DCX, Inc. v. Perry

DCX, Inc. (plaintiff) entered into a contract with the Defense Logistics Agency (government) (defendant) to supply light-sets for medical tents. The contract required DCX to submit a first-article test report for the light-sets to the government by June 30, 1988. The deadline for delivery of the first light-sets was July 18. The contract specified that failure to timely deliver the first-article test report would be considered a failure to make delivery under the contract’s default clause. Because DCX did not have adequate testing facilities, it subcontracted the first-article testing to Ball Brothers Aerospace Systems (Ball). DCX did not enter into the subcontract with Ball under May 19, six weeks after DCX entered into its contract with the government. Ball’s subcontract did not contain a firm performance deadline, and DCX did not prepare any alternatives in case Ball was unable to test the first-article light-sets in time. Ball did not start testing DCX’s light-sets until June 17. DCX notified the government that the first-article test report would not be ready until July 12. DCX stated that the Defense Priorities and Allocations System (DPAS) caused the delay because it forced Ball to test items from higher-priority government contracts before DCX’s light-sets. The government agreed to extend the first-article test report deadline to July 12. However, DCX failed to deliver the first-article test report by July 12 and did not provide any explanation for the additional delay. The government terminated DCX’s contract for default. DCX appealed to the Armed Services Board of Contract Appeals (Board), arguing that the default termination should be converted into a termination for the convenience of the government (convenience termination) because (1) the delay was caused by DPAS, not by DCX or Ball; and (2) the default termination was arbitrary and capricious. The Board affirmed the default termination. DCX appealed to the Federal Circuit.