March 19, 1998
Appeal of
HENRY LEE HAYES
Under Contract Nos. HCR 86061 & 86063
PSBCA Nos. 3997 & 3998
APPEARANCE FOR APPELLANT:
Henry Lee Hayes
APPEARANCE FOR RESPONDENT:
Robert E. O’Connell, Esq.
OPINION OF THE BOARD
Appellant, Henry Lee Hayes, has appealed the termination of two contracts he held to deliver mail in the Winslow, Arizona area. Three years into the contracts’ terms, Respondent, United States Postal Service, advised Appellant that it would withhold further payments under the contracts pursuant to directions it had received from the United States Department of Labor, and Appellant ceased performing. Respondent terminated both contracts for default.
A hearing was held in Winslow, Arizona, and the parties were provided an opportunity to submit written briefs.
FINDINGS OF FACT
1. On June 25, 1993, Respondent renewed two contracts with Appellant for the delivery of mail along routes out of the Winslow, Arizona Post Office. The term of each contract was from July 1, 1993, to June 30, 1997. (Appeal File for PSBCA No. 3997 (HCR 86061), Tab (“3997AF”) 2; Appeal File for PSBCA No. 3998 (HCR 86063) Tab (“3998AF”) 2; Stipulations agreed to at hearing (“Stip.”) 1, 2 (Transcript of Hearing, page (“Tr.”) 5)).
2. Each contract authorized the contracting officer to terminate the contract for default “[f]or Contractor’s failure to perform service according to the terms of the contract” (3997AF 2, General Provision 16 (a)(1); 3998AF 2, General Provision 16 (a)(1)).
3. Each contract required that Appellant pay his drivers according to the requirements of the Service Contract Act, and each included a Wage Determination issued by the United States Department of Labor that set out the required rates of pay for drivers (3997AF 2, PS Form 7382, July 1992, Additional General Provisions for Service Contracts, Subsections (b)(1) and (h); 3998AF 2, PS Form 7382, July 1992, Additional General Provisions for Service Contracts, Subsections (b)(1) and (h)).
4. Subsection (i) of the Additional General Provisions for Service Contracts in each contract provided,
“The contracting officer shall withhold or cause to be withheld from the Government prime contractor under this or any other Government contract with the prime contractor such sums as an appropriate official of the Department of Labor requests or such sums as the contracting officer decides may be necessary to pay underpaid employees employed by the contractor or subcontractor.” (3997AF 2, 7; 3998AF 2, 5).
5. In mid-1996, Respondent obtained information that Appellant might not be paying his drivers the wages required by the contracts’ Wage Determinations, and, by letter dated July 10, 1996, the contracting officer advised the Department of Labor, Wage and Hour Division, of these suspicions (Tr. 13-14, 28; 3997AF 13; 3998AF 13).
6. A Department of Labor investigator visited the Winslow Post Office and reviewed the time sheets for both contracts, which showed the hours worked by Appellant’s drivers (Tr. 15-16, 30-31).
7. By letter dated September 5, 1996, the Department of Labor advised Respondent that it had performed a Service Contract Act investigation of Appellant’s contracts and had discovered violations amounting to $25,903.22. The Department requested that Respondent withhold all funds on Appellant’s contracts pending the Department’s final resolution of the investigation. (Tr. 32-33, 55; 3997AF 15; 3998AF 17).
8. On September 6, 1996, members of the contracting officer’s staff called Appellant and advised him of the Department of Labor’s request that all contract funds be withheld to collect $25,903.22 in back wages owed Appellant’s employees. Respondent’s officials told Appellant that they would comply with the request and withhold the next payments (that of September 13, the next payment due, and the next three monthly payments) unless Appellant could persuade the Department of Labor to change its request. They suggested that Appellant try to work out a payment plan with the Department of Labor. Appellant responded that he could not continue to perform if he was not paid. Respondent’s officials knew that it would be unlikely that Appellant could continue performing if he was not paid for the four or five, 28-day accounting periods it would take to collect the claimed underpaid wages. (Tr. 28, 33-35, 39-40, 46-47, 56-58, 62, 64, 78, 81; 3997AF 15, 16, 18; 3998AF 17, 18, 20; Stip. 6).
9. On September 6, 1996, after his conversation with the contracting officer’s staff, Appellant advised the Winslow Postmaster that because he would be receiving no contract payments, he would not continue to perform the contracts and that when his drivers finished work that day he was going to inform them that they would no longer be driving the routes. Appellant told the postmaster that delivering the routes the next day would be the postmaster’s responsibility. The postmaster conveyed this information to the contracting officer. (Tr. 17-19, 22, 36; 3997AF 17, 20; 3998AF 19, 22).
10. Appellant did not perform service on either contract on the next two delivery days, Saturday, September 7, and Monday, September 9. Respondent arranged for service on those days, but if Appellant’s drivers had appeared to perform Appellant’s contracts, they would have been allowed to drive the routes. (Tr. 20-21, 36-38).
11. On September 9, the contracting officer terminated both contracts for default based on Appellant’s failure to perform on September 7 and 9 and his statements that he would not perform further (Tr. 37-38; 3997AF 21, 22; 3998AF 23, 24). Appellant filed timely appeals (Stip. 9).
12. The amount of $4,580.12, otherwise due Appellant under the contracts, was withheld for the benefit of the Department of Labor, but as of the date of the hearing, the Department had never asked for the funds, and Respondent retained them (Tr. 49; 3997AF 23; 3998AF 25).
