November 30, 1994
Appeals of
JOE GARRETT, INC.
Under Contract No. HCR 92312
PSBCA Nos. 3476, 3667
APPEARANCE FOR APPELLANT:
Joseph T. Garrett, President
APPEARANCE FOR RESPONDENT:
Harold E. Durham, Esq.
OPINION OF THE BOARD
Appellant requested an increase to the price of its mail transportation contract to reflect, among other things, a change in the billing method for its insurance. The contracting officer proposed a price adjustment that did not include the amount Appellant requested for insurance, and Appellant signed the adjustment. The contracting officer denied Appellant's subsequent request for the insurance cost adjustment, and Appellant filed an appeal.
The parties elected to have this appeal decided on the record without an oral hearing.
FINDINGS OF FACT
1. In October, 1990, Respondent solicited bids for transportation of mail between the Ontario, California Airport Mail Facility and the San Bernardino General Mail Facility (Supplemental Appeal File Tab ("SAF") 1).
2. Bids were to be submitted on an annual rate basis, and bidders were cautioned, "The bid price must include all elements of cost the contractor expects to incur in performing the required service." (Id., Sections 9.D, 18.D)
3. The solicitation required each bidder to submit a completed PS Form 7468‑A, Highway Transportation Contract Bid or Renewal Worksheet ("Bid Worksheet"), on which the bidder was to list its expected costs of performing the contract. The Bid Worksheet contained a line for insurance costs, and that entry, according to the instructions on the reverse of the form, was "to reflect cost of insurance on vehicles used in the performance of service on the route." (SAF 1, Section 9.C; SAF 4). The solicitation provided that the Bid Worksheet would "not constitute part of the awarded contract, but will establish a base from which the rate of compensation may be adjusted during the term of the contract." (SAF 1, Section 9.C).
4. Appellant's Bid Worksheet reflected an annual cost of $1.00 for insurance on Appellant's vehicles (SAF 4). The vehicles Appellant planned to use to perform HCR 92312 were also used on a route or routes Appellant performed under other contract(s) with Respondent, and Appellant had included the full cost of insurance for those vehicles among the costs for the other contracts (Appeal File Tab ("AF") 3).[1] Appellant's bid equaled the total of the costs shown on its Bid Worksheet (SAF 2, 3, 4).
5. Appellant was the successful bidder and, on November 16, 1990, was awarded contract HCR 92312 for the term December 16, 1990, through June 30, 1994 (SAF 2, 3).
6. Appellant's contract included an Adjustment of Compensation clause which provided for adjustment of the contract price "by mutual agreement of the Contracting Officer and the Contractor in accordance with the provisions of this clause and Management Instruction PO-530-81-4, August 18, 1981, as amended, revised, or reissued as of the date of adjustment, which is hereby incorporated by reference." (SAF 5, Basic Surface Transportation Services Contract General Provisions, General Provision 11 (a)(1)).[2]
7. The Management Instruction describes Respondent's policy to allow, subject to the limitations in the Management Instruction, mail transportation contractors an adjustment in the rate of compensation when increased or decreased costs result from "changed economic conditions or operational requirements . . . over which the contractor has little or no control." (SAF 7, Management Instruction, Sections I, II.A., II.B.).
8. The Management Instruction bars adjustments to cure omissions from the Bid Worksheet or to correct bid errors (SAF 7, Management Instruction, Section V.B.) and prohibits consideration of an adjustment that would allow the contractor "to recover a deficiency in income when bid or renewal price was predicated on revenue to be derived from other sources which did not materialize or which did materialize but were later lost." (SAF 7, Management Instruction, Section IV.F.).
9. Until 1992, Appellant was billed for insurance based on a premium for each vehicle. In May, 1992, Appellant advised the contracting officer that it intended to convert to a plan whereby its insurance premium would be determined by its gross receipts. Appellant provided an analysis of its insurance costs for the 16 postal contracts it held, including HCR 92312, comparing the costs for each contract before and after the conversion. The analysis demonstrated that adjustments over the 16 contracts to reflect the new billing method would result in a net reduction in price to Respondent. After instituting the new billing system, Appellant's insurance premium was calculated by applying a fixed rate ($5.365 per hundred dollars of gross receipts for the first year) to Appellant's total gross receipts. Thus, revenue from each of Appellant's contracts added to the base used for calculating its annual insurance cost. (AF 1, 2, 3E).
10. By letter dated June 16, 1992, Appellant requested an increase of $5,722 to the annual rate under HCR 92312. The requested increase included a cost of living increase and a fuel adjustment, but the largest component was a request to increase from $1.00 to $4,690 the insurance line item on Appellant's cost statement (PS Form 7463, Cost Statement -- Highway Transportation Contracts ("Cost Statement")).[3] Allowing the increase for insurance costs would have produced an equal increase in the annual rate of the contract. (AF 3B).
11. The contracting officer granted a cost of living increase and a fuel increase, but he declined the insurance increase. He prepared a new Cost Statement which reflected a $4,688.05 increase to the insurance line item but included an entry on line 10 labeled in handwriting "insurance bid error" that deducted $4,688.05. That deduction negated the insurance adjustment (AF 3C). At the same time, the contracting officer processed an adjustment decreasing Appellant's compensation due to decreased costs for workers' compensation, and the net effect of the contracting officer's calculations was to reduce the annual contract price by $403.13 (SAF 9).
