PSBCA No. 4006

June 26, 1998 

Appeal of
Under Contract No. 059990-91-P-0050
PSBCA No. 4006

Jonathan D. Wolf, Esq.

Elena V. Alejandre, Esq.


            Under a contract with Respondent, United States Postal Service, Appellant, Jared Paul Carlson, d/b/a The Roasted Coffee Bean, operated a postal station in his retail coffee store.  In 1995, he made plans to move his business, and he desired to continue operating the postal station at his new location.  However, Respondent terminated his contract, giving Appellant 60-days’ notice as provided in the contract’s termination-on-notice provision and citing as the reason Appellant’s intended relocation of the postal station out of the area specified in his contract.  Appellant filed a claim for damages resulting from the termination and filed an appeal from the contracting officer’s denial of the claim.

            A hearing was held in San Jose, California, and the parties have submitted post-hearing briefs.  Both entitlement and quantum are at issue (Transcript of Hearing, page (“Tr.”) 8).


            1.  In 1990, Respondent issued a solicitation seeking offers from persons interested in operating a postal contract station within a specified area of the city of Cupertino, California.  A contract station is a contractor-owned and operated facility, under contract to Respondent to provide selected postal services to the public.  (Appeal File, Tabs (“AF”) 1, 3 (Contract Paragraph G.1)).

            2.  Appellant submitted an offer to perform the services at his retail coffee store located within the specified area and was awarded the contract on September 27, 1990, at the annual rate of $8,000 (Tr. 116-118; AF 1, 3 (last page); Respondent’s Exhibit (“RX”) 2; Stipulation of the Parties dated April 21, 1997 (“Stip.”) ¶ 1).

            3.  The contract was of indefinite duration, subject to the following termination rights:

“This contract may be terminated by either the Postal Service contracting officer or the contractor upon 60 days’ written notice.  The contracting officer may terminate the contract upon one day’s written notice if necessary  to protect the Postal Service’s interest.”  (AF 3, Contract Paragraph C.1.b, CONTRACT DURATION AND TERMINATION (CONTRACT POSTAL UNIT) (Clause OB-490)(June 1988); Stip. ¶ 3).

            4.  The contract required Appellant to notify the contracting officer in the event the owner of the building housing the contract station canceled or decided not to renew Appellant’s lease.  Under such circumstances, “the contracting officer may terminate the contract if the contractor cannot relocate in a location that serves the needs of the Postal Service.”  (AF 3, Contract Paragraph G.5, NOTICE TO THE CONTRACTING OFFICER (CONTRACT POSTAL UNIT) (Clause OB-496)(June 1988)).

            5.  The contract defined the contracting officer to be the person executing the contract for Respondent or otherwise so designated by Respondent (AF 3, Contract Paragraph H.2; see Tr. 24), and contemplated appointment of a contracting officer’s authorized representative to handle the day-to-day supervision of Appellant’s contract station (Tr. 26, 36):

“The contracting officer will appoint a contracting officer’s representative (COR), responsible for the day-to-day administration of the contract, to serve as the Postal Service point of contact with the contractor on all routine matters.  A copy of the notice of appointment defining the COR’s authority will be furnished to the contractor upon award.”  (AF 3, Contract Paragraph E.1, CONTRACTING OFFICER’S REPRESENTATIVE (Clause OB-547)(June 1988), see Contract Paragraphs E.2, H.2.a, and Attachment 1 (section I.1); Stip. 5).

            6.  The contract authorized the contracting officer to change the contract in writing, including changing the place of performance of the services (AF 3, Contract Paragraph H.3, CHANGES (Clause B-2)(October 1987)).

            7.  In a September 27, 1990 letter notifying Appellant that he had been awarded the contract, the contracting officer advised that he had designated an official at the Cupertino Post Office as his authorized representative to be Appellant’s local contact.  The letter cautioned, however, that the contracting officer’s representative’s authority was limited.  Appellant was advised to notify the contracting officer or his subordinate if he encountered problems that could not be resolved with the authorized representative.  This information was expanded in the letter to the contracting officer’s representative of the same date, a copy of which was to be provided to Appellant, that made it clear that the representative’s duties were limited to routine administration of Appellant’s operation of the contract station.  (AF 3, Contract Attachment 1; AF 3 (Last Page); RX 2; Stip. 6; see Tr. 24-27, 36, 39, 41, 43, 48, 53, 118-119).

