June 11, 2007
Appeals of
NOVA EXPRESS
PSBCA Nos.
5101, 5205 and 5268
Under Contract No. HCR 78640
APPEARANCE FOR APPELLANT:
Phillip Emiabata
APPEARANCE
FOR RESPONDENT:
Douglas J. Colton, Esq.
Office of the General Counsel
United States Postal Service
OPINION OF THE BOARD
Appellant, Nova Express, held a contract with Respondent, United States Postal Service, to transport mail between two Postal Service facilities. The contract required that Appellant have liability insurance covering its trucks. After discovering that Appellant did not have the required insurance, the contracting officer terminated the contract for default, withheld funds Appellant had earned before the termination, and asserted a claim against Appellant for the excess costs of procuring route service after the termination. Appellant filed a claim for its withheld earnings and for damages allegedly stemming from the termination, which the contracting officer denied. Appellant appealed the contracting officer’s decisions terminating the contract, denying Appellant’s claims, and asserting Respondent’s claim for reprocurement costs.
A hearing was held in
FINDINGS OF FACT
1.
On
2. One 24-foot truck (plus sufficient backup equipment) was required to perform the route, and the contract required that Appellant establish and maintain continuously in effect policies of liability insurance providing a minimum of $750,000 “Combined Single Limit” coverage (“CSL”) for trucks used to perform the contract. The insurance provisions of the contract required Appellant to furnish the contracting officer proof of insurance plus a copy of the applicable policies at the beginning of the contract and throughout the contract when the contracting officer so required. (AF 15-16, 24 (Contract Clause B.7, INSURANCE REQUIREMENTS); Stip. 9, 15-17).
3. The contract’s Termination for Default clause provided that Respondent could terminate the contract for default for Appellant’s failure to perform the service required by the contract. Additionally, Respondent could terminate for default if Appellant failed to perform any of the other provisions of the contract, provided Appellant had first been given notice of the deficiency and an opportunity of at least three days to cure. (AF 82-83, Contract Clause H.4, TERMINATION FOR DEFAULT (Clause B-13) (January 1997) (Modified), subsections a.(1) (a) & (c), a.(2)).
4. Events of default noted in the contract as grounds for termination included Appellant’s failure “to establish and maintain continuously in effect insurance as required by this contract, or fail[ure] to provide proof of insurance prior to commencement of service and thereafter as required by the contracting officer.” (AF 83-84, Contract Clause H.5, EVENTS OF DEFAULT (Clause B-69) (January 1997), subsection m).
5.
Appellant obtained insurance for the trucks used in performing the
contract from Fireman’s Fund County Mutual (“Fireman’s Fund”) in the required
amount of $750,000 Combined Single Limit (that is, liability coverage for both
bodily injury and property damage). The
relevant policy term was from
6. Appellant financed the Fireman’s Fund premium through an insurance financing company, Pronote, Incorporated (“Pronote”), under an arrangement whereby Appellant made a $3,404 down payment to Fireman’s Fund (Resp. Exh. PN 26-27; Tr. 73, 990), and Pronote paid the $7,941 remainder of the annual premium, which exceeded $11,000, to Fireman’s Fund (Tr. 34-35). Appellant agreed to repay Pronote in installments over the term of the policy (Tr. 18, 35). Under the financing agreement, Pronote was authorized to direct the insurer to cancel the policy if Appellant failed to make the required installment payments (Tr. 20; Resp. Exh. PN 26-27).
7.
In about March 2003, Pronote asked Fireman’s
Fund to cancel the insurance, and Fireman’s Fund did so, effective
8.
No later than early May 2003, Appellant was aware that the policy had
been cancelled in April, but did not advise Respondent or replace the policy at
any time before
9.
In September 2003, the contracting officer’s staff noted that the
insurance policy Appellant had provided to demonstrate proof of insurance
coverage apparently expired
10.
By letter dated
11.
By letter to Appellant dated September 23, 2003, the contracting officer
noted the contract requirement that Appellant establish and continuously
maintain insurance coverage on the vehicles used on the route, and demanded
proof of insurance for HCR 78640 as well as for HCR 78653, another of
Appellant’s contract routes.
Specifically, he asked for the declaration page or renewal billing
showing Appellant as the insured, the term of coverage and the limits of
liability as well as a list of the vehicles covered by the policy. He demanded that Appellant supply documented
proof of insurance by close of business on
12.
In response to the contracting officer’s September 19 and 23 letters,
Appellant faxed to the contracting officer on or before
13.
Appellant’s September 26 submittal included a rental agreement with
Ryder reflecting rental of a 24-foot van from May 20 through
14.
The September 26 transmittal also included two rental agreements for a
24-foot van from Penske Truck Leasing. The first rental agreement reflected a rental
on a local household moving basis to one of Appellant’s employees for the
period June 13 through
15. The second Penske rental agreement was for a commercial rental to Appellant from July 15 through July 22, 2003, on which Penske provided liability insurance in the amounts of $10,000 per person, $20,000 per accident for bodily injury, and $5,000 each accident for property damage, or up to limits required by the State. This Penske truck was supposed to be returned no later than August 2 (Resp. Exh. 1). However, Appellant retained the truck after August 2 without paying for it, which voided any insurance coverage on the vehicle. Penske eventually repossessed the truck a few weeks later. (Tr. 86, 88, 93, 107-108, 110-113, 136, 139-140, 163; AF 331; Stip. 35).
