February 4, 2004
Appeal of
P STAR, INC.
Under Contract No. HCR 60214
PSBCA No. 4839
APPEARANCE FOR APPELLANT:
Larry W. Phillips
APPEARANCE FOR RESPONDENT:
Cary L. Katznelson, Esq.
OPINION OF THE BOARD
Appellant, P Star, Inc., has appealed the termination for default of its highway transportation service contract with Respondent, United States Postal Service, and has asserted that Respondent breached the contract by withholding earned payments at the time of termination. At the election of the parties, the appeal is being decided on the record in accordance with 39 C.F.R. § 955.12 and only entitlement is at issue.[1]
1. Pursuant to contract number HCR 60214 (“the contract”), Appellant provided highway mail transportation services, and related services, between and among Respondent’s facilities at Chicago Metro, Illinois; Chicago Surface Hub, Illinois; Jackson Processing and Distribution Center (“P&DC”), Mississippi; and New Orleans P&DC, Louisiana (Appeal File, Tab B (“AF B”), pp. 6, 9, Contract, PS Form 7447 and Clause B.1).
2. The contract, which was to expire on June 30, 2000, was renewed initially from July 1, 2000 through January 19, 2001, and was further extended through June 30, 2004 at a final annual rate of $1,143,074.28 (AF B, pp. 6, 8, 85, 105; AF C, p. 119).
3. Appellant is a corporation and a small business. Appellant was represented in dealings with Respondent by its president. (Declaration of Thomas R. Miller (“Miller”), ¶ 4; AF B, pp. 6, 64, 65).
4. General provision H.14 of the contract provided that the contracting officer “may release an individual sole-proprietor supplier from the contract for reasons of physical disability which prohibit the supplier from adequately operating the route, or which endanger the supplier’s life if operation of the route continues.” The provision also contained procedural conditions to its application. (AF B, p. 39, General Provision (“G.P.”) H.14, Release of Supplier (Clause B-70) (January 1997) (“medical release clause”)).
5. The contract also provided that it could be terminated for default for the “supplier’s failure to perform service according to the terms of the contract” (AF H, p. 34, G.P. H.5, Events of Default (Clause B-69) (January 1997), para. a).
6. The contract included G.P. H.4, Termination for Default (Clause B-13) (January 1997) (Modified) (AF B, pp. 33-34) (“Default clause”). At subparagraph a(1), the Default clause authorized the Contracting Officer to terminate the contract for default in the following circumstances and under the following conditions:
“(1) The Postal Service may, subject to paragraphs c and d below, by written notice of default to the supplier, terminate this contract in whole or in part if the supplier fails to:
(a) Complete the requirements of this contract within the time specified in the contract or any extension;
(b) Make progress, so as to endanger performance of this
contract (but see paragraph d below); or
(c) Perform any of the other provisions of this contract (but see subparagraph a.(2) following).”
7. Subparagraph a(2) of the Default clause authorized Respondent to terminate the contract for default for contractor failures identified in subparagraphs a(1)(b) and (c) of the clause, above, only after issuance by Respondent of a written notice to Appellant specifying the failures and seeking cure of the alleged failures by Appellant within the time provided in the notice (hereafter “cure notice”) (AF B, pp. 33-34).
8. Paragraph b of the Default clause provided that, in the event of a default termination, Respondent “may acquire similar supplies or services or complete the work, and [Appellant] will be liable to the Postal Service for any excess costs” (AF B, p. 34).
9. Paragraph f of the Default clause (AF B, p. 34) provided for payments and withholding from earned payments in the event of termination:
“The Postal Service will pay the contract price for completed items delivered and accepted. The supplier and contracting officer may agree on the amount of payment for items delivered and accepted under paragraph e above for the protection and preservation of the property. Failure to agree will be a dispute under the Claims and Disputes clause. The Postal Service may withhold from these amounts any sum the contracting officer determines to be necessary to protect the Postal Service against loss because of outstanding claims.” [emphasis added].
10. Paragraph h of the Default clause (AF B, p. 34) provided that:
“The rights and remedies of the Postal Service under this clause are in addition to any other rights and remedies provided by law or under this contract.”
11. Payments for services under this highway transportation contract were to be made automatically within thirty days following the end of each twenty-eight day Postal Accounting Period (“AP”) (AF B, Subparagraph a(1), Clauses F.1, Payment (Highway) (Clause B-74) (January 1997); F.3, Payment Due Date; and G.1, Definitions (Clause B-1) (January 1997)).
12. On September 28, 2001, Appellant’s president orally informed Respondent’s contracting officer that Appellant was “concerned” about continuing to perform “due to financial concerns” (Miller, ¶ 4).
13. On October 1, 2001, Appellant’s president informed Respondent’s senior contract transportation specialist that Appellant would not “operate service” after October 5, 2001. Appellant repeated the above statement to the contracting officer when the transportation specialist transferred the call to him. (Declaration of Gloria Walker (“Walker”), ¶ 4; Miller, ¶ 4).
