May 8, 1996
Appeal of
JACK SWEDBERG
Under Contract No. 055508-91-P-0178
PSBCA No. 3876
APPEARANCE FOR APPELLANT:
Jack Swedberg
APPEARANCE FOR RESPONDENT:
Michael Propst, Esq.
OPINION OF THE BOARD
Appellant, Jack Swedberg, has appealed the denial by Respondent, United States Postal Service, of his request for an increase to the annual rate of compensation paid him for operation of a contract postal unit in Kelseyville, California.
Appellant elected to have the appeal processed under the Board's accelerated procedure, 39 C.F.R. § 955.13, and the appeal has been submitted on the record without a hearing pursuant to 39 C.F.R. § 955.12.
FINDINGS OF FACT
1. On February 14, 1991, Respondent awarded Appellant an indefinite-term contract for the operation of a contract postal unit (“CPU”) in Kelseyville, California, at the annual rate of $5,000. Appellant’s CPU provides postal services similar to a small post office, and Appellant pays the expenses of the operation such as rent, heat, and employee salaries. (Appeal File, Tab (“AF”) 1).
2. The contract required that the CPU be in operation Monday through Friday from 11:00 a.m. until 3:00 p.m. (AF 1, Contract Paragraphs B.2, C.2, and Attachment 1, Requirements--Contract Postal Unit).
3. The Request for Price Adjustment clause of the contract addresses adjustments to Appellant’s annual rate of compensation:
“a. The contractor may request an increase in the contract’s annual price after the contractor has had the contract for at least two full years or has operated the CPU for two years since the last price increase. The contractor must submit a written request that provides adequate explanation and documentation to justify the proposed increase based on one or both of the following reasons:
1. Direct cost increases for rent, utilities, taxes, and labor. (If the CPU is operated in conjunction with another business, the increased costs must be prorated; only those required to support the CPU may be considered.)
2. Increased benefit to the Postal Service. The benefit may derive from increased real revenue (not from fee or rate increases), increased transactions, or other improvements (must be specific).
* * *
c. The contracting officer may accept the request, deny the request, or negotiate with the contractor to reach agreement on a new annual price. If the request is accepted or agreement is reached on another amount, the contractor must waive its right to terminate for one year, beginning from the effective date of the new price. If the request is denied or no agreement is reached, the contractor may continue at the same annual price or the contract may be terminated by either party in accordance with the Contract Duration and Termination clause.” (AF 1, Contract Paragraph G.2, REQUEST FOR PRICE ADJUSTMENT (CONTRACT POSTAL UNIT) (Clause OB-491) (June 1988)).
4. Under the Contract Duration and Termination clause, either party can terminate the contract by giving the other sixty days’ written notice (AF 1, Contract Paragraph C.1, CONTRACT DURATION AND TERMINATION (CONTRACT POSTAL UNIT) (Clause OB-490) (June 1988)).
5. The contract’s Changes clause authorized the contracting officer to order changes in writing. The clause provided further,
“b. Any other written or oral order (including direction, instruction, interpretation, or determination) from the contracting officer that causes a change will be treated as a change order under this clause, provided that the contractor gives the contracting officer written notice stating (1) the date, circumstances, and source of the order and (2) that the contractor regards the order as a change order.
c. If any such change affects the cost of performance or the delivery schedule, the contract will be modified to effect an equitable adjustment.” (AF 1, Contract Paragraph H.3, CHANGES (Clause B-2) (October 1987).
6. The Kelseyville Postmaster was the contracting officer’s representative, responsible for the day-to-day supervision of Appellant’s CPU. However, only the contracting officer had authority to make any changes affecting the contract price, and Appellant was aware that under no circumstances could the contracting officer’s representative make changes that would affect the contract price. (AF 1, Contract Paragraphs H.3, E.1 and Attachment 1, Requirements--Contract Postal Unit; Attachment to Appellant’s September 27, 1995 Letter to the Board; Attachment I to Appellant’s September 20, 1995 Letter to the Board).
7. In December 1992, Appellant requested that Respondent increase his annual compensation to $15,369.96 to cover his costs of operating the CPU. In his request, Appellant pointed out that the CPU was in operation from 9:00 a.m. until 4:00 p.m. daily for the convenience of customers. Effective February 1, 1993, the annual rate was increased to $15,370. (AF 3).