DECISION
Respondent argues that the terminations were justified by Appellant’s abandonment of performance. It argues that the contracts authorized it to withhold payments pursuant to the direction of the Department of Labor, and that stating its intention to withhold under these circumstances did not justify Appellant’s abandonment of contract performance.
Appellant contends that he had no obligation to continue performance once Respondent made it clear that he would not be paid under either contract for at least four months, an action Appellant considered to be a contract breach by Respondent. He suggests that his contracts were terminated at the instigation of the Winslow Postmaster for the purpose of assigning them to associates of the postmaster. Finally, Appellant complains that the low rate he received under the contracts did not provide sufficient revenue to allow him to pay his drivers as much as was required by the Department of Labor Wage Determinations. Appellant seeks reinstatement of the contracts and payment for the period August 1996 through June 1997, when the contracts would have expired. He also demands that the $4,580.12 withheld at the Department of Labor’s request be released.
Respondent’s stated intention to honor the Department of Labor request to withhold payments was not a breach of Respondent’s contractual duties. The contracts required the contracting officer to withhold payment based on an official letter from the Department of Labor so requesting (Finding 4; Mark L. Gabel, PSBCA Nos. 2684, 2685, 2686, 91-1 BCA ¶ 23,480; Michael N. Beckloff, PSBCA No. 2249, 89-2 BCA ¶ 21,767 recon. denied 89-3 BCA ¶ 22,118), and Respondent received such an official request (Finding 5). Thus, the contracting officer’s withholding of contract payments was not a contract breach, and it does not excuse Appellant’s failure to perform. See Fulton Hauling Corp., PSBCA No. 3049; 91‑3 BCA ¶ 24,344; Michael N. Beckloff, PSBCA No. 2249, 89-2 BCA ¶ 21,767 recon. denied 89-3 BCA ¶ 22,118.
It is Respondent’s burden to demonstrate by a preponderance of the evidence that termination of Appellant’s contracts was justified. Talano Transportation, PSBCA No. 3812, 97-1 BCA ¶ 28,898; Patricia J. Stevens, PSBCA No. 3272, 94-1 BCA ¶ 26,419 recon. denied 94-2 BCA ¶ 26,951. Appellant’s notice to Respondent that he did not intend to perform the contracts after September 6 constituted an unequivocal refusal[1] to fulfill his contractual obligations, and his failure to perform either contract on September 7 and 9 was not excused by any actions of Respondent. Therefore, Respondent has met its burden of demonstrating that the terminations for default were justified. See Willie B. Jackson, PSBCA No. 3694, 96-2 BCA ¶ 28,351; Gerald M. Davy, PSBCA No. 3270, 94-2 BCA ¶ 26,690; Michael N. Beckloff, PSBCA No. 2249, 89-2 BCA ¶ 21,767 recon. denied 89-3 BCA ¶ 22,118; Pamela J. Sutton, PSBCA No. 1622, 88-2 BCA ¶ 20,680.
That Appellant might have agreed to contract prices that were too low to allow him to pay his drivers the required rates does not excuse his failure to perform. The contracts made it clear that Appellant was required to pay his drivers at the rates set forth in the Wage Determinations. Appellant should have included those rates in his calculation of the prices for which he agreed to perform the routes. Appellant has shown no reason why he should not be bound to the agreed prices. See Mark L. Gabel, PSBCA Nos. 2684, 2685, 2686, 91-1 BCA ¶ 23,480.
Appellant suggested that the Winslow Postmaster caused the termination of Appellant’s contracts so they could be awarded to the postmaster’s associates. However, Appellant presented no probative evidence to support this contention, and there was no showing of bad faith on the part of the Winslow Postmaster or Respondent in the events that led to termination of the contracts.
Finally, there is no evidence of any final action by the Department of Labor regarding the entitlement to the $4,580.12 previously withheld (Finding 12). Accordingly, Appellant has not demonstrated entitlement to reimbursement of the withheld amounts. See Mark L. Gabel, PSBCA Nos. 2684, 2685, 2686, 91-1 BCA ¶ 23,480.
Since Appellant's unexcused abandonment of performance under both contracts was a "failure to perform service according to the terms of the contract" within the meaning of Clause 16(a)(1) of the contracts’ general provisions (Finding 2), the default terminations were proper.
The appeals are denied.
Norman D. Menegat
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
David I. Brochstein
Administrative Judge
Vice Chairman
[1] Appellant argues that he did not abandon performance and that, in fact, the reason his drivers did not perform on September 7 is because they were instructed by Respondent’s officials not to show up. There is conflicting evidence on whether one of Appellant’s drivers was advised by someone at the post office on September 6 that he did not need to report on September 7. However, if the driver was so advised, that advice would have come only after Appellant had stated unequivocally to Respondent’s officials that he would not perform the contracts. Had the drivers shown up on September 7 to drive for Appellant, Respondent would have allowed them to drive the routes (Finding 11), but, consistent with Appellant’s statements to the postmaster and to the contracting officer’s subordinates, they did not report on September 7 to perform Appellant’s contracts. There is no evidence that Appellant ever instructed them to report, and Appellant never rescinded his statements that he would not perform. Therefore, Respondent had no reason to believe Appellant had changed his mind, and Respondent acted appropriately in obtaining replacement service. See Michael N. Beckloff, PSBCA No. 2249, 89-2 BCA ¶ 21,767 recon. denied 89-3 BCA ¶ 22,118.