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CBCA Awards Contractor $904,575.00 in Restocking Fees

Posted on February 3rd, 2017 by

In the appeal of Paradise Pillow, Inc. CBCA 5179 (February 1, 2017), the Civilian Board of Contract Appeals awarded a contractor $904,575.00 in restocking fees for blankets ordered by the GSA after a hurricane in New Jersey, but later returned because they were not needed.  At first, the Contracting Officer agreed to pay the restocking fees and even signed a bilateral modification totaling $904,575.00.  However, the GSA would later dishonor this modification and terminated the contract for default instead because the blankets were allegedly not delivered on time.  The contractor appealed the termination for default and won.  The Board held that the GSA could not prove that the contractor did not meet the delivery deadline.  The termination for default was therefore converted to a termination for convenience.

Next, came monetary damages for the termination for convenience.  The GSA argued that restocking fees were expressly prohibited by the contract because it included the terms, “RESTOCKING: Not Applicable.”  The Board held that this language did not prevent the parties from agreeing, as they did, that restocking fees were “fair consideration” for the termination costs.  The Board noted that the contractor incurred the cost of “accumulating 150,000 blankets, delivering them to specified locations on short notice and under difficult conditions in the wake of a hurricane, maintaining the blankets in trailers at locations for several weeks, retrieving the blankets, and restocking the blankets in the warehouse.”  Under these circumstances, the Board held that the restocking fees were reasonable and the Contracting Officer had authority to pay them.  The GSA must therefore honor the modification in which it previously agreed to pay $904,575.00 in restocking fees.

The Board’s decision preserves the integrity of our procurement system.  When signing a bilateral modification, absent fraud or misrepresentation, both parties are bound by its terms.

Board Finds VA Termination for Convenience Was Not Done In Bad Faith

Posted on May 24th, 2016 by

In UNIVERSAL HOME HEALTH AND INDUSTRIAL SUPPLIES, INC., CBCA 5083 (May 17, 2016), the Civilian Board of Contract Appeals denied a contractor’s claim that the VA’s termination for convenience was done in bad faith.  The VA initially terminated the contract for default because the contractor failed to provide heart monitoring services vital to two VA hospitals.  The VA then converted this to a termination for convenience after determining that the contract was not at fault.

The contractor subsequently claimed that the termination for convenience was done in bad faith and requested anticipatory lost profits.  The Board noted that the contractor bears a heavy burden in proving bad faith or abuse of discretion:

A termination for convenience will only be a breach of contract if “the tribunal finds that the termination was motivated by bad faith or constituted an abuse of discretion, or that the Government entered into the contract with no intention of fulfilling its promises.” Greenlee Construction, Inc. v. General Services Administration, CBCA 415 et al., 07-2 BCA ¶ 33,619, at 166,510. “In the absence of bad faith or clear abuse of discretion, the  contracting officer’s election to terminate for the government’s convenience is conclusive.” T&M Distributors, Inc. v. United States, 185 F.3d 1279, 1283 (Fed. Cir. 1999).

“To prove bad faith, appellant must provide facts to show by clear and convincing evidence that [government] officials had something akin to a ‘specific intent to injure’ appellant, engaged in a ‘proven conspiracy to get rid of’ appellant, or were ‘motivated alone by malice’ against appellant.” V.I.C. Enterprises, Inc. v. Department of Veterans Affairs, CBCA 1598, 09-2 BCA ¶ 34,284, at 169,363-64 (quoting Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1240 (Fed. Cir. 2002)). “The mere fact that a contracting officer awards a contract to another company after terminating the plaintiff’s contract is insufficient to show bad faith.” Kalvar, 543 F.2d at 1302. Similarly, the contracting officer’s incorrect interpretation of the contract requirements or mistaken determination regarding the contract specifications is not sufficient to establish bad faith. Id. at 1302-03.

Against these standards, the Board did not find bad faith or abuse of discretion, the Board determined that the VA took reasonable action to avoid a possible disruption of vital heart monitoring services at the two VA hospitals. The Contracting Officer was faced with a dispute between the contractor and its supplier, MedNet, who was no longer willing to provide the monitoring services and equipment. In response to the cure notice, the contractor blamed its supplier.  This did not provide the VA adequate assurance that monitoring services would continue.  The VA therefore terminated the contract for default. Under these circumstances, the Board found that there was no evidence that the VA had acted in bad faith.

This case demonstrates the high burden of proof in bad faith or abuse of discretion cases.

Board Upholds Termination for Default

Posted on March 27th, 2015 by

In RAK Contractors v. Department of Agriculture, CBCA No. 4011 (March 19, 2015), the Civilian Board of Contract Appeals upheld the Government’s termination for default.  The contractor argued that the termination for default was improper because: (1) it could not obtain necessary financing for reasons beyond its control, and (2) it made a mistake in its bid.

The Civilian Board of Contract Appeals held that to prevail in a mistake in bid claim after award the contractor must prove that:

  1. a mistake occurred;
  2. the mistake was a clear-cut clerical or mathematical error or misreading of the specifications and not a judgment error;
  3. prior to award the agency knew or should have known that a mistake had been made;
  4. an agency request for bid verification was inadequate; and
  5. proof of the intended proposal was established.

The contractor could not prove each of the above elements, which led the Board to conclude that the contractor made an error in judgment and underestimated its costs of performance.

As to financial stress, the Board held that this is not an excuse for performance, stating that.

A contractor is expected to have the financial resources to perform a contract.
Nothing in the contract promised or suggested that the agency would pay for equipment
before it was ordered or delivered. Case law makes clear that insufficient finances do not
constitute a basis beyond the contractor’s control. A lack of working capital is not an excuse
for non-performance of a contract when the Government does not contribute to the financial
problem of the contractor. A contractor is expected to have the financial ability to perform
the contract. A default is not excused by a contractor’s inability to secure financing

The contractor could not prove that the Government caused its financial downfall.  As such, the Board held that the termination for default was proper.


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