# Petition for Writ of Certiorari — Amertex Enterprises, Ltd. v. United States, 118 S. Ct. 851 (1998) (No. 97-583) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1522%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1998 ## Text af “—— woe (1) 07-588 JUL 3 1 1997. No. OFFICE OF THE CLERK In The Supreme Court of the United States ~~ October Term, 1996 AMERTEX ENTERPRISES, LTD., Petitioner, VS. THE UNITED STATES OF AMERICA, Respondent. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Federal Circuit PETITION FOR A WRIT OF CERTIORARI JOSEPH H. REITER Counsel of Record KOSTOS AND LAMER, P.C. Attorneys for Petitioner 1608 Walnut Street Suite 1300 Philadelphia, Pennsylvania 19103 (215) 545-0570 utz ae (800) 3 APPEAL « (800) 5 APPEAL « (800) BRIEF 21 i QUESTIONS PRESENTED FOR REVIEW On a contract with the United States, is the contractor deprived of its right to sue for breach damages by agreeing to continue performing the contract despite the United States breach by cardinally changing the contract from a mass- production contract to a research and development contract where: 1. The agreement to continue performance contains no language which can be interpreted as a waiver of accrued breach damages; 2. The United States was in no way prejudiced by the contractor’s election to continue performance; and 3. The United States was aware that a claim for those damages would be presented? ii LIST OF PARTIES The names of all parties to the proceedings in the Court whose judgment is sought to be reviewed here appears in the caption of the case. There is no parent or subsidiary company of any party to be listed. iii TABLE OF CONTENTS Page Questions Presented for Review ................... i stniecp testy cag TE Ree Oe ST ee RR ESE ii oe a a BREN ETE et GRE Oe CE ili MO NR eri oe iv soe anes cc ap antie CSE OO OAT a em l statement of Jurisdiction ................:....... l I oe l Reasons for Granting the Writ .................... “4 I. The Federal Circuit Decision Has So Far Departed From The Accepted And Usual Course Of Judicial Proceedings And Sanctioned Such A Course By The United States Court Of Federal Claims As To Call For An Exercise Of This Court’s Power Of I hae kc boc resins a 4 Il. The Federal Circuit’s Opinion Directly Conflicts With Numerous Decisions In Various Circuits, Which, Based On Modern Views Of Contract Law, Hold That A Non-Breaching Party To A Contract Does Not Lose Its Right To Sue For Breach Damages By Failing To End The Contract And Agreeing To Continue Performance. ......... 9 iv Contents Page Ill. The Writ Should Be Granted Because The Case Is An Important One Over And Above Its Conflict With Other Circuits And Well-Settled Law. ... 12 CCINOIOD kbc cg cick cance oabewss vb kbeeeee bees 13 TABLE OF CITATIONS Cases Cited: Allied Materials and Equipment Co. v. The United States, SOF Fo eee Cis Cas ROT). wn ks SiN VK CRRA REE 4 Cities Service Helex, Inc. v. The United States, 543 F.2d 5 CC. CE ISTO: e kivickcc cee eek 4,6,9 Dunkin’ Donuts of America, Inc. v. Minerva, Inc., 950 F.2d 1566 CRUG AE TGR). nk Gis aa ees 9, 10 First Citizens Federal Savings and Loan Association v. Worthen Bank and Trust Company, NA, 919 F.2d 510 Ei He. GR ae Rae eay operant eran yy) Ueno 9,10 Fuller Company v. Brown Minneapolis Tank and Fabricating Company, 678 F. Supp. 506 (E.D. Pa. SPR) eee Si TE ees oe ee eee 9, 10, 11 Havoco v. Hilco, 799 F.2d 349, on remand, Havoco of America Ltd. v. Hilco, Inc., 750 F. Supp. 946, affirmed, 971 2G tok CAL ISR) PO es 9,11 Contents Page Laka Tool & Stamping Co. v. The United States, 639 F.2d 738 (Ct. Cl. 1980), cert. denied, 454 U.S. 1086 (1981) Pr re ree PEE ee PS ee Pe ee re ren oe 4 Phillips, Etc., Construction Company v. Seymour et al., TE Tien OE TET ED «ho hin so ahah he khakis OE i S. Leo Harmony, Inc. v. Binks Manufacturing Company, 597 F. Supp. 1014 (S.D.N.Y. 1984) .............. 10, 11 Sitlington v. Fulton, 281 F.2d 552 (10th Cir. 1960).... 9, 10 Statutes Cited: Oe Wa ONE ve Sb Vcd ecb ake ees sce l OF Un Ot OE ess kcal ] Other Authorities Cited: Contracts, Calamari and Perillo, 3rd Edition, at Page 458 NaN Oa YON OE ped Kick an ss bese dass cs 6 Pe ANOS iii os vise his Oko bac cham ocws 6 RINNE UENO 5s i5s a e 6 17A Am. Jur. 2d (Revised), Contracts § 731 ......... 6 The Uniform Commercial Code ................... 6 vi Contents APPENDIX Appendix A — Decision Of The United States Court Of Appeals For The Federal Circuit Decided February 24, MOE EETENL ELE Lee ere ee ere ey oe Appendix B — Dissenting Opinion By Circuit Judge Newman Of The United States Court Of Appeals For The Federal Circuit Dated February 24, 1997 ..... Appendix C -— Opinion And Order On Liability And Damages Of The United States Court Of Federal Claims EOtes OCRMBST 1D; TIPS. oan sc tensk vs sedders Appendix D — Order Of The United States Court Of Appeals For The Federal Circuit Denying Combined Petition For Rehearing And Suggestion For Rehearing Fe RE PAP OS Ba LOOT. Fave ccrcnwosseuduiss Page la 9a 14a 1 Petitioner, Amertex Enterprises, Ltd. (“Amertex”), requests that a Writ of Certiorari issue to review the Judgment and Opinion of the United States Court of Appeals for the Federal Circuit entered in this action on February 24, 1997 (Petition For Combined Petition For Rehearing And Suggestion For Rehearing Jn Banc denied by Order entered on May 2, 1997), which affirmed a Final Judgment of The United States Court of Federal Claims. OPINIONS BELOW The Opinion of the Court of Appeals (Petitioner's Appendix, Page 3) is not reported. It has been designated as “not citable as precedent”. The Opinion of the United States Court of Federal Claims (Petitioner’s Appendix, p. 14a) is unreported. STATEMENT OF JURISDICTION The Opinion of the Court of Appeals (Petitioner’s Appendix, Page 3) was entered on February 24, 1997. A timely Combined Petition For Rehearing And Suggestion For Rehearing Jn Banc was denied on May 2, 1997. (Petitioner’s Appendix, p. 191a). The Court has jurisdiction pursuant to 28 U.S.C. § 1254(1). STATEMENT OF THE CASE The case involves the issue of whether a Government contractor loses its right to sue for breach damages already accrued, when it agrees to continue performance despite the Government’s breach. It arises under the Contract Disputes Act of 1978, 41 U.S.C. § 601, et seg. Petitioner, Amertex Enterprises, Ltd. (“Amertex”), at the time a participant in the Small Business Administration 8(a) program for “economically and socially disadvantaged” contractors, was awarded Contract No. DLA100- 85-C-0402 on February 25, 1985, for 2,415,885 Chemical 2 Protective Suits at a firm fixed price of $39.88 each, for a total of $96.35 million. The contractual delivery schedule called for deliveries of some 200,000 units per month ending in January, 1987. By the end of 1988 (nearly two years after the Contract should have been completed), as a result of what the Court of Federal Claims (“the COFC”) found to be defective Government- provided specifications, as well as numerous Government- initiated specification changes, Amertex had delivered approximately 1.1 million of the 2.4 million Chemical Protective Suits. According to the COFC, as a result of the Government’s failure to properly test the specification prior to issuing the underlying solicitation, the numerous changes and corrections were necessary in order for the applicable specifications to be suitable for mass production, to the point where the Contract, again according to the COFC, became, “at least in part, a research and development contract”. Following a Default Termination of the Contract on January 6, 1989, Amertex filed several claims, including a breach of contract claim, founded on the doctrine of cardinal change, i.e., that the Government had materially altered the fundamental contractual undertaking, by turning the fixed-price production contract on which Amertex had bid into a research and development vehicle. Despite its finding that the contract had become, due to 1. Unbeknownst to Amertex, for classified reasons under code name “Operation Cement Elephant”, the Government rushed the specification through the development process, so that the normal testing procedures were not followed. As a result, what the COFC found to be untested and flawed specification were incorporated, without warning or disclaimer, into the largest mass production contract the agency (the Defense Logistics Agency/Defense Personnel Support Center) had ever awarded. 3 Government actions, “at least in part a research and development contract”, the COFC rejected Amertex’ Claim of Cardinal Change/Breach. According to the COFC, Amertex’ “potentially convincing” claim was “fatally undercut” by its August, 1988 (five months before the Default Termination and three and one- half years after award) execution of a bilateral Modification (i.e., P00037) incorporating a new delivery schedule and altering the method of payment from progress payments to payment upon delivery. The total dollar amount of the contract remained unchanged. The COFC neither explained its reasoning nor offered any case citations in support of this critical holding. The Court of Appeals of the Federal Circuit (“the Federal Circuit”), through its deciding panel (in a 2-1 decision), affirmed the decision of the COFC, holding that Amertex’ signing of the Modification incorporating a new delivery schedule was an “implicit” agreement by Amertex to perform the modified contract, thereby operating as a waiver of the right to assert a breach claim for damages already accrued. The Modification, however, in question contained no waiver or release language and was negotiated with knowledge by all parties that Amertex would be submitting a claim for damages already accrued.’ Like the COFC, the panel cited no law, regulation or case decision supporting its holding. The dissent asserted that absent an express waiver in the Modification, Amertex’ claim could not 2. Specifically, the Modification in question, PO00037, contained a caveat, which read as follows: It is agreed further that the execution of this modification will not be construed by either party as an endorsement by either party of any negotiation position with respect to the settlement of modifications POOOO! and P00002. (Petitioner’s Apper.dix, p. 190a). 4 be held to have been waived, citing, inter alia, Laka Tool & Stamping Co. v. The United States, 639 F.2d 738, 743 (Ct. Cl. 1980), cert. denied, 454 U.S. 1086 (1981); Cities Service Helex, Inc. v. The United States, 543 F.2d 1306, 1313 (Ct. Cl. 1976); and Allied Materials and Equipment Co. v. The United States, 569 F.2d 562, 563-64 (Ct. Cl. 1978). REASONS FOR GRANTING THE WRIT I. THE FEDERAL CIRCUIT DECISION HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AND SANCTIONED SUCH A COURSE BY THE UNITED STATES COURT OF FEDERAL CLAIMS AS TO CALL FOR AN EXERCISE OF THIS COURT’S POWER OF SUPERVISION. The COFC held that Amertex deprived itself of the right to claim breach damages attributable to an acknowledged cardinal change when it agreed to continue performance. Specifically, the COFC held as follows: Notwithstanding the evidence supporting Plaintiff’s plausible and potentially convincing cardinal change assertion, Plaintiff's position on this issue is fatally undercut by the bilateral modification made to the delivery schedule in 1988. (Petitioner’s Appendix, pp. 146a-147a). This holding, unsupported by citation of law, was adopted by the Court of Appeals. The Modification alluded to contained a eS nannies 5 no waiver language’ and did not change the total contract price. (Petitioner’s Appendix, p. 190a). The Decision of the Court of Appeals to uphold and endorse the concept of “implicit waiver” is a radical departure from Federal Case law, as enunciated both by this Court and the courts of other circuits. As early as 1875, this Court reasoned, in Phillips, Etc., Construction Company v. Seymour et al., 91 U.S. 646, 651: ... if A. agree to deliver a horse, buggy, and harness on Monday, and B. accepts delivery of the horse and buggy, can he refuse to pay any thing, though he accepts delivery of the harness on Tuesday? This is absurd. He waives, by this acceptance, the point of time as to the harness, at least so far as A.’s right to recover the agreed sum is concerned. If B. have suffered any damage by the delay, he can recover it by an action on A.’s covenant to deliver on Monday; ... The Court went on to point out that the contractor, plaintiff in error Phillips, did not “waive its right to damage”, but waived only its right to “forfeiture”. 91 U.S. 646 at 652. So basic is the concept that one does not renounce his right to damages when, after breach, he continues to perform, that it can be found in the most elementary treatises on contract law. For instance, West Publishing Company, in its Hornbook series on Contracts, instructs the reader: 3. Actually, it contained a saving clause. See Footnote 1, supra. Thus, rather than “implicitly” waiving its damage claims, Amertex explicitly preserved them. 6 If the breach is material, the aggrieved party may cancel the contract. He may sue also for a total breach if he can show that he would have been ready, willing and able to perform but for the breach. However, he also has the option of continuing with the contract and sue for a partial breach. Contracts, Calamari and Perillo, 3rd Edition, at Page 458; emphasis supplied. Likewise, the widely accepted American Jurisprudence states the following on the issue: Where there has been a material breach, the injured party has an election of continuing performance, or of ceasing to perform, or of repudiating the contract. Any act by the injured party indicating an intent to continue will operate as a conclusive election, not depriving him of his right of action for the breach which has already taken place, but depriving him of any excuse for ceasing performance on his own part. 17A Am. Jur. 2d (Revised), Contracts § 731; emphasis supplied. The court below’s predecessor, the United States Court of Claims, whose precedents are meant to be binding on the Federal Circuit, came to the same conclusion two decades ago in Cities Service Helex v. The United States, 543 F.2d 1306 (Ct. Cl. 1976) (The case, cited by the dissenting Judge in the instant case, was ignored in the majority opinion). In Cities Service Helex, supra, the court, citing the Restatement, Williston, Corbin and The Uniform Commercial Code, among others, reiterated what this 7 Court had held in Phillips, Etc., Construction Company, supra, i.e., one does not forfeit a claim for breach damages by agreeing to continue performance. The United States Court of Claims reasoned as follows: A material breach does not automatically and ipso facto end a contract. It merely gives the injured party the right to end the agreement; the injured party can choose between canceling the contract and continuing it. If he decides to close the contract and so conducts himself, both parties are relieved of their further obligations and the injured party is entitled to damages to the end of the contract term (to put him in the position he would have occupied if the contract had been completed). Jf he elects instead to continue the contract, the obligations of both parties remain in force and the injured party may retain only a claim for damages for partial breach. See generally 5 S. Williston, Contracts §§ 638-88 (3d ed. W. Jaeger 1961); Restatement of Contracts §§ 317, 309-10 (1932); 17 Am.Jur.2d Contracts §§ 446-47, 489, 503, 510 (1964); Acme Process Equip. Co. v. United States, 171 Ct.Cl. 324, 334-37, 347 F.2d 509, 515- 16 (1965), rev’d on other grounds, 385 U.S. 138 (1966); Airco, Inc. v. United States, 205 Ct.Cl. 493, 497-99, 504 F.2d 1133, 1135-37 (1974); DeVito v. United States, 188 Ct.Cl. 979, 990-991, 413 F.2d 1147, 1153-54 (1969); Ling-Temco-Vought, Inc. v. United States, 201 Ct.Cl. 135, 144-50. 