The Uniform Commercial Code (“UCC”) was developed between 1942 and 1952 by the National Conference of Commissioners on Uniform State Law and the American Law Institute, with assistance from lawyers, judges, law professors, and businessmen, in order to simplify and clarify the law and make it uniform. It has been adopted by all 50 states and the District of Columbia (only in part in Louisiana). Of particular importance to private contracts throughout the United States is UCC Article 2, Sales.
Even though the Federal Acquisition Regulation (“FAR”) controls government contracts, “ the Uniform Commercial Code provides useful guidance in applying general contract principles. Hughes Commc’ns Galaxy, Inc. v. United States, 271 F.3d 1060, 1066 (Fed. Cir. 2001). And, the Federal Circuit has said that the “Uniform Commercial Code is applicable to the field of public contracts. John C. Kohler Co. v. U. S., 498 F.2d 1360, 1367 (Ct. Cl. 1974) (n.6). Usually, the Courts and Boards will look first to the FAR, and then to the UCC. This was the case in DMW Marine Group v. Dept of Commerce, CBCA 3518, Aug. 14, 2014.
On June 22, 2012, the National Oceanic and Atmospheric Administration (“NOAA”) awarded DMW a contract for a crane. On October 25, 2012, NOAA and DMW exchanged emails wherein DMW asserted that certification of the crane by the American Bureau of Shipping (“ABS”) was not required under the contract, while NOAA insisted that ABS certification was required. In executing the contract, ABS approved the design and DMW delivered the crane and installed it on March 26, 2013.
The contracting officer sent an email to DMW stating that the crane was required to have ABS certification. DMW responded and stated “Just ship the crane back to us now and we will refund your slow and late payments.” NOAA did not ship the crane back, and NOAA kept it and used it.
The contract included the standard (commercial items) “termination for cause,” which was like a termination for default. It also included a standard inspection clause which stated:
Inspection/Acceptance. The contractor shall only tender for acceptance those items that conform to the requirements of this contract. The Government reserves the right to inspect or test any supplies or services that have been tendered for acceptance. The Government may require repair or replacement of nonconforming supplies or reperformance of nonconforming services at no increase in contract prior. If repair/replacement or reperformance will not correct the defects or is not possible, the government may seek an equitable price reduction or adequate consideration for acceptance of nonconforming supplies or services. The Government must exercise its post-acceptance rights—(1) within a reasonable time after the defect was discovered or should have been discovered; and (2) before any substantial change occurs in the condition of the item, unless the change is due to the defect in the item.
On May 29, 2013, the contracting officer terminated the contract for cause, “based on DMW Marine Group’s refusal to perform pursuant to the terms of the contract which include the crane to be ABS certified.” DMW appealed the termination for cause.
The Board examined the contract and concluded that it required ABS certification. However, it did not agree that the failure of DMW to provide ABS certification was an acceptable ground for termination. Looking to the UCC, it noted that Section 2-607(2) states:
Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured but acceptance does not of itself impair any other remedy provide by this Article for nonconformity.
The Board noted that in October 2012, the parties discussed the requirement for ABS certification, and DMW insisted that ABS certification was “not part of the contract” (although it agreed to provide ABS design approval.) In November 2012 DMW said it would not ship the crane unless NOAA agreed to the contractor’s understanding. Further, in February and March 2013, ABS made it clear to NOAA that further arrangements were required for certification. Therefore, NOAA knew very well, when it accepted delivery of the crane on March 26, 2013, that there was a nonconformity (no certification). Any assumption by NOAA that DMW would seasonably (timely) cure that nonconformity was unreasonable, given DMW’s comments for months. Consequently, acceptance of the crane precluded NOAA’s rejection of it, and termination for cause was not justified.
The Board also pointed out that under the Inspection/Acceptance clause, NOAA could have sought an equitable reduction in the contract price for an uncertified crane. This alternative was only open for a reasonable time, and the agency did not act at all. Finally, DMW offered to repossess the crane and refund the money paid, if NOAA did not desire to keep the uncertified crane, however, the agency declined to do so.
Because this was a wrongful termination for cause, the Board converted it to a termination for convenience.
This case demonstrates how important the UCC can be, even in a government contract, when the FAR does not include specific provisions that govern the dispute. In this case, the UCC included applicable conditions, and the Board used them. This is frequently the case for commercial items contracts like one for a crane.