January 14, 2004
Appeal of
LORAH'S HAULING
Under Contract No. HCR 19430
PSBCA No. 4778
APPEARANCE FOR APPELLANT:
Edgar F. Lorah, Jr.
APPEARANCE FOR RESPONDENT:
Daniel M. Curts, Esq.
OPINION OF THE BOARD
Appellant, Lorah’s Hauling, has appealed the termination for default of its highway transportation service contract with Respondent, United States Postal Service. Appellant also disputes the propriety of the assessment by Respondent of the excess costs of reprocuring the services required by the terminated contract. At the election of the parties, the appeal is decided on the record in accordance with 39 C.F.R. § 955.12. Only entitlement is in issue.
1. Respondent renewed Appellant’s contract number HCR 19430 to provide highway mail transportation services between the Southeastern Processing and Distribution Center (“SE P&DC”), Devon, Pennsylvania and postal facilities in nearby towns. Appellant was required to perform thirty-two daily “weekday trips” and other scheduled trips on Saturdays, Sundays and holidays in accordance with the operating schedule specified in the contract. (Appeal File, Tab (“AF”) 9, Contract, Section B, Clause B.1; Stipulation of Non-Contested Facts, Issues of Fact and Law (“Stipulation”), p. 1).[1]
2. The term of the renewed contract, as further extended, was from July 1, 1998, through June 30, 2002 at an annual rate of $257,308.80 (Respondent’s Second Supplemental Appeal File, Tabs (“SSAF”) 4, 6; Stipulation, p. 1; Notice of Appeal).
3. Clause B.1 of the contract, Schedule, Frequency and Service Requirements, separately identified “trips” and scheduled times for starting and completing each trip. The trip durations in the schedule included time “needed for dock sortation, loading and unloading.” (AF 9, Clause B.1.3).
4. Clause B.3.a of the General Requirements and Prohibitions required, in part, that the contractor "shall carry all mail tendered for transportation under this contract . . . in accordance with the operating schedule and between the points fixed in the schedule" (AF 9, p. B-8).
5. The contract’s Termination for Default clause authorized Respondent to terminate the contract for default if Appellant failed to perform the requirements of the contract. In addition, paragraph b of the Default clause allowed Respondent to “acquire similar supplies or services” and provided that Appellant “will be liable to the Postal Service for any excess costs.” Paragraph f of the Default clause provided for withholding from earned payments of “any sum the contracting officer determines to be necessary to protect the Postal Service against loss because of outstanding claims.” (AF 9, Clause H.4, Termination for Default (Clause B-13) (January 1997) (Modified) (“Default clause”); Stipulation, p. 3; see Clause H.5, Events of Default (Clause B-69) (January 1997), subsection a).
6. Payment for services under this highway transportation contract was to be made automatically within thirty days following the end of each twenty-eight day Postal Accounting Period (“AP”) (AF 9, Clause F.1, Payment (Highway) (Clause B‑74) (January 1997), subparagraph a(1); Clause F.3, Payment Due Date; Clause G.1, Definitions (Clause B-1) (January 1997) (Modified)).
7. PS Forms 5500, Contract Route Irregularity Reports (“Forms 5500” or “irregularity reports”) were issued to Appellant to memorialize services that were not rendered in accordance with the contract (see Postal Operations Manual, § 535.1). Provision was made, on Section 2 of the Forms, for Appellant to explain the irregularities. (See Forms 5500 at SSAF 8).
8. From May 18 to August 2, 2000, Appellant omitted scheduled trips on twelve occasions[2] and was late departing or arriving on nine occasions[3] (SSAF 8 (pp. 64-86); see Stipulation, p. 1).
9. By letter of August 8, 2000, Respondent’s administrative official requested that Appellant attend a formal conference to discuss its unsatisfactory service. The administrative official noted that the sixty-two Forms 5500 listed with the letter had been issued from July 10, 1998, to August 2, 2000, and that informal discussions had not produced service improvements acceptable to Respondent. (AF 8; Stipulation, p. 1).
10. The parties met August 29, 2000 for the requested formal conference. During the conference, the parties discussed the alleged irregularities, including failures by drivers to maintain schedules; omitting trips, including combining separately-scheduled trips; and failures by drivers to report to the SE P&DC expeditor at the end of return trips. Appellant agreed to correct irregularities and improve performance, and the administrative official advised Appellant that additional irregularities would result in further action. (AF 8; Respondent’s Supplemental Appeal File, Tab (“SAF”) 1, ¶ 3; Stipulation, p. 1).