            8.  Through September 1993, there were two modifications increasing Appellant’s annual compensation.  There also were a number of other written, official notifications and actions regarding the administration of the contract, including a modification of December 14, 1992, that identified the Cupertino Postmaster as the contracting officer’s representative.  The modifications to compensation were negotiated by Appellant with the contracting officer or with persons on the contracting officer's staff (and not the postmaster), and the modifications and all of the other official administrative actions were signed by the then-contracting officer (Tr. 49-51, 125-127, 148-151, 159, 175-176; AF 4; see AF 3, Contract Paragraph G.2).

            9.  A new contracting officer became responsible for Appellant’s contract in 1993 or 1994, but Appellant was never notified specifically of the change in contracting officers (Tr. 28-29, 44, 127, 176).

            10.  Sometime prior to June 30, 1995, Appellant decided to move his store to a new location in Cupertino that was not within the boundaries set out in the original solicitation (Tr. 128; AX 4).  Appellant wished to continue operating the contract station at his new location, but he intended to move regardless of whether Respondent allowed relocation of the contract station (Tr. 61-62, 81, 128-129).

            11.  Sometime before June 30, 1995, Appellant discussed his intended relocation with the Cupertino Postmaster, who told Appellant that he was pleased with the new location (Tr. 53-54, 56, 65, 129-132, 134-135, 154-155, 187, 195; AF 5, p. 2) and that Appellant should deal with him regarding the relocation (Tr. 129, 178; see Tr. 57, 205).  In their discussions, the postmaster did not tell Appellant that the relocation would have to be approved by the San Jose District Retail Division or by the contracting officer (Tr. 129-130, 155).

            12.  Appellant requested something in writing from the postmaster acknowledging the relocation (Tr. 54, 130-132, 187), but even though he had not received such written approval, on or about June 30, 1995, Appellant signed a five-year lease for 2000 square feet of space at the new location (Tr. 54, 61, 132, 153-154, 177; AX 4).  Appellant only needed 1500 square feet for operation of his coffee store, and he took the additional 500 square feet solely for the intended operation of the postal contract station (Tr. 134-135).  The new lease provided for occupancy, after completion of renovations, by April 1996, but Appellant did not move until sometime later (AF 5, p.1; AX 4).

            13.  On October 26, 1995, after numerous follow-up requests by Appellant and his wife (Tr. 130-132), the postmaster finally wrote to Appellant, acknowledging the move (Tr. 54, 64).  The complete text of that letter was as follows:

“This is to acknowledge [ ] that you will be moving your business to Tantau and Stevens Creek Blvd.  As per our previous conversation, I have been looking for a Contract Station in this area of Cupertino.  I am happy to know that you will still be having a Contract Postal unit at this new location.  Because of it[s] strategic location on Stevens Creek Blvd., I am convinced that the number of Postal customers serviced by you will increase.

Please keep me posted as to the progress of the proposed occupancy on Stevens Creek Blvd.”  (AF 5, p. 2).

            14.  The postmaster did not advise the contracting officer of Appellant’s intention to relocate (Tr. 73).

            15.  At about this time, Respondent was developing a new concept in contract post offices, known as Contract Post Office Express (“CPOE”), under which contract postal units would appear more like regular post offices:  the appearance of the office would be standardized as to color schemes, logos, and services offered and the compensation method would be somewhat different (Tr. 71, 78, 103-104, 112, 137, 188-189, 198).  Respondent intended that Express offices would eventually replace regular contract postal units (Tr. 71-72, 78, 80, 84).

