Judge                              Administrative Judge
 Acting Chairman                                   Vice Chairman
 Armed Services Board                              Armed Services Board
 of Contract Appeals                               of Contract Appeals




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      I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 59133, Appeal of Capy
Machine Shop, Inc., rendered in conformance with the Boards Charter.

      Dated:



                                                 JEFFREY D. GARDIN
                                                 Recorder, Armed Services
                                                 Board of Contract Appeals




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