December 12, 1994
Appeal of
CLINICAL PHARMACY, INC.
Under Contract No. 072359-85-S-1350
PSBCA No. 3585
APPEARANCE FOR APPELLANT:
Phillip P. Baca, Esq.
APPEARANCE FOR RESPONDENT:
Mark Brent Ezersky, Esq.
OPINION OF THE BOARD
Appellant, Clinical Pharmacy, Inc., has appealed the termination for default of its contract to operate a retail postal unit for the United States Postal Service, Respondent.
At the election of the parties, this appeal is being decided on the record without an oral hearing. Respondent filed a brief, and Appellant did not.
FINDINGS OF FACT
1. On January 6, 1984, Respondent awarded Appellant a contract to operate a contract postal unit in Appellant's pharmacy located at 5002 Gibson Boulevard, S.E., in Albuquerque, New Mexico (Appeal File Tab ("AF") 11).
2. The contract provided that Appellant's performance under the contract was subject to inspection by Respondent:
"INSPECTION OF CONTRACT WORK -- The COR [contracting officer's representative] shall periodically review the Contractor's performance to assure the Contractor is performing in accordance with postal rules and regulations. The COR will immediately bring to the attention of the Contractor all unsatisfactory service. If the Contractor continues to perform unsatisfactorily, the Contracting Officer will formally notify the Contractor in writing of the deficiencies and that the continued unsatisfactory performance may be cause for termination of the contract." (AF 11, General Provisions for Contract Stations, Contract Branches, and Community Post Offices, General Provision 7).
3. The contract contained a termination clause that provided,
"TERMINATION -- This contract may be terminated by either party upon sixty days written notice. In the event of such termination, neither party shall be liable for any costs except for payment in accordance with the payment provisions of the contract for the actual services rendered prior to the effective date of the termination. Should the Contracting Officer determine the contractor to be in default, the Contracting Officer shall terminate the contract by giving the Contractor one day's notice thereof in writing." (AF 11, General Provision 3).
4. The contract's specification requirements included the following:
"19. All monies received from the operation of the Contract Unit are property of the U.S. Postal Service, and not the property of the contractor. Such monies shall not be commingled with personal or other funds of the contractor, and shall not be used for any purpose other than in connection with the postal duties and functions of the Contract Unit. The contractor shall account for such monies at the close of each day's business." (AF 11, Specification Requirements Contract Stations, Contract Branches, and Community Post Offices, Paragraph 19).
5. In 1987, Appellant changed its business address from 5002 Gibson Boulevard to 5121 Gibson Boulevard. Respondent recognized the change of address in a modification to the contract dated November 17, 1987 (AF 2; Supplemental Appeal File Tab ("SAF") 1).
6. On May 2, 1990, the Director of Finance for the Albuquerque Post Office mailed a letter by certified mail, return receipt requested, addressed to Appellant at 5002 Gibson, Appellant's former address. The letter stated that a recent audit of Appellant's contract unit had disclosed a shortage of $185.67 that Appellant would be required to make up. The letter continued,
"You are now being placed on Notice for your continued use of stamp stock issued to you for sale, on a loan basis. This violation has been discovered on at least five of your last seven audits and has been brought to your attention each time. This procedure caused lost revenue to the Postal Service and is a violation of your contract. You are required to report all sales and make a deposit of same on a daily basis." (AF 9).
The return receipt for that letter reflects that it was delivered May 3, 1990, but the receipt does not indicate the address to which the letter was delivered, and the signature on the receipt is not that of Appellant's president or anyone else disclosed in the record to be associated with Appellant (SAF 2).
7. At least until June 9, 1993, Appellant regularly used postage from the contract unit for its pharmacy business mailings, paying for the postage in arrears on a weekly or monthly basis instead of paying for the postage when it was taken from the contract unit. Appellant maintained a ledger reflecting postage used and paid for at a later date. (AF 5).
8. The six prior audits of the unit had revealed shortages of $1469.50 (April 3, 1990), $185.67 (April 30, 1990), $0 (March 26, 1991), $427.67 (January 22, 1992), $87.07 (October 6, 1992), and $82.57 (November 21, 1992). Appellant had made up all shortages. (AF 5, 8).
9. On June 9, 1993, a Postal Service auditor conducted an audit of Appellant's contract unit that disclosed a shortage of $260.60 in a total assigned credit of $6,697.83. The auditor noticed Appellant's practice of using postage in advance of paying for it and told Appellant's president and his son, who also worked in the business, that the practice was unacceptable and would have to stop immediately. (AF 5, 6, 8).
10. On June 17, 1993, another audit of the unit disclosed a shortage of $35.70 in an assigned credit of $4,868.05 (AF 5, 7).
11. In a final decision letter dated June 25, 1993, the contracting officer terminated Appellant's contract for default, stating,
"Contract No. 072359-85-S-1350, dated January 6, 1984, is completely terminated under paragraphs 3. (TERMINATION) and 7. (INSPECTION OF CONTRACT WORK), effective June 30, 1993, for the misuse of Postal funds. The Postal Service reserves all rights and remedies provided by law or under this contract." (AF 4).