16. Appellant also provided a document reflecting a vehicle rental for the period September 5 through 21, 2003, in the name of Appellant’s owner. The document did not show the name of a rental company or the type of vehicle rented, but it did reflect that collision damage waiver (“CDW”) coverage was purchased. The printed portion of the document said nothing about liability insurance, but someone had handwritten “insurance” next to the CDW entry. (Resp. Exh. 15; Tr. 995-999). This document related to the rental truck Appellant was using on the route at the time performance was suspended (Tr. 996).
17. After receipt of Appellant’s September 26 documentation, the contract specialist called Penske. She was advised that for Appellant’s nonpayment, Penske’s insurance on the truck Appellant had rented was void. (Tr. 413-414, 419-421, 479-481).
18. By final decision dated September 30, 2003, the contracting officer terminated the contract for default for Appellant’s failure to maintain the required liability insurance and failure to provide proof of insurance in force, specifically citing in his letter subsection m, of contract clause H.5, the Events of Default clause (see Finding 4). The contracting officer also withheld pay Appellant had earned for the pay period leading up to the termination. (AF 345-346; Tr. 311, 369, 415, 813, 897, 1024).
19. Appellant’s timely appeal of the termination was docketed as PSBCA No. 5101.
20.
By letter dated
21.
In a final decision dated
22.
Appellant’s
Reprocurement
Costs
23. In the event of a termination for default, the contract authorized Respondent to acquire similar services, “and [Appellant] will be liable to the Postal Service for any excess costs.” (AF 83, Contract Clause H.4, TERMINATION FOR DEFAULT (Clause B-13) (January 1997) (Modified), subsection b).
24.
When Appellant’s performance was suspended on
25. Respondent calculated its excess costs of providing the replacement service by multiplying the daily rate differential between the two contracts of $27.37 by 87 days ($2,381.19) and adding to that its administrative costs of $325.01, consisting of 4 hours of secretarial time and 10.3 hours of the contract specialist’s time associated with the reprocurement. The total excess reprocurement costs incurred by Respondent were $2,706.20 (Tr. 452, SAF 2).
26.
By final decision dated
27.
Appellant’s
DECISION
Contract
Termination
Respondent argues that Appellant’s failure to maintain liability insurance on the vehicles used in performing the contract and failure to provide proof of such coverage when demanded by the contracting officer justified the default termination of Appellant’s contract.
Appellant
argues that on
Until
Alternatively,
Appellant argues that it was using rental trucks to perform the contract from
about May 2003 until the termination and that when it rented trucks it always
obtained the required liability insurance coverage from the rental company. The facts do not support this argument. The Ryder rental agreement for May 20 through
Appellant argues
that the “CDW” and “LDW” entries on the rental documents (Findings 14, 16)
reflect that it obtained the appropriate liability insurance coverage. The Board notes that those waivers, when
purchased, protect the renter from having to pay the rental company for damage
to the rented vehicle. See Republic
Western Ins. Co. v.
Appellant argues
that Respondent gave other mail transportation contractors more time to provide
evidence of current liability insurance than the few days Appellant was given on
September 19, 2003, that Respondent did not suspend the right of other
contractors to perform as it did Appellant’s, and that Respondent did not
require other contractors to demonstrate insurance coverage without lapses. The notices to other contractors that Appellant
points to were generated as a matter of routine when Respondent’s records
indicated a contractor’s insurance had expired (Finding 9). Appellant’s situation, however, was far from routine. Respondent’s
officials learned from Appellant’s insurance agent that Appellant’s liability
insurance had been cancelled over five months earlier (Finding 9). Given Appellant’s unresponsiveness to
inquiries regarding its insurance and indications that Appellant had operated
the contract for five months without the required insurance coverage,
suspension of its right to perform pending proof of insurance, granting only a
short time for providing such proof, and requiring that Appellant show that it
had had coverage without lapses were reasonable. See Inman & Associates, Inc., ASBCA Nos. 37869, et al., 91-3 BCA ¶ 24,048 at 120,375.
Furthermore, Appellant
was not prejudiced by the short time—three days—allowed it to provide
evidence of compliance with the contract’s insurance requirements (Findings 12,
13). The contract’s Termination for
Default clause permitted a cure period of three days (Finding 3), and Appellant
was able to present what evidence it had within the time allowed, i.e., by
September 26 (Finding 14). Additionally,
at the hearing, with many more months available to it, Appellant presented no
additional probative evidence that it had the required insurance coverage as of
the
Appellant has not
shown that at any time after its insurance was cancelled on
Bad
Faith
Appellant argues
that in terminating its contract Respondent’s officials acted in bad faith, out
of malice and hostility towards Appellant. In the course of contract performance and
presenting its position in these appeals, Appellant charged that the contracting
officer held a grudge against Appellant for incidents on another contract in
2000 and in retaliation headed a conspiracy among Respondent’s officials to
terminate Appellant’s contract.