8. By late 1993, Appellant was holding mail for customer pick up after the carrier had attempted delivery, a service Appellant was not required to provide at the inception of his contract, and by at least mid-1995, Appellant had constructed additional storage space at the CPU for that purpose. (March 14, 1996 Affidavit, Attachment 2; AF 3, 4).
9. On September 20, 1994, Appellant asked Respondent to renegotiate the terms of the contract and increase his annual compensation to $30,750, to be effective February 1, 1995 (two years after his last increase). The request was based on the increased revenue generated by the CPU (up from $40,000 in 1993 to $87,000 in 1994 (March 14, 1996 Affidavit, Attachment 5; AF 6)), on the cost of constructing storage space to hold the overflow of parcels and mail for pick-up by postal customers, increases in Appellant’s rent, utilities, taxes and labor costs, and increased hours of operation (“The hours of operation (9:00 a.m. to 4:30 p.m.) exceed those called for in the contract in order to service the local residents/area.”). Respondent did not renegotiate the compensation or otherwise respond to Appellant’s request, and Appellant renewed the request for an adjustment on May 9, 1995. (AF 4, 6).
10. By letter dated August 22, 1995, the contracting officer rejected Appellant’s request and counter-offered to increase the annual compensation by $1,630, to $17,000 annually (AF 5, 7).
11. On August 29, 1995, Appellant rejected Respondent’s offer and indicated an intent to appeal the contracting officer’s decision (AF 9). Appellant’s request was docketed by the Board on September 8, 1995. Because the contracting officer had not issued a final decision, proceedings were suspended, and, on November 3, 1995, the contracting officer issued a final decision denying Appellant’s request. In his final decision, the contracting officer repeated the offer of a $1,630 increase. Respondent considered that Appellant would be adequately compensated at $17,000 per year, and the contracting officer noted in his final decision that it was Respondent’s business decision that it would pay Appellant no more. (March 14, 1996 Affidavit, Attachment 3).
12. Appellant’s current compensation reflects a cost to Respondent of $.16 for each dollar of revenue generated by the CPU. The average for CPUs in the area is $.091 per dollar of revenue generated. Respondent’s determination that Appellant is entitled to an increase of no more than $1,630 is based, in part, on its comparison of the average cost per dollar of revenue generated by other CPUs with the cost per dollar of Appellant’s. (Declaration of Valora Broussard).
13. Appellant stayed open longer than required and provided services not specifically called for in the contract in order to better serve the customers of the CPU. Appellant submitted petitions and correspondence from customers expressing their support for the continuation of the services he provides. (March 14, 1996 Affidavit, Attachment 6).
DECISION
Appellant argues that the annual compensation he receives under his contract should be increased because the revenue generated for Respondent by the CPU and Appellant’s operating costs have increased. He asserts that at the time of his last increase, he was compensated at a rate of $.38 for each dollar of revenue generated, and that the increase he requests is justified by applying that ratio to the higher revenue currently earned by the CPU.
Respondent does not deny that the revenue generated by the CPU and the costs of its operation have increased but argues that Appellant has not shown entitlement to an adjustment under the terms of the contract’s Request for Price Adjustment clause of any amount greater than the $1,630 offered by the contracting officer. Respondent denies that Appellant is entitled to an increase to his annual rate sufficient to maintain a constant cost-per-dollar-of-revenue rate and points out that the rate Respondent proposes still exceeds by far the average for similar CPUs in the area. Finally, Respondent argues that Appellant’s sole contract remedy if he is not satisfied with the adjustment offered by Respondent is to perform at the contracting officer’s price or terminate the contract by providing 60 days’ notice.
Appellant, as the party seeking an adjustment under the contract, has the burden of demonstrating by a preponderance of the evidence that he is entitled to the claimed increase to his annual rate. See David Sahagian, PSBCA Nos. 3385, 3416, 94-2 BCA ¶ 26,688. Appellant has shown that his costs of operating the CPU and the revenues generated by the CPU have increased, but, although the Request for Price Adjustment clause (Finding 4) identifies CPU costs and revenues as factors to be addressed in an adjustment request, demonstrating that those conditions exist does not necessarily entitle Appellant to an increase. The contract does not commit Respondent to cover Appellant’s costs of operation or to award increases in direct proportion to increases in revenues, and the Request for Price Adjustment clause contemplates the possibility that the contracting officer will not grant Appellant’s adjustment request in full.