11. From August 29 to October 2, 2000, Appellant omitted at least fifteen scheduled trips and was late departing or arriving on four occasions and left ten minutes early on another (SSAF 8 (pp. 53-63) and SAF 3).[4]
12. As the result of these irregularities, by letter dated October 2, 2000, the administrative official notified Appellant that its unsatisfactory service had not improved after the formal conference. Appellant was warned that, unless satisfactory service were restored and maintained, the matter would be referred to the contracting officer for action, which action might include termination of the contract and consequent assessment of the excess costs of a replacement contract. Appellant received the letter on October 11, 2000. (AF 8; SAF 2; Stipulation, p. 2; see SSAF 8 (pp. 53-63)).
13. On January 3, 2001, Respondent’s administrative official forwarded to the contracting officer what he described as all Forms 5500 issued from July 10, 1998 to December 29, 2000 and a listing of 109 such forms. He requested that, in view of the continuing unsatisfactory performance by Appellant after the formal conference of August 29, 2000, action be taken to restore and maintain an acceptable level of service. (AF 7; Finding of Fact No. (“FOF”) 10; see SSAF 8 (pp. 16-126)).
14. From October 2 to December 29, 2000, Appellant omitted seventeen scheduled trips; rendered services late for seventeen trips (including six more than 30 minutes late); and committed one safety violation, by failing to secure the load in the truck (AF 6; SSAF 8 (pp. 16-52); SAF 3 (Forms 5500 dated 10‑6‑2000, 10‑16‑2000 and 12‑4‑2000); see Stipulation, p. 2).
15. By letter of January 10, 2001, denominated a final warning, the contracting officer notified Appellant that its service continued to be unsatisfactory and that the contract might be terminated for failure to perform unless Appellant immediately restored and maintained satisfactory service. Attached to the letter was the listing of 109 Forms 5500 provided by the administrative official (FOF 13). The contracting officer noted, inter alia, that twenty-two Forms 5500 were issued to Appellant after the October 2, 2000 warning letter to Appellant (FOF 12). Appellant received the contracting officer’s letter on January 13, 2001. (AF 6; Stipulation, p. 2).
16. For the Forms 5500 in the record issued prior to January 2001, Appellant provided no explanations of the irregularities (see SSAF 8; SAF 3; FOF 7).
17. Between January 1 and January 13, 2001, Appellant inexcusably omitted nine scheduled trips and was late on four occasions. In the six days after receiving the contracting officer’s final warning letter on January 13, 2001, Appellant inexcusably omitted seven trips and was late once. (SSAF 8 (pp. 1-5, 8-15); see SAF 1, ¶ 6; AF 5).
18. By letter of January 24, 2001, effective January 26, 2001, Respondent’s contracting officer terminated the contract for default for failure by Appellant to perform services according to the terms of the contract. Appellant was further informed that Respondent reserved its right to assess damages equal to the excess costs incurred for post-termination performance of the contract services. Appellant received the termination letter on January 25, 2001. (AF 4; SAF 1, ¶ 8).
19. The contracting officer assessed $13,679.25 in excess reprocurement costs and associated administrative costs by final decision issued to Appellant on February 2, 2001 (SSAF 7, 2) and ordered collection of this amount from $19,145.39 of funds earned by Appellant but previously suspended by PS Form 7440, Contract Route Service Order, dated January 26, 2001 (SSAF 5, 4). As authority for the assessment of actual reprocurement costs, Respondent relied upon the Default clause (FOF 5). The contracting officer also directed that the difference between the retained payments and the assessed reprocurement costs, $5,466.14, be paid to Appellant (SSAF 5, 7).
20. Respondent included in the record a Default Damage Worksheet ("Worksheet"), which purports to reflect a calculation of Respondent’s damages resulting from Appellant’s default. On the Worksheet, Respondent calculated the total damages of $13,679.25 to be asserted against Appellant, comprising alleged excess reprocurement costs of $12,828.48, administrative costs of $353.68, and other costs of $497.09. Excess costs were based upon annual rates of $257,308.80 and $313,050.75 for the defaulted and replacement contracts, respectively. The annual rate for the replacement contract was 21.7% higher than that for Appellant’s contract. Excess costs of the replacement contract were assessed for 84 days, although Appellant's contract had about seventeen months to run at the time of the termination for default. (SSAF 6; see FOF 2).