            16.  The San Jose Retail Division was the office directly responsible for the financial operations of contract postal units in the Cupertino area and for evaluating the Postal Service’s needs for contract postal units (Tr. 32, 75-77, 200).  The Retail Division was interested in experimenting with a CPOE unit and was interested in having Appellant as the contractor because he had proven to be one of the most successful contract station operators in the area (Tr. 78-79, 82-83, 103, 106).  A Retail Specialist from the San Jose Retail Division contacted Appellant to explore the possibility of converting his contract station to the new concept (Tr. 78-80).[1]  In February, March and April of 1996, officials of Respondent’s San Jose District Retail Division held discussions with Appellant regarding establishing a CPOE at his new location (Tr. 78-80, 135, 188-190, 194, 197-198).

            17.  In the course of these discussions, officials from offices above the San Jose Division became involved.  Those officials visited Appellant’s proposed site, but they had reservations about the suitability of the new location for a contract station.  (Tr. 86, 93, 110-111, 135-136).

            18.  Eventually, Appellant decided that he did not want to operate under the new concept (Tr. 137-138, 159, 168-170), and he so advised Respondent (Tr. 83-84, 99-100, 109-110, 169, 201-202).

            19.  In April, after Appellant declined the new concept, Respondent’s officials conducted a traffic survey of the Cupertino area to determine whether a contract station was needed at Appellant’s new location (Tr. 67-68, 72, 75-77, 86).  Such surveys were commonly used by Respondent to determine locations suitable for placement of a contract station (Tr. 68, 88-89, 93), but Appellant had not been told that Respondent intended to conduct a survey to assess the new location’s viability (Tr. 72, 189).  Based on the survey, Respondent’s Retail Division determined that a contract station was not needed at the new location (Tr. 68-69, 93-95, 203, 204) and decided to recommend that the contracting officer terminate Appellant’s contract (Tr. 95).

            20.  If Appellant had agreed to convert to the CPOE format, the Retail Specialist would have recommended that he be allowed to do so at the new location because of his history of success as a contract station operator (Tr. 95, 102-103, 106, 110).  However, she did not tell Appellant of her view in this regard (Tr. 84, 100, 103, 138, 144-145, 189).  Respondent’s officials discussing the CPOE concept with Appellant did not tell him that the relocation of his existing contract station had been approved or disapproved (Tr. 108, 136-137, 188-190, 202; contra Tr. 160, 168).

            21.  In April 1996, the Retail Specialist called Appellant’s wife and advised that the new location was not suitable and that the contract station contract would be terminated (Tr. 144, 159, 190, 202).  The postmaster was not aware that that decision had been made and only found out after Appellant’s wife called him and told him (Tr. 191, 204).  A meeting was held between Appellant and Respondent’s San Jose officials (not the contracting officer) and Appellant’s Member of Congress in early May to discuss the intended termination (Tr. 57, 144, 191).

            22.  On May 16, 1996, the postmaster wrote the following to Appellant:

“While visiting your office on Tuesday, May 7, 1996, you notified me verbally that your last day at your present site will be July 31, 1996.  You also notified me of your new business address.  Since your new business address will be out of the area for which your present CPU contract was intended for, I am requesting through proper channels that your CPU contract be terminated.

You will receive written notice directly from the contracting office.”  (AF 5, p. 1; see Tr. 57-58).

            23.  By a unilateral modification dated May 17, 1996, the contracting officer terminated the contract “on 60-days written notice effective close of business effective July 20, 1996.” [2]   (Tr. 25, 31-32, 40, 44, 172; AF 4, pp. 1 and 2).  The contracting officer based his action solely on an e-mail request from the San Jose Retail Division that, without explaining the reasons for doing so, requested that he terminate Appellant’s contract (id.).  The contracting officer had never visited the new or old sites (Tr. 30), was not aware of any customer complaints (Tr. 30), was not aware of the revenue of the contract station (Tr. 30) and had no independent view on whether the new location would generate more revenue or serve the needs of the Postal Service (Tr. 31).

