April 15, 1996

Appeals of

STEPHEN ZUCKER

PACKAGES SERVICES PLUS

Under Contract Nos.     038880-91-P-0403, 038880-92-X-0432, 038880-92-X-0468

PSBCA Nos. 3396-3398

 

APPEARANCE FOR APPELLANT:

Gordon Stewart, Esq.

 

APPEARANCE FOR RESPONDENT:

Mark E. Dennett, Esq.

 

OPINION OF THE BOARD

 

Appellant, Stephen Zucker, doing business as Packages Services Plus, has challenged the termination of three contracts under which he operated three contract postal units (CPUs) for Respondent, United States Postal Service.  The issues raised are whether the purported termination of the contracts was legally effective -- i.e., whether the contracts were actually terminated -- and, if so, whether the termination was tainted by bad faith.  In his original Complaint, Appellant included counts seeking monetary damages for the termination and for the cancellation of a proposed (but not executed) contract for the operation of a fourth contract postal unit.  The monetary claims were dismissed for lack of jurisdiction because they had not been submitted to the Contracting Officer.  Stephen Zucker, Packages Services Plus, PSBCA Nos. 3396-3398, 94-3 BCA ¶ 27,039 (Opinion on Motion for Summary Judgment).

FINDINGS OF FACT

1.  Contract No. 038880-91-P-0403 was entered into between the parties on July 19, 1991.  The contract called for the operation of a contract postal unit at 6990 Westwind, El Paso, Texas (Westwind CPU), at an annual rate of $12,000.  (Appeal File Tab (AF) 1).

2.  Contract No. 038880-92-X-0432 was entered into between the parties on August 11, 1992, and called for the operation of a CPU at 1906 Lee Trevino, El Paso, Texas (Trevino CPU) at a yearly rate of $100.  (AF-2).

3.  Contract No. 038880-92-X-0468 was entered into between the parties on September 30, 1992, and called for the operation of a CPU at 255 Shadow Mountain, El Paso, Texas (Shadow Mountain CPU) at a yearly rate of $100.  (AF-3).

4.  Each of the contracts contained the following relevant provisions:

"C.1    CONTRACT DURATION AND TERMINATION

 

a.  Duration.  The contract will be for an indefinite term, subject to the rights of termination specified in b below.

 

b.  Termination.  This contract may be terminated by either the Postal Service contracting officer or the contractor upon 60 days' written notice.  The contracting officer may terminate the contract upon one day's written notice if necessary to protect the Postal Service's interest. [emphasis added]

 

***

 

E.1  CONTRACTING OFFICER'S REPRESENTATIVE

 

The contracting officer will appoint a contracting officer's representative (COR), responsible for the day-to-day administration of the contract, to serve as the Postal Service point of contact with the contractor on all routine matters....

 

E.2  INSPECTION OF WORK

 

The contracting officer's representative (COR) will periodically inspect the contractor's performance to make sure that it is in accordance with the contract.  The COR will immediately notify the contracting officer if the work is unsatisfactory.  If the contractor continues to perform unsatisfactorily, the contracting officer will notify the contractor in writing to correct the deficiencies; if uncorrected, the Postal Service may terminate the contract."  (AF-1, 2, 3)

 

The contracts also contained the standard Claims and Disputes clause (Id.)

5.  Paragraph 6.9.1.c of the USPS Procurement Manual,[1] effective at the time of award of these contracts, provided,

"1.  Contracts may be terminated -- whether for default, convenience, or upon notice -- only when such action is in the interest of the Postal Service.