475 F.2d 630, 636-39 (1973); Northern Helex Co. v. United 8 States, 197 Ct.Cl. 118, 125-26, 455 F.2d 546, 551 (1972). . .. [S]Jome courts and commentators and the Uniform Commercial Code have modified various aspects of this strict view. In Northern Helex Co. v. United States, 197 Ct.Cl. 118, 455 F.2d 546 (1972), the court adopted the position that the injured party may itself continue performance in certain circumstances and yet reserve its right to claim material breach without the breaching party’s assent. Jd. at 129-30, 455 F.2d at 553; see Uniform Commercial Code § 1-207. Some courts have shared Professor Corbin’s view that an election should not be conclusive unless facts giving rise to an estoppel exist; either the breaching party must have changed his position in reliance on the injured party’s failure to cancel or the injured party’s conduct must be such that it would be unjust to allow him to change his position. 5A A. Corbin, Contracts § 1220 (1964); Western Transmission Corp. v. Colorado Mainline, Inc., 376 F.2d 470, 472 (10th Cir. 1967); see United States v. Chichester, 312 F.2d 275, 282 (9th Cir. 1963); 5 S. Williston, supra, § 686, at 289-91; cf. Ling-Temco- Vought, Inc. v. United States, supra at 145-46, 475 F.2d at 636-37 (court stressed extra expense incurred by Government); DeVito v. United States, supra (elements of waiver of default in delivery include reliance and continued 9 performance of delinquent party). The authors of the Uniform Commercial Code has also rejected the mechanical application of the doctrine of election of remedies: “Whether the pursuit of one remedy bars another depends entirely on the facts of the individual case”. Uniform Commercial Code § 2-703, Comment 1. 543 F.2d at Pages 1313-1314; emphasis supplied. In addition to overlooking the tenets of this Court, learned treatises, and its own decisions, the court below overlooked the law as pronounced by other Circuit Courts of Appeals. See II, infra. Il. THE FEDERAL CIRCUIT’S OPINION DIRECTLY CONFLICTS WITH NUMEROUS DECISIONS IN VARIOUS CIRCUITS, WHICH, BASED ON MODERN VIEWS OF CONTRACT LAW, HOLD THAT A NON- BREACHING PARTY TO A CONTRACT DOES NOT LOSE ITS RIGHT TO SUE FOR BREACH DAMAGES BY FAILING TO END THE CONTRACT AND AGREEING TO CONTINUE PERFORMANCE. The Decision below is in direct conflict with the following decisions from other Circuits: Sitlington v. Fulton, 281 F.2d 552 (10th Cir. 1960); First Citizens Federal Savings and Loan Association v. Worthen Bank and Trust Company, NA, 919 F.2d 510 (9th Cir. 1990); Dunkin’ Donuts of America, Inc. v. Minerva, Inc., 950 F.2d 1566 (11th Cir. 1992). Havoco v. Hilco, 799 F.2d 349, on remand, Havoco of America Ltd. v. Hilco, Inc., 750 F. Supp. 946, affirmed, 971 F.2d 1332 (7th Cir. 1986); Fuller 10 Company v. Brown Minneapolis Tank and Fabricating Company, 678 F. Supp. 506 (E.D. Pa. 1987); S. Leo Harmony, Inc. v. Binks Manufacturing Company, 597 F. Supp. 1014 (S.D.N.Y. 1984). The Tenth Circuit, in Sitlington, supra, held that the non- breaching party to a contract for the sale of property (in this instance, the buyer) had a choice upon the other party’s (i.e., the seller’s) breach: (1) Rescind the contract and sue for breach; or (2) Require performance, retaining a cause of action for damages. According to the Tenth Circuit: Any act by the injured party indicating an intent to continue performance is deemed a conclusive election. But by the election to continue performance he does not forego his right of action to recover damages caused by the breach. [citing, inter alia, Williston on Contracts, 2nd Edition § 1334 at Page 3749]. The Eleventh Circuit, in Dunkin’ Donuts of America, Inc. v. Minerva, supra, was faced with a suit arising out of a franchise agreement, where the franchisee continued in performance after a breach. The majority held that under Arizona law, *he franchisee still had the right to maintain an action for partial breach; the dissent argued that the franchisee’s right was to sue for total breach. In First Citizens’ Federal Savings and Loan Association v. Worthen Bank and Trust Company, supra, the Ninth Circuit held that a non-breaching party, when faced with a material breach by the other party may elect to rescind the contract or may opt for performance and a right of action for damages. 1] The Seventh Circuit also recognizes the innocent party’s right to continue performance without waiving its right to sue for damages. In Havoco v. Hilco, supra, the court’s opinion stated the principle thusly: It is clear that under Illinois law, a waiver can be implied from conduct [citations omitted]. It is also clear that an essential element of waiver is that the injured party intended to affirm the contract and intended to abandon his right to recover damages. [citations omitted]. “If the intention to waive is implied from conduct, the conduct should speak the intention clearly”. Barkers Trust Company v. Pacific Employees Insurance Company, 288 F.2d 106, 111 (9th Cir., 1960). 799 F.2d at 353-354. Both the Third and Second Circuits have taken the same position, enunciated in District Court decisions. Of special interest is the decision by the Eastern District of Pennsylvania (Third Circuit), in Fuller Company v. Brown Minneapolis Tank and Fabricating Company, supra. The court held that a party who continues to perform on a cardinally-changed contract loses the right to cease performance; its remedy is limited to a claim for damages. 678 F. Supp. at 509-510. The District Court for the Southern District of New York (Second Circuit) held, in S. Leo Harmony, Inc. v. Binks Manufacturing Company, supra, that the non-breaching party to a contract could elect not to abandon performance, complete the contract and sue for damages traceable to the defendant's breach. 12 Il. THE WRIT SHOULD BE GRANTED BECAUSE THE CASE IS AN IMPORTANT ONE OVER AND ABOVE ITS CONFLICT WITH OTHER CIRCUITS AND WELL- SETTLED LAW. By labeling its Decision as non-precedential, when, as noted in the dissent, stare decisis was to the contrary, the court below crafted a special, secret law for a socially and economically- disadvantaged company. The effect is not unlike the effect of Caligula’s law. (That Roman Emperor was fond of placing his edicts high on the public pillars where they could not be read, and then enforcing the edicts selectively). The suggestion that there can be unstated agreements in written modifications, whether they involve contractor claims or interpretation of contract provisions, is so sweeping and fraught with peril that it takes on equal protection and due process aspects. Although Amertex was granted a forum in which it could be heard, it was denied the benefit of a nationally accepted, deciding principle available to others and upon which it had a right to rely, i.e., a contractor does not lose its right to claim breach damages when it agrees to continue performance. Certainly, if the majority decision is well-grounded in law, is holding (i.e. that a bilateral modification extending the delivery schedule implicit[ly] carries with a waiver of the right to breach of contract damages) is of considerable importance to the Government Contract legal community as Petitioner submits, it is and certainly precedential value. If, as Petitioner submits, it is not well-grounded in law, then the decision amounts to singling out this Government contractor unconstitutionally by adopting a rule that applies only to it. 13 CONCLUSION The Writ should be granted. It is now undisputed that Amertex and its bank subsidized research and development for a contract falsely awarded under the guise of being a mass- production contract, supported by design specifications. In deciding the case, the court below has overlooked its own decisions, misapprehended the established law of “election of remedies”, and brought itself into conflict with principles applied and cases decided by other circuits and its own precedent when it concluded that continued performance waives accrued breach damages. Respectfully submitted, JOSEPH H. REITER Counsel of Record KOSTOS AND LAMER, P.C. Attorneys for Petitioner 1608 Walnut Street Suite 1300 Philadelphia, Pennsylvania 19103 (215) 545-0570 la APPENDIX A — DECISION OF THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT DECIDED FEBRUARY 24, 1997 NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition is not citable as precedent. It is a public record. The disposition will appear in tables published periodically. United States Court of Appeals for the Federal Circuit 96-5070 AMERTEX ENTERPRISES, LTD., Plaintiff-Appellant, Vv. THE UNITED STATES, | Defendant-Appellee. DECIDED: February 24, 1997 Before NEWMAN, MICHEL and SCHALL, Circuit Judges. Opinion for the court filed by Circuit Judge MICHEL. Dissenting opinion filed by Circuit Judge NEWMAN. MICHEL, Circuit Judge. Amertex Enterprises, Ltd. (“Amertex”) appeals the consolidated, post-trial decision of December 15, 1995 of the Court of Federal Claims, Nos. 90-684, 91-1700, and 92-402, 2a Appendix A denying its claim for cardinal change breach of a contract, granting its claim for an equitable adjustment for delay caused by the United States (“government”), holding that the government's termination for default was justified, and offsetting the equitable adjustment with the amount of unliquidated progress payments due to the justified termination. The case was submitted for decision after oral argument on December 5, 1996. Because we agree with the trial court that Amertex waived its cardinal change claim by entering into bilateral modifications, and because the trial court did not reversibly err in its calculation of delay damages, or holding of justified default termination, we affirm. BACKGROUND The detailed facts of the case are set out in the opinion of the Court of Federal Claims. Amertex Enterprises, Ltd. v. United States, Nos. 90-684 C, 91-1700, and 92-402 (Fed. Cl. 1995). In brief, Amertex was awarded a government contract for the production of chemical warfare protective suits (“chemsuits”) on February 25, 1985. A total of 2,415,885 chemsuits were to have been produced by December 29, 1986. In the words of the Court of Federal Claims, “[f]rom its inception, this procurement was plagued by poor decisions, mistakes, and miscommunication that delayed and disrupted Amertex’s performance of its obligations.” During the course of performance, the government issued 42 modifications and eight amendments to the contract, totaling over 100 changes to the specifications for the chemsuits. Also during the course of performance, and after many of these unilateral modifications and amendments, Amertex and the government entered into bilateral modifications of the contract which provided for a revised payment scheme and delivery schedule. The government eventually terminated the contract 3a Appendix A for default on January 6, 1989, over two years after the original deadline. Amertex had delivered fewer than half of the chemsuits it had agreed to deliver in the original contract. Amertex submitted ‘wo claims to the Contracting Officer, one challenging the termination for default, and the second alleging a breach of the contract through cardinal change and seeking an equitable adjustment based on delay and disruption allegedly caused by the government. Both claims were denied, and Amertex filed suit in the United States Court of Federal Claims, which denied Amertex’s cardinal change claim and default termination challenge, but granted in part its claim for an equitable adjustment. This appeal timely followed. DISCUSSION Decisions of the Court of Federal Claims are subject to only limited review. Factual findings are reviewed for clear error, while legal conclusions are reviewed de novo. Alger v. United States, 741 F.2d 391, 393 (Fed. Cir. 1984). I. Amertex first appeals the holding that the series of changes that the government made to the contract did not constitute a cardinal change. This court reviews the holding of a cardinal change de novo. See, e.g., AT&T Communications, Inc. v. Wiltel, Inc., 1 F.3d 1201, 1207-08 (Fed. Cir. 1993). A cardinal change: occurs when the government effects an alteration in the work so drastic that it effectively requires the contractor to perform duties materially different from those 4a Appendix A bargained for. By definition, then a cardinal change is so profound that it is not redressable under the contract, and thus renders the government in breach. AT&T Communications, | F.3d at 1205 (citing Allied Materials & Equip. Co. v. United States, 569 F.2d 562, 563-64 (Ct. Cl. 1978)). As to Amertex’s cardinal change claim, the Court of Federal Claims stated: Notwithstanding the evidence supporting plaintiff’s plausible and potentially convincing cardinal change assertion, plaintiff’s position on this issue is fatally undercut by the bilateral modification made to the delivery schedule in 1988. Although Amertex argues that, when presented with the bilateral modifications, it “could not ... walk away” from the contract, it has neither pleaded nor proven duress. The signed modifications evidence a meeting of the minds and, since the modifications changed both parties’ obligations, are supported by consideration. Thus, the bilateral modifications -are enforceable contracts which replace the parallel provisions of the original contract. As noted above, the bilateral modifications included modifications to the delivery schedule and the payment scheme. By agreeing to these modifications, Amertex implicitly agreed to a changed specification and added costs it accrued thereby. As stated by the Court of Federal Claims, “[i]Jn essence, Amertex promised to produce the modified chempro suit, with all changes which had been made to July 1988 and given the numerous other government-caused difficulties, on a schedule contemplating half the pace as the Sa Appendix A original contract.” Moreover, by advancing payment due dates to delivery installment dates, Amertex bargained for and received an infusion of working capital that was needed in light of performance difficulties but that was not contemplated in the original payment scheme. Since Amertex agreed to the changes, it implicitly agreed that the changes were within the changes clause of the contract. There can only be a cardinal change if the government required Amertex to perform materially different duties from those bargained for in the contract as modified. Amertex does not so allege. Amertex argues that Air-A-Plane Corp. v. United States, 408 F.2d 1030 (Ct. Cl. 1969), suggests a different result. In Air- A-Plane, a plaintiff was allowed to pursue both an equitable adjustment through the Armed Forces Board of Contract Appeals (“ASBCA”) and a cardinal change claim through the Court of Claims. In rejecting the government’s argument that the plaintiff was estopped from pursuing its cardinal change claim by virtue of its equitable adjustment claim, the court stated: This is an instance of an imposed election of remedies which seems to us unfair to contractors. One who was confident that Government modifications created a cardinal change, for which he could go to court at once, would still be well advised to pursue his administrative remedy under the Changes clause. If he failed to do so and the court decided that the alterations were not cardinal but within the clause, the contractor could well be left without any remedy at all — though it was clear that he was entitled to some compensation on one basis or the other. Id. at 1034. 