14. During their October 1, 2001 conversation, the contracting officer cautioned Appellant’s president, and received his acknowledgment, that cessation of service would expose Appellant to a termination for default and reprocurement costs (Miller, ¶ 4; AF A).
15. During the October 1, 2001 telephone conversations, Appellant did not mention that it was seeking a medical release and neither the contracting officer nor the transportation specialist indicated that a medical release would be granted. (Miller, ¶ 5; Walker, ¶¶ 4, 7).
16. By certified letter on October 3, 2001, the contracting officer issued a final decision terminating the contract for default for Appellant’s anticipatory repudiation and for failure to perform services according to the terms of the contract as required by G.P. H.5.a (Finding of Fact No. (“FOF”) 5). The termination was effective at the close of business on October 5, 2001. Appellant received the final decision on October 9, 2001. (AF A; Miller, ¶ 6; AF C, p. 94).
17. On October 3, 2001, the contracting officer also issued PS Form 7440 (Nov. 1996), Contract Route Service Order (“CRSO"), temporarily suspending all payment to Appellant (Miller, ¶ 6; AF C, p. 94).
18. By the final decision, the contracting officer informed Appellant that the Postal Service was entitled to seek damages equal to the excess costs of reprocurement of the contract services through the remainder of the contract term, and that Appellant “will be notified in a subsequent letter of the exact amount of damages you owe” (AF A; see Miller, ¶ 6).
19. By letter to the contracting officer on October 11, 2001, Appellant appealed the termination for default and asserted that Respondent had improperly withheld contract payments in violation of paragraph f of the Default clause (Notice of Appeal, October 11, 2001).
20. To assure continued performance of the contract route, Respondent commenced solicitation of an emergency replacement contract on October 3, 2001, the date of the termination letter. The initial, six-month replacement contract, HCR 602BU, was awarded for performance of the defaulted route from October 6, 2001 through April 3, 2002. (Declaration of Michael Mason, successor contracting officer (“Mason”), ¶ 4; Miller, ¶ 7; Attachments to Respondent’s Declarations (“Att’s.”) A, B, and C).
21. The successor contracting officer determined that excess reprocurement costs of $79,935.16 were owing to Respondent for eighty-four days of performance of the reprocurement contract and, on January 31, 2002, issued a final decision to Appellant which assessed those costs (Mason, ¶¶ 4, 5; Att. D). By this date, the replacement contractor had been paid for the period covered by the excess costs (Walker, ¶ 6; Att. B).
22. The total amount of suspended (“withheld”) payments was $87,687.89, for work performed by Appellant between September 8, 2001 and October 5, 2001 (Att’s. D, E). By CRSO on February 21, 2002, the contracting officer ordered that $79,935.16 of the suspended payments be applied to the excess reprocurement costs and that the remaining $7,752.73 be released and paid to Appellant (Mason, ¶¶ 4, 5; Att. E).
DECISION
Appellant asserts that its default was excused because Respondent improperly terminated the contract prior to any default and without issuing a cure notice and, additionally, that the contract does not provide for termination for anticipatory repudiation. Appellant also argues that it was entitled to a medical release which would excuse the default and that, at the time the termination for default notice was issued, Respondent improperly withheld earned payments, breaching paragraph f of the Default clause, which requires that Appellant be paid for work delivered and accepted.
It is Respondent’s burden to prove, by a preponderance of the evidence, the propriety of its action in terminating the contract for default. Charles West, PSBCA No. 3655, 96‑1 BCA ¶ 28,211; see Patricia J. Stevens, PSBCA No. 3272, 94-1 BCA ¶ 26,419 at 131,429, recon. denied, 94-2 BCA ¶ 26,951. When it premises a default termination upon anticipatory repudiation by the contractor, Respondent must demonstrate that Appellant's words and/or conduct manifested a positive, unequivocal and unconditional intent not to perform under the contract in any event or at any time. Alta Constr. Co., PSBCA No. 1463, 90-1 BCA ¶ 22,527 at 113,066; Fairfield Scientific Corp., ASBCA No. 21151, 78-1 BCA ¶ 13,082 at 63,908, aff’d. on recon., 78-2 BCA ¶ 13,429.
Appellant repudiated the contract on October 1, 2001 when its President orally informed both the contracting officer and the transportation specialist that Appellant would not operate its service after October 5, 2001 (FOF 13). The statements were unequivocal and unconditional and can be construed to mean only that Appellant would cease performing its contracted route on the day it designated. Moreover, Appellant does not contend that it rescinded the repudiation or, having not received the termination notice until well after October 5, 2001, attempted to continue performance after the October 5, 2001 termination date (see FOF 14, 16).
