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.