12. The contracting officer sent Appellant Respondent's proposed adjustment to the contract price, the redone Cost Statement showing Respondent's treatment of the insurance adjustment and an analysis of the Cost Statement (AF 3C). The analysis sheet acknowledged Appellant's change to the gross receipts methodology for insurance and noted that the $4,688.05 "in item 10 [insurance bid error] to remain to cover for bid error." (AF 3C; SAF 9). The cover letter provided,
"Your requested adjustment in compensation has been evaluated by using the information you initially submitted, and it has been determined you may be allowed a decrease of ($403.13) as shown below.
The period considered was from the date of the latest pay adjustment. The enclosed copy of your Form 7463 [Cost Statement] shows the analysis for this offer.
You have 28 days to reply to this offer. If it is your intention to accept, complete and sign one copy of this letter in the space provided below. No order authorizing a decrease/increase may be issued without this written record.
Also, if your action is other than acceptance, an explanatory reply must be received within the same period noted above. This explanatory reply must contain complete documentation of requested increase not allowed or no further allowance will be made on increases not documented." (AF 3C; SAF 9).
13. On August 17, 1992, Appellant signed the letter reducing the contract price by $403.13 and the Cost Statement showing Respondent's treatment of the insurance adjustment request (AF 3C). The adjustment reducing the contract by $403.13 was ordered by the contracting officer on August 18, 1992 (SAF 9).
14. In each of Appellant's 15 other highway transportation contracts, Respondent granted an adjustment to the contact price to reflect the increased or decreased costs resulting from Appellant's change to the gross receipts method of calculating insurance premiums. The adjustments to the 15 other contracts produced an overall reduction of insurance costs that was passed on to Respondent through the contract price adjustments. The overall reduction exceeded the requested increase for insurance on HCR 92312 (SAF 2, 3E).
15. In considering a subsequent request for a fuel and wage adjustment, Respondent, by letter of March 8, 1993, proposed an adjustment to HCR 92312 of $6,388.78. The proposed adjustment included an increase for insurance based on application of the gross receipts rate to the increase to the contract price, but the Cost Statement Respondent prepared and sent to Appellant included the "insurance bid error" entry of $4,688.05, which, in effect, established that amount as the base for future insurance adjustments. The letter contained the same language noted in Finding 12 asking Appellant to sign a copy of the letter to signify acceptance of the adjustment as calculated by Respondent. On March 15, 1993, Appellant signed the letter. (AF 3D; SAF 10). The change was ordered by the contracting officer on March 18, 1993 (SAF 10).
16. On July 29, 1993, Appellant asked Respondent's San Francisco Distribution Networks Office to remove the "insurance bid error" entry from its Cost Statement for HCR 92312. Appellant argued that the contracting officer at the time of the 1992 adjustment did not understand the nature of the insurance billing change. (AF 3, 3E).
17. On August 9, 1993, Appellant wrote to the contracting officer and again asked that it be allowed an adjustment to HCR 92312 to reflect the full cost of its insurance attributable to that contract (AF 2).
18. The contracting officer forwarded Appellant's August 9 letter to the Board without responding to it, and the letter was docketed as PSBCA No. 3476. By Order dated April 15, 1994, the Board stayed proceedings in No. 3476 to allow the contracting officer an opportunity to issue a final decision.
19. The contracting officer issued a final decision on April 26, 1994, denying Appellant's claim for an insurance adjustment, concluding no adjustment was allowable because the original bid amount ($1.00) for insurance was understated. Appellant's appeal of that final decision was docketed as PSBCA No. 3667, and the two appeals were consolidated.
DECISION
Appellant argues that it is entitled to an adjustment to HCR 92312 to reflect the full cost of its insurance attributable to the revenue from that contract. It argues that because Respondent failed to object to its entry of $1.00 as the cost of insurance in its initial Bid Worksheet, Respondent may not now characterize that entry as a bid error and refuse to recognize an adjustment for the difference between $1.00 and its actual cost of insurance calculated using the gross receipts method. Appellant contends it is inequitable for Respondent to accept the benefit of the net reduction in price resulting from the change in insurance billing over all its contracts with Appellant while denying Appellant the increase to HCR 92312 that is necessary for Appellant to cover the full cost of its insurance.
Respondent argues that Appellant's failure to include in its original Bid Worksheet and bid an amount that reflected its cost of insurance for the vehicles used in performing the contract was a bid error or an omission from the cost statement, and that the Management Instruction specifically precludes an adjustment to correct such an error or omission.
We do not agree that Appellant's $1.00 entry for insurance costs on its Bid Worksheet was a bid error or omission of a cost Appellant expected to incur in performing HCR 92312. At the time of its bid, Appellant's cost of insurance for the vehicles it intended to use to perform HCR 92312 was fully covered under other contracts, and so it did not incur additional insurance costs attributable to HCR 92312. Appellant's nominal entry for the insurance line item on its Bid Worksheet was therefore appropriate and was not a bid error.