21. By letter dated April 18, 2001, Appellant appealed the default termination (AF 3).
DECISION
Contentions of the Parties
Respondent asserts that the contract properly was terminated for unsatisfactory service over an extended period of time. For its affirmative claim for excess costs of reprocurement, Respondent relies upon the Default Damage Worksheet and the contracting officer’s final decision.
Appellant asserts that its default was excusable because Respondent improperly administered the schedule requirements, particularly by refusing to adjust travel and load and unload times to reflect actual conditions, and that these failures caused irregularities in performance and compounded performance problems by inhibiting Appellant’s ability to retain satisfactory drivers.[5] Appellant opposes the assessment of excess costs of reprocurement on the same bases.
Termination for Default
It is Respondent’s burden to prove that the termination was justified by Appellant’s failure to perform in accordance with the contract, Charli Selsa Schiver, PSBCA No. 4545, 02-2 BCA ¶ 31,937. Once Respondent demonstrates that Appellant failed to perform according to the terms of the contract, the burden shifts to Appellant to present evidence of excusable causes, Charli Selsa Schiver, supra;
Patricia J. Stevens, PSBCA No. 3272, 94-1 BCA ¶ 26,419 at 131,429, reconsid.
denied, 94-2 BCA ¶ 26,951, or to show that the termination was an abuse of the contracting officer's discretion, Jesse A. Farmer, PSBCA No. 2702, 91-3 BCA ¶ 24,181 at 120,941.
Having considered the evidence of record in this appeal, we conclude that the termination of the contract for default was justified. Further, Appellant failed to prove that the default was excusable or the termination otherwise invalid.
Substantially all of the irregularities cited were omitted services, i.e., failures by Appellant to transport mail on trips described in the operations schedule, and late services, which were breaches of Appellant’s duty to provide service in accordance with the contract schedule (see FOF 4). That numerous and repeated service irregularities were committed by Appellant, mainly from July 2000 onward, was not effectively refuted and establishes that Appellant's performance was unsatisfactory and remained unsatisfactory until the contract was terminated.[6] (FOF 8, 10, 11, 14‑18).
The recurring service failures occurred despite repeated warnings to Appellant that, if performance were not improved, the contract might be terminated (FOF 9-10, 12, 15). The cumulative effect of the many service irregularities “deprived Respondent of the reliable, regular service it was entitled to under the contract.” Charli Selsa Schiver, supra, 02-2 BCA at 157,774; see Alvin L. Taylor, POD
BCA No. 33, July 23, 1963, 1963 PSBCA LEXIS 11. Appellant thereby materially breached the contract, see Robert E. Davis, PSBCA No. 4154, 99-1 BCA ¶ 30,385, and Respondent thereupon properly terminated the contract for default, see Stanley Myrie, PSBCA No. 1674, 88-3 BCA ¶ 20,828.
Appellant asserts that its default was excused because Respondent improperly failed to resurvey the route and adjust travel and load and unload times and that these failures prevented Appellant from meeting schedule and retaining satisfactory drivers throughout much of the period of the renewed contract. Appellant’s argument is rejected, given its total failure to submit proof that performance to the schedule was impossible (see FOF 15, 16). See B&E Mail Transport, Inc., PSBCA No. 947, 82‑2 BCA ¶ 15,912 at 78,868. Appellant has failed to prove that its default was excusable.
Excess Costs of Reprocurement
Appellant has objected to assessment of the reprocurement costs, challenging the withholding of payments that it allegedly earned before the contract was terminated for default. To recover its excess costs of providing replacement service after terminating Appellant’s contract, Respondent must demonstrate, inter alia, that the Postal Service acted reasonably to minimize the excess costs incurred. Cascade Pacific International v. United States, 773 F.2d 287, 293-294 (Fed. Cir. 1985); Don Wasylk d/b/a Klysaw, PSBCA Nos. 4186, 4283, 00-1 BCA ¶ 30,844; see gen. Robinson v. United States, 305 F.3d 1330, 1333-1334 (Fed. Cir. 2002). Respondent has not satisfied this burden.
