Government Contract Law 603 1. An Air Force Air Logistics Center (ALC) ordered a large, complex machine from Acme Tool Company for a price of $1,000,000. Three months after installation it was found that the machine did not perform as required. After several attempts to repair the machine by Acme Tool, the ALC canceled the contract. Acme Tool filed suit for damages, seeking payment for the machine. After the suit was filed, the Air Logistics Center, which had sophisticated manufacturing capabilities, attempted to modify the machine, and on one occasion used part of the machine in its production process. What arguments do you think would be raised in this suit, and what would be the outcome? The contractor who provided the machine must have inspected it and made sure that the machine matches the Government requirements. The contractor should have an inspection before delivery or at the Government site. The contractor had to provide a warranty for the machine for the time specified in the contract. Items that are subject to warranty action shall be determined in accordance with the inspection and acceptance procedures inserted into the contract. In my opinion the Government was right to cancel the contract because several attempts were made to repair the machine but it still failed to perform. The law suit that was filed and the Government attempt to modify the machine and utilization of its parts in the production process are in one occasion; I think that replacement and repair, inspection and acceptance, indemnification, and termination for default arguments will be raised and the final outcome will be termination for default-ultimately canceling the contract if no other solution could be reached. However, the contractor will receive a portion of the contract price equivalent to the time the machine did perform. 2. ARCO Engineering; the contractor, was low bidder for a contract with an Air Force base for bushings for an F-16 airplane; at a unit price of $6.50. The first article inspection clause required the first article to be submitted within 90 days. The contractor was the low bidder of 37 bidders. The first article was delivered and approved by letter on 1 October 1997. Delivery of the first production units was due by 6 December 1997. On 4 November 1997, the contractor informed the Contracting Officer that it could not produce the product for the price quoted, but offered to provide a minimum quantity to meet urgent requirements. The contractor further offered to continue production if the unit price was raised by $2.00 per unit. The Government rejected the contractor's proposal. The contract was terminated for default. A re-procurement for the bushings was initiated and a contract was awarded for a unit price of $12.10. The Contracting Officer issued a demand o the original contractor for excess costs, i.e., the difference between $6.50 (the original contract unit price) and $12.10, the new contract unit price, plus "related administrative costs." What are the issues involved, and what would have been the court's decision?