Appellant repeatedly accused Respondent’s officials of corruption,
soliciting bribes, preparing false documents, lying, racial discrimination, and
harassment and continues in this proceeding to accuse Respondent’s witnesses of
perjury and Respondent’s counsel of unethical conduct. However, the record does not support Appellant’s
allegations. Respondent’s counsel
conducted himself in accordance with the ethical standards expected by the
Board, and we found credible the testimony of Respondent’s witnesses denying
Appellant’s allegations of wrongdoing. While substantial friction may have existed
between Appellant’s owner and a number of Respondent’s employees during
contract performance, that does not prove bad faith on
Respondent’s part. See IMS
Engineers-Architects, P.C., ASBCA No. 53471, 06-1 BCA ¶ 33,231 at
164,674, recon. denied, 07-1 BCA ¶ 33,467.
Appellant has not shown by clear and
convincing evidence that Respondent’s officials acted maliciously or with
intent to harm Appellant, which showing is required to sustain a finding of bad
faith. See Am-Pro Protective Agency,
Inc. v.
Appellant’s failure to maintain insurance continuously in force constituted ample and reasonable grounds for the termination, and Appellant has not shown that the contracting officer acted in bad faith or abused his discretion by terminating its contract.
PSBCA No. 5101 is denied.
Other Grounds for Termination
Respondent raised other
grounds as justifying the default termination:
Appellant’s alleged performance deficiencies and the character and
personal conduct of Appellant’s owner. Because
we have found the termination justified by Appellant’s failure to comply with
the insurance requirements of the contract, the ground relied on by the
contracting officer, we need not address those other grounds
for the termination or the
arguments and facts offered by the parties regarding them.
Reprocurement Costs
The contract authorized Respondent to acquire similar services after a default termination of Appellant’s contract and provided that Appellant would be liable for any resulting excess costs (Finding 23). Respondent asserts a claim for the excess costs of providing service on Appellant’s route after the termination.
After
Appellant’s performance was suspended, Respondent solicited and received offers
from three sources and awarded an emergency contract for service on the
Austin-Round Rock West route to the lowest offeror. The service was the same as provided under
Appellant’s contract, and the period for which Respondent sought reprocurement
costs—87 days, although more than 20 months remained on the contract—was reasonable.
(Findings 24, 26). See Benjamin Mullins, PSBCA
Nos. 5136, 5173, 05-1 BCA ¶ 32,918; Steve Neill, PSBCA Nos.
4004, 4005, 98-2 BCA ¶ 29,837.
Appellant’s
only challenge to the reprocurement costs is that Respondent did not present a
“bid sheet” reflecting the emergency service offers. The testimony of the contract specialist
describing her steps to obtain emergency service on the route was credible and
sufficient to establish that Respondent acted properly and made reasonable
efforts to minimize the reprocurement costs.
See Andrew M. Johnson, PSBCA Nos. 5175, 5210, 5242, 07‑1
BCA ¶ 33,464; John A. Fournier; John A. and Maryanne Fournier,
PSBCA Nos. 2337, et al., 89-1 BCA ¶ 21,574.
Accordingly, Respondent may recover its reprocurement
costs of $2,706.20 (Findings 23-26).
PSBCA No. 5268 is denied.
Appellant’s
Claims
As we have sustained the termination for default, Appellant’s claim for damages arising from what it contended was an improper termination is denied.[2] However, Appellant is entitled to recover any amounts withheld from contract pay Appellant had earned before its performance was suspended. The amount withheld is to be credited against Respondent’s recovery of reprocurement costs with the excess, if any, paid to Appellant. See Andrew M. Johnson, PSBCA Nos. 5175, 5210, 5242, 07-1 BCA ¶ 33,464 n. 6. To this extent PSBCA No. 5205 is granted, but is otherwise denied.
Conclusion
The appeals of PSBCA Nos. 5101 and 5268 are denied. The appeal of PSBCA No. 5205 is denied,
except that Appellant is entitled to payment of unpaid earnings, if any,
otherwise due Appellant at the time of the termination to the extent they
exceed Respondent’s reprocurement costs, with Contract Disputes Act interest,
from July 30, 2004.
Norman D. Menegat
Administrative Judge
Board Member
I concur: I concur:
William A. Campbell David I. Brochstein
Administrative Judge Administrative Judge
Chairman Vice
Chairman
[1] Respondent proposed as exhibits a packet of documents
referred to as the “Pronote” documents. The page number within the packet and the
designation “PN” identify the documents from that packet that were admitted.
[2] Appellant’s claim for damages for pain and suffering sounds in tort and is not recoverable in any event before the Board. See Don Wasylk d/b/a Klysaw, PSBCA Nos. 4186, 4283, 00-1 BCA ¶ 30,844; Computer Power Support, Inc., PSBCA No. 3401, 94-2 BCA ¶ 26,626; Onice Ulmer, PSBCA No. 2938, 91‑2 BCA ¶ 23,991.