6a Appendix A Amertex asserts that the instant situation is analogous — that it should not be required to decline to enter into the modification at the peril of losing its cardinal change claim. We disagree with Amertex’s reasoning. Air-A-Plane turned on the procedural limitations of the ASBCA at the time the case was brought. At that time, the ASBCA did not have jurisdiction to hear cardinal change claims. Jd. Here, it was possible for Amertex to make both equitable adjustment and cardinal change claims in the same forum (as it did). Thus, there was no “imposed election of remedies” as criticized in Air-A-Plane. Although Amertex did need to decide whether to enter into the modifications or seek cardinal change breach remedies, this was a business choice, not mandated by jurisdictional statutes. Il. Since there was no cardinal change, Amertex is entitled only to an equitable adjustment for delay damages caused by the government. Amertex appeals the Court of Federal Claims’ finding that the government was solely responsible for only 36% of the 952 days of delay in the contract. Delay must be apportioned solely to one party for damages to be awarded. Blinderman Constr. Co. v. United States, 695 F.2d 552, 559 (Fed. Cir. 1982). Thus, Amertex cannot recover for any of the government’s delay that is concurrent or intertwined with other delays. Commerce Int'l Co. v. United States, 338 F.2d 81, 90 (Ct. Ci. 1964). The determination of delay causation is a question of fact. J.D. Hedin Constr. Co. v. United States, 347 F.2d 235, 245 (Ct. Cl. 1965). Amertex argues that the trial court misapplied Critical Path Methodology (“CPM”) in calculating delay. CPM looks only to 7a Appendix A delay along the “critical path,” that is, those parts of a project that, if delayed, delay the entire project, to determine allocation of delay. Delay in non-critical path components of the project, because it does not delay the completion of the entire project, does not result in allocation of delay. CPM has typically been used in construction contracts where the determination of those parts of the project on the critical path is straightforward. See, e.g., Haney v. United States, 676 F.2d 584, 595 (Ct. Cl. 1982); G.M. Shupe, Inc. v. United States, 5 Cl. Ct. 662, 728 (1984); Sterling Millwrights, Inc. v. United States, 26 Cl. Ct. 49, 75 (1992). The trial court here recognized that CPM is most useful in those contexts where the determination of the critical path is straightforward, but, nonetheless, was “unpersuaded that CPM is useless in the more complex manufacturing context.” Although Amertex argues that the Court of Federal Claims incorrectly applied CPM, it does not argue, nor can it, that the court was even obligated to apply CPM, or any particular modification of CPM, for use in this manufacturing context. We have carefully reviewed the Court of Federal Claims’ detailed and thoughtful delay analysis. Although the analysis that the court did is certainly not the only conceivable method of analysis, and although there may be improvements that could have been made to the analysis (for instance, analysis of the causal effect of early government-caused delay on later Amertex- caused delay), we cannot hold that the analysis is clearly erroneous. Neither can we hold that the failure of the Court of Federal Claims to separately label disruption costs (costs caused by the government by creating more work for Amertex, not merely delaying Amertex’s ability to perform) was clearly erroneous. 8a Appendix A Ill. Finally, Amertex challenges the Court of Federal Claims’ upholding of the default termination. The court held that the government met its burden of proof that Amertex’s financial condition at the time of the default termination made it reasonably likely that the contractor would be unable to finish performance in the remaining time. See Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987). The court further held that Amertex did not have a valid defense of excuse because the poor financial condition of the company was not primarily caused by the acts or omissions of the government. See TGC Contracting Corp. v. United States, 736 F.2d 1512, 1515 (Fed. Cir. 1984). Amertex argues that the factual findings relied on by the Court of Federal Claims are in error. We have carefully considered Amertex’s arguments and discern no clear error in the Court of Federal Claims’ analysis. Based on these underlying facts, the court reached the correct legal conclusion that the default termination was justified. IV. The Court of Federal Claims correctly held that the bilateral modifications are binding and therefore there was no cardinal change, and there was no clear error in the allocation of delay or default termination factual analysis. The decision of the Court of Federal Claims is therefore affirmed. 9a APPENDIX B — DISSENTING OPINION BY CIRCUIT JUDGE NEWMAN OF THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT DATED FEBRUARY 24, 1997 NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition is not citable as precedent. It is a public record. The disposition will appear in tables published periodically. United States Court of Appeals for the Federal Circuit 96-5070 AMERTEX ENTERPRISES, LTD., Plaintiff-Appellant, Vv. THE UNITED STATES, ~, Defendant-Appellee. NEWMAN, Circuit Judge, dissenting. I respectfully dissent, for the Court of Federal Claims applied incorrect law in holding that the contract modification of the payment and delivery schedules, three and a half years after commencement of the two-year contract, was a waiver by Amertex of any claim that the government had cardinally changed the contract. There was no waiver or release of such a claim, at any time. The Court of Federal Claims made many findings relevant to the extent of the changes in the design specifications, and 10a Appendix B how these changes affected Amertex’s performance. The court found as fact that the design was new and untested, that the specifications were inadequate or incorrect, and that the contract was not performable in accordance with its terms. The court concluded that “The fixed price contract became, in part, a research and development contract.” However, following this exposition, the court found as follows: The unreasonable rejection of the second First Articles and the other unreasonable acts by the government which undermined this project hampered mass production and, arguably, fundamentally changed the nature of this contract. Notwithstanding the evidence supporting plaintiff’s plausible and potentially convincing cardinal change assertion, plaintiff’s position on this issue is fatally undercut by the bilateral modifications made to the delivery schedule in 1988. Thus although the Court of Federal Claims found that the claim of cardinal change was “plausible and potentially convincing,” the court apparently inferred either release or waiver. That conclusion is incorrect, for the modification to the delivery schedule did not release or waive this claim, which related not to delivery, but to all of the contract changes. So substantive and financially significant a change in the contractor’s rights can not be inferred from a contract modification that is silent on the matter of release of claims. See Laka Tool & Stamping Co. v. United States, 639 F.2d 738, 743 (Ct. Cl. 1980) (contractor did not waive claim for equitable adjustment when contract lla Appendix B modification did not contain an express waiver of the claim), cert. denied, 454 U.S. 1086 (1981). The modification simply extended the delivery dates of the now delayed product, and provided for payment based on deliveries. It neither expressly nor by implication withdrew from the contractor the legal right to recover on an otherwise valid claim that the contract had been cardinally changed. The panel majority offers the theory that since Amertex did not allege duress in accepting the contract modification, it can not argue that it did not waive its claim. Duress, alleged or not, is not at issue. The contractor was not required to walk away from the contract instead of entering into the modified delivery and payment terms, in order to preserve a claim for cardinal change. “Under established case law, a cardinal] change is a breach. It occurs when the government effects an alteration in the work so drastic that it effectively requires the contractor to perform duties materially different from those bargained for. By definition, then a cardinal change is so profound that it is not redressable under the contract, and renders the government in breach.” AT & T Communications, Inc. v. Wiltel, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993) (quoting Allied Materials & Equip. Co. v. United States, 569 F.2d 562, 563-64 (Ct. Cl. 1978)). Cardinal change relates to changes in the entire contract, 12a Appendix B with all of its modifications. Atlantic Dry Dock Corp. v. United States, 773 F. Supp. 335, 339-40 (M.D. Fla. 1991): [D]etermining the merits of a cardinal change claim requires an examination of the totality of the circumstances surrounding the project and the many modifications. . . . These facts cannot be nown until the project is completed or nearly completed. Indeed, had Amertex wal ed away from the contract, such an action could have speeded Amertex’s financial demise, for progress payments were being retained. A business decision to continue to perform does not waive a contractor’s recourse to remedy on a theory of cardinal change. Cities Service Helex ne. v. United States, 543 F.2d 1306, 1313 (Ct. Cl. 1976): A material breach does not automatically and ipso facto end a contract. It merely gives the injured party the right to end the agreement; the injured party can choose between canceling the contract and continuing it. See Allied Materials, 569 F.2d at 564 (“Undoubtedly, the cautious contractor might often proceed under the revised coniract because of doubt whether he could invo e the cardinal change doctrine.”) The Court of Federal Claims did not mae a final finding on the issue of cardinal change, instead holding that any claim on this ground was waived. The panel majority has ratified this error by requiring duress while ignoring the absence of either waiver or release. It is irrelevant whether there were hard 13a Appendix B economic decisions made by Amertex; the question of law is whether there was a waiver or release of this claim, and there plainly was not. The decision of the Court of Federal Claims, since based on incorrect law, should be vacated, and the matter returned to the trial court for final determination of the issue of cardinal change. l4a- APPENDIX C — OPINION AND ORDER ON LIABILITY AND DAMAGES OF THE UNITED STATES COURT OF FEDERAL CLAIMS DATED DECEMBER 15, 1995 UNITED STATES COURT OF FEDERAL CLAIMS December 15, 1995 Nos. 90-684 C, 91-1700 and 92-402 (consolidated) AMERTEX ENTERPRISES, LTD., Plaintiff, versus UNITED STATES OF AMERICA, Defendant. Marc Lamer, Philadelphia, Pa., for plaintiff. Ruth E. Ganister, Philadelphia, Pa., of counsel. Sheryl L. Floyd, Washington, D.C., with whom was Frank W. Hunger, Assistant Attorney General, for defendant. S. Lane Tucker and Sandra Guydon, Washington, D.C., of counsel. OPINION AND ORDER ON LIABILITY AND DAMAGES TURNER, Judge. This opinion addresses the merits of three consolidated cases (filed pursuant to the Contract Disputes Act, 41 U.S.C. § 605(a)) involving a multi-million dollar supply contract. Final post-trial arguments were conducted on June 21, 1994. This decision resolves both liability and damages. —————————aaaEEeEeEeEeEeEeEeEeEeEeEwee 15a Appendix C Plaintiff agreed to manufacture over 2.4 million chemical protective (chempro) suits for defendant in exchange for approximately $96 million. After more than four years of intermittent delay, defendant terminated the contract for default, contending that plaintiff's poor financial condition endangered completion of the contract. The parties blame one another, almost exclusively, for plaintiff’s slow progress and financial problems. Upon consideration of voluminous testimony and thousands of exhibits presented during a trial spanning eight weeks over a period of several months, and, further, upon consideration of extensive briefing, it is concluded as follows: First, plaintiff failed to prove that defendant breached the contract under the theory of cardinal change. Second, plaintiff demonstrated that it deserves an equitable adjustment for that portion of delay and disruption attributable solely to defendant. Third, not- withstanding those delay and disruption damages, defendant proved that the termination for default was justified. Fourth, defendant established its right to the balance of unliquidated progress payments less the amount of plaintiff's equitable adjustment, I, The parties’ versions of relevant events could hardly be more diametric. Their antagonism compounds the exceptionally tangled facts giving rise to this contract dispute. In such a context, Justice Jackson’s observation seems apt: “It can never be made simple, but we can try to avoid making it needlessly complex.” Dobson v. Commissioner of Internal Revenue, 320 U.S. 489, 495 (1943) (describing tax law). With this goal in mind, we chronicle the life of the contract in dispute. 