Respondent presented no evidence of the method it used to obtain replacement service on the route after the January 26, 2001 termination. The annual payment rate for the alleged but unproved replacement contract was 21.7% higher than that for Appellant’s contract (FOF 20). It was incumbent upon Respondent to demonstrate that the 21.7% increase in annual rate was justified and that, through competition or price comparisons or otherwise, it acted reasonably to award the reprocurement contract and thus to mitigate the amount of excess costs incurred. Linda Copman, PSBCA Nos. 4889, 4903, 03-2 BCA ¶ 32,342; see Kimberly Dawn Gee, PSBCA Nos. 4073, 4095, 98-2 B.C.A. ¶ 29,820.
Absent the introduction of evidence that it acted reasonably to mitigate the reprocurement contract costs, Respondent has not shown that any excess costs were reasonably incurred as a result of Appellant's default of its contract. Cascade Pacific International v. United States, supra, 773 F.2d at 294; Linda Copman, supra. Accordingly, Respondent may not recover either its excess reprocurement costs or the administrative costs of the reprocurement action.
Appellant also asserts that Respondent improperly withheld $15,000 in earned payments.[7] Pursuant to paragraph f of the Default clause, Respondent was entitled to withhold earned payments to the extent necessary to protect the Postal Service for a reasonable time until it could assess the pending excess costs (FOF 5). The one-week period from the time of suspension of payment and termination until the final decision on excess costs issued (FOF 18, 19) was prima facie a reasonable withholding period. See Bowman's Transport Company, PSBCA Nos. 1088 et al., 84-1 BCA ¶ 17,217 at 85,730 and 85,724 (FOF 2); accord L.A. Construction, Inc., PSBCA Nos. 3338, 3372, 95-1 BCA ¶ 27,291 at 136,067.
However, because it failed to prove its entitlement to excess costs, Respondent’s withholding of payments, commencing from issuance of the Contract Route Service Order on January 26, 2001 (FOF 19), was no longer disputed and was not justified. Therefore Appellant is entitled to payment of the amount withheld, $13,678.25, and to appropriate interest on that amount (see FOF 6).
CONCLUSIONS
The termination for default was proper. Accordingly, the appeal from the termination is denied. Respondent having failed to prove entitlement to recover the excess costs of reprocurement, Appellant’s appeal from Respondent’s assessment of such costs is sustained. Appellant is entitled to repayment from Respondent of any earned funds credited against its claim for excess reprocurement costs, including the $13,628.75 withheld, as well as appropriate interest on the amount withheld. Appellant's affirmative claim for damages resulting from the termination is dismissed for lack of jurisdiction by this Board.
Jon N. Kulish
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
David I. Brochstein
Administrative Judge
Vice Chairman
[1] Pursuant to the Board’s Order of June 5, 2002, a proposed Stipulation was drafted by Respondent and provided to Appellant for comment and revision. Appellant failed to respond to the proposed Stipulation then or when directed by the Board to do so in the Order dated July 26, 2002. The Board had cautioned Appellant that, if it failed to respond within the time allowed, the proposed Stipulation would be deemed admitted. The factual allegations in the Stipulation are therefore accepted into evidence as submitted by Respondent.
[2] Where separately-scheduled outbound and return trips were omitted (e.g., combined), we have found two irregularities.
[3] Only service delays exceeding fifteen minutes have been counted as irregularities. On the Forms 5500, late operations of fifteen minutes or less are to be reported as for “information only.”
[4] References in this Opinion to service irregularities recorded on Forms 5500 are to those in SSAF 8, except for some few which are included, in whole or in part, only in SAF 3.
[5] In the Complaint, Appellant also asked for $105,000 in damages, including compensation of $90,000 for equipment leased for performance of the contract. This latter claim is not properly before the Board. There is no evidence that an equipment claim was submitted to the contracting officer, denied by him, or appealed to the Board (see SSAF 2). 41 U.S.C. §§ 605, 607(d). The remaining amount, claimed for withheld payments (see FOF 19), is resolved in connection with the reprocurement costs issue.
[6] Although listings of the Forms 5500 were provided to Appellant along with Respondent’s warnings of concerns about its performance (FOF 9, 15), Appellant replied to only a few of them (e.g., SSAF 8 (pp.6, 7); SAF 3).
[7] The actual amount was $13,679.25 after accounting for release by Respondent of the withholdings exceeding this amount (FOF 19, 20).