 

2.  The contracting officer may effect a termination on notice or a no-cost settlement agreement in lieu of issuing another form of termination, upon determination that:

 

(a)       The contractor will accept a no-cost settlement or the contract allows termination on notice;

(b)       Postal Service property was not furnished or will be returned; and

(c)        All outstanding payments, claims, and contractor obligations are or will be resolved."  (USPS Publication 41).[2]

 

6.  By letter dated October 28, 1992, Appellant wrote to Veronica Flores, Respondent's Director of Finance in El Paso, formally indicating his interest in entering into an emergency six-month contract to take over the operation of a CPU on North Stanton Street in El Paso, known as the "Kern" station.  Appellant proposed to operate the station for a monthly fee of $3,500.  By letter of the same date to Respondent's Support Services office in Tucson, Arizona, Ms. Flores recommended accepting Appellant's proposal and awarding an emergency contract to him, describing Mr. Zucker as "a very desirable contractor to work with."  (Appellant's Hearing Exhibit P-27 (Exhibits B & C attached thereto)).  As a prerequisite to award, Appellant was required to obtain a bond.  Although he did so, the Kern contract was never executed (Id. (Exhibits D & E)).

7.  In the meantime, in April 1992, Postal Inspector Sheila Ryan had received a complaint from a postal customer that she (the customer) had mailed packages at a number of CPUs on the west side of El Paso, but that postage had not been

 affixed to the packages at the time she paid for the postage.[3]  This report raised in Inspector Ryan's mind the possibility that the amount of postage eventually put on the packages might not be the amount that had been paid for, and that the CPU operator(s) might be keeping the difference, a discrepancy that she considered a criminal matter.  As a result, she decided to test some of the CPUs in that area.  (Transcript pages (Tr.) 83, 84, 99).

8.  In June and July 1992, Inspector Ryan mailed three packages at the Westwind CPU operated by Appellant.  In each case, the manager of the Westwind station weighed the packages, wrote the amount of the postage on the package, but did not affix any stamps at the time of the transaction.  When Inspector Ryan received the packages in the mail, she found that in two instances the amount of postage affixed to the package was less than the amount she had been charged for mailing.  In the third instance, the amounts corresponded.  In all three instances, postage stamps, rather than a postage meter strip, had been used.  (AF 9; Tr.85, 100).  Inspector Ryan also performed three or four test mailings at CPUs not owned by Appellant.  Those mailings showed no similar discrepancies.  (Tr. 86).

9.  In July 1992, Inspector Ryan purchased a money order and had another Inspection Service employee give it to Appellant's manager at Westwind, reporting it as having been found in a parking lot.  On or about September 10, 1992, the money order was cashed by Appellant, who retained the funds.  (AF 9; Tr. 108).

10.  In November 1992, the Westwind station was audited at Inspector Ryan's request and found to be approximately $2,000 short.  The parties have stipulated that an employee at the Westwind station embezzled funds from that station.  In an interview conducted shortly after he was fired for embezzlement, the same employee told Inspector Ryan that he had regularly overcharged customers at Appellant's direction.[4]  (AF 9; Stipulation paragraph (Stip.) 21; Tr. 88).

11.  In November 1992, before issuing her formal Investigative Memorandum (IM), Inspector Ryan discussed her findings with Ms. Flores and strongly recommended that Appellant's CPU contracts be terminated (Tr. 34, 89; AF 9).  Although Inspector Ryan had been aware of the award of the Lee Trevino and Shadow Mountain CPU contracts to Appellant, she had not advised the Postal Service contracting personnel of her findings before November because, until that time, she believed that any overcharging was being committed by Appellant's Westwind CPU manager and did not involve Appellant (Tr. 110).

12.  As part of a Postal Service reorganization in the Fall of 1992, the Phoenix contracting office that had been administering Appellant's contracts was closed and responsibility for the contracts was transferred to Respondent's Dallas office.  During the transition period, Ms. Flores was unable to locate contracting personnel with any knowledge of the CPU contracts to consult with when she was informed by Inspector Ryan of her findings.  Because Ms. Flores had some previous experience with the financial end of CPU contracts, the personnel in Respondent's El Paso office left to her the decision as to what, if anything, to do in response to Inspector Ryan's recommendation.  Ultimately, Ms. Flores decided that it was in the best interest of the Postal Service to terminate the contracts on one day's notice.  (Tr. 16, 30, 42).

