June 9, 1997
Appeal of
CENTRAL AIR SOUTHWEST
Under Contract No. AT605
PSBCA No. 3729
APPEARANCE FOR APPELLANT:
Joel B. Laner, Esq.
APPEARANCE FOR RESPONDENT:
Christopher W. Zadina, Esq.
OPINION OF THE BOARD
Appellant, Central Air Southwest, held a contract with Respondent, United States Postal Service, for the air transportation of mail. When Appellant failed to meet the required schedule, the contracting officer terminated the contract under a clause that Respondent contends authorized termination without liability upon giving the contractor 24-hours’ notice. Appellant appealed that termination.
A hearing was held, and the parties have submitted post-hearing briefs. Both entitlement and quantum are at issue.
FINDINGS OF FACT
1. On March 10, 1992, Respondent awarded Appellant a contract to transport mail by air between Kansas City, Springfield and Joplin, Missouri (Hearing Transcript, page (“Tr.”) 70-71; Appeal File, Tab (“AF”) A).
2. The contract schedule called for two trips per day, six days per week (Tr. 31), to provide Express Mail[1] service between the three cities (Tr. 23-24). Appellant’s route and schedule were designed to mesh with Respondent’s Express Mail network, known as the “Eagle” network[2] (Tr. 23-24). Tuesday through Sunday, a plane arrived at the Kansas City Airport from the Indianapolis hub at 6:04 a.m. carrying Express Mail for cities served by the Kansas City Airport (Tr. 24). Express Mail for Joplin and Springfield was to be transferred to Appellant’s aircraft, which was scheduled to depart Kansas City at 8:40 a.m. on its outbound trip for Springfield and then on to Joplin, arriving there at 10:30 a.m. (Tr. 29-30). Appellant was to
transfer the Express Mail to Respondent’s highway contractors at the Springfield and Joplin airports who would bring it to the post offices for sorting and delivery to the local addressees the same day, within the time frames promised by Respondent (Tr. 26-27).
3. Appellant’s inbound trip was scheduled for Monday through Saturday, leaving Joplin at 7:40 p.m. for Springfield and then on to Kansas City, arriving at the Kansas City Airport at 9:35 p.m. (Tr. 31; AF A). Express Mail from Springfield and Joplin was then to be transferred to an aircraft connecting to the Indianapolis hub, which was scheduled to depart Kansas City at 10:04 p.m. (Tr. 24, 26, 31).
4. Appellant’s contract was an “emergency air taxi service contract”, with an original term of March 1, 1992, to August 21, 1992 (Tr. 71; AF A; May 8, 1996 Joint Stipulation, paragraph (“Stip.”) 4). Emergency contracts were limited to six months in length and could be extended only with Postal Service Headquarters approval (Tr. 218-219; Respondent’s Exhibit (“RX”) 6, Handbook PO-509, Air Taxi Contract Administration, September 1992, section 132). By agreements of the parties, the term was subsequently extended to July 8, 1994. (Tr. 73, 80-81, 219-222; AF F, G; Appellant’s Supplementation of Appeal File, Tab (“SAF”) M; Stip. 8, 9).
5. Block 5 of the first page of the contract, which was the signature page, contained the following termination provision:
“This contract may be terminated by the U.S. Postal Service upon notice of not less than 24 hours, or by the contractor upon notice of not less than 15 days; and without the allowance of any indemnity or extra pay in lieu of indemnity to the contractor.” (AF 1, Block 5; see Tr. 68, 71).
6. Respondent utilized the emergency air taxi service contract for the Kansas City-Springfield-Joplin service in lieu of the usual four-year contract because the emergency contract was easily terminable, and Respondent had not finally determined the scope and duration of the Eagle Express Mail network, so the long-term need for Appellant’s service could not be fixed (Tr. 67-68, 237).
7. A suspension provision included in the contract provided,
“In the event the contractor is unable to perform this contract, in whole or in part, for reasons beyond its control, such as acts of God, acts of governments or governmental agencies, . . . this contract may be suspended by either party, in whole or in part, for such reasonable time as it takes for service to be restored.” (RX 5, Clause 8, SUSPENSION OF CONTRACT; Tr. 75, 98).
8. The contract required Appellant to comply with all applicable federal laws and Federal Aviation Administration (“FAA”) regulations (RX 5, Clause 10, LAWS AND REGULATIONS and Clause 32f, CONTRACTOR’S RESPONSIBILITIES). Appellant was required “to perform in the safest manner possible.” (RX 5, Clause 44, FLIGHT DIVERSION).
