July 14, 1997
Appeal of
LEE D. SHUMATE
Under Contract No. 273783-92-P-0210
PSBCA No. 3647
APPEARANCE FOR APPELLANT:
Lee D. Shumate
APPEARANCE FOR RESPONDENT:
Richard S. Kessler, Esq.
OPINION OF THE BOARD
Appellant, Lee D. Shumate,[1] has filed a timely appeal from a contracting officer’s final decision seeking payment in the amount of $18,647.78 as the result of a shortage in Appellant’s assigned postal funds. The appeal is being decided on the record in accordance with 39 C.F.R. §955.12.[2]
Findings of Fact
1. On March 23, 1992, Appellant was awarded contract no. 273783-92-P-0210 to operate the Byram Contract Postal Unit (Byram CPU or CPU) in Jackson, Mississippi for a fixed annual price of $30,000. Performance under the contract was to begin on May 1, 1992, and continue for an indefinite term. (Appeal File (AF) Tab T).
2. The contract included a Termination Clause (Clause OB-490, June 1988), which stated:
“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.” (AF Tab T).
The contract also included the Postal Service standard Claims and Disputes Clause (Clause B-9, June 1988), which defines a claim as including the “interpretation of contract terms, or other relief arising under or relating to this contract.” (Id.)
3. Under Section J.3 (Provision OA-509, June 1988) of the solicitation and subsequently awarded contract, Appellant was required to furnish to the Postal Service prior to award a contract postal unit bond in the amount of $20,000. (Id.) In accordance with this provision, Appellant furnished to the Postal Service two performance bonds, one issued by State Farm Fire and Casualty (State Farm) and the other issued by Aetna Casualty and Surety Co. (Aetna). Each bond was in the amount of $10,000 and obligated the surety to make payment to the Postal Service in the event Appellant failed to fulfill her duties and obligations under the terms of the contract. (AF Tabs U & V).
4. Appellant was permitted to perform nonpostal transactions on the CPU’s premises, but the contract’s Nonpostal Transactions (Contract Postal Unit) Clause (Clause OB-596, June 1988) required that postal funds “be kept separate from all other funds” (AF Tab T). Additionally, the Examination of Records Clause (Clause B-14, October 1987) allowed, but did not require, the examination of Appellant’s “pertinent books, documents, papers, or other records” by the Postal Service for up to three years following final payment on the contract. (Id.)
5. Handbook AS-707F (July 1989), “Contracting for Contract Postal Units”, contains Respondent’s internal procedural guidelines for the administration of contract postal units such as Appellant’s (Handbook, Preface (A); §1.1). Section 4.3.4 of the Handbook states that the contracting officer’s representative will check the financial controls and reports periodically, and will prepare an annual audit of a CPU after contract award. The Handbook was not incorporated into Appellant’s contract or otherwise made a part of the parties’ contractual duties and obligations (Handbook, §1.2).
6. Appellant began operation of the CPU on May 1, 1992. On Friday, October 15, 1993, the Candlestick Park Station Manager[3] attempted to perform an audit of the Byram CPU, but was asked by William P. Shumate[4] to return later because he had to straighten out his records (Supplemental Appeal File (SAF) B-1). Shortly thereafter, Mr. Shumate informed the Station Manager that an audit would reveal that the Byram CPU had a shortage of approximately $18,000. (Id.)
7. An audit conducted that same day in the presence of Appellant and Mr. Shumate revealed a shortage of $18,647.78 in the CPU’s assigned accountability (AF Tab R; SAF A-1). As a result, Respondent immediately stopped all payments due Appellant and terminated Appellant’s access to all Postal Service stamp stock (AF Tabs Q & S). However, Appellant requested and was permitted to continue to distribute mail to post office boxes in her facility so that customer mail service would not be interrupted (AF Tab S).
8. In an interview with Postal Inspectors, also on October 15, 1993, the Shumates admitted they had been using post office funds for personal expenses since approximately May 1993. Both stated they intended to repay the shortage within three months with money generated during the holiday season. (SAF A-2; C1-2; D1-2).
9. On October 18, 1993, the Postmaster sent a letter of demand to Appellant notifying her that she was indebted to the Postal Service in the amount of $18,647.78, “plus any further discrepancies which may occur” in her accounts (AF Tab P).