13.  By letter dated November 19, 1992, Ms. Flores informed Mr. Zucker that because of an Inspection Service investigation, it was necessary to close the CPUs and cancel the contracts "in order to protect the interests of the Postal Service."  Further, she stated that the emergency Kern "contract request" had been canceled.  The next day, Ms. Flores had all Postal Service property removed from the three CPU sites.  (AF 8, 9; Tr. 18).

14.  Ms. Flores did not have the authority to take the actions she did with respect to canceling the contracts.  Only the Contracting Officer had the necessary authority to terminate the contracts.  (Stip. 7, 12).

15.  Shortly after taking those actions, Ms. Flores realized that she lacked the authority to terminate the contracts.  Thereafter, she contacted the Dallas contracting office by telephone, in order to advise that office what she had done and of the fact that Mr. Zucker was strenuously objecting to her actions.  At that time, no one in the Dallas office had been assigned responsibility for Appellant's contracts.  Saundra Smith, a contracting officer, spoke briefly to Ms. Flores and asked Ms. Flores to submit the information to her in writing.  (Tr. 18, 19, 56, 57).

16.  Ms. Flores did so by letter dated December 2, 1992.  In her letter, Ms. Flores stated that she would forward all the pertinent documents and asked that the cancellation be processed so that Appellant would receive no more payments under the contracts.  (AF 10).

17.  By letters dated December 18, 1992, the Contracting Officer provided what she termed "official notification" to Appellant that all three contracts would be terminated as of February 7, 1993, in accordance with the "Contract Duration and Termination" clause of the contracts (AF 13-15).  At the time she issued the letters, Ms. Smith had before her Ms. Flores' letter, the contract files that had been transferred from Phoenix, and Inspector Ryan's report (Tr. 52).  She did not speak to anyone from El Paso (except, possibly, Inspector Ryan) or visit El Paso before deciding to terminate the contracts (Tr. 66).  She also did not investigate the validity of the facts stated in the Investigative Memorandum before making her decision (Tr. 69).  It is also likely that her decision was influenced by the fact that the CPUs had already been shut down by Ms. Flores (Tr. 53).  However, before she issued the termination letters, Ms. Smith considered the information before her and independently made a decision that it was in the Postal Service's interest to terminate the contracts (Tr. 52, 60).

18.  The Contracting Officer intended to give Appellant the sixty-day notice required by the Termination clause, but, through an administrative error, the time period stated in the letters did not allow the full sixty days (Tr. 54).

19.  Appellant actually received the three termination letters from the Contracting Officer on December 24, 1992.  Appellant was paid under the three terminated contracts through February 7, 1993.  (Stip. 10).

DECISION

In these appeals, the Contracting Officer purported to terminated three contract postal unit contracts after the CPUs had already been shut down by the unauthorized actions of a Postal Service representative.  The issues to be decided are whether the Contracting Officer's purported termination was effective to terminate the contracts and, if so, whether Appellant has shown that the termination was motivated by bad faith.

Appellant argues first that the termination was not legally effective and that the contracts remain in effect (thereby entitling Appellant to continuing payments).  The sole basis for Appellant's argument is that the Contracting Officer failed to make an independent determination that the termination was in the interest of the Postal Service before issuing the termination letters.  Respondent argues that such a determination was made, but even if we were to find otherwise, that the termination was still effective.

We need not address Appellant's argument as to the effectiveness of the termination since we have found that in this instance the Contracting Officer in fact made an independent determination before issuing the termination notices (Finding 17).  Therefore, we conclude that the contracts were effectively terminated 60 days after Appellant received the termination letters on December 24, 1992.[5]

As to the second issue, Appellant argues that bad faith may be implied from a number of circumstances in these appeals.  In particular, Appellant contends that bad faith is shown by the fact that he was never warned that his contract performance was deficient before termination, as required by clause E.2 (Finding 4); that he was awarded two contracts (Trevino and Shadow Mountain CPUs) and engaged in negotiations leading toward the award of another after Respondent already had the information that was to form the primary basis of the later decision to terminate -- i.e., the results of the tests that Inspector Ryan had conducted at his Westwind facility; and that the Contracting Officer did not make an independent determination that termination was in the Postal Service's interest, but merely "rubber stamped" the unauthorized action that had been taken by Ms. Flores in El Paso.