9. During the week of December 13, 1993, Appellant failed to perform all but one of the scheduled trips (Tr. 43-52; RX 1, 2). The reason given by Appellant for the missed trips was icing conditions (Tr. 44-46).
10. During this period of time, Appellant was involved in a dispute with FAA regarding the interpretation of FAA regulations applicable to operation of Appellant’s airplanes under certain icing conditions (Tr. 137-139, 146-147, 160-161, 163; AX 4-8). Based on Appellant’s understanding of the FAA interpretation and Appellant’s assessment of weather reports, Appellant determined it could not fly the trips it omitted the week of December 13, 1993, without risking fines and penalties by FAA (Tr. 151-159, 212; SAF N).
11. When Appellant failed to make an outbound trip from Kansas City, Express Mail for Springfield and Joplin could not be delivered timely unless Respondent arranged for alternate transportation. For the week of December 13, Respondent arranged to transport the Express Mail for Springfield and Joplin on a flight of another carrier that departed Kansas City an hour later than Appellant’s scheduled departure and only went to Springfield. (Tr. 22, 30, 41, 48-52; RX 3). The Joplin and Springfield post offices arranged for ground transportation of Joplin’s Express Mail from Springfield to Joplin (Tr. 41). Making these alternate arrangements was time-consuming for Respondent’s officials, both in Kansas City and at Springfield and Joplin, and even after all this effort, meeting the Express Mail delivery standards was difficult and not always accomplished (Tr. 41-42). There was no effective alternative delivery available for the evening inbound trips to the Kansas City Airport that Appellant failed to make. On those occasions, Express Mail from Joplin and Springfield would not be entered into the Eagle network, and next day delivery could not occur (Tr. 39, 51).
12. During the week of December 13, of the air contractors serving the Kansas City Airport only Appellant was not flying, and many other small aircraft flew during the period (Tr. 48-58; RX 3, 4).
13. The period from early December through Christmas is Respondent’s busiest time of the year for all classes of mail (Tr. 48). Respondent heavily advertises its Express Mail service, and as Christmas day approaches, the volume of Express Mail rises dramatically (Tr. 58-59, 99). Failures to meet the delivery standards obligate Respondent to honor customer requests for postage refunds (Tr. 22-23, 40).
14. Respondent’s officials in Kansas City, the contract’s administrative office, became concerned that the Express Mail service on Appellant’s route was falling apart just at the peak mailing and delivery period right before Christmas day (Tr. 58-59; AF A). Springfield and Joplin postal officials were complaining to the administrative officials at Kansas City, because they had no way to get their outgoing Express Mail into the Eagle Express Mail network (Tr. 59-60).
15. The Kansas City postal officials advised the contracting officer of the missed trips and the adverse impact on the Express Mail delivery network to Springfield and Joplin (Tr. 82). On December 17, the contracting officer decided to terminate the contract under the 24-hour notice provision without penalty in order to obtain immediate replacement service on the route (Tr. 59, 83, 106, 113; Finding 5). The contracting officer did not investigate the reasons for Appellant’s failure to
perform, because he did not consider his action to be a termination for default (Tr. 83, 86, 92, 101-102, 122, 225; RX 8).
16. On December 17, the contracting officer called Appellant’s vice president and told him that Respondent was invoking the Block 5 provision (Finding 5) to terminate Appellant’s contract on 24-hours’ notice as of close of business December 18 (Tr. 84, 225; RX 7). Appellant’s official told the contracting officer that it was the weather that kept Appellant from flying, but he never advised the contracting officer or other of Respondent’s personnel of a dispute with FAA (Tr. 163-166, 186). In his conversation with the contracting officer on December 17, Appellant’s vice president asked that Respondent obtain other service for December 18, if possible (Tr. 84, 85, 89-90; AF H; RX 7).
17. After Appellant’s contract was terminated, an emergency, six month contract was awarded to Suburban Air Freight (Tr. 116; AF A; AX 2). Twelve carriers had been contacted to submit offers to provide the service, four submitted prices and Suburban’s was the lowest price offered (Tr. 115-116). Although Suburban’s rate was higher than Appellant’s, obtaining air cargo service at Christmas is difficult because other shippers are competing for available capacity, and it is not unusual to pay a premium to obtain service on short notice during the Christmas season (Tr. 85-86).
18. Suburban began service on December 18, and had no trip cancellations due to icing thereafter (Tr. 60-62, 85, 133-135).