10. By contract modification dated October 22, 1993, the contract was terminated effective October 27, 1993 (AF Tab T).
11. On February 7, 1994, the contracting officer issued a final decision reiterating that the contract had been terminated as of October 27, 1993, and finding Appellant indebted to Respondent for the reported shortage of postal funds in the amount of $18,647.78 (AF Tab O). The final decision reminded Appellant of the October 18, 1993 letter of demand and continued:
“[the Postmaster] informed this office that you visited him in November[5] and indicated you would start making payments toward the shortage the next week. It is your legal and contractual obligation to make restitution for this shortage; however, as of this date, the Postal Service has received no payments nor any other response from you.” (Id.)
The contracting officer demanded that full payment be made to the Jackson, Mississippi Postmaster “within ten (10) days from receipt of this letter.” Copies of the contracting officer’s final decision were sent to Appellant’s two performance bond sureties. (Id.)
12. By letter dated February 14, 1994, Appellant acknowledged receipt of the contracting officer’s final decision and her indebtedness to the Postal Service (AF Tab N). Appellant pointed out to the contracting officer that she had cooperated with the Postal Service and objected to the demand for a lump sum repayment of the shortage rather than repayment in monthly installments. Appellant also stated her belief “that since [the CPU was] not audited within one year, the Postal Service cannot call on [her] bonding company for payment.” (Id.)
13. Thereafter, Respondent concluded that it was not in the best interest of the Postal Service to allow Appellant to repay the indebtedness on an installment basis (AF Tab K). As a result, the contracting officer, on April 1, 1994, made formal demand on State Farm and Aetna for payment in the amount of $9,323.89 each under their performance bonds. Payment was requested within 10 days after receipt of the contracting officer’s letter. (AF Tabs H & I).
14. On April 7, 1994, a State Farm representative notified the contracting officer that it would give Appellant an opportunity to resolve the matter, but if she did not, it would comply with the terms of its bond (AF Tab G).
15. On April 28, 1994, Appellant filed a timely notice of appeal from the contracting officer’s final decision and sent copies of the appeal to both State Farm and Aetna (AF Tab E). On the same date, Appellant notified State Farm’s senior bond claim assistant that she had been advised by various Postal Service officials that postal regulations required an annual audit of the CPU (AF Tab D) and that if such an audit was not performed, Respondent could not make a valid claim against the bonding company for the shortages in her postal funds. Because the first audit of the Byram CPU did not take place until approximately 18 months after the beginning of contract performance, Appellant stated that, in her opinion, State Farm was not “legally liable to pay the bond.” (Id.)
16. On May 2, 1994, State Farm forwarded to the contracting officer Appellant’s April 28, 1994 letter to its senior bond claim assistant and asked the contracting officer for the Postal Service’s response to Appellant’s claim that the bond was invalid. State Farm stated it would “not make payment under this bond until this defense has been further researched.” (AF Tab C).
17. On October 20, 1994, Appellant and her husband were indicted by a Grand Jury on one count of violating Section 641, Title 18, United States Code for theft of postal funds. Prosecution of Appellant was deferred under the pretrial diversion program. William P. Shumate pleaded guilty to the embezzlement of postal funds, was incarcerated for four months, and ordered to make restitution to the Postal Service during the period of incarceration plus 32 equal monthly installment payments after his release. (Respondent’s Record Supplement).
18. As of March 29, 1996, neither Appellant nor her husband had made any payments to the Postal Service which might constitute a partial or complete satisfaction of the debt (Respondent’s Record Supplement, Decl. of Judy A. Childers).
Decision
Appellant contends that Respondent should not have completely terminated her contract or required her to repay the misappropriated funds in full within the 10 day period demanded by the contracting officer. Appellant also asserts that the Postal Service had no right to seek reimbursement from her sureties since it did not conduct an audit of her CPU contract until almost 18 months after the beginning of performance. Respondent contends that the Board lacks jurisdiction to consider Appellant’s claims, and that the appeal should be dismissed for lack of subject matter jurisdiction. Alternatively, Respondent argues that there is no merit to Appellant’s contentions, and the appeal should be denied.