Appellant also cites Torncello v. United States, 681 F.2d 756 (Fed. Cir. 1982), in support of his argument that Respondent improperly exercised its "convenience" termination right since, by virtue of Inspector Ryan's earlier test mailings, it knew of Appellant's allegedly improper conduct at the time it awarded the last two contracts and knew that such conduct would cause it to terminate those contracts.[6]  Therefore, Appellant contends that the termination was improper, entitling him to unspecified damages.

Respondent, while conceding that procedural errors were made in terminating these contracts, argues that Appellant has demonstrated neither bad faith nor abuse of discretion by the Contracting Officer.  Respondent argues that any mistakes were no more than "errors in judgment, honest mistakes, and procedural violations" that do not rise to the level necessary to show bad faith or abuse of discretion.

Respondent also challenges Appellant's reliance on Torncello, arguing that Torncello is distinguishable from the case before us.  Respondent's primary argument in this regard is that there is no evidence that the contracting officer who awarded the Trevino and Shadow Mountain contracts did not intend to honor those contracts at the time they were awarded.  Respondent would also distinguish Torncello on the basis that the contracts at issue here were not requirements contracts and that the contracts were supported by non-illusory consideration (i.e., the bilateral nature of the termination provision).

The contracts for the operation of Appellant's three CPUs allowed for termination by either party on 60 days' notice.  Under this provision, the Contracting Officer has great latitude and discretion in determining whether to terminate the contracts and the decision of the Contracting Officer will generally be upheld unless it is made in bad faith or constitutes an abuse of discretion.  Fantastiqué Ultimatiqué Nautiqué, PSBCA No. 3652, 1996 WL 22383 (January 23, 1996); Tom Kime, PSBCA No. 3480, 95-1 BCA ¶ 27,490, recon. den., 95-2 BCA ¶ 27,673; E. Gerald Hanes, PSBCA No. 3082, 92-3 BCA ¶25,127, citing, Salsbury Industries v. United States, 905 F.2d 1518, 1521 (Fed. Cir. 1990), cert. den. 498 U.S. 1024, 111 S.Ct. 671, 112 L.Ed.2d 664.  Further, whether we would have taken the same action is irrelevant, for "...it is not the province of the [board] to decide whether termination was the best course.  In the absence of bad faith or clear abuse of discretion the contracting officer's election to terminate is conclusive."  Salsbury Industries, supra, citing John Reiner & Co. v. United States, 163 Ct.Cl. 381, 325 F.2d 438, 442  (1963).

Having considered the record, we conclude that Appellant has not shown that the termination of the three CPU contracts was either the product of bad faith or an abuse of the Contracting Officer's discretion.  As conceded by Respondent, there were mistakes made by the Postal Service personnel involved, the most serious of which was the unauthorized closure of the CPUs by Ms. Flores.  However, the evidence does not show that the actions of the Contracting Officer or any other of Respondent's employees involved conduct that would support a finding of bad faith.  United States Fidelity & Guaranty Co. v. United States, 676 F.2d 622 (Ct. Cl. 1982).  We are persuaded, in part by their demeanor while testifying, that Respondent's personnel were motivated by what they perceived to be Respondent's best interests and not by an intent to harm Appellant.  See Kalvar Corp. v. United States, 543 F.2d 1298 (Ct. Cl. 1976), cert. den. 434 US 830 (1977).  Appellant has also not shown that the Contracting Officer's decision to terminate the contract was arbitrary or capricious, a necessary prerequisite to a finding of abuse of discretion.  United States Fidelity & Guaranty Co. supra.

