PSBCA No. 3812


April 09, 1997 


Appeal of
TALANO TRANSPORTATION
Under Contract No. HCR 60564
PSBCA No. 3812

APPEARANCE FOR APPELLANT:
Jeff Talano

APPEARANCE FOR RESPONDENT:
Christopher W. Zadina, Esq.

OPINION OF THE BOARD

            Appellant, Talano Transportation, has filed a timely appeal of the decision of the contracting officer to terminate for default its mail transportation contract.  This appeal is being decided on the record in accordance with 39 C.F.R. §955.12.

FINDINGS OF FACT

            1.  On June 30, 1993, James and Jeffrey Talano, d/b/a/ Talano Transportation (Appellant), entered into a renewal of Contract HCR 60564 with Respondent, the United States Postal Service, for the transportation of mail between AMC O’Hare, and Tinley Park, Illinois, with intermediate stops.  The term of the contract was for four years, at an annual rate of $9,906.00.  (Appeal File Tab (AF) B).

            2.  The schedule of the route was as follows:

0730 - Lv AMC O’Hare, IL
0810 - Ar LaGrange, IL
0815 - Lv LaGrange, IL
0850 - Ar Downer’s Grove, IL
0855 - Lv Downer’s Grove, IL
0935 - Ar South Suburban P&DC, IL
0945 - Lv South Suburban P&DC, IL
1000 - Ar Moraine Valley, IL
1005 - Lv Moraine Valley, IL
1025 - Ar Tinley Park, IL (AF B).

            3.  The contract included Basic Surface Transportation Services Contract - General Provisions, Postal Service Form 7407, July 1992, which in clause 2, CLAIMS AND DISPUTES, required the contractor to submit claims in writing to the contracting officer and to continue performance of the contract requirements pending resolution of the dispute (Id.).

            4.  General Provisions clause 16, TERMINATION BY THE POSTAL SERVICE FOR DEFAULT, permitted the Postal Service to terminate the contract for default if the contractor failed to perform according to the terms of the contract.  Subparagraph (c) of clause 16 provided that if it is determined that the contractor was not in default or the default was excusable, the parties’ rights and obligations would be the same as if a termination for convenience had been issued under clause 17, TERMINATION FOR CONVENIENCE, which provides the contractor, as its sole remedy, an indemnity, in the amount specified in clause 12(d).  (Id.).

            5.  On January 28, 1994, Respondent advised Appellant, by letter, that its contract performance was unsatisfactory based on eight instances of service irregularities occurring between December 17, 1993 and January 25, 1994[1].  Specifically, Appellant had failed to follow the contract’s schedule on seven occasions and had left a full container of express mail on the loading dock on another occasion.  The letter requested Appellant to attend a formal conference on February 7, 1994, to discuss its performance deficiencies.  (AF E, pg. 78).

            6.  Appellant failed to attend the formal conference on February 7, 1994, and it was rescheduled for February 16, 1994 (AF E, pg. 80).  However, on February 15, Appellant requested that the conference be further rescheduled for February 24, 1994.  On February 23, Appellant notified the contracting officer it would be unable to attend the conference on February 24, 1994.  (AF E, pg. 82).

            7.  The formal conference was eventually held on May 4, 1994.  Appellant had been cited for failing to observe its contract schedule on six more occasions by this date.  By letter dated June 22, 1994, the contracting officer, referenced the formal conference and advised Appellant that continued performance deficiencies would not be tolerated.  Since the date of the conference, Appellant had received two additional irregularity reports for again failing to observe its contract schedule and for misdelivering express mail.  Appellant was warned that its contract would be terminated for default unless satisfactory service was restored within five days of receipt of the letter, and maintained for the remaining term of the contract.  (AF E, pg. 74).

            8.  Appellant was subsequently cited for failing to maintain its contract schedule on July 1, July 6, July 12 and October 26, 1994.  Traffic congestion, caused by road construction around O’Hare, contributed to Appellant’s failure to maintain the contract schedule on July 12, and October 26, 1994.  (AF F).

            9.  By letter dated January 17, 1995, Appellant advised the contracting officer that it intended to quit operation of the route effective February 5, 1995, unless a higher contract rate could be negotiated.  Appellant’s cost of operating the route had increased as a consequence of the fact that the contracting officer had suspended the driving privileges of Jeff Talano.   (AF E, pg. 99).

            10.  Appellant was advised by the contracting officer, in a letter dated January 19, 1995, that its letter constituted an anticipatory breach of the contract, and that if Appellant defaulted it would remain liable for damages under the contract.  The contracting officer offered Appellant the opportunity to reconsider its intent to cease performance.  The contracting officer further advised Appellant that his decision to suspend the driving privileges of Jeff Talano was currently being reviewed by higher level contracting authority in Washington D.C.  (AF E, pg. 100).

            11.  By letter dated February 3, 1995, Appellant reaffirmed its intent to cease performance of the contract after running the route on February 6, 1995, unless the contracting officer contacted Appellant by February 5, 1995 and was willing to “significantly modify this contract . . . .”[2]  (AF E, pg. 104).  However, Appellant did not cease performing the route as of February 6, 1995 (see footnote 2).

            12.  On February 23, 1995, although Appellant began its route on time at O’Hare and continued on time to LaGrange and Downer’s Grove, Appellant failed to report to the South Suburban P&DC, Moraine Valley or Tinley Park Post Offices.   A representative of Respondent contacted Appellant by telephone this same date  and asked Jeff Talano why the route was not completed.  Mr. Talano stated that he was unaware that the driver had not completed the route but he would find out and let them know.  As of the close of business on February 23, 1995, Appellant had not responded.  A Form 5500 Irregularity Report was prepared by Respondent citing Appellant’s failure to report to the last three stops on his route.  (AF E, pg. 107; F).