16a Appendix C A. Solicitation & Award On September 7, 1984, the United States government' solicited sealed bids for the mass production of chempro suits. DX-2001.? The manufacture of these chemical warfare protective uniforms involved both the sewing of a nylon cotton (nyco) twill outer garment treated with quarpel water-proofing and the attaching of a lining sewn from a nylon tricotton (tricot) material laminated with a special charcoal. The chempro design also required the attachment of butyl-coated reinforcement patches and special “atropine” pockets designed to allow the wearer to gain access to antitoxin syringes kept near the body for warmth. In all, the technical data package (TDP) detailing assembly of the garments required more than 162 manufacturing operations for each chempro suit, referenced twenty-one primary specifications, and imposed stringent testing requirements on both components and final products. DX-3078. The solicitation requested bids for the manufacture of millions of chempro suits in accordance with specification MIL- S-43926D, called “specification D.” In internal memoranda, the government described this procurement as “an accelerated program designed to correct a critical deficiency in the standard 1. For clarity, the terms “defendant” or “government” will be used in place of the acronyms for the several government agencies involved in this contract. On cefendant’s side, the chempro suit procurement involved cooperation among the Defense Personnel Support Center, United States Army Natick Research & Development Laboratories, Defense Logistics Agency, Defense Contract Audit Agency, and numerous subdivisions within these agencies. The specific government actor will be mentioned only when necessary. 2. Defendant's and plaintiff's trial exhibits are cited as “DX-" and “PX-,” respectively. References to trial transcripts are designated as “Tr.” 17a Appendix C chemical protective overgarment.” DX-2155. Amertex Enterprises, Ltd., (Amertex) submitted a unit price bid of $39.88 per chempro suit for the production of the uniforms within a 670 day period. Amertex’s bid was 1.3 %, or 52 cents, lower per suit than the closest bid of a qualified, experienced competitor. PX-284. Five firms bid within twenty-five percent of Amertex’s bid. DX-2153. Before accepting Amertex’s bid, however, the government conducted two detailed pre-award surveys of the company. These surveys concluded that Amertex was capable of successfully performing the terms of the solicitation. In particular, the government determined that Amertex possessed the experience, production capacity, accounting system, and quality control procedures necessary to fulfill the procurement requirements. DX-2015. In fact, Amertex had participated in the production of millions of chempro suits under a previous design of the suit, specification B. PX-284. The company also had manufactured hundreds of thousands of fragmentation vests, military shirts, and duffle bags for the government on other contracts. PX-284. The government also examined whether Amertex was certified as a small business under the government’s 8(a) program. 13 C.F.R. §§ 121 & 124 (1984). The government elected to offer this enormous and expedited procurement as a “total small business set-aside” for contractors employing no more than 500 workers. DX-2001. Such a set-aside necessarily required that the government provide the selected prime contractor and its subcontractors with compatible patterns and consistent interpretations for the production of the 2.4 million chempro suits. Amertex fulfilled the small business requirement. Upon completion of the pre-award surveys, the government 18a Appendix C selected Amertex as the lowest responsive and responsible bidder. On February 25, 1985, the government awarded to Amertex contract number DLA100-85-C-0402. DX-2002. In the contract, the government accepted Amertex’s bid unit price and Amertex agreed to produce 2,415,885 chempro suits for $96,345,493.80. The contract set forth a rapid delivery schedule and referenced numerous specifications, many of which were modified after contract award. B. Testing of the Specifications From its inception, this procurement was plagued by poor decisions, mistakes, and miscommunication that delayed and disrupted Amertex’s performance of its obligations. Even prior to contract award, government actions created an unstable foundation for successful completion of the contract. For instance, defendant ignored the recommendation of the designers of the new suit that the garment be tested for mass production through the use of an “expanded First Article.”? DX-2127. This type of First Article is described in the “Memorandum of Agreement for Clothing, Textiles, and Equipment Between Defense Personnel Support Center and U.S. Army Natick Research & Development Laboratories [Natick]” as follows: In this procedure, a contractor makes a quantity of items under production conditions to determine the validity of the technical data. The contractor is required to critically review the TDP prior to and during first article production and to make all required changes. 3. “First Articles” are preliminary samples, or prototypes, of the garment. 19a Appendix C PX-1. In contrast, when a First Article is not “expanded,” the contractor is required to make a nominal quantity to demonstrate the ability to interpret the TDP so as to produce an acceptable finished item. PX-1. Generally, an unexpanded First Article is used either after the initial procurement of a new specification or when revisions involve “simple” clothing items. The design engineers urged that the revised patterns and specifications for the chempro suit be verified under mass production conditions through the manufacture of several hundred suits in the full range of sizes. See PX-2; Tr. 7941-42 (Levell). The engineers recommended an expanded First Article because the technical data package for specification D involved, in their words, “major changes” from the preceding specification. PX-2. These changes included the addition of buty! protective pieces at the elbows and the knees; the use of the chemical phoschek with the state-of-the-art additive polyethylene oxide (polyox) in the mixture (slurry) for the charcoal laminated lining (“Type III” charcoal laminate); the addition of atropine syringe pockets on the coat; the addition of other pockets on the sleeves; the addition of gussets at the leg closures; the redesign of the chest pockets to incorporate side entrance; the addition of hip pockets on the trousers; and the change to bellows-type pockets with flaps on the trousers. In light of these revisions, the engineering memorandum indicates that there were concerns about sending specification D into full-scale production without adequate testing via an expanded First Article. Tr. 7940-41 and 7943-48 (Levell). When an expanded First Article is not used, the government usually requires the contractor to produce a “standard” First Article of fifty suits of varying sizes before full-scale production can begin. Tr. 4702-04 (Hepner), Tr. 4498 (Pease), Tr. 3077-78 (Price). Nevertheless, the government chose to use a First Article of five 20a Appendix C units, that is, five samples to be produced individually rather than en masse. DX-2001. Had the government used an expanded First Article, the contractor would have known that the new specifications had not been tested for accuracy in mass production. Indeed, under an expanded First Article, once a contractor “certifies [that] the TDP is adequate for mass production, future changes (other than product improvement) are made at no cost to the government.” PX-1. To justify its decision to override the engineering recommendation for an expanded First Article, the government relied in part on the testimony of Lisa Hepner, a quality specialist for the government. Although the use of an expanded First Article is normal after the issuance of such a revised specification (Tr. 4199), Hepner testified that no such testing was necessary because, in her opinion, the changes from the previous specification were minor. Tr. 4676. The government’s heavy reliance on Hepner’s opinion in this instance was misplaced. At the time of the decision, Hepner had held her position for less than a year, had only one month of government training courses, and had no professional experience in the manufacturing or sewing industries. DX-3333. The changes to the specification, on their face, cannot reasonably be dismissed as “minor.” The engineers contemporaneously assessed that specification D embodied “major changes.” Some of these major changes were needed, urgently, to correct a “critical deficiency” in the previous specification for the chempro suits, which were called “overgarments” at that time.‘ 4. Indeed, it appears that defendant “rushed” specification D into production because an expanded First Article would have lengthened this expedited procurement for the new chempro suits designed to correct a > potentially lethal defect in the old garments. See DX-2132; DX-2155. PE TE ee 21a Appendix C We are similarly unpersuaded by defendant’s other main explanation for its decision to override the engineering recommendation for an expanded First Article. At trial, the government insisted that no expanded First Article was warranted because the adequacy of specification D had already been tested prior to the solicitation. To support this contention, the government notes that Winfield Manufacturing Company (Winfield), one of Amertex’s competitors, produced 200 of the chempro overgarments in July 1983. The government evaluated fifty of the suits and identified 158 defects. DX-2138. Even though the government recognized that the Winfield suits had “an exceptional amount of deficiencies,” it observed that “the lot should be accepted since none will affect the serviceability, or involved any of the unique design changes for which the end item was produced, or will be evaluated for, in field testing.” DX-2138. Indeed, as Don Wadja (project director at Natick for chempro suits prior to 1985) testified, the primary purpose of the Winfield samples was to subject the suits to field testing, i.e., Chemical agent and human factors (wear) testing, not to verify that the design was sufficiently accurate for the mass production of millions of the garments. Tr. 4151-53, 4162-64 (Wadja). Moreover, unlike Amertex, Winfield was not charged with manufacturing its own quarpel-treated nyco and charcoal laminated tricot lining. Winfield received the materials from the government, along with one sample suit, a pattern, and a partial table of operations. DX-2135; Tr. 4178-79 (Wadja). Additionally, a Winfield representative, Weinsten, acknowledged at trial that the samples were not manufactured under mass production conditions. Tr. 7480 (Weinsten). The following exchange during plaintiff's direct examination of Weinsten illustrates this point: 22a Appendix C Q: And in the course of that undertaking, was there any effort to determine the mass produced ability [mass produce-ability] of the specification? A: Not by us. It wasn’t part of the contract. Tr. 7480 (Weinsten). We are convinced that the revised specifications were not adequately tested for mass production. Furthermore, the engineers recommended the use of the expanded First Article in the memorandum dated May 31, 1984, in spite of the Winfield suits of 1983. PX-2. The government disregarded this recommendation, as rationalized in Hepner’s testimony. In addition to not testing the revised specification for “mass produce-ability,” the government elected to solicit the manufacturing of millions of chempro suits even though it was aware of several specific potential deficiencies with specification D. These potential deficiencies included problems with suits exceeding the weight requirements of the specifications and lack of quality control provisions for the state-of-the-art charcoal lining, among others. PX-3. Nonetheless, the government chose to proceed with this accelerated 2.4 million unit procurement by requiring the contractor to submit only five sample units before advancing to full-scale production. This choice was but one of the factors that contributed to the production disaster that this contract became. C. No Waiver Policy Change Immediately following contract award, Amertex’s ability to perform the expedited procurement successfully was diminished by a change in the manner in which deviations were ha i eS ea 23a Appendix C handled. On February 28, 1985, three days after the contract was signed, defendant circulated a change in practice dubbed the “No Waiver” policy, which required strict adherence to all specifications, no matter how minor. DX-2161; DX-2349. This policy interpreted a new regulation that became effective three months after contract award. 48 C.F.R. § 46.407 (1985). Prior to that time, the government traditionally allowed personnel closely involved in a clothing procurement to give waivers for deviations that did not affect serviceability of the item. See, e.g., PX-3; PX-307 (showing that the previous contractor using Type III charcoal lining had routinely exceeded the weight requirements and was granted waivers). In the case of the chempro suit, those parts of the specification that had not been revised had also not been strictly enforced in previous procurements except when a nonconformance diverged significantly from the specifications or adversely affected serviceability.* One of the many examples of the past approach toward chempro suit evaluation was the government’s acceptance of the Winfield suits of 1983 even though 158 defects were identified. DX-2138. According to the new interpretation, which was not in place at the time of bid or award, deviations would no longer be tolerated. In an internal memorandum, the new regulation was interpreted by the Defense Logistics Agency as follows: [W]aivers are the exception, not the rule, and 5. See Tr. 73-74 (L. Jacobson) (stating that waivers were not an issue because tolerances were implied when the company worked on a previous version of the suit); Tr. 2054, 2204-06 (Ludwig) (noting that inspectors on previous versions implied tolerances for mass production); PX-284. See, e.g. Appeal of Vi-Mil, Inc., 82-2 BCA 15,840, 78,527, ASBCA No. 25,111 (A.S.B.C.A., 1982). (noting that “although the tolerances do not appear in the specifications it is undisputed . .. that they have been allowed for many years ... .”). Cf. DX-2175. 24a Appendix C if the specification is wrong, take action to change it, do not waive it .... In addition, the [regulation] places approval of waivers at the Center Command level as assurance to the contract administration community that when a waiver is approved it has been reviewed at the highest level. DX-2161. The purpose of the change was to improve the quality of goods as well as to make contractual performance more efficient by identifying and correcting inadequacies in specifications rather than simply waiving the requirements. Cf. DX-2166. In the context of the Amertex chempro contract, however, the policy’s effect was exactly the opposite. Signed prior to the policy change, the contract between Amertex and the government contemplated the rapid manufacture of millions of complex garments produced through the coordination of several small businesses. The decision to produce items in an accelerated contract of this size involved financial assumptions related to economies of scale, that is, cost efficiencies to be achieved under expedited mass production conditions. See, e.g., Tr. 2994-2996 (Caldwell). In the Amertex contract, the interpretation of the regulation as a No Waiver policy caused costly shutdowns and slowed production for minor deviations while the contractor awaited high level approval of waivers and clarifications. The Situation was further aggravated because the revised specification had not been tested for adequacy in mass production. Thus, although the policy interpretation appeared benevolent on its face, it was detrimental in practice because the government repeatedly failed to give prompt clarification or waivers for ambiguous or erroneous specifications. 25a Appendix C The new policy also applied to First Article approval requirements. In a change from past practice, the government decided to strictly evaluate all First Article submissions. In particular, the Defense Logistics Agency made the following interpretation: The policy requires contracting officers to use [the] specified accept/reject criteria as the basis for first article approval decisions. It also requires contracting officers to disapprove first articles which are manufactured with nonconforming parts and materials. In addition . . . contracting officers shall not grant conditional approval of first articles without the specific approval of the Center Command. DX-2161. Those in charge of applying this interpretation in evaluating the First Articles and mass production units seemed to take the policy to an illogical extreme. As will be demonstrated, in the Amertex contract, government personnel applied the No Waiver interpretation as a “no tolerances” rule, scrutinizing every sewing operation for deviations of as little as 1/32 of an inch, approximately the size of the period at the end of this sentence. The policy interpretations for both the Amertex First Articles and mass production units frequently resulted in “overinspection” by government representatives. Hence, the No Waiver Policy helped lay the foundation for some of the intermittent delay and disruption that occurred on this contract. The implementation of the new policy fostered an inspection mindset that was often unreasonable. Government inspectors seemed to ignore the fact that the chempro uniforms 26a Appendix C were not solicited as individually tailored dress uniforms but were procured as an expedited mass production of millions of battle garments requiring the coordination of different plants employing hundreds of textile workers who were handling numerous specifications, some of which had never been tested or strictly enforced before. The numerous government modifications to those specifications after contract award only compounded the problems inherent in this situation. D. Delay Analysis Government actions thus sowed the seeds of delay and disruption before plaintiff sewed a single stitch of this chempro contract. At trial, however, the parties offered dramatically conflicting evidence regarding fault for delay during the 1,411 days between contract award on February 25, 1985 and default termination on January 6, 1989.° The contract set forth a schedule requiring delivery of nearly a quarter of a million chempro suits within eleven months, by January 31, 1986, and then monthly deliveries of approximately 201,335 suits for a total of 2,415,885 by December 29, 1986. The parties agreed to a contract performance period of 672 days. By the time of the default termination, 1,411 days after award, however, Amertex had not completed performance. It is impossible to quantify with exactitude the amount of and the responsibility for the delay and disruption in this case. The contractor encountered a variety of problems of differing magnitudes and durations. Perhaps in this type of case more than others, determining delay involves particularly intuitive assessments of the conflicting evidence. Nevertheless, we are 6. In counting days, the court, like the parties, does not count the date of award, February 25, 1985, as a performance day. 27a Appendix C convinced that both parties share responsibility for the delay and disruption that occurred. Moreover, we are confident that the evidence adduced at trial provides a sufficient basis for apportioning responsibility for the delay. 1. Evaluation of the Experts The parties do not agree on the number of delay days, let alone responsibility for that delay during the 1,411 days between award and termination. Plaintiff, the party bearing the burden of proof on the delay and disruption issue, contends that 984 delay days occurred and that the government caused 956 of them. Defendant counters that there were more than 1,118 delay days, only 94 of which were the sole responsibility of the government. The delay experts of both parties had substantial and comparable experience in schedule and delay analysis. The experts differed sharply, however, in the thrust of their methodology and the results of their analyses. For example, plaintiff’s delay expert, Jayant Pandya, Project Director at Hill International, Inc., calculated and attributed delay using an analytical technique known as “critical path methodology” (CPM). CPM is a method for determining which delays in a multi-task project are critical, or controlling, in terms of actually delaying completion. Defendant’s delay expert, Michael D’Onofrio, a Professional Engineer at MDC Systems, offered an alternative calculation and attribution of delay which purportedly attached equal significance to every delaying element in a manufacturing case like this. Moreover, D’Onofrio criticized plaintiff’s use of CPM, contending that the manufacturing context makes it impossible to isolate the specific aspect of mass production that was “critical” or significant in terms of delay. 28a Appendix C We credit the testimony of both delay experts but find the testimony of neither to be persuasive in all areas. In our analysis, we draw upon the opinions expressed by the experts of both parties but rely extensively upon neither the methodology nor determinations of any of them. Rather, as we explain, our conclusions concerning quantification of delay and responsibility for the delay are based upon our independent assessment of the data amassed at trial. a. Calculating Amount of Delay In calculating delay, both parties’ experts analyzed the amount of delay within specific time periods in diagrams called “time impact analyses” (TIA’s). In particular, defendant’s expert estimated the amount of delay that had occurred by certain dates, one of which was June 30, 1988. By that time, plaintiff had delivered more than a half-million chempro suits and had another million suits in the production line. The contract originally planned for a performance period of 672 days, with 340 days to deliver 201,355 chempro suits and 332 additional days to deliver the remaining 2.2 million suits. D’Onofrio testified that 1,118 delay days occurred during the 1,221-day period ending June 30, 1988.’ Thus, defendant asserts that plaintiff made only 103 days of “progress” (1,221 — 1,118) despite the amount of production that had occurred by that point. Defendant’s expert also maintained that additional delays occurred between June 30, 1988 and termination on January 6, 1989, but did not offer a delay figure for this period. We believe that defendant’s calculation overstates the amount of delay. 7. Defendant's expert stopped “counting” delay days for the last six months of the contract, even though he acknowledged production delays up to default termination. 29a Appendix C Plaintiff’s expert offered a more persuasive basis for calculating the total amount of delay by analyzing the level of production in each of twelve categories of chempro suit operations.® Based on this analysis, Pandya opined that Amertex experienced 984 delay days before default termination. Our review of the production records and schedules on which Pandya relied leads us to conclude that plaintiff’s estimate was off by a slight margin. In addition to scrutinizing the testimony and thousands of exhibits, we have tested the validity of both parties’ delay arguments against Amertex’s actual production levels. Upon analysis of the conflicting evidence, we find that there were 952 delay days during the 1,411 calendar days between contract award and termination. b. Helpfulness of Critical Path Methodology Defendant and its delay analyst maintained that CPM is inappropriate in a manufacturing context due to the complexity of mass production, and because such projects involve elements which have unpredictable production times or durations, such as the use of First Articles or a dependence on material suppliers. It is true that the archetypical use of CPM is in the analysis of construction projects. For instance, under CPM, a delay in obtaining carpet would not actually delay the project if, at that 8. Amertex made a production plan with manufacturing goals and tracked production levels in the following twelve categories: cut butyl, cut coats (nyco), cut pants (nyco), cut lining, sew coats A (“A” indicates outershell), sew pants A, sew lining, sew coats B (“B” indicates joining lining with outershell), sew pants B, interim pack, final packing and testing, and delivery. Of course, the actual production of the chempro suits involved Amertex’s planning for and monitoring of production levels on materials manufacturing, testing, and shipping, as well as the efficiency of hundreds of sewing operations. 30a Appendix C time, the floor had not been completed (the “critical” task being the completion of the floor). See, e.g. Haney v. United States, 230 Ct.Cl. 148, 676 F.2d 584, 595 (1982). While CPM may be most useful in a simplified construction context, we are unpersuaded that CPM is useless in the more complex manufacturing context. (Defendant’s concerns about the complexity and uncertainty in mass production are also applicable to the use of CPM in construction cases, a use defendant finds acceptable.) Furthermore, we do not agree that the uncertainty of timing in manufacturing cases is a proper ground for rejecting plaintiff’s CPM testimony. While the manufacturing process necessarily involves estimations about the durations of key events, Amertex’s master schedule, in conjunction with the contractual delivery schedule, provides a reasonable basis for comparing progress with production goals for the purpose of analyzing delay. The parties have provided the evidence necessary to adjust for any inadequacies in the “‘as- planned” schedule. However, we do not suggest that the use of CPM in a manufacturing context is trouble free. The enormity and complexity of the chempro suit contract does make it exceptionally difficult to determine which item or items were critical at different times during production. Moreover, the non- linear, multi-tasking reality of mass production makes attributing causation for delay especially laborious, even though the chempro suit involved a linear sequence of operations with specific estimates of duration. Despite these problems, CPM is useful, but not conclusive, in analyzing the delay in this case. c. Attributing Responsibility for Delay Not surprisingly, Pandya attributed the vast majority of the 3la Appendix C delay to the government. D’Onofrio’s mirror testimony attributed almost all of the delay to plaintiff. Out of 1,118 delay days, D’Onofrio attributed 94 days solely to the government, 88 days concurrently to both parties, and the remainder solely to Amertex. As the chronology of this contract unfolds, it will become apparent that much of the delay is best categorized as “concurrent.” We next set forth the factual findings relating to responsibility for the 952 delay days that occurred during the four years of the chempro contract. E. Evaluating Delay Chronologically 1. Year One After contract award on February 25, 1985, Amertex began the process of making purchase orders for the chempro suits. Almost immediately thereafter, however, preparations were delayed when the contracting officer (CO) advised Amertex that the government was planning to issue formal modifications of the specifications. Tr. 135 (L. Jacobson). The parties discussed the proposed changes at a meeting on April 9, 1985. PX-7; DX- 2162. The basic changes included the addition of a hydrostatic test to verify the proper formulation of the chemicals phoschek and polyox in the Type III charcoal laminate;° the change from elastic sleeve closures to hook and pile (velcro) fasteners; the replacement of the snaps on the coat with velcro fasteners; a 9. As mentioned earlier, the government sent the procurement into solicitation without quality control provisions for the new charcoal slurry. The addition of the hydrostatic test was intended to address this deficiency. In another change from past practice, the government decided that it would no longer accept contractor certification that the specification recipe for the charcoal lining had been followed. 32a Appendix C change in the type of slide fasteners (zippers) from brass to continuous element (plastic), and an increase in the length of the garment. The specification was also to be changed from specification D to specification E. DX-2162. On May 24, 1985, three months after contract award, Amertex received the official version of these changes in unilateral modification PO00001, (P1). PX-12. Modification P1 provided that delays and costs would be finalized by the administrative contracting officer.'® It would take the ACO three months to make a contractual extension for P1 and three years to finalize the increased costs related to this modification. The parties had another post-award meeting on June 24- 25, 1985 to discuss additional specification issues. At these meetings, the parties discussed problems with the state-of-the- ert charcoal laminate passing the testing requirements and, specifically, whether some of the tests had negative effects on the others. Tr. 2821; 2880-81; 3433-34. These testing requirements included the new hydrostatic resistance test, a carbon tetrachloride test, weight test for the cloth, and a “ball- burst,” or fabric strength, test. DX-2190; PX-13; PX-14; PX- 15; and PX-1007. The latter three standards were part of the solicitation. The parties discussed other issues including the “traceability” of treated materials for verification requirements and the transportation of items between the prime contractor’s facilities in Puerto Rico and subcontractor plants in Puerto Rico and the continental United States. 10. In the Amertex contract, two different types of modifications were issued: the “P” series, those modifications to the contract signed by the procurement contracting officer (PCO), and the “A” series, amendments to the contract signed by the administrative contracting officer (ACO). eer nats ee PEPER eR PRO Nya ME ee Te 7 33a Appendix C Three weeks later, on July 18, 1985, the parties executed a bilateral agreement, P2, which made two additional changes to the contract. This modification changed the specifications by correcting the size of the velcro fasteners for the atropine pockets and imposed a new component test requiring infrared reflection limits for the nyco outer shell cloth. PX-16. This modification also required Amertex to submit to the PCO within 30 days a proposed delivery extension for the P2 changes. P2 also provided that the ACO would finalize any price adjustment resulting from the changes therein. On July 31, 1985, the parties executed another bilateral agreement, Al, allowing Amertex to apply for permission to purchase “Long Lead Time Items and to commence Essential Production work prior to First Article Approval.” DX-2002. This amendment to the contract explicitly provided that the agreement changed neither price nor delivery. DX-2002. Al allowed Amertex to begin receiving progress payments to cover the costly expense of obtaining large quantities of base materials necessary for production build-up.'' According to the terms of the amendment, however, any non-essential preparatory work was still at the contractor’s risk. a. The “90-Day” Delay On August 19, 1985, the PCO determined that Amertex was entitled to a schedule extension totalling 90 days as a result of 11. These materials included carbon, butyl, tricot, polyurethane foam, and nyco. DX-2173. The estimated cost of the first batch of materials was $6.9 million. Defendant authorized progress payments up to $6,994,501, subject to a 95% reimbursement limitation under Defense Acquisition Regulation 7-104.35. DX-2201. By the end of 1985, Amertex would receive payments totalling $5,244,018, which covered less than one-third of the incurred costs for materials only. DX-2273. 34a Appendix C modifications P1 and P2. PX-20. That 90-day period was calculated by comparing the contract award date, February 25, 1985, with the date that Amertex received P1, which was May 26, 1985. PX-15. The government did not transmit to Amertex the new patterns that corresponded with the formal changes in Pi until June 19, 1985."* Defendant issued P2 a month after that. At trial, Amertex disputed the validity of the 90-day period as an accurate and reasonable calculation of the amount of delay caused by P1 and P2. For instance, Amertex contends that its performance of the contract was delayed because crucial preparations were slowed pending receipt of both the formal modifications and patterns. Plaintiff also claims that the 90-day figure was a premature calculation because it was not clear how much additional time would be necessary to produce components conforming to the two new testing requirements of P1 and P2. Moreover, plaintiff contends that, at the time, it was not clear what the net effect of the new fasteners would be in terms of production time and cost. The government proposed a bilateral modification, P-3, incorporating the 90-day assessment for P] and P2 and a provision waiving all delay claims for Pl and P2. Amertex refused to waive its claim for delay damages as a result of P1 and P2 and, accordingly, did not sign the modification allowing only a 90-day extension to the contract. 12. PX-20. Plaintiff also suggests government delay for the late transmission of the patterns and refers to DPSC Form 4234, APR 87, at 21, which describes Defense Acquisition Regulation § 52.245-1008. PX- 221. However, as Amertex presented no evidence that the government's failure to send the new patterns actually delayed plaintiff, we do not find any delay specifically for the late transmission of the patterns. 35a Appendix C Unilateral modification P3 poses another complication, however, which exemplifies the miscommunication and uncertainty that permeated the contract performance. Both parties refer to P3 as the “90-day extension.” However, P3 modified the First Article and mass production delivery schedule from a schedule set forth in a modification that was never issued by the government. P3 explicitly changed the First Article submission deadline from August 24, 1985 to November 22, 1985, a period of 90 days. However, P3 actually extended the date for the completion of the contract by only 89 days (from December 29, 1986 to March 28, 1987). Nonetheless, D’Onofrio opined that the government was solely responsible for compensable, nonconcurrent delay for the “90 days” embodied in P3. Therefore, we find the government solely responsible for at least 90 days of delay for modifications P1 and P2. Whether Amertex actually proved in excess of these 90 days of compensable delay and disruption for P1 and P2 changes is addressed hereafter. b. The First Article Submissions The next significant aspect of Year One in terms of delay relates to the contract’s requirement that Amertex submit five First Articles. The contract incorporated the solicitation’s First Article provision. That clause stated, in part, that “[bJefore First 13. In defendant's 1989 decision on Amertex’s delay claim, the contracting officer did not count the 90-day delay in P3 against the government. DX-3252. Defendant suggested, instead, that Amertex delayed the project by not having all of the slurry equipment until late July. Amertex offered convincing evidence that this item was not critical and that the slurry could be mixed by hand for the five sample units. Defendant also noted that one of three nyco suppliers stopped production, but Amertex established both that it had sufficient nyco on hand and that this item was not on the critical path prior to First Article approval. 36a Appendix C Article approval, the acquisition of materials or components for, or the commencement of production of, the balance of the contract quantity are at the sole risk of the contractor.” DX-2001. By reference to the solicitation, the contract set forth a production scheme which allowed the contractor 180 days to prepare the five-unit First Article, then thirty days for the government to review those samples, followed by 130 days for the contractor to build-up production rapidly in order to make the first delivery of 201,335 suits. Accordingly, First Article preparation was on the “critical” path of production during this period of the contract; both parties acknowledged that First Article preparation was a prerequisite to production. Thus, any delay in First Article approval delayed the performance of the contract as a whole. The contract signed February 25, 1985 incorporated by reference the First Article provisions in paragraph IIS of the solicitation. In so doing, the contract created another ambiguity that complicates the determination of delay during the first year of the contract. The contract referred to the solicitation’s First Article provisions which required the delivery of the five samples within 180 days of the contract award. In direct contravention of that provision, the contract also explicitly states that the First Articles were due on June 4, 1985, or within 98 days. The record is unclear about which due date was in effect and each of the parties makes internally conflicting statements. At one point, plaintiff had even developed a master schedule conforming to this earlier date. However, in Post-Trial Briefs, defendant and plaintiff both refer to the initial due date of the First Articles as August 24 or August 25, 1985, respectively, which is approximately 180 days from award. See I Def.’s Post-Trial Br. 1 (1993); Pl.’s Post-Trial Br. 16 (1993). We deem August 24, 37a Appendix C 1985 to be the operative first deadline for First Article submission. As noted, modification P3 changed that deadline for First Article presentation. On August 19, 1985, because of the changes in modifications P! and P2, the government decided to extend the First Article deadline by approximately 90 days, from August 24 until November 22, 1985. PX-20. Thus, prior to the August 24 deadline for the First Articles, the CO issued a determination that Amertex was entitled to 90 days of “excusable” delay due to “numerous specification and pattern changes.” PX-20. That determination was approved by the government internally on August 28. At about this time, a disagreement arose about the waiver language in modification P3, which set forth the 90-day extension. In response, the government unilaterally issued P3 which changed the First Article deadline to November 22. Regardless of the parties’ other disagreements about the modification spawned by the August 19 determination, P3 is a binding modification of the contract’s delivery schedule. P3 explicitly imposed a new First Article delivery deadline of November 22. Even though at trial the parties made contradictory Statements about the new First Article deadline, we find that both parties contemporaneously considered the new deadline to be November 22, 1985. This has significant ramifications for the calculation of delay based on what actually transpired during the First Article submissions. 1) The First Set of Samples Amertex submitted five First Articles on about September 10, 1985, two months ahead of the November 22 deadline set by modification P3. DX-2216. Those First Articles were rejected 38a Appendix C by the government on September 18, 1985.'* Had the initial First Articles been approved, Amertex would have been authorized to proceed with production ahead of schedule. Nevertheless, because September 10 was well in advance of the contractual deadline, the rejection of those First Articles cannot be said to have truly “delayed” or extended the project for purposes of compensable delay. Therefore, any impropriety in that rejection is immaterial to the determination of the extent to which the contract was delayed beyond the 672-day performance period originally agreed. In response to the rejection of the September First Articles, Amertex opted to submit new First Articles by the binding deadline rather than to appeal the rejection of the first submission. Tr. 163. While Amertex was preparing for the second submission, the government unilaterally issued modification P4 which made several new changes.'° P4 changed the applicable specification from “E” to “F (GL).” Additionally, P4 authorized the limited use of brass zippers, altered new specifications that had been inserted by modifications Pl and P2, and corrected some “discrepancies found between the patterns and 14. The government attempts to defend its rejection of the September First Articles, in part, by citing plaintiff's November 29, 1985 letter accompanying the second First Articles. DX-2254. In that letter, Amertex stated: “We acknowledge the comments of your letter dated 7 October 1985 in which you pointed out the defects encountered in the first five Chemical Protective Suits submitted for First Article evaluation.” DX-2254. 15. P4 also stated that any price or delivery extension would be finalized by the ACO. The changes in P4 were definitized almost a year and a half later in a bilateral amendment to the contract, A3, dated March 9, 1987. DX-2002. A3 fixed the cost of the changes in P4 at $1,240 and contained a release of liability for the P4 changes. DX-2002. 39a Appendix C specifications” relating to the atropine pocket construction and to the trousers. DX-2002. Then, on November 4, 1985, the parties agreed to modification P5, approving certain subcontractors and designating locations for government inspection of chempro components. Bilateral modification P5 provided that no delay in deliveries would result from the changes therein. With the modified contract specifications and patterns, Amertex continued working toward the November deadline for the First Articles. 2) The Second Set of Samples Amertex submitted the second set of First Articles on November 29, 1986, seven days late. PX-26. Amertex avers that it was tardy because it was awaiting clarification of the specifications for the zippers on the legs of the trousers. DX- 2254. However, it appears that plaintiff received clarification by telephone around November 12. Therefore, Amertex’s evidence is insufficient to support its contention that the government is responsible for Amertex’s submission of the November First Articles seven days late. Furthermore, the contract forbade Amertex to begin full-scale production until the First Articles were approved; consequently, these seven days delayed performance of the contract and are chargeable to Amertex. In the letter transmitting the November First Articles, Amertex acknowledged the presence of some deviations in the new set of samples. DX-2254. Amertex described these deviations as minor and correctable in production and, alternatively, as due to inconsistencies between the specifications and the patterns. Jd. On December 18, 1985, the government, through quality 40a Appendix C assurance specialist Hepner, indicated its concern about some discrepancies between the specifications and the First Articles. In response to these criticisms, Amertex reiterated, with greater specificity, its position that the deviations were minor and correctable in production. See, e.g., DX-2262. At the same time, Amertex requested that the government not further delay authorization to commence production. /d. The government ignored this request and officially rejected the second submission on December 30, 1985. DX-2268. This was one day later than allowed by the solicitation, which provided that the government had “30 days .. . [to] notify the Contractor, in writing, of the conditional approval, approval, or disapproval of the first article.” DX-2001. D’Onofrio acknowledged defendant’s sole responsibility for this one day of delay for tardy evaluation and we so find. The key issue for attributing the remaining delay in Year One is the propriety of the government’s rejection of the November First Articles. The parties disagree about responsibility for the delay associated with that rejection. In the December 30 letter rejecting those samples, the government identified 109 defects. (Some of the deviations were found on every suit and thus were counted five times.) On a superficial level, such a significant number of defects would suggest that the government acted reasonably and should bear no responsibility for the delay related to the rejection. On closer examination, however, we find that the government improperly rejected the November samples'® and thus delayed the performance of the contract. 16. All of these samples were destroyed by the government during First Article evaluation. DX-2268. aoe Ci ac aes ae at ae ates anal 4la Appendix C a) Bases for Second Sample Rejection The production of a single chempro suit in the Amertex contract involved nearly 200 manufacturing operations. Some of these operations were crucial to the effectiveness of the uniforms in the event of chemical exposure. Other operations were not so closely related to the efficacy of the suit, such as the operation prescribing the stitch for finishing the raw edge of material for a pocket. Indeed, the table of defects for specification F classified over 200 potential deviations as “minor,” “major,” or “critical.” PX-235. In its rejection of the November First Articles, the government scored 109 imperfections, 103 of which were classified as minor deviations. In the rejection of the November First Articles, the government scored as defects numerous unreasonably picayune items. These defects included 32 instances in which a stitch margin, such as the placement of a belt loop on the trousers, was purportedly out of alignment by as little as 1/32 of an inch. Defendant also scored 13 defects for the presence of stubs, small knots of thread on the face of fabric which are inherent to the weaving process. Regarding the alleged stub deviations, plaintiff presented persuasive evidence that the government’s specifications were defective in that no slubs whatsoever were tolerated in the end product but slubs were acceptable in the component fabric. As to the other minor deficiencies, plaintiff provided compelling evidence that these deviations were most probably the result of either incorrect interpretations by the examiners or inconsistent specifications. Even government witnesses at trial conceded that the minor defects were mentioned only for advisory purposes. Tr. 4708 (Hepner) and Tr. 5875 (Marshall). 42a Appendix C Such minor imperfections should not have been allowed to keep plaintiff's plants idle, delaying the start of mass production. The remaining scored defects cast further doubt on the propriety of the government’s rejection of the November First Articles. Specifically, Hepner testified that she identified 5 “major” defects relating to some, but not all, of the “bartacks,” a particular kind of stitching.’ Hepner claimed that after ripping apart the bartacks, she counted only 14 stitches instead of the 28 required by the specifications. Plaintiff offered strong evidence that the number of stitches could not be counted accurately after a bartack is made because the perforations are extremely close together.'* The evidence also supported plaintiff’s contention that Amertex made all bartacks using an unvarying setting of 28 stitches via cam operated sewing machines. Tr. 2034-36 (Ludwig). Defendant also contends that the rejection of the November samples was justified because the First Articles contained one instance in which a velcro sleeve tab was out of alignment by a quarter of an inch. At the time, the defect table classified a “sleeve tab set crookedly or poorly shaped” as minor, but a “sleeve tab and pile tape out of alignment or not able to be fastened properly” as critical. PX-235. Hepner scored one minor 17. Hepner similarly scored 20 “minor” defects for bartacks in which she counted only 14 stitches. 18. Moreover, a person could mistakenly conciude that there were half as many stitches as there really were; that is, those experienced in textile manufacture count stitches by the number of perforations made by a needle. A novice might conclude that a piece of thread between two perforations was one stitch, whereas those in the industry would count two stitches. 43a Appendix C and one critical defect for two deviations involving the sleeve tabs: the former for a “crooked” sleeve tab and the latter for a “1/4 inch” deviation. The table of defects, however, neither specified the distinction between “crooked” and “out of alignment,” nor prescribed any measure for tolerances necessary for mass production of the suits. There is also no evidence that the velcro tab in the First Article did not fasten; instead, in the detailed rejection letter, only a quarter inch variation in the tab was identified. Moreover, the deficient ambiguity in the table of defects was later corrected, clarifying that only if the tabs were So misaligned that they could not be fastened could such deviations be called “critical.”'® In sum, we find that had defendant acted properly in its evaluation of the First Articles, the quarter inch misalignment of the velcro tab would have been considered both minor and easily correctable. Finally, the evidence relating to the third First Article, which was submitted on January 22, 1988, also bears on the persuasiveness of the government's witnesses relating to the November First Articles.” The government concluded that there were zero defects in the third set of samples, that is, that they were perfect. PX-43 (stating “[n]o departures were found: production is authorized”). At trial, however, plaintiff used the 19. PX-127. Furthermore, the velcro sleeve specification, which had been added by P1, had not been previously verified as accurate for mass production. In fact, the velcro tab operation was corrected and adjusted several times during the life of the contract. 20. It is also noteworthy that in a later chronology of the garment, the government noted that it made specification changes on December 26, 1986 “resulting from Ist article to clarify Table of Defects such that it coincides with Table of Operations requirements.” DX-59. 44a Appendix C one suit preserved from the January submission to illustrate the disparities in the government’s position. The suit was shown to have some obvious but easily correctable defects that would have caused rejection had the inspectors applied the same “no tolerances” approach as was used in the earlier submissions. Moreover, the government’s position was weakened by Hepner’s insistence that in January she ignored at least five defects in the third First Article submission because Amertex’s president promised that the operation would be performed properly in production. Those deviations involved the placement of a snap next to a seam in contravention of the specification’s faulty requirement that the snap be placed through the seam.”! Plaintiff’s president, Leo Jacobson, convincingly testified that he never made such a statement because following the specification to the letter would have destroyed the seam of the trousers, critically damaging the functionality of the suit.” Furthermore, even with the deviations in the third First Article, defendant’s own expert testified that he would have “bought” the samples. Tr. 5789 (Marshall). Hepner maintained that any defect was cause for rejection, even though that was not the normal practice. Tr. 4707-08 (Hepner). All of these reasons convince us that the government acted 21. Bud Marshall, one of defendants sewing experts, agreed that the operation could not be performed according to the specification because doing so would damage the fastener “almost 100% of the time” and also cut the stitches that hold the back seam of the pants together. Tr. 5947-48. 22. Even though this specification requirement was plainly defective, it took the government nearly fifteen months to transmit to Amertex formal permission to move the location of the snap. PX-118. 45a Appendix C improperly in its outright rejection of the November First Articles. We are persuaded that defendant should be held accountable for the delay damages resulting from its application of a “no tolerances,” or perfection, standard during the November First Article inspection. b) Assigning Legal Responsibility for the Second Rejection Aside from disputing plaintiff’s factual evidence, defendant attempts to justify the rejection of the November samples with essentially two legal arguments. First, defendant contends that it is not responsible for unreasonably delaying the project because plaintiff has not established by “well-nigh irrefragable proof” that the government acted in “bad faith.” Second, defendant claims that it acted reasonably because it could reject due to the presence of any defect. These contentions merit additional discussion. Defendant seems to suggest that, even if the government acted unreasonably in rejecting the samples and delaying production, in the absence of incontrovertible bad faith, plaintiff cannot prevail on the First Article issue. Proof of bad faith, however, let alone “well-nigh irrefragable proof” of malice, has never been the touchstone for proving entitlement to an equitable adjustment for damages caused by delay and disruption. Instead, to recover for delay, plaintiff must prove that defendant unreasonably delayed the completion of the contract, the defendant proximately caused the delay, and that plaintiff’s costs were increased as a result. See, e.g., Mega Constr. Co. v. United States, 29 Fed.Cl. 396 (1993). Reasonableness, not bad faith, is the essence of delay analysis. Cf. J.D. Hedin Constr. Co. v. United States, 171 Ct.Cl. 70, 347 F.2d 235 (1965). 46a Appendix C Furthermore, the cases cited by defendant are not delay and disruption cases, but are cases involving allegations of bad faith termination. See, e.g., Sanders v. U.S. Postal Service, 801 F.2d 1328, 1331 (Fed.Cir. 1986) (citing Kalvar Corp., Inc. v. United States, 211 Ct.Cl. 192, 543 F.2d 12980 (1976), cert. denied, 434 U.S. 830 (1977)). The strength of Kalvar’s “well-nigh irrefragable proof” language appears to have been restrained by the Court of Appeals for the Federal Circuit's subsequent conclusion that a contracting officer’s decision to terminate a contract for default may be set aside for reasons short of bad faith. Darwin Constr. Co., Inc. v. United States, 811 F.2d 593 (Fed.Cir. 1987). Even in a termination claim, the circuit court stated: “There is nothing in these decisions to support the Government’s contention that the aggrieved contractor must add another layer of proof by demonstrating that the decision was also made in bad faith.” Jd. at 598. Similarly, there is no support for extending the bad faith burden to the settled law relating to proof of fault and injury in the delay claim regime. As to defendant's second assertion, that the government is entitled to reject outright the First Articles based on the presence of a single deviation, we are similarly unpersuaded. The contract itself is internally conflicting. For example, the specifications contain a clause that states that the samples “shall be examined for the defects specified in 4.4.3.1 and 4.4.3.2. The presence of any defect shall be cause for rejection of the First Article.” PX- 235. Yet, the contract also states that there are three options for First Article submissions: accept, conditionally accept, or reject. DX-2001. The contract further indicates that unconditional or conditional approval does not relieve the contractor of the obligation to comply with the specifications during production. DX-2002. If rejection were mandated by the presence of any defect, then the availability of conditional approval would be devoid of meaning. One contractual provision, like a statutory 47a Appendix C provision, should not be read in a way that renders accompanying provisions superfluous. See, e.g., Northwest Marine Iron Works v. United States, 203 Ct.Cl. 629, 639, 493 F.2d 652, 657 (1974). Moreover, regardless of the superficial clarity of the “any defect” language, the court is not bound to follow the literal language when doing so would lead to absurd results. Jd. Cf. United States v. Wilson, 503 U.S. 329, 334 ( 1992); United States v. Providence Journal Co., 485 U.S. 693, 708, 710 ( 1988) (Stevens, J., dissenting); Best Power Technology Sales Corp. v. Austin, 984 F.2d 1172, 1175-76 (Fed.Cir. 1993). In the case at bar, the production of a single chempro suit involved numerous operations and hundreds of potential deviations that were graded by their severity. Accordingly, it would be unreasonable, if not absurd, to interpret the contract as giving defendant unlimited power to deny acceptance, or conditional acceptance, based on the presence of a single imperfection, no matter how slight. The appropriateness of this construction of the contract is buttressed by the contract’s Default Clause, which gives the government the right to terminate the contract for default based on the rejection of a First Article. DX-2002. Although defendant did not default terminate the contract at this early juncture, the severe implications of rejection warrant our approach to reviewing First Article evaluations. In termination cases, the ability to terminate for any deviation in the items delivered has been modified by the “substantial compliance” rule. See, e.g., Radiation Technology, Inc. v. United States, 177 Ct.Cl. 227, 232, 366 F.2d 1003, 1005 (1966); see also Appeal of U.S. Optics Corp., 75-2 BCA 11,603, ASBCA No. 18,972 (A.S.B.C.A., Nov. 25, 1975). In general, this rule modifies the doctrine of strict conformity, which, when “coupled with a summary termination power, would place in the hands of a contracting officer an unfettered right to reject... .” Radiation Technology, 366 F.2d 48a Appendix C at 1005. The substantial compliance rule strikes a balance between the competing rights of both parties. The Armed Services Board of Contract Appeals has had frequent opportunity to examine this rule in the special context of First Article rejections. Over the past three decades, the Board has addressed dozens of First Article rejection cases and has refined the substantial compliance rule into the “correctable” (also known as the “easily correctable”) standard. The Board has consistently held that: [T]he Government may not demand strict compliance with the specifications [with respect to First Articles] as with supplies tendered for final delivery. The purpose of a First Article is to discover defects. Therefore, if defects are discovered and are easily correctable in production the Government may not reject the [samples]. Appeals of Defense Technology Corp., 91-3 BCA 24,189, ASBCA No. 39,551, ASBCA No. 40,308 (A.S.B.C.A., July 17, 1991) (citation omitted). Accordingly, “[dJeficiencies in a first article that are correctable in production are not a valid basis for an outright disapproval . . . .” Appeal of Advanced Precision Industries, Inc., 89-2 BCA 21,597, ASBCA No. 34,676 (A.S.B.C.A., Jan. 9, 1989); see International Tel. & Tel. Corp., ITT Defense Communication Division v. United States, 206 Ct.Cl. 37, 509 F.2d 541 (1975). Indeed, in a case strikingly similar to plaintiff’s, the Board applied this standard in favor of another chempro suit manufacturer whose second set of First Articles had been rejected. Appeal of Winfield Mfg. Co., 88-1 BCA 20,353, ASBCA No. 34,901 (A.S.B.C.A., Nov. 19, 1987). 49a Appendix C The Board’s well-reasoned approach to reviewing decisions to reject First Articles is equally applicable to the controversy at bar. Additionally, rejecting the samples was especially inappropriate in light of the government’s election to use a five unit, as opposed to an expanded, First Article. The government's Chief of Technical and Quality Assurance Division, Director of Clothing and Textiles had stated: “The ultimate purpose of the first article is to demonstrate that the contractor possesses the technical expertise necessary to produce the specification item and to ensure a product with requisite quality.” PX-287. On cross-examination, Hepner, the quality assurance representative who made the decision to reject the November First Articles, concurred that this was in fact the purpose of a small-sample First Article. Tr. 4701. The government inspectors apparently ignored both this purpose and the well-settled “easily correctable” standard in withholding approval of the November First Articles. Although the evidence at trial was conflicting, we are convinced that all of the defects identified were easily correctable and not significant. Therefore, we find that the government acted unreasonably and improperly in rejecting the second First Article submission. The improper rejection resulted in a 53 day delay in the authorization of production and this entire amount is charged to the government. c. Other Significant Events at the End of Year One During the First Article process, the government informed Amertex that several changes to the specifications were in process, including a correction for performing the sleeve tab 50a Appendix C operation. PX-35. The changes were not issued before the end of the first year of the contract and did not arrive until well after mass production was authorized by the government.” Additionally, Amertex informed the government that the specifications did not provide an adequate method for spot or stain removal. PX-28. Several spots had been scored on the September First Article submission and, accordingly, the contractor was concerned about meeting the specification requirement for cleanliness. Also, during handling, the charcoal lining had an inherent tendency to generate charcoal! dust that smudged the outer shell. In January 1986, defendant provided a soap and water method for removing stains, but noted that great care had to be taken with the garments because any soap residue would destroy the water resistant finish. PX-33. Ultimately, this stain removal method would prove to be inadequate for many of the marks inherent to the mass production of such a garment, including some which were caused by an interaction between the required quarpel coated thread and the specified fabric components. In addition to these issues, on January 17, 1986, defendant modified the specifications to increase the allowable weight of the charcoal lining.** This modification, P6, implicitly recognized the unavoidable increase in weight caused by the modified specification requirements. In fact, the letter recommending the weight increase stated: “These changes 23. These modifications were formally incorporated in the contract in June 1986 by modification P7. DX-2002. 24. The maximum allowable weight per square yard of the lining cloth was increased from 9.5 ounces to 10 ounces. The modification also corrected two other inconsistencies in which the specifications contradicted the patterns or were otherwise inadequate. PX-40. Ni ear” ya a errr ee re aay eae ei otc a occ Sla Appendix C [were] required to eliminate the unnecessary restrictiveness of the existing requirements.” PX-29. P6, a unilateral modification, also included a clause providing that no increased costs or delays would be allowed for this change. Plaintiff did not sign that modification nor was plaintiff asked to do so. Moreover, as noted above, defendant rejected Amertex’s second First Article submission on December 30, 1985. PX-32. Amertex received provisional approval of its third set of First Articles on January 28, 1986, but did not receive authorization to proceed until February 24, because the government needed to complete additional testing of the samples. During this period, Amertex notified the government that its preparatory work had been delayed as a result of numerous government actions during the first year. PX-37. On January 28, 1986, Amertex estimated that its build-up schedule had been delayed by 105 days more than the 90 days allowed by modification P3. Therefore, plaintiff requested a delivery extension for this amount of time, with final delivery to be made by July 13, 1987. PX-37. Defendant did not issue an official delivery extension until nearly fifteen months after this request. Additionally, while awaiting First Article approval, Amertex began small-scale production build-up at its own risk. By the time that authorization for mass production was received on February 24, 1986, Amertex had cut approximately 59,358 units 25. At that time, Amertex advised the government that it “understood” the changes made through modification P7. At the same time, Amertex also advised the government that the company was in the process of quantifying the economic impact of changes and noted the delay to preparatory work caused by the modifications. Additionally, as Amertex later stated, once mass production began, the discrepancies and impossibilities started impacting the company’s ability to meet the plan. DX-3233 at 4; see infra. 52a Appendix C of butyl,”° 72,118 units of nyco for both coats and trousers, and had sewn 14,670 nyco coat outer shells and 15,670 nyco trouser outer shells. Because of the deficiencies in the lining specifications, Amertex had only cut 50 units of lining prior to First Article approval. However, because First Article approval was on the critical path of production during this period, any delay in lining production caused by defective specifications did not yet manifest in delay to the project as a whole. d. Distribution of Delay in Year One There were 154 delay days during the 364 day period encompassing the first year of the contract. D’Onofrio acknowledged government responsibility for 90 days of delay related to the first two modifications of contract and four delay days due to tardy evaluations of the First Articles. Of the remaining 60 days, the court finds that plaintiff is solely responsible for seven delay days for late submission of the November First Articles. We further find that the government is solely responsible for 53 delay days resulting from the unreasonable rejection of the November First Articles. Accordingly, for the first year of production, the government was solely responsible for 147 days of delay, and Amertex was solely responsible for seven days.”’ This delay and disruption 26. Units are used rather than yards of material for the purpose of tracking production of the garments. To say that 59,358 units of butyl were cut, for instance, indicates that Amertex had cut sufficient butyl for the production of 59,358 chempro suits. 27. From this point onward, we divide delay into two categories: first, that caused solely by the government, and second, that caused either solely by Amertex or concurrently by both parties. Only delay caused solely by defendant is compensable; thus, it is unnecessary to differentiate with respect to delay not solely attributable to defendant. 53a Appendix C meant that Amertex and its subcontractors had almost half a year of “down-time” before receiving authorization to begin full- scale production. 2. Year Two Once Amertex received authorization to proceed in late February 1986, the chempro suit production was fraught with mistakes and disruptions caused by both parties. Overinspection and inadequacies in the specifications, however, were not the only causes of production difficulties. The government also experienced substantial delays in approving butyl because of complications at its testing site, Aberdeen Proving Grounds (Aberdeen). Amertex, too, experienced problems in its cutting operations that adversely affected its sewing production. Furthermore, at the beginning of the second year of the contract, some financial issues arose which implicate both the delay and termination claims. Ultimately, Amertex’s cash-flow Status provoked the break-down of the parties’ contractual relationship. The contractor’s financial difficulties began to crystallize near the start of the second year. At that time, two financial issues were outstanding: compensation for long-lead time items (LLTI) and also for P1 and P2 changes. First, in terms of LLTI payments, the manufacture of chempro suits involved the coordination of four functional categories of production: materials supply, materials cutting, sewing, and packing. Amertex had obtained approval in amendment A] to begin essential pre-production work, such as materials purchase, prior to First Article approval. The government also authorized advance progress payments to cover this work and it set-aside about $7 million to do so. 54a Appendix C The LLTI charges were subject to the same reimbursement rate as ordinary progress payments which were available after First Article acceptance. The contract provided that Amertex was entitled to progress payments up to 95% of incurred costs on the contract price of $96,345,493.80. In addition to Amertex’s own equity, plaintiff arranged for a $5 million line of credit with Banco Popular de Puerto Rico (Banco Popular) to cover the remaining 5%. By the time Year Two began and First Article approval was obtained, Amertex had incurred more than $16 million in expenses for materials alone. DX-2273. This amount was exclusive of fixed and variable costs related to preparing facilities for production, employing workers, making the First Article samples, and performing research and development related to complying with the P1 and P2 modifications, as well as Amertex’s expenses for manufacturing in advance of authorization to proceed. By the first week of January, Amertex had received about $5 million toward expenses for LLTIs. Another $1.5 million payment request was being processed but had not yet been paid. On January 10, 1986, Amertex requested (with itemized documentation) an additional long-lead time progress payment for the $9.7 million dollar gap between sunk material costs ($16,741,701) and the amount initially authorized for early purchase of essential materials ($6,994,501). DX-2273. The government disregarded this request, stating in internal commentary that this large gap in funding for materials costs “won’t make any difference once [First Article] approval comes through.” Jd. As described earlier, the First Article sample was not approved until February 24, 1986, the one-year anniversary of the contract. Two more months would pass (until April 28, 1986) before Amertex received progress payments that covered Ln nner nc cc ener eee ne ee ee ee eee eee a 55a Appendix C the amount of its January request. As noted, that $16 million covered only material purchases; Amertex was financing the remainder of its mounting expenses apparently without progress payment reimbursement up to that point. Second, it is noteworthy that at the outset of Year Two, defendant had not finalized the price adjustment that Amertex was due for the changes in P1 and P2. Perhaps the most significant aspect of these changes related to the imposition of the hydrostatic test to verify the formulation of state-of-the-art slurry for the polyurethane foam. Defendant was aware, through its frequent consultations, of the significant time and money expended by Amertex’s subcontractors in their Struggle to manufacture a cured polyurethane foam that conformed to the requirements of that test, especially in conjunction with the other lining specifications such as the weight requirement and the ball- burst and the CCL, tests.” 28. The modified specifications for the state-of-the-art charcoal lining also hampered Amertex’s ability to secure approved lining for introduction into the production line. Shortly before production authorization, the government eliminated the “unnecessar[ily]” restrictive weight requirement for the lining material. PX-29. However, lining produced according to the specifications continued to fail other testing requirements. Tr. 2880-86 (Sallavanti). To pass the new hydrostatic test requirement, the lining had to be cured at high heat. Tr. 3432-34; Tr. 2878-81. The government’s expert on the lining cloth acknowledged that the specifications relating to the burst requirement were flawed. Tr. 4250-51 (McKinney); DX-2351. After months of problems with the lining specifications, the government changed the ball-burst test requirements in recognition of this problem. DX-2002. Issued July 23, 1986, unilateral modification P12 noted that any costs and delay would be finalized by the ACO. No adjustment specific to P12 was ever issued. 56a Appendix C Even though P1 had been issued nine months before First Article approval, Amertex had not received even a provisional adjustment by the time Year Two began. Five months prior to First Article approval, Amertex submitted a cost estimate of $11,210,210 for Pl and P2 changes. This estimate included disbursed costs, such as research and development for the lining, and also prospective costs, such as materials and labor related to the substitution of the velcro fasteners. That estimate did not purport to cover any delay compensation relating to the issuance of Pi and P2. The government had not finished its review of the proposal and audits of the prime contractor and subcontractors by the time of First Article approval. Shortly after the start of Year Two, Amertex revised its estimate of P! and P2 costs to $15,662,531. Amertex did not receive a provisional adjustment for costs related to P] and P2 until nearly two years after production was authorized. (Eventually, in January 1988, the government allowed a provisional increase in the contract price for those first year modifications in an amount over $8 million, which was finalized in September 1988 at $12.9 million.) Thus, Amertex began Year Two without an agreement on compensation for the changes issued in Year One and the government would not finally definitize those changes until just months before the default termination, which was based in part on Amertex’s financial condition. Although these financial disagreements do not entitle Amertex to delay compensation, they do shed light on the context in which production build-up began. Due to the lack of prompt compensation for these expenses combined with the 154 delay days in Year One, Amertex and its subcontractors began Year Two under financial strain. This financial stress gre [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1522%3A1. Public record. Not legal advice.