As to Appellant's specific arguments, we have previously held that the requirement to inform a CPU operator of deficiencies in his performance before termination applies only when Respondent seeks to exercise the one-day termination right.  On Time Postal Services, Inc, PSBCA No. 2528, 90-2 BCA ¶ 22,698 at 113,996, recon. den. 90-3 BCA ¶ 23,113.  Since, in this instance, the Contracting Officer exercised the 60-day termination right, the absence of such notice is irrelevant.

We also do not accept Appellant's argument that would imply bad faith on Respondent's part because of the award of the two contracts or negotiation of a third after Inspector Ryan had conducted her tests.  There is no indication the contracting officer who made the awards had any information about the investigation at the time of award or that he had any intent to terminate the contracts at the time he awarded them.[7]  There is also no indication that Ms. Flores, who had been discussing the Kern station with Appellant in October, had any information about Inspector Ryan's investigation before she was told about it in November.  Further, there is no indication that the failure of Inspector Ryan to make known the results of her initial investigation was motivated by a desire on her part to harm Appellant (see Finding 11).

Finally, we have already addressed Appellant's contention that the Contracting Officer failed to make an independent determination with respect to whether to terminate.  Since we have concluded that she did make such a determination, we need not address this issue any further.

Although the fact that the CPUs had already been shut down was most likely a factor in the Contracting Officer's determination, the record does not indicate that it was the only factor or even a major factor.  The Contracting Officer also based her determination on the documents before her at the time -- i.e, the contract files, Ms. Flores' letter, and Inspector Ryan's Investigative Memorandum.  The IM, in particular, indicated that postal customers were being overcharged at Appellant's Westwind facility and that the overcharging was most likely intentional.  The Contracting Officer was justified in relying on the information in the IM in deciding that termination was in the interests of the Postal Service.  It is well settled that a contracting officer may rely on reports and investigations by her staff and others in making termination decisions.  See e.g. Nuclear Research Corp. v. United States, 814 F.2d 647, 649-50 (Fed. Cir. 1987); Pacific Architects and Engineers, Inc. v. United States, 491 F.2d 734, 744 (Ct. Cl. 1974).  Therefore, she was not required to conduct her own interviews or investigation before deciding to terminate the contracts.

Respondent has conceded that it is liable for payment under the contracts from February 7 to February 24, 1993, plus Contract Disputes Act interest.  Appellant is to be paid for that period.  However, the appeals are otherwise denied.

David I. Brochstein

Administrative Judge

Board Member

I concur:

James A. Cohen

Administrative Judge

Chairman

 

I concur:

James D. Finn, Jr.

Administrative Judge

Vice Chairman


[1]  The Procurement Manual, USPS Publication 41, is incorporated by reference into Title 39 of the Code of Federal Regulations.  39 C.F.R. § 601.100.

[2]  In the current version of the Procurement Manual, this language is found at paragraph 6.9.1.d.

[3]  The record does not reflect whether the complaint was directed against the one CPU (Westwind) then operated by Appellant.

[4]  We make no finding as to whether Appellant actually directed his employee to overcharge customers, as it is unnecessary to the disposition of these appeals.

[5]  The Contracting Officer's failure to give the full 60-day notice (Finding 18) did not make the terminations ineffective, but delayed the effective date until 60 days after receipt of the notices (Finding 19).  On-Time Postal Services, Inc., PSBCA No. 2528, 90-2 BCA ¶ 22,698 at 113,996, recon. den. 90-3 BCA ¶ 23,113; Executive Airlines, Inc., PSBCA No. 1452, 87-1 BCA ¶ 19,594 at 99,112 and cases cited therein.

[6]  Although not so restricted by Appellant, this argument presumably applies only to termination of the last two contracts -- Trevino and Shadow Mountain.

[7]  For this reason we also see no applicability of Torncello to these appeals.