Respondent determined that its higher-than-average cost per dollar of revenue generated by the operations of Appellant’s CPU did not justify an increase beyond the $1,630 it offered. Appellant has not shown that action to be unreasonable or to have been a breach of the implied duty of good faith and fair dealing that exists between the contracting parties. See Banks Trucking, PSBCA No. 3528, 96-1 BCA ¶ 28,132; Robert L. Merwin & Co., GSBCA No. 6621, 83-2 BCA ¶ 16,745 at 83,273; 6800 Corp., GSBCA No. 5880, 83-2 BCA ¶ 16,581 at 82,449-50; Restatement (Second) of Contracts § 205 (1979). The contracting officer is not required by the implied duty of fair dealing to make concessions to Appellant or to award Appellant exactly what he requests. That Appellant finds the contracting officer’s offer unacceptable or that his costs of operation exceed what the contracting officer will pay does not mean that the contracting officer failed to act in good faith. See 6800 Corp., GSBCA No. 5880, 83-2 BCA ¶ 16,581 at 82,449-50.[1]
Although Appellant has not explicitly relied on the contract’s Changes clause (Finding 5), he has argued that he is entitled to increased compensation because he is providing service that exceeds what is called for under the contract as written. The hours of operation stated in the contract are from 11:00 a.m. to 3:00 p.m., Monday through Friday, but Appellant has been operating the unit from 9:00 a.m. to at least 4:00 p.m. since before the 1992 price adjustment (Finding 7). Also, Appellant holds for customer pickup parcels and accountable mail after the carrier has attempted delivery, a service Appellant says is not required under his contract. Appellant constructed additional storage space at the CPU to hold this mail. (Finding 8).
However, if Appellant is to recover under the Changes clause, he must show that Respondent required him to provide the extra service, thereby constructively changing his contract and obligating Respondent to grant an equitable adjustment under the Changes clause. See Len Co. & Associates v. United States, 385 F.2d 438, 443, 181 Ct. Cl. 29, 38 (1967); Knight Architects Engineers Planners, Inc., PSBCA No. 3474, 94-3 BCA ¶ 27,178. He has not done so. Appellant has not shown that the contracting officer directed him to extend his hours of operation or add the storage space or hold the accountable mail for customer pickup, and Appellant knew that the Kelseyville Postmaster, the administrative official under the contract, was not authorized to take actions that would change the requirements of the contract in a manner that would obligate Respondent to pay Appellant additional compensation (Finding 6).[2]
Appellant remained open longer and held mail for pickup because his customers wanted those services (Findings 7, 9, 13). While Appellant’s efforts to improve the quality of the service provided by his CPU are commendable, Respondent has discretion to establish in the CPU contract the level of service the CPU is to provide to a community and the amount that Respondent is willing to pay for the contract-prescribed level of service. Appellant, by voluntarily performing service over and above the contractual minimum, cannot increase the compensation Respondent is obliged to pay beyond that stated in the contract. See Baltimore and Ohio R.R. v. United States, 261 U.S. 592 (1923); J. A. Ross Company v. United States, 126 Ct. Cl. 323 (1953); Paul A. Mason, PSBCA No. 1335, 86-1 BCA ¶ 18,722; E.D. Conto, PSBCA No. 962, 1982 WL 8937, April 20, 1982; Charles J. Siever d/b/a Charles H. Siever Co., PSBCA No. 460, 80-2 BCA ¶ 14,740.
The appeal is denied.
Norman D. Menegat
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
[1] Appellant argues but has not shown that the contracting officer’s failure to act promptly on his September 1994 adjustment request demonstrates a lack of good faith dealing on Respondent’s part.
[2] Appellant’s 1992 request for an increase to his annual compensation was based, in part, on hours of operation of 9:00 a.m. to 4:00 p.m., and Respondent granted the request in full (Finding 7). We need not decide whether Appellant then became contractually obligated to provide the longer hours of service even though the written amendment did not so provide.