Under such circumstances, absent a justifiable reason for halting service, the statements by Appellant indicating its intent to halt service on the contract route were sufficient to warrant default termination of the contract for anticipatory repudiation. Justlogistics S.A., Inc., PSBCA No. 4926, 03‑1 BCA ¶ 32,190; Henry Lee Hayes, PSBCA Nos. 3997, 3998, 98-1 BCA ¶ 29,642; Paul C. Popiel, PSBCA No. 3150, 93‑2 BCA ¶ 25,603 at 127,458. This repudiation by Appellant was a total breach of the contract that justified immediate termination by Respondent, even before arrival of the date on which Appellant had stated it would permanently halt performance. See United States v. DeKonty Corp., 922 F.2d 826, 827 (Fed. Cir. 1991); Cascade Pacific International v. United States, 773 F.2d 287, 293 (Fed. Cir. 1985); Restatement (Second) of Contracts (1981), § 250(a) and Comment a.
Appellant also asserts that the contract did not provide for termination for anticipatory repudiation. Appellant correctly argues that the Default clause does not explicitly provide that an anticipatory repudiation is a basis for default termination. However, the Postal Service rightfully terminated Appellant’s contract pursuant to the common law theory of anticipatory breach and without relying, for authorization to do so, upon a specific contract provision. The right to terminate a contractor that has anticipatorily breached its contract is one of the "other rights and remedies provided by law" that is alluded to, but not named, in paragraph h of the Default clause (FOF 10). See Cascade Pacific, supra, 773 F.2d at 293 n. 5, citing Rumley v. United States, 152 Ct. Cl. 166, 171, 285 F.2d 773, 777 (1961); cf., Cecile Indus., Inc. v. Cheney, 995 F.2d 1052, 1055 (Fed. Cir. 1993).
Appellant’s next defense is that Respondent improperly terminated the contract by failing to issue a cure notice pursuant to the Default clause. This is not a viable defense. A cure notice is not required when the termination is issued because the contractor anticipatorily repudiated or abandoned the contract. Fairfield Scientific Corp., supra, 78-1 BCA at 63,907; see Reddy-Buffaloes Pump, Inc., ENG BCA Nos. 6049, 6115, 96-1 BCA ¶ 28,111 at 140,334, and cases cited therein; Beacon Cyberport, AGBCA No. 2002-102-1, 03-1 BCA ¶ 32,105 at 158,740-741; see also M. R. Kaplan, et al., PSBCA Nos. 1147 et al., 88-3 BCA ¶ 20,827. Additionally, at subparagraph a(2), the Default clause requires issuance of a cure notice only in limited circumstances, none of which are applicable here (FOF 7).
Appellant also contends that, in a telephone conversation on September 28, 2001, the contracting officer led its president to believe that Appellant would be granted a “medical release” on account of recent “problems with his [its president’s] hypertension.” Appellant has failed to demonstrate that it requested a medical release or followed the contract-required procedures for obtaining such a release or that Respondent offered or agreed to provide a medical release (see FOF 4, 12, 15). Neither has Appellant contended that it took any action whatsoever in reliance on the alleged offer by Respondent.
The withholding by Respondent of earned payments is rejected as a defense to the termination for default. Respondent may withhold earned payments as prospective damages in contemplation of an imminent termination for default when, as here, the contract authorizes such withholding. Bowman's Transport Co., PSBCA Nos. 1088 et al., 84-1 BCA ¶ 17,217 at 85,730; see Johnson v. All-State Construction, Inc., 329 F.3d 848, 851-853 (Fed. Cir. 2003). In this case, the same paragraph f of the Default clause relied upon by Appellant for its claim for payment also provides that Respondent "may withhold" from earned payments "any sum the contracting officer determines to be necessary to protect the Postal Service against loss because of outstanding claims" (FOF 9).
The withholding of earned payments was ordered only after Appellant repudiated its contractual obligations and Respondent issued the notice of termination (FOF 16, 17, 20). The withholding was authorized by the contract and was appropriate under the above standards and therefore does not serve as a basis for finding that the termination was improper.
The propriety of the withholding notwithstanding, because of its timing, this withholding of earned payments could not possibly have caused whatever difficulties Appellant was having and thus could not have affected Appellant’s financial ability to perform. The withholding therefore provides no defense to the termination. See Johnson v. United States, 223 Ct. Cl. 210, 217-218, 618 F.2d 751, 755 (1980); Mowtron Industries, Inc., PSBCA No. 1743, 88-3 BCA ¶ 20,834 (default was not excused because slow payments by the Postal Service were not the “primary or controlling cause of Appellant's failure to deliver . . ., which failure precipitated the default termination”). Appellant has not met its burden of demonstrating that its abandonment of performance was caused by Respondent’s suspension of payments or was otherwise excusable. See Michael N. Beckloff, PSBCA No. 2249, 89-2 BCA ¶ 21,767, recon. denied, 89‑3 BCA ¶ 22,118.
In summary, Appellant defaulted on performance of its contract and the default was not excusable. The termination for default therefore was proper and the appeal therefrom is denied.
Jon N. Kulish
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
[1] Although warned by the Board that “submission on the record does not relieve the parties of the necessity of proving facts supporting their positions,” Appellant did not file either evidence or a brief, relying instead upon its notice of appeal and complaint. Respondent submitted additional evidence and a brief.