Once Appellant, with Respondent's advance knowledge and lack of objection, converted to the gross receipts method of paying for its insurance, giving Respondent the benefit of the resulting price reduction over the 15 other contracts, Appellant's insurance costs were no longer fully covered in its prices, as adjusted. Notwithstanding the benefit to Respondent from Appellant's billing change and the representation in the solicitation that the Bid Worksheet would establish a base for future adjustments, Respondent refused to adjust HCR 92312 to reflect the share of insurance costs attributable to revenues of that contract under the new billing system. Such an adjustment appears to be necessary if Appellant is to continue to recover all of its insurance costs under the 16 contracts as we presume it did before the billing change.
It is not clear from the record whether Appellant's change in billing methodology is a changed economic condition beyond its control that would authorize an adjustment under the Adjustment of Compensation clause and the Management Instruction incorporated in the contract. See Crowbar, Inc., PSBCA No. 2729, 91-2 BCA ¶ 23,825; Peoples Cartage, Inc., PSBCA No. 1254, 85-1 BCA ¶ 17,770; W.D. "Dub" Johnston, PSBCA No. 1076, 83-1 BCA ¶ 16,513 at 82,052. Adjustment of Appellant's 15 other contracts supports a conclusion that the parties interpreted their contracts to allow such adjustments when Appellant converted to the gross receipts billing system, and Respondent has pointed to no basis for distinguishing HCR 92312 from the other 15 in which adjustments were allowed.
On the other hand, denying Appellant an adjustment tends to uphold the integrity of the competitive bidding system by preventing Appellant, who possibly obtained a pricing edge in responding to the solicitation with a price that reflected the allocation of insurance costs to another contract, from increasing its price after award to recover those costs not previously included. See Plaza Maya Limited Partnership, GSBCA No. 9086, 91-1 BCA ¶ 23,425 at 117,500; J.R. Youngdale Constr. Co., ASBCA No. 27793, 88-3 BCA ¶ 21,009 at 106,121; H.T.J. Trucking, Inc., PSBCA No. 366, 78-2 BCA ¶ 13,280 at 64,937. However, there is no evidence that Appellant sought or obtained any advantage by bidding the way it did.
In the context of this appeal, however, we need not resolve whether the insurance billing change warranted an adjustment under HCR 92312, as interpreted by the parties. Appellant accepted Respondent's denial of the insurance adjustment by agreeing to the August, 1992 adjustment that was based on Respondent's calculation of the insurance adjustment. Respondent correctly argues that Appellant's agreement to the adjustment and acceptance of the benefits of the adjustment constitute an accord and satisfaction. The issue of the adjustment for insurance under HCR 92312 was fully addressed in Appellant's request for the adjustment, Respondent's unmistakable denial of the insurance portion of the request and Appellant's acceptance of Respondent's proposed adjustment which did not allow an increase to Appellant's cost of insurance. Appellant is barred by its acceptance of the adjustment from challenging Respondent's calculation. See Lawrence D. Bane, PSBCA No. 1595, 87-2 BCA ¶ 19,913; Paul A. Mason, PSBCA No. 1449, 86-3 BCA ¶ 19,144; The Stephens Associates, PSBCA No. 970, 83-1 BCA ¶ 16,233.
Appellant asserts that it strenuously objected to the adjustments in 1992 and 1993, but it has not provided evidence to support that assertion. The documents relating to the August, 1992 adjustment, as well as the documents relating to the March, 1993 adjustment, which incorporated Respondent's rejection of the insurance adjustment, reflect no objection or reservation of any right to contest the adjustment. Even if Appellant had objected, it ultimately accepted the adjustments by signing the contracting officer's letters and Cost Statements which were binding modifications to the contract.
Appellant also suggests it was forced by economic circumstances to accept the August, 1992 adjustment because it needed the remainder of the adjustment notwithstanding its objection to the insurance component. Appellant has not offered evidence to prove this, and as the adjustment worked a net reduction of Appellant's annual rate, it is difficult to understand how economic circumstances could have caused any urgency in Appellant's acceptance of the adjustment. Furthermore, Appellant has not shown that at the time of either of the adjustments it was experiencing an economic emergency caused by Respondent. Therefore, Appellant has not shown the existence of duress that would relieve it from being bound by its acceptance of the adjustments. See Paul A. Mason, PSBCA No. 1449, 86-3 BCA ¶ 19,144.
The appeals are denied.
Norman D. Menegat
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur
James D. Finn, Jr.
Administrative Judge
Vice Chairman
[1] Appellant's Bid Worksheet also included $1.00 entries for the annual cost of oil, vehicle registration, and road taxes (SAF 4).
[2] The applicable edition of the management instruction addressing adjustments under the contract was PO-530-89-09, Economic Pay Adjustments for Advertised Highway and Inland Domestic Water Contracts, November 3, 1989 ("Management Instruction") (SAF 7).
[3] The Cost Statement is submitted in support of a requested contract price adjustment and contains substantially the same information that appears in the Bid Worksheet and is in a format similar to the Bid Worksheet.