January 26, 1999
Appeal of
BOBBY J. GODWIN
MARION CENTER PROPERTIES
Under Contract No. 387192-89-P-0065
PSBCA No. 4155
APPEARANCE FOR APPELLANT:
Bobby J. Godwin
APPEARANCE FOR RESPONDENT:
Thomas J. Marshall, Esq.
OPINION OF THE BOARD
Appellant, Bobby J. Godwin, Marion Center Properties, operated a postal retail station under contract to Respondent, United States Postal Service. Appellant requested an increase to the annual compensation paid him under the contract, and Respondent denied it. Appellant has filed this appeal from that denial.
At the election of the parties, this appeal was submitted on the record without an oral hearing pursuant to 39 C.F.R. §955.12. The parties were provided an opportunity to submit evidence and written argument. Respondent submitted additional evidence and a brief, but Appellant submitted nothing beyond his Complaint and the documents attached to it. Only entitlement is at issue.
FINDINGS OF FACT
1. On November 4, 1988, Respondent awarded Appellant a contract to operate a contract postal unit in Marion, Ohio. Under the contract, Appellant agreed to operate a small postal station—offering stamps and postage, post office boxes and other postal services to the public—in exchange for payment by Respondent of $33,600 per year. (Appeal File, Tab (“AF”) B1; September 1, 1998 Declaration of Beverly Fowlkes (Fowlkes Decl.) ¶¶ 3, 4).
2. The contract was of indefinite duration, but either party could terminate the contract by giving the other 60-days’ written notice (AF B1, General Provisions 4, Length of Contract, and 5, Termination of Contract).
3. The contract permitted Appellant to request price adjustments:
“You [Appellant] can ask for an increase in your annual rate after you have had the contract for at least 2 full years or have operated for 2 years since your last price increase. Your request must tell the contracting officer exactly why you deserve an increase. Things that could justify an increase are:
a. The benefit you are providing USPS has increased because your real revenue or the number of transactions has grown or you have made other improvements which directly benefit USPS.
b. Your cost of rent, utilities, and labor (for your employees) has increased. If you operate the CPU as part of another business, you may claim only the pro-rata share attributable to the CPU.
You should submit your request to the COR [Contracting Officer’s Representative], who sends it with comments to the contracting officer. The contracting officer may accept your request, may negotiate with you to reach an agreement on a new annual rate, or may deny your request. If USPS accepts your request or you and USPS reach agreement on some other amount, you agree to continue the contract for 1 year after the new rate is effective. If USPS denies your request, you may continue to run the CPU at the existing annual rate or you may end the contract." (AF B1, General Provision 17, Price Adjustments; Fowlkes Decl. ¶ 4).
4. On May 23, 1990, Appellant requested a price increase. He contended that his costs of operating the station exceeded what he had expected because the annual revenue for the CPU ($330,000) dramatically exceeded the projected revenue stated in the solicitation for the contract ($100,000). (AF C2; Fowlkes Decl. ¶ 5).
5. By letter dated June 7, 1990, Respondent denied the request, pointing out that nationally contract postal units are compensated at approximately 7% of the yearly revenue generated by the unit. Accepting Appellant’s contention that his yearly revenue had risen to $330,000, Respondent concluded that Appellant was already overcompensated—7% of $330,000 is $23,100 compared to Appellant’s contractual compensation of $33,600. (AF C5; Fowlkes Decl. ¶ 6).
6. On July 24, 1991, Respondent turned down another request for an increase (AF C6; Fowlkes Decl. ¶¶ 7, 8).
7. On March 12, 1996, Appellant requested an increase of his annual payment by $8,400, to $42,000. He based his request on the increased number of transactions and volume of business, which increased his costs for clerical and custodial employees. He also relied on increases he had experienced in property taxes, insurance and utilities. (AF C9).