12. On June 29, 1993, Respondent recovered all stock and cash from Appellant's contract unit except for a $24.73 overage as determined by the final count which was refunded to Appellant (Complaint Exhibit dated June 29, 1993; AF 2).
13. Appellant filed this appeal from the contracting officer's final decision. In its notice of appeal, Appellant included a claim for $28,099.27 as its costs resulting from Respondent's termination of the contract.
DECISION
Respondent argues that the termination for default was justified by Appellant's history of shortages over the years. Additionally, Respondent argues that Appellant was notified in the May, 1990 letter that its use of postage before paying for it was not permitted and could be grounds for termination yet continued the practice, giving Respondent grounds for terminating the contract for default.
Appellant did not file a brief, and its complaint does not state its theory of the case. However, in its notice of appeal and prior correspondence it denies receiving the May 1990 letter directing that it stop using postage and paying for it later. It has not denied such use, but asserts that in the past a postal inspector had told Appellant's president that the practice of paying for postage after the fact was permitted as long as Appellant kept track of the amount of postage it used. It argues that termination of its contract was improper because it made up any shortages in the operation of the contract unit and it has a long history of good service.
We have held that before terminating a contract postal unit contract for unsatisfactory service, the contracting officer must first inform Appellant of the unsatisfactory service and give Appellant an opportunity to improve as required by the Inspection of Work clause of the contract. See On Time Postal Services, Inc., PSBCA No. 2528, 90-2 BCA ¶ 22,698 recon. denied 90-3 BCA ¶ 23,113; Militza Ortiz, PSBCA No. 2031, 88-2 BCA ¶ 20,568.[1] Respondent contends the May 2, 1990 letter informed Appellant that its practice was unacceptable, but Appellant denies receiving the letter. The letter was not addressed to Appellant's proper address, notwithstanding the 1987 contract modification noting Appellant's new location, and the signature on the return receipt has not been shown to be that of someone associated with Appellant or authorized to receive Appellant's mail. Therefore, Respondent has failed, in view of Appellant's denial of receipt, to show the May 2, 1990 letter was delivered and provided the notice and opportunity to cure necessary to fulfill the requirements of the Inspection of Work clause. See Brooks E. Cook, PSBCA No. 1350, 86-1 BCA ¶ 18,724 at 94,189; Cozzolino Constr. Co., PSBCA No. 703, 81-1 BCA ¶ 14,899.
On June 9, 1993, Respondent's auditor told Appellant's president that Appellant's deferred payment practice was unacceptable and that it must be stopped. Even assuming that the auditor's admonition met the notice requirement of the Inspection of Work clause, it would not serve to validate the attempted termination for default because Respondent has not shown that Appellant continued the practice over the short period until June 17, 1993, when the next audit was performed, or that the practice had any bearing on the $35.70 shortage noted on June 17. Additionally, Respondent has not shown that Appellant's history of shortages warranted termination for default or that Appellant was provided notice that the frequency of shortages, always made up by Appellant without loss to Respondent, was unsatisfactory service that could be grounds for termination of the contract for default. See Jaehee Yoshimoto, PSBCA Nos. 2315, 2749, 92-1 BCA ¶ 24,504.
The contracting officer's failure to give Appellant warning of unsatisfactory service did not affect Respondent's right to terminate the contract for convenience by giving Appellant the sixty-day written notice provided in the Termination clause. See Michael J. Earl, PSBCA No. 3332, 93-3 BCA ¶ 26,234; On Time Postal Services, Inc., PSBCA No. 2528, 90-2 BCA ¶ 22,698 recon. denied 90-3 BCA ¶ 23,113. The contracting officer, based on the information available to him regarding Appellant's practice of deferring payment for postage, reasonably concluded that termination of the contract was in the best interest of Respondent, and there is no evidence he acted in bad faith. Therefore, the contracting officer's June 25, 1993 letter was a valid termination of the contract which became effective 60 days after Appellant's receipt. See Id.; Executive Airlines, Inc., PSBCA No. 1452, 87-1 BCA ¶ 19,594 at 99,112. Pursuant to the Termination clause of the contract, Appellant's sole remedy is recovery of the contract payments it would have earned during the 60 days after it received the notice. See E. Gerald Hanes, PSBCA No. 3082, 92-3 BCA ¶ 25,127; On Time Postal Services, Inc., PSBCA No. 2528, 90-2 BCA ¶ 22,698 recon. denied 90-3 BCA ¶ 23,113.
The appeal is granted to the extent noted above, and is otherwise denied. The matter is remanded to the parties for determination of the amount of payment due Appellant.
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] Our prior decisions do not hold that Respondent may never terminate a contract postal unit contract without strictly complying with the notice and cure provisions of General Provision 7. However, where, as here, it has not been shown that Appellant knew or should have known that its practice of using postage from the unit and paying later violated the requirements of the contract, no loss to Respondent occurred, and Appellant had been allowed to make up shortages in the past, notice and a cure opportunity under the Inspection of Work clause were in order. See Jaehee Yoshimoto, PSBCA Nos. 2315, 2749, 92-1 BCA ¶ 24,504.