19. In 1994, Respondent solicited for a permanent (non-emergency) contract for the route. Appellant was the successful bidder and was awarded the contract. (Tr. 99-100, 220-221)
DECISION
Appellant argues that it is entitled to breach of contract damages because the contracting officer abused his discretion by terminating the contract under the 24-hours’ notice provision without fully investigating the reasons for Appellant’s nonperformance. Had he investigated, according to Appellant, the contracting officer would have found that Appellant’s nonperformance was excusable. In fact, Appellant urges that if it had flown during the week in question, it would have violated its contractual duty to follow FAA regulations and observe safety requirements (Finding 8).
Appellant also argues that the contracting officer abused his discretion when he engaged a contractor at a higher rate that intended to use aircraft equipped similarly to Appellant’s. Appellant contends that unless the replacement contractor was willing to violate the FAA regulations, it also could not have flown on the days Appellant did not perform.
Respondent argues that the contract allowed it to terminate without liability on 24-hours’ notice regardless of the reason. Alternatively, Respondent argues that the contracting officer did not abuse his discretion in terminating Appellant’s contract, because the action was necessary to avoid further disruptions in the Express Mail delivery network during the peak Christmas mailing season.
We need not decide whether Respondent’s termination authority under the contract is as unfettered as Respondent contends, because we find the contracting officer did not abuse his discretion in terminating Appellant’s contract. During the week of December 13-17, 1993, Appellant failed to complete eight out of the nine scheduled trips (Finding 9). These failures caused significant disruptions along the route for dispatch and delivery of Express Mail, Respondent’s premium, guaranteed time-sensitive service. Outbound Express Mail that Respondent had promised its customers would be delivered the next day remained at Springfield and Joplin, and incoming Express Mail for Springfield and Joplin sat at the Kansas City Airport, except on those occasions when Respondent was able to arrange for alternate (later) service by a combination of another air carrier and truck. (Findings 11, 13, 14). When deciding what action to take, the contracting officer knew that Appellant had failed to perform the contract service, that all other air carriers were providing service out of the Kansas City Airport when Appellant was canceling, and that the missed trips were causing significant disruption to a part of the Express Mail network during a critical delivery period.
Under these circumstances, the contracting officer had no need to investigate further the reasons why Appellant was not performing. The contracting officer did not assign fault for the missed trips and did not intend to terminate the contract for default.[3] Appellant’s contract was intended to be for a short term and to allow either party to terminate the contract quickly by giving notice to the other (Findings 4, 6). In this case, the contracting officer needed to take immediate action to restore service, and not only was there no time to conduct an investigation, but Appellant has not shown that it made any effort to explain the problem to the contracting officer (Finding 16) or suggested how the contracting officer’s investigation of Appellant’s dispute with FAA might have affected his decision to terminate the contract. The contracting officer acted reasonably and did not abuse his discretion in choosing to terminate the contract on 24-hours’ notice in order to restore service on the route.
The parties have addressed at some length the proper interpretation of the FAA regulations that Appellant claims prevented its performance on the dates in question, whether Appellant’s decision not to fly was justified, whether it had other equipment available that could have flown the trips under the existing weather conditions, and whether Respondent’s termination and engagement of a higher-priced contractor made economic sense. In view of our conclusions above, we need not address those issues. Finally, Appellant contends that the contracting officer could have obtained alternate service without terminating its contract by suspending Appellant’s performance and engaging, on a temporary basis, a company with equipment that could meet the FAA requirements. However, as discussed above, Appellant did not apprise Respondent of the nature of the problem, and there is no evidence or allegation that Appellant attempted to invoke the Suspension clause (Finding 7) or that Respondent had a duty to do so.
The appeal is denied.
Norman D. Menegat
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
William K. Mahn
Administrative Judge
Board Member
[1] Express Mail is Respondent’s premium, overnight delivery service. Respondent guarantees that Express Mail will be delivered before a specified time the next day (Tr. 22), and if the mail is not delivered as promised, the mailer is entitled to a refund of the postage, which in 1993 was a minimum of $9.75 per piece (Tr. 23, 40).
[2] Every night but Sunday, Express Mail from around the country is flown into Respondent’s Eagle hub at the Indianapolis Airport. There the mail is sorted and dispatched by plane early in the morning to destinations around the country for delivery the same day through local distribution networks. (Tr. 23-24).
[3] Respondent’s award of the permanent contract for the route to Appellant (Finding 19) confirms the absence of adverse opinions or prejudice resulting from the termination.