Appeal of Fischer Imaging Corporation

Fischer Imaging Corporation (FIC) (plaintiff) entered into an indefinite-delivery, indefinite-quantity (IDIQ) contract with the Veterans Administration (VA). Pursuant to a delivery order under the IDIQ contract, FIC delivered an Epic 32 Single Plane Electrophysiology System (EP32), a medical device that measures cell electrical activity, to a VA Medical Center in September 1996 and requested inspection. The VA became aware of defects in the EP32 shortly after delivery but failed to inspect the EP32 or notify FIC of the defects until September 1998, approximately two years after delivery. FIC’s contract stated that the government could revoke acceptance (1) within a reasonable time after discovering a defect; and (2) before any substantial changes occurred to the condition of the EP32. In February 2000, approximately 18 months after the inspection, the VA issued a Cure Notice to FIC, citing 13 defects. The VA continued to use the EP32. FIC cured all 13 defects by March 2000. Regardless, the VA terminated FIC’s contract for cause, directed FIC to remove the EP32 from the VA Medical Center, and ordered FIC to return payments already received. The termination for cause occurred 597 days after the original delivery and 540 days after the VA first became aware of the EP32’s defects. FIC removed the EP32, then petitioned the Veterans Administration Board of Contract Appeals (Board) to convert the termination for cause into a termination for the convenience of the government.