Under the Contract Disputes Act and the Postal Service Claims and Disputes Clause, the Board has jurisdiction to consider Appellant’s request for an interpretation of her rights and obligations under her contract. Dentin Mfg. Co., PSBCA No. 2756, 90-3 BCA ¶23,107. The Board also has jurisdiction to consider the propriety of the complete termination of Appellant’s contract rather than a partial or delayed termination as sought by Appellant. See Malone v. United States, 849 F.2d 1441 (Fed. Cir. 1988); Weststates Trans., Inc., PSBCA No. 3764, 97-1 BCA ¶28,633; Roger Dean Barrett, PSBCA No. 2490, 89-3 BCA ¶22,220. Therefore, we will not dismiss the appeal for lack of subject matter jurisdiction.
Under the contract, the contracting officer had the right to terminate Appellant’s contract on one day’s notice if necessary to protect the interests of the Postal Service (FOF 2). On October 22, 1993, after Appellant and her husband admitted they used Postal Service funds for personal purposes (FOF 8) and the Station Manager’s audit revealed a significant shortage in the assigned accountability (FOF 7), the contracting officer properly determined that it was in the best interest of the Postal Service to terminate Appellant’s right to continue performance of the CPU contract. Although the contracting officer allowed Appellant to continue to provide some postal services between the time the shortage was discovered and the contract was terminated (id.), he had no obligation under the contract to allow Appellant to continue mail delivery or to renegotiate the terms of her contract so that she could continue partial operation of the CPU. Therefore, under the circumstances, the contracting officer properly exercised his discretion to terminate the contract.
Appellant does not deny that she is liable for the repayment of the $18,647.78 shortage in her assigned funds. However, she contends that she should be allowed to repay the shortage in monthly installments and that the Postal Service should not have sought reimbursement from her performance bond sureties. We are not persuaded by either argument. Although Appellant apparently discussed the possibility of monthly installments with the Candlestick Park Postmaster (FOF 11 & 12), neither that discussion nor the terms of the contract establishes a binding commitment on the part of the Postal Service to allow Appellant to repay the shortage over an extended period. The Postal Service considered allowing Appellant to make installment payments, but concluded it was not in its best interests (FOF 13) and that payment through Appellant’s bonding companies should be pursued. As the Postal Service’s actions were not an abuse of discretion or in violation of any contractual term, there is no basis for concluding that the contracting officer erred in rejecting Appellant’s request for installment payments or seeking reimbursement from the performance bond sureties in the total amount of $18,647.78.
Neither the terms of Appellant’s contract nor the provisions of Postal Service Handbook AS-707F, “Contracting for Contract Postal Units”, supports Appellant’s contention that Respondent’s failure to perform an annual audit precluded it from seeking repayment from Appellant’s sureties. Contrary to Appellant’s assertion, the Handbook contains only internal procedural guidelines for administering contract postal units and is not part of her contract (FOF 5). See Elizabeth Akoubian, PSBCA No. 3813, 1996 PSBCA LEXIS 7. The contract itself only requires that the CPU’s records be available for audit, not that an audit be performed at any specific time or interval (FOF 4). Therefore, Respondent’s failure to perform an annual audit of the Byram CPU did not breach any contractual duty on the part of Respondent and does not preclude Respondent from seeking reimbursement from Appellant’s performance bond sureties (FOF 3 & 13). See Robert A. and Sandra B. Moura, PSBCA Nos. 3460 & 3622, 96-1 BCA ¶27,956; Jake Sweeney Auto Leasing, Inc., PSBCA Nos. 2942-2945, 91-3 BCA ¶24,112.
Conclusion
Appellant has not shown that Respondent either improperly terminated her contract for default, or that it abused its discretion in seeking reimbursement from her performance bond sureties in the total amount of $18,647.78. Accordingly, the appeal is denied.
James A. Cohen
Administrative Judge
Chairman
I concur:
David I. Brochstein
Administrative Judge
Vice Chairman
I concur:
Norman D. Menegat
Administrative Judge
Board Member
[1]Appellant is referred to in the record as both Lee D. Shumate and Ira Lee D. Shumate.
[2]Respondent filed a Motion to Dismiss or, Alternatively, for Summary Judgment after the parties had already agreed to have the appeal considered on the record. The Board deferred ruling on Respondent’s Motion until it issued its decision on the merits. In view of the holding in this Opinion, the Board need not separately address the arguments raised in Respondent’s Motion.
[3]The Candlestick Park Station was designated as the administrative post office to which the Byram CPU was to report.
[4]Both Appellant and her husband, William P. Shumate, were identified in the contract as the CPU’s primary operators.
[5]In her letter acknowledging receipt of the final decision, Appellant claims that this meeting actually took place in October (AF Tab N).