            24.  The contracting officer was responsible for slightly more than 100 contract postal units (Tr. 25) as well as many other contracts for supplies and services, including cleaning services contracts, vehicle leasing and vehicle washing contracts within the San Jose area (Tr. 22).  In terminating the contract, the contracting officer relied solely on the request of the Retail Specialist because it was the Retail Division that was familiar with the operations of the contract postal units in the area and responsible for determining the Postal Service’s need for a contract station to provide customer service in any given area (Tr. 32, 37, 40, 77).  He performed no independent investigation because he relied on the Retail Division’s expertise regarding contract postal units and because he believed that under the contract Respondent could terminate without breaching the contract by giving 60-days’ notice regardless of the reasons for doing so (Tr. 25-26, 32-34, 40, 45).

            25.  By letter from counsel dated June 10, 1996, Appellant submitted a claim to the Cupertino Postmaster for $250,000 for damages arising from Respondent’s failure to approve the relocation and the termination of the contract (AF 5, pp. 3-5; AX 1).

            26.  By a final decision dated April 22, 1997, the contracting officer denied Appellant’s claim (RX 1), and Appellant filed this appeal. [3]


            Appellant contends that in reliance on the postmaster’s approval of the relocation of his contract station he leased more space than he otherwise would have.  He contends that, in light of that approval of his move, Respondent’s subsequent termination was a contract breach entitling him to damages equal to the additional cost for what he thought would be the contract station space for the five-year term of his new lease.

            While the postmaster was pleased with the proposed new location and did nothing to inform Appellant that further approvals might be necessary (Findings 11-14), Appellant was aware or should have been aware that the postmaster did not have the final say in such a substantial modification of the contract.  The contract reserved to the contracting officer authority to make changes to the contract (Findings 5, 6).  The authority of the postmaster, as the contracting officer’s local representative, was limited to the routine matters of administering the contract (Findings 5, 6, 7), and Respondent specifically advised Appellant to contact the contracting officer or his subordinate if Appellant encountered problems that could not be resolved with the authorized representative (Finding 7).  Prior modifications affecting contract performance or price to any significant degree had all been signed by the contracting officer, not by the postmaster (Finding 8).  Although Appellant correctly points out that he was never specifically told who the then-contracting officer was, he had the correct address for the contracting officer (Findings 7, 9, 23 (n. 2)), and it would have been an easy matter for him to reach the contracting officer if he had chosen to do so.  Any assumption that Respondent would be bound on an important contract matter by an oral commitment from the postmaster was not reasonable.[4]

            Appellant contends that his contract was terminated in retaliation for his refusal to accept the Contract Post Office Express concept and was based on an inadequate survey of the business climate of the new and old locations.  Termination under these circumstances, according to Appellant, amounts to bad faith on Respondent’s part.  However, Respondent’s conduct of a survey of the area was a customary practice, and when the results of the survey confirmed the reservations postal officials had about the new location, Respondent decided it did not wish to continue a contract station there (Findings 19-21).[5]  While the Retail Specialist would have recommended that Appellant be allowed to operate a CPOE at the new location based on his prior success as a contract station operator (Finding 20), there is no evidence that her superiors would have been persuaded, even if Appellant had agreed to the CPOE concept.  Furthermore, that Appellant’s rejection of the CPOE concept led to disapproval of the new location for a regular contract station would not equate to bad faith retaliation.  Appellant has not shown that the action was motivated by malice or a desire to harm Appellant, which is what Appellant must show to prove bad faith.  See Kalvar Corp. v. United States, 543 F.2d 1298, 1301-1302 (Ct. Cl. 1976), cert. denied, 434 U.S. 830 (1977); Krygoski Constr. Co. v. United States, 94 F.3d 1537, 1541 (Fed. Cir. 1996), cert. denied, 137 L.Ed.2d 819, 117 S.Ct. 169 (1997).  It is within Respondent’s discretion to end the contract by giving 60-days’ notice when its officials determine that Respondent’s business interests are no longer being served, Michael J. Earl, PSBCA No. 3332, 93-3 BCA ¶ 26,234, and Appellant has not shown that the recommendