Precision Standard, Inc.

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of -- )
)
Precision Standard, Inc. ) ASBCA Nos. 58135, 58205
)
Under Contract No. SPM4A7-08-M-9187 )

APPEARANCES FOR THE APPELLANT: Nancy M. Camardo, Esq.
Kevin M. Cox, Esq.
Camardo Law Firm, P.C.
Auburn, NY

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

OPINION BY ADMINISTRATIVE JUDGE O'SULLIVAN
ON THE PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT

These appeals arise from a contract awarded by the Defense Logistics Agency to
Precision Standard, Inc. (PSI). The parties have cross-moved for summary judgment.
We have jurisdiction pursuant to the Contract Disputes Act of 1978 (CDA), 41 U.S.C.
§§ 7101-7109. We grant the government's motion in part and otherwise deny the
motions.

STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTIONS

1. On 30 April 2008, the Defense Supply Center Richmond (DSCR), now DLA
Aviation (DLA), awarded Contract No. SPM4A7-08-M-9187 (hereinafter the contract) to
PSI. The contract required the manufacture and delivery of 138 aircraft skins for the
A-10 aircraft at a price of $395 per skin. The total price of the contract, including the
separately-priced first article, was $57,010. Inspection/Acceptance was to take place at
origin at PSI's plant in Ferndale, Michigan. The delivery point was the Defense Depot at
San Joaquin, Tracy, California (DDJC). The contract was administered by the Defense
Contract Management Agency (DCMA). (R4, tab 1 at 1, 7-8, 13)

2. The skins are made of layers of material held together by resistance spot welds.
They are not stiff or rigid, but are somewhat pliable. They are used to line the inside of
the engine cowling and are mounted about 10 inches in front of the fan blades. Each skin
covers 180 degrees of the circumference inside the cowling, and together a pair of skins
will cover the entire 360 degree arc inside the cowling. Given their location, the skins are
subject to significant levels of vibration, force, and pressure. If the skins, and particularly
the welds holding the material layers in place, were to fail, pieces could be sucked into
the aircraft engine with catastrophic results. (Gov't Statement of Undisputed Material
Facts (GSUMF) ~~ 2-3)

3. The contract required PSI to deliver a first article to the Engineering Support
Activity (ESA) at Hill Air Force Base (Hill AFB) 200 days after award or by
16 November 2008. ESA had 120 days in which to evaluate the first article. The price of
the first article was $2,500. (R4, tab 1at2-4,9, 13-14)

4. The production quantity consisted of 138 skins. Contract line item number
(CLIN) 0001 consisted of 108 skins and CLIN 0002 consisted of 30 skins. Both CLINs
required delivery 200 days after approval of the first article. (R4, tab 1 at 2, 7-9)

5. Drawing No. 160D411002 Rev M, dated 10 June 1997, was the main (basic)
drawing for the skins and is also the part number for the skins. Note 3 of the drawing
required spot welding to be done in accordance with specification A-F401. (R4, tab 1 at 6,
tab 46 at 1)

6. On 25 October 2010, the government released Engineering Order (EO) 10Al244,
amending Drawing No. 160D411002, as follows:

20. DESCRIPTION OF CHANGES/REMARKS

This EO is to insure that the spot welds are radiographically
inspected to find cracks resultant of manufacture before they
are allowed to propagate in usage.

A. CHANGE NOTE 3 INDRA WING NOTES AS
FOLLOWS:

WAS

3. SPOTWELD PERA-F401. LOCATION OF
SPOTWELD TO BE+/- .12

IS

SPOTWELD AND RADIOGRAPHICALL Y INSPECT
SPOTWELDS IN ACCORDANCE WITH A-F401 AND

2

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 A WS D 17 .2 .... LOCATION OF SPOTWELD TO BE
+/- .12

(R4, tab 47)

7. Paragraph 4.7.1.1 of A WS DI 7.2, entitled "Visual Discontinuities in Test
Specimens," required the welds to be "free of cracks" (R4, tab 7 at 13). Paragraph 4.7.2,
entitled "Radiographic Acceptance Criteria," required at paragraph 4. 7 .2.1 that "[a]II
welds .... be free of cracks" (id. at 15). Paragraph 5 .2.2.6 of A WS D 17 .2, entitled "Visual and
Radiographic Requirements," stated that "[r]adiographic examinations ... shall not be required,
unless otherwise specified in the applicable drawing or part specification" (id. at 21 ).

8. The contract incorporated the following Federal Acquisition Regulation (FAR)
clauses by reference, each providing in pertinent part as follows:

FAR 52.233-1, DISPUTES (JUL 2002)

(i) The Contractor shall proceed diligently with
performance of this contract, pending final resolution of any
request for relief, claim, appeal, or action arising under or
relating to the contract, and comply with any decision of the
Contracting Officer.

FAR 52.243-1, CHANGES-FIXED-PRICE (AUG 1987)

(a) The Contracting Officer may, at any time, by
written order ... make changes within the general scope of this
contract. ...

(b) If any such change causes an increase or decrease
in the cost of, or the time required for, performance of any
part of the work under this contract, whether or not changed
by the order, the Contracting Officer shall make an equitable
adjustment in the contract price, the delivery schedule, or
both, and shall modify the contract.

FAR 52.246-2, INSPECTION OF SUPPLIES-FIXED-PRICE (AUG 1996)

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 (k) Inspections and tests by the Government do not
relieve the Contractor of responsibility for defects or other
failures to meet contract requirements discovered before
acceptance. Acceptance shall be conclusive, except for latent
defects, fraud, gross mistakes amounting to fraud, or as
otherwise provided in the contract.

FAR 52.247-34, F.O.B. DESTINATION (Nov 1991)

(b) The Contractor shall-

(4) Be responsible for any loss of and/or damage to the
goods occurring before receipt of the shipment by the
consignee at the delivery point specified in the contract.

FAR 52.249-8, DEFAULT (FIXED-PRICE SUPPLY AND
SERVICE) (APR 1984)

(a)(l) The Government may ... terminate this
contract. .. if the Contractor fails to--

(i) Deliver the supplies or to perform the services
within the time specified in this contract or any extension;

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

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

The contract also included a DSCR local clause as follows:

FAR 52.246-9G01, WARRANTY OF SUPPLIES OF A
NON-COMPLEX NATURE DSCR (MAY 2001)

(a) Definitions: "Acceptance," as used in this clause,
means the act of an authorized representative of the
Government by which the Government assumes for itself, or
as an agent of another, ownership of existing supplies ....
"Supplies," as used in this clause, means the end items

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 furnished by the Contractor and related services required
under the contract. ...

(b) Contractor's Obligations.

( 1) Notwithstanding inspection and acceptance
by the Government...the Contractor warrants that at time of
delivery:

(i) All supplies furnished under this
contract will be free from defects in design, material or
workmanship and will conform with the requirements of this
contract; and

(ii) The preservation, packaging,
packing, and marking, and the preparation for, and method of,
shipment of such supplies will conform with the requirements
of this contract.

(c) Remedies Available to the Government:

( 1) The Contracting Officer shall give written
notice to the Contractor of any breach ofwarranties ... within
one year from the last delivery under the contract.

(2) Within a reasonable time after the notice,
the Contracting Officer may either -

(ii) Retain such supplies and reduce the
contract price by an amount equitable under the
circumstances.

(3)(i) If the contract provides for inspection of
supplies by sampling procedures, conformance of supplies or
components subject to warranty action shall be determined by
the applicable sampling procedures in the contract.

(R4, tab 1 at 12-15, tabs 42-43)

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 9. The first article was to be delivered within 200 days after contract award, or by
16 November 2008 (SOF ~ 3). For reasons that are not apparent from the record, PSI did
not ship the first article and first article test report to DLA until 7 September 2010. The
first article test report stated, among other things, that the first article was manufactured
in accordance with the technical data package, Drawing No. 160D411002 and A-F401.
(R4, tab 11 at 7)

10. Ms. Jerri C. Stuart, the designated DCMA quality assurance representative
(QAR), recommended approval of the first article on 7 September 2010:

1. Material meets all requirements of the contract, drawings
and specifications.
2. Material meets all the requirements of the applicable
special process and Quality Assurance Requirements
(QARs).
3. Material meets all the requirements of the contractor (or
Government) testing provisions.
4. Recommend Approval of the FAT.

(R4, tab 11) QAR Stuart gave the first article a "Pass" on workmanship (R4, tab 11 ).

11. The contract required PSI to submit a welding certificate with the first article
(R4, tab 1at3). Since there was no mention of spot welding in any of the inspection
reports, job travelers or other documents accompanying the first article, the government
requested PSI to provide a welding certificate on 13 October 2010 (R4, tab 13 at 1-2).
On 14 October 2010, PSI submitted a "Certificate of resistance spot weld" dated
20 August 2010, which stated as follows:

This is to certify that above mentioned part has been spot
welded in accordance with A-F401 and AMS-W-6858
Class A.

(R4, tab 13 at 33, tab 14 at 2)

12. On 6 December 2010, the government issued Modification No. POOOOl,
conditionally approving the first article and extending the delivery date for the 138
production units from 3 October 2009 until 24 June 2011 (R4, tab 2). The conditional
approval by First Article Program Manager Tammy Hamel, dated 29 November 2010,
noted that no certification for spot welding was initially received and that there was no
mention of spot welding in any inspection report, job traveler, etc. These discrepancies
were required to be corrected in production and the conditional approval specifically
requested that the appropriate DCMA QAR ensure that the discrepancies were corrected

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on the production items. The conditional approval further stated that the approved first
article was not to be used as a manufacturing standard and that production items must
meet the contract requirements. (R4, tab 14)

13. On 19 May 2011, based on information received from PSI, DCMA issued a
"Delay Notice," advising cognizant personnel that PSI would not deliver the entire
quantity of 138 skins on the 24 June 2011 due date (R4, tab 16). Rather, PSI estimated it
would complete 40-50 skins by that date (id.).

14. By 3 August 2011, PSI had shipped 70 skins:

-Shipment PSI0002: 10 skins on 10 May 2011
-Shipment PSI0003: 10 skins on 25 May 2011
-Shipment PSI0004: 10 skins on 20 June 2011
-Shipment PSI0005: 15 skins on 12 July 2011
-Shipment PSI0006: 15 skins on 25 July 2011
-Shipment PSI0007: 10 skins on 3 August 2011

(R4, tab 58 at 7, tab 59 at 7, tab 61 at 7, tab 62 at 7, tab 63 at 7, tab 64 at 7)

15. DCMA QAR Stuart signed off on the production parts prior to shipment via
Electronic Data Interchange (GSUMF if 24). According to the government, DCMA QARs
do not have to personally inspect parts before signing for their release and there is no
evidence in the record that Ms. Stuart personally inspected these shipments (id.). PSI
contends that the government has not affirmatively established that QAR Stuart did not
personally inspect the parts since there is no declaration from her in the record (app. stmt.
of genuine issues of material fact if 24 ). The record does contain an email from Ms. Stuart
to counsel for PSI stating that "PSI['s] surveillance was in great shape which would mean
that I would not have inspected at all their shipments going out" (R4, tab 69).

16. PSI was responsible for shipping the skins to the DDJC and for any loss or
damage prior to their arrival at DDJC (GSUMF if 9; SOF if 1). Mr. Shad Winter, a
distribution facilities manager at DDJC, described DDJC's intake procedures as follows:

6 .... When documenting inspection origin shipments received,
DDJC ... compare[s] the documentation to the property
received. They pay very close attention to any special
markings.... They conduct a visual inspection of one bare
item [to] validate the part number and National Stock
Number. A visual verification of the general physical
appearance of all packages and specific characteristics of the
bare item is conducted ....

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 7.... DDJC [also] performs a visual damage inspection ....
There is no record of any [damage to these shipments and
there is no evidence] of any special handling
instructions ....

8. [T]he items [are stored] in the same boxes in which [they
are shipped[,] placed on a pallet, [and] stored in a storage rack
location. Each ... rack will only hold one pallet.

(GSUMF, ex. 5, decl. at 3)

17. DDJC received the parts shipped by PSI on the following dates:

• 10 on 18 May 2011
• 10 on 1 June 2011
• 10on29June2011
• 15on20July2011
• 15 on 1August2011
• 10 on 8 August 2011

(GSUMF,28)

18. Upon request, DDJC shipped the skins to its customers, one of which was the
DLA Distribution Depot at Hill AFB (GSUMF, 31). Mr. Marlin Zachry, Jr., senior
program manager for URS, a service contractor that operates the depot (GSUMF, 32),
described the depot's intake and handling procedures as follows:

4. Upon receipt...we performed a kind, count and condition
(KCC) inspection of the material but would not have gone to
the bare item on each box unless there was evidence of
tampering or damaging. These boxes were not damaged or
had any evidence of tampering ....

5. IfURS employees had noticed any damage to any of the
shipments or boxes ... we would have generated a
Transportation Discrepancy Report (TDR) or Supply
Discrepancy Report (SDR) as appropriate. There is no record
of any TDR or SDR being submitted for any of these
shipments.

6. These items were in the original manufacture pack when
received and we stored the items in the same boxes in which

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 the material was initially shipped .... The items were
transported [from DDJC] via a commercial carrier, and once
receipted into our inventory, they were moved to one of our
buildings for storage via our internal fleet. Neither am I
aware, nor is there any evidence, that these boxes were
flattened during the receipt and storage process.

(GSUMF, ex. 4, decl. at 2)

19. On 16 June 2011, the 309th Air Force Maintenance Wing at Hill AFB issued a
Product Quality Deficiency Report (PQDR) finding "Bad Spot Welds" on an aircraft skin
delivered by PSI. The PQDR stated that "SPOT WELDS ARE DAMAGED/PULLED
THROUGH." (R4, tab 60 at 1-3; GSUMF ~ 40)

20. On 22 June 2011, Mr. John A. Martinez, a mechanical engineer who acted as
an aerospace engineer for the 416th Supply Chain Management Squadron at Hill AFB,
was asked to investigate the PQDR (GSUMF ~ 43, ex. 1, ~ 1). His declaration stated, in
part, as follows:

4. After reviewing the PQDR issued by the mechanics, I
visited the maintenance line .... A high number of welds in the
part the mechanics showed me had visible defects. Of the
many visible defects, the most prominent defects were the
spot welds. The spot welds were very deep and had star like
patterns in the actual weld nuggets. This type of pitting is
generally a good indicator that there are problems with the
spot welds especially knowing that these spot welds are held
to "Class A" welding requirements.

5. Since this PQDR part had such a high number of visibly
bad spot welds, I then decided to inspect the skins [in stock at
the depot]. There were 8 parts in stock in the depot at that
time. These skins showed signs of visible cracking in the
spot welds similar to the part I reviewed on the maintenance
line. The parts appeared to be in their original packaging,
with each part bagged and packaged in an individual box. I
did not notice any damage to any of the boxes. There was
nothing about either the parts or the boxes which indicated
they had been damaged, crushed, or flattened. I do not recall
seeing any special handling procedures, such as fragile, this
side up, etc., printed anywhere on the boxes.

(GSUMF, ex. 1 at 2)

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 21. Mr. Martinez then requested that Mr. Anthoney Harrison, program manager for
the Conformance and Verification Program ( CVP), inspect and test all the skins in stock at
the depot (GSMUF ii 45, ex. 2). Mr. Harrison's declaration provides, in part, as follows:

8. I requested ... that the depot provide me with the parts in
stock at the depot [from PSI]. I learned that there were 16
such parts. The 16 parts arrived at the CVP office on July 28,
2011. They appear to have arrived in the same boxes in
which they were shipped by the contractor. The boxes did
not appear to be damaged in any way. There were no
handling instructions on the boxes, such as this side up,
fragile, or handle with care.

9. On August 2, 2011, John Martinez and I met to discuss
how to inspect and test the parts. We discussed the AF-401
spot welding inspection criteria identified in the contract and
the fact that this required compliance with the visual and
radiographic inspection requirements in A WS D 17 .2. We
decided that I would conduct a visual inspection of the spot
welds on the parts, and then forward them for radiographic
inspection at the Non-Destructive Inspection (NDI)
Laboratory at Hill ....

10. On August 3, 2011, I removed the parts from the boxes
and performed a visual inspection of the 16 parts. I was
careful to maintain the contour of the parts and avoid flexing
them. Every single part I reviewed had multiple instances of
cracking in the paint at the spot welds. ...I decided to allow
them to be radiographically tested as we had planned. Not
only would this provide further information about the defects,
it would allow us to determine whether the cracks were only
in the surface paint or in the spot welds themselves.

(GSUMF, ex. 2 at 2-3)

22. Radiographic testing was completed and Mr. Ward Fong, program lead for
NDI Laboratory, met with Mr. Harrison on 9 August 2011 to discuss the results of the
tests. According to Mr. Fong:

Every single one of the x-ray images showed a significant
number of cracked spot welds. Not only were cracks clearly
visible in the spot welds marked with the lead arrows [the

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 welds identified by Mr. Harrison as showing cracks upon
visual inspection], virtually all of the other spot welds also
contained cracks ....

(GSUMF, ex. 3, ~ 5)

23. On 9 August 2011, the government issued unilateral Modification No. P00002
(Mod 2), stopping work due to defective welds (R4, tab 3).

24. On 5 October 2011, DLA contracting officer (CO) Heather Gomez sent a
Notice of Revocation of Acceptance and Breach of Warranty to PSI's president,
Mr. Everett Casey. The notice stated, in part, as follows:

[T]his letter serves as written Notice of Breach of Warranty
pursuant to Clause 52.246-9GO 1.... Rather than terminating
your contract for default, I have decided to allow you a
chance to replace the 70 defective parts you shipped (at your
cost) pursuant to the warranty clause. However, to ensure
that these and remaining contract quantities are not defective,
I am creating a special testing CLIN 9910 with a delivery date
of January 04, 2012. You shall submit 2 each samples to Hill
AFB .... Once Hill AFB has tested the samples for
compliance with the contract requirements, including using
x-ray examinations as required, you may deliver the
remainder of the quantities under the contract.

(R4, tab 26)

25. On 6 October 2011, the DLA contracting office issued Modification
No. P00003 (Mod 3) to the contract, which added the special test CLIN referenced in
CO Gomez's letter and extended the contract delivery dates:

REVISED DELIVERY SCHEDULE IS AS FOLLOWS:
SPECIAL TEST CLIN SUBMITTAL DATE: 90 DAYS, 01/04/2012
TESTING/EVALUATION DATE: 120 DAYS, 05/04/2012

Upon completion of these tasks, the delivery date for the production units was to be
extended from 24 June 2010 until 20 November 2012. (R4, tab 4)

26. On 7 October 2011, the government issued Modification No. P00004
(Mod 4), lifting the stop work order and directing PSI to "[p ]roceed with production with
the delivery schedule on modification P00003" (R4, tab 5).

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 27. PSI responded in a letter dated 12 October 2011, requesting "the prompt
issuance of a further mod in the identified contract to clarify ... the Contractor's duties and
responsibilities" following CO Gomez's 5 October 2011 letter and Mods 2, 3, and 4. PSI
specified that:

The mod is properly to:

1. Report that the 3 5 parts referred to in the noted
October 5, 2011 letter (a) are not disapproved, that (b) there is
no "Revocation of Acceptance" thereof, that (c) there is no
charge of "Breach of Warranty" as to those parts, that (d)
those parts will not be returned, and that (e) the contractor has
no duty to supply a Fed Ex number for such return.

2. Report that the additional Clin 9910 Special Test and
the "Clin 3 for a 68 ea (warranty items) at no cost to the
government" set forth in P000[0]3 are now void and
withdrawn.

3. Report that the delivery schedule for the remaining
production parts is to be "11/20/2012" as set forth in P000[0]3.

(R4, tab 27) PSI provided no explanation or rationale in the letter for its position (id.).

28. On 25 October 2011, CO Gomez responded, declining to rescind Mod 3 and
observing that "it appears that you are refusing to comply with Modification P000[0]3.
You are hereby notified that the Government considers this a condition which is
endangering performance of the contract." She called for PSI to provide the government
with adequate assurances of performance within 10 days, or "the Government may
terminate this contract for default." (R4, tab 29)

29. On 18 November 2011, CO Gomez emailed a copy of the cure notice to PSI,
reminding PSI that she had not yet received a response (R4, tab 30). There is no
indication in the record that PSI ever responded to this second communication.

30. On 20 January 2012, after the due date for delivery of the two test items
(4 January 2012) had passed without any delivery by PSI, and PSI still had provided no
response to CO Gomez's requests for adequate assurances, CO Gomez sent PSI yet
another letter via email and U.S. mail, providing PSI yet another chance to provide
adequate assurances of performance and requesting PSI to provide a date by which it
would deliver the two delinquent test items to Hill AFB. CO Gomez further noted:

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 I am aware that you have recently informed DCMA that you
believe that the defective items were damaged by flattening
during shipment or storage. The Air Force organization
which performed testing on the defective material finds that
this explanation could not account for the extensive damage
to the parts it reviewed. It also noted that the original
countours [sic] of the parts were still intact when the x-rays
were performed.... [I]n any event, the purpose of the special
test CLIN was to allow you an opportunity to demonstrate
that you can adequately produce the part. Yet you appear to
be refusing to submit these test parts.

(R4, tab 34)

31. On 30 January 2012, Mr. Jeremy Lee Wilczewski, PSI's senior project
manager, responded, in toto, as follows:

Ms. Gomez,
This contractor deems that P000[0]4 dated Oct 7, 2011 to
override the previous P000[0]2 and P000[0]3. The remaining
balance of production items will be delivered by 11/20/2012 as
stated in Mr. Casey's letter dated 10/12111.

(R4, tab 35)

32. On 23 March 2012, DLA Terminating CO Susan E. Perkins terminated the
contract for default based on PSI' s failure to perform in accordance with the terms and
conditions of the contract (R4, tab 36 at 7).

33. On 19 June 2012, DLA CO Janice A. Hicks issued a final decision (COFD),
debt determination, and demand for repayment of funds pursuant to the Warranty clause
in the amount of $13,825.00 (35 units@ $395/unit) (R4, tab 37). The amount demanded
was subsequently reduced to $6,320.16 (16 units@ $395/unit) (App. Rev. Statement of
Undisputed Material Facts (ASUMF), ex. 17).

34. On 9 May 2012, PSI timely appealed the termination for default to this Board.
We docketed the appeal as ASBCA No. 58135 on 14 May 2012. PSI timely appealed
DLA's breach of warranty claim COFD on 26 June 2012. We docketed that appeal as
ASBCA No. 58205 on 2 July 2012.

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 DECISION

Summary judgment is appropriate when there is no genuine issue of material fact
and the movant is entitled to judgment as a matter of law. FED. R. C1v. P. 56(c); Proveris
Scientific Corp. v. Innovasystems, Inc., 739 F.3d 1367, 1371 (Fed. Cir. 2014); Mingus
Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987). A material
fact is one that may affect the outcome of the decision. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248-49 (1986). The moving party bears the burden of establishing the
absence of any genuine issue of material fact, and all significant doubt over factual issues
must be resolved in favor of the party opposing summary judgment. Mingus, 812 F.2d at
1390-91. However, more than mere assertions of counsel are necessary to counter a
motion for summary judgment. The non-movant may not rest on its conclusory
pleadings, but must set out, in affidavit or otherwise, what specific evidence could be
offered at trial. Pure Gold, Inc. v. Syntex (U.S.A.), Inc., 739 F.2d 624, 626-27 (Fed. Cir.
1984). The parties' cross-motions are evaluated on their own merits, and we are not
obliged to grant judgment as a matter of law for one side or the other. Mingus, 812 F .2d
at 1391. On cross-motions, "counsel are deemed to represent...that all the relevant facts
are before the [Board] and a trial is unnecessary." Aydin Corp. v. United States, 669 F.2d
681, 689 (Ct. Cl. 1982).

We address first the government's claim for breach of warranty due to the cracks
in the welds. Visible cracks were discovered in the skins provided by PSI by government
personnel working on the A-10 maintenance line (SOF ,-r 19). The government then
further examined 16 PSI skins in stock using the visual and radiographic acceptance
standards in AWS Dl 7.2. The radiographic testing revealed multiple cracks in most
welds in all of the samples (SOF ,-r 22). The government attributes the cracks to improper
spot welding during PSI's manufacturing process. PSI argues both that the cracking was
caused by government mishandling of the aircraft skins after delivery and that the
government erred in radiographically inspecting the skins under A WS D 17 .2, when the
standard incorporated into the contract was AMS-W-6858 Class A.

The government asserts that A WS D 17 .2 was applicable to PSI' s contract. It
explains that the specification referenced in the main drawing for the part (Drawing
No. 160D411002), namely MIL-W-6858, was superseded by AMS-W-6858, which itself
was superseded by A WS Dl 7.2 in November 2007 (GSUMF ,-r 4, ex. 1, ,-r 8, ex. 2, ,-i 5).
Thus, A WS D 17 .2 was the applicable standard at the time PSI' s contract was awarded in
April of 2008 (GSUMF ,-i 5). However, the government further asserts that even if
AMS-W-6858 had been the applicable standard, it contains similar visual and
radiographic inspection requirements as AWS DI 7.2: (1) visually, AMS-W-6858 states
"cracks open to the surface in Class A welds must be limited to 0%" while A WS D 17 .2
requires that welds "shall be smooth, free of cracks, tip-pickup, pits, and other flaws;
(2) radiographically, AMS-W-6858 calls for welds to be "free of cracks and flash," while

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AWS Dl 7.2 requires that "[a]ll welds shall be free of cracks and expulsion" (GSUMF
~~ 5-6 nn.1-2).

PSI counters that A WS D 17 .2 was not incorporated into the contract and that the
applicable standard was AMS-W-6858. PSI relies for this assertion on the fact that the
contract specifically calls out Specification A-F401 Amendment C dated 10 February
1988 (which version actually incorporates MIL-W-6858, not AMS-W-6858). (ASUMF
~~ 10-11; R4 tab 1at6, tab 21at3) PSI also takes issue with the government's assertion
that the requirements of the two standards are essentially the same, insisting that A WS
D 17 .2 is more stringent than AMS-W-685 8 and that the government is quoting from the
provisions in the latter standard that pertain to test welds, rather than the ones pertaining
to production items (app. mot. at 10). PSI cites to the visual and radiographic criteria of
AMS-W-6858 (Jul 1999) and states that the government has failed to substantiate that its
skins failed to comply with those requirements (ASUMF, ex. 16 at 27-28, 31).

We find that there is a dispute of material fact with respect to the applicable
welding standard, at the very least. Further development of the record is necessary, and
we deny the parties' cross-motions for summary judgment as to ASBCA No. 58205, the
warranty claim.

As to ASBCA No. 58135 (PSI's appeal of the termination for default), TCO Perkins
based her final decision terminating the contract for default on PSI's failure to perform in
accordance with the terms and conditions of the contract (SOF ~ 32). The 23 March 2012
memorandum for record prepared by CO Gomez recounts the following:

• PSI's initial rejection of Mod 3 on 12 October 2011 (see SOF ~ 27)
• PSI's failure to respond to the CO's cure notice dated 25 October 2011 1
• The CO's 18 November 2011 email to PSI again requesting a response to
the 25 October 2011 cure notice (SOF ~ 29)
• PSI's failure to respond to the 18 November 2011 email (id.)
• CO Gomez's inquiry to Mr. Harrison whether the defects found in the 16
skins could have been caused by flattening during handling or storage (R4,
tab 33)
• Mr. Harrison's response that storage and handling by the government did
not cause the defects in the 16 skins (id.)

1
PSI contends that its 5 January 2012 letter to DCMA constituted a response to the CO's
October cure notice (app. stmt. of genuine issues of material fact~ 64). We reject
this argument. Not only did PSI never send the CO a response, but its January
letter concerned one skin sent to it for evaluation by DCMA and did not address
the 16 skins inspected by government personnel that formed the basis for the
issuance of Mod 3 and the CO's subsequent cure notice.

15
 • CO Gomez's 20 January 2012 cure notice to PSI noting that the 4 January
2012 ship date for the two test skins required by Mod 3 has passed and PSI
is now delinquent (SOF 'il 30)
• PSI's 30 January 2012 letter which failed to provide a date by which the
test skins would be shipped and stated that PSI "deems" Mod 4 to have
overridden Mod 3 and Mod 2 and that PSI intended to deliver the balance
of the production items by 20 November 2012 (SOF 'il 31)

(R4, tab 36 at 3-5)

PSI does not dispute that it failed to deliver the two test samples required by Mod 3
or that it failed to offer adequate assurances of performance in response to the CO's
repeated requests. Rather, it argues in opposition to the government's motion for summary
judgment that the government's prior breach of the contract (by using test procedures
inconsistent with the contract specifications) removed any obligation on its part to perform
in accordance with the contract terms and conditions, including Mod 3. (App. opp'n at 2-3)
Additionally, PSI argues in its motion for summary judgment that its failure to perform was
caused by the government's improper warranty claim and was therefore excusable because
it was beyond the control and without the fault or negligence of PSI (app. mot. at 19-21 ).

The undisputed facts demonstrate that the default termination was proper. See
Third Coast Fresh Distribution, L.L.C., ASBCA No. 59696, 16-1BCA'i!36,340. On
5 October 2011, CO Gomez wrote PSI enclosing the report from Hill AFB 8091h
Maintenance Squadron on the inspection of 16 PSI skins in stock at the depot at Hill AFB
which found both visible defects in the spot welds and cracks in a significant number of
the spot welds on each of the 16 skins under radiographic analysis. Rather than terminate
the contract for default, she offered PSI the opportunity to replace the defective skins
already shipped after first submitting two samples for testing. (R4, tab 26) Mod 3,
issued thereafter on 6 October 2011, called for delivery of the two test skins by 4 January
2012 (SOF 'il 25). Based on the information she received in the report, CO Gomez acted
reasonably in affording PSI the opportunity to demonstrate that its skins conformed to
contract requirements rather than terminating for default.

The record reflects that the government's imposition of AWS Dl 7.2 was done in the
good faith beliefthat it was the correct standard (SOF 'il 21). We have not found any
evidence in the record before us that PSI raised the issue of breach by the government at
the time Mod 3 was issued or at any time thereafter, prior to appealing the default
termination. Nor did PSI assert any intention, after Mod 3 issued, to cease performance of
the contract due to the government's putative breach. We also cannot find any evidence in
the record that PSI ever discussed with the government at any time prior to the termination
a concern that the wrong welding standard was being applied by the government in its
inspections. Therefore, the government had no opportunity to address the issue with PSI.
Rather, in response to Mod 3, PSI unilaterally announced that it intended to go forward

16
with the production and delivery of the remaining quantity of skins while ignoring the
government's concerns with respect to the quality of the skins that had been delivered, the
requirements of Mod 3 that were put in place to address those concerns, and the incipient,
unresolved disagreement over the applicable welding standard.

Prior to issuing the second cure notice in January 2012, CO Gomez was made
aware that DCMA had sent another skin (not one of the 16 the government inspected) to
PSI for evaluation and that PSI had reported back to DCMA that the skin it was sent
showed signs of having been flattened which it believed had caused the visible cracks.
No radiographic analysis was performed on that one skin by PSI. (GSUMF iiii 66-67)
CO Gomez inquired of Mr. Harrison whether the cracks in the welds of the 16 skins
could have been caused by improper storage or mishandling of the parts. Mr. Harrison
responded that he had no knowledge as to the part sent to PSI, which he had never seen
or inspected, but that none of the 16 skins he inspected had been flattened. Moreover, he
relayed to her that the type of defects observed in the 16 skins were not the sort that
would be caused by flattening, but rather by the welding process itself. (R4, tab 33;
GSUMF iiii 72-74) 2

The contract's Disputes clause, FAR 52.233-1, requires the contractor to continue
performance of the contract pending resolution of a dispute arising under the contract
(SOF ii 8). Whether the proper version of welding standards was being applied, and the
likely cause of the cracks in the welds, are just such disputes. Under the contract's
Changes clause, for instance, PSI would have been entitled to compensation for any
increased costs or delays occasioned by the government's insistence that it perform under
a standard different from that contained in the contract, if such were determined to be the
case. Whether or not such a dispute existed at the time PSI expressed its intention to
ignore Mod 3 is questionable, since PSI had apparently not raised the issue. But, if it had,
it would still have been required to perform in accordance with the contract's
requirements and the reasonable direction of the CO. Essex Electro Eng'rs, Inc., ASBCA
No. 49115, 02-1 BCA ii 31,714 at 156,699 (citing Benju Corporation, ASBCA No. 43648
et al., 97-2 BCA ii 29,274 at 145,654-55 (even if the government's interpretation is wrong,
the contractor is not justified in refusing to do as directed, since the merits of the
controversy have no ~ffect on the requirement that a contractor continue performance)).

2
Appellant objects to paragraphs 72-74, inter alia, of the government's SUMF on the basis
that the declarations of Messrs. Martinez, Fong, and Harrison constitute improper
expert testimony, but does not otherwise dispute the facts or opinions therein. We
note that Federal Rule of Evidence 701 permits lay opinion testimony based on the
witness's personal knowledge and experience, but in any event do not rely herein on
the disputed opinions since we do not decide the warranty breach issue.

17
 Relief was available under the contract should the government's belief that
A WS D 17.2 was the applicable standard turns out to have been mistaken. PSI's failure to
perform was the result of its own acts and omissions and was not excusable.

CONCLUSION

For the reasons stated, the government's motion for summary judgment in
ASBCA No. 58135 is granted, and the parties' cross-motions for summary judgment in
ASBCA No. 58205 are denied.

Dated: 8 June 2016

I concur I concur

/~~~
MARK N. S MPLER
Administrative Judge
RICHARD SHACKLEFORD
Administrative Judge
Acting Chairman Vice Chairman
Armed Services Board Armed Services Board
of Contract Appeals of Contract Appeals

I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA Nos. 58135, 58205, Appeals of
Precision Standard, Inc., rendered in conformance with the Board's Charter.

Dated:

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

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