            13.  On February 24, 1995, the contracting officer terminated Appellant’s contract for default for failure to perform services according to the terms of the contract (AF A).  Appellant timely appealed that decision (AF E, pg. 112).

DECISION

            Respondent argues that Appellant’s performance deficiencies over the entire period of contract performance, culminating in Appellant’s failure to complete its route on February 23, 1995,  justify the decision of the contracting officer to terminate the contract for default.  In challenging the decision to terminate its contract for default, Appellant argues in its Complaint[3] only that irregularity reports were improperly issued on occasions when Appellant had been credited with a “late slip” for excusable delay.

            “A default termination is a drastic sanction that should be sustained only when based on reasonable grounds and solid evidence, and it is Respondent’s burden to demonstrate by a preponderance of the evidence that the default termination of Appellant’s contract was justified.”  Charles West, PSBCA No. 3655, 96-1 BCA ¶ 28,211, citing, Lisbon Contractors, Inc. v United States, 828 F.2d 759, 765 (Fed. Cir. 1987); J.D. Hedin Construction Co. v. United States, 408 F.2d 424, 431 (Ct. Cl. 1969); Banks Trucking, PSBCA No. 3528, 96-1 BCA ¶ 28,132; Patricia J. Stevens, PSBCA No. 3272, 94-1 BCA ¶ 26,419, recon. denied, 94-2 BCA ¶ 26,951; Douglas Cremer, PSBCA No. 3108, 93-2 BCA ¶ 25,565.  Respondent has not met that burden. 

            Respondent issued a “final warning letter” to Appellant on June 22, 1994 (Finding of Fact No. (FOF) 7).  It is apparent from the record that Appellant was experiencing difficulty in performing the contract prior to this time, having received sixteen irregularity reports between December 17, 1993 and the issuance of the warning letter on June 22, 1994 (FOF 5, 7).  We need not decide whether sufficient grounds to terminate the contract may have existed at that time, however, because the contracting officer did not terminate the contract for default, but instead, issued a warning.

            Appellant’s threats on two occasions to cease performance of the contract by February 6, 1995, unless its rate was renegotiated, also did not provide a basis for the default termination on February 24.  Respondent took no actions in reliance on Appellant’s statements, see, e.g., Gerald M. Davy, PSBCA No. 3270, 94-2 BCA ¶ 26,290; What Mac Contractors, Inc., GSBCA No. 4766, 78-2 BCA ¶ 13,279, and Appellant continued performing the contract after the date by which it had threatened to cease performance.  Further, the evidence does not show that Appellant’s failure to complete the route on February 23 was in any way connected to its earlier threats to cease performance and, therefore, does not show an abandonment of performance, which abandonment would have justified the decision to terminate for default.  See, e.g., Jeff Talano, PSBCA No. 3695, 97-1 BCA ¶ 28,628; Roy Decker, PSBCA No. 3816, 96-2 BCA ¶ 28,585.

            At the time of the decision to terminate the contract for default, (February 24, 1995) Appellant had not been cited for an irregularity in contract performance since October 26, 1994, some four months earlier.  Appellant disputed that irregularity report, arguing that it was the result of traffic congestion at O’Hare.  Since no action was taken against Appellant as a consequence of this irregularity report, nor was the occurrence noted as chargeable to Appellant in Section 3 of the Form 5500 for that date, it must be presumed that Respondent considered it excusable.  Therefore, the last potentially chargeable irregularity was on July 6, 1994, some seven months earlier.  (FOF 8). 

            The record in this appeal also does not disclose whether Appellant’s incomplete performance on February 23 amounted to a chargeable irregularity.  Even if it did, however, this one irregularity, after over seven months of otherwise satisfactory performance, does not provide a sufficient basis for upholding the decision to terminate for default.  Simply stated, the record of this appeal does not provide the reasonable basis and solid evidence necessary for us to sustain the drastic sanction of a termination for default.  See Charles West, PSBCA No. 3655, supra.

            We conclude that the contracting officer’s decision to terminate Appellant’s contract for default was improper.  Accordingly, the termination for default is converted to a termination for convenience and Appellant is entitled to be paid the liquidated damages specified in the contract.

            The appeal is sustained.


William K. Mahn
Administrative Judge
Board Member

I concur:
James A. Cohen
Administrative Judge
Chairman

I concur:
David I. Brochstein
Administrative Judge
Vice Chairman



[1]  Irregularities in contract performance were noted on a Form 5500, Contract Route Irregularity Report, used by Respondent to notify transportation contractors of a deficiency in their performance.  Respondent’s employees, at the point where the deficiency occurs note the deficiency in section 1 of the form, and two copies are sent to the contractor.  Section 2 on the form provides a space for the contractor to reply.  Section 2 is prefaced, “Complete this section and return it to the Administrative Official within 10 days.  Failure to reply will be taken as admission that the facts stated in Section 1 are correct.”  (Examples of Form 5500s are contained in AF F).

[2]  Appellant was apparently unaware at this time that its appeal of the decision of the contracting officer to suspend the driving privileges of Jeff Talano had been sustained by higher level authority on February 2, 1997  (AF E, pg. 103).  Nothing in the record discloses whether the contracting officer contacted Appellant in response to this letter.  Nevertheless, Appellant continued to perform the contract after February 6, 1995. 

[3]  Although afforded the opportunity, Appellant did not submit any evidence into the record, nor did it file a brief.