8. During 1996 and 1997, Respondent received a number of customer complaints about Appellant’s contract station. Respondent’s officials held at least one meeting with Appellant in which Respondent’s concerns regarding his poor customer service were discussed. (AF C12, C13, C24; Fowlkes Decl. ¶¶ 12, 13).
9. The contract was terminated effective close of business on June 18, 1997, at Appellant’s request (AF B9, C16, C19, C20; Fowlkes Decl. ¶¶ 15, 16), without Respondent ever having acted on Appellant’s request for an increase of $8,400 per year (AF C22, C23).
10. On September 12, 1997, Appellant submitted a claim for $8,400 (Fowlkes Decl. ¶ 17). He based his claim on his March 12, 1996 request for an $8,400 increase that Respondent never addressed and his continued operation of the CPU for more than a year thereafter until its termination in June 1997. (Letter dated September 12, 1997, Attached to Complaint).
11. Appellant’s CPU generated revenues of $339,781 in fiscal year 1994, $382,885 in fiscal year 1995, $346,991 in fiscal year 1996 and $309,052 in fiscal year 1997 up to the termination of the contract. The resulting ratio of annual rate to revenue for those years was 9.9%, 8.8%, 9.7%, and 8.2%[1], respectively. (AF D1; Fowlkes Decl. ¶¶ 20-23). Postal Service guidelines establish 3.5% to 9.0% as the desirable ranges for the ratio of the annual rate to the annual revenue generated by a CPU. The national average is 7% (AF D2; Fowlkes Decl. ¶ 24).
12. In a final decision dated October 8, 1997, the contracting officer denied the claim. The contracting officer again pointed out that Appellant’s annual rate already exceeded the national average of 7% of unit revenue. She also relied on reports of poor quality of service as a basis for denying the increase. (AF A).
13. Appellant filed a timely appeal from that denial.
DECISION
Appellant argues that the increased revenue and transactions generated by his contract unit, the increase in work hours necessary to operate the unit, the increased space he provided and increases in his property tax, insurance and utility costs justified raising his rate of annual compensation by $8,400, to $42,000. He contends that the contracting officer’s denial of the increase was improper and that the Board should find him entitled to an award of $8,400, the additional compensation he would have received for the last year of his contract performance if the increase had been timely granted.
Respondent argues that Appellant has not shown his entitlement to a price increase under the Price Adjustments clause of the contract.
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; Geneva C. Stone, PSBCA No. 3104, 93-1 BCA ¶ 25,453, and he has not met that burden. Appellant correctly notes that the Price Adjustments clause identifies revenue, the number of transactions and the costs of utilities and labor as factors to be addressed in a request for an adjustment (Finding 3). However, neither that clause nor the implied duty of good faith and fair dealing that exists between the contracting parties requires that the contracting officer grant an increase, even if Appellant shows that the factors listed in the clause have been satisfied. See Fax-Photo-Shipping Etc., PSBCA Nos. 3916 & 3970, 98-2 BCA ¶ 29,998; Marvin Watson, PSBCA No. 3716, 96-2 BCA ¶ 28,365; Jack Swedberg, PSBCA No. 3876, 96-2 BCA ¶ 28,337.
Nothing in the contract prevented Respondent from adopting the 7% cost-to-revenue ratio in an exercise of business judgment and denying increases to contract stations, like Appellant’s, that failed to meet the guidelines. “In the context of the CPU contracts—i.e., where rate increases are granted at the discretion of the contracting officer and the contracts are terminable on notice by either side—establishing or abiding by such a guideline does not constitute an abuse of discretion.” Fax-Photo-Shipping Etc., PSBCA Nos. 3916 & 3970, 98-2 BCA ¶ 29,998.
Appellant has not demonstrated entitlement to an increase to his annual rate of compensation. Accordingly, the appeal is 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 only performed for about three-fourths of fiscal year 1997, terminating the contract on June 18, 1997. The rate-to-revenue ratio for this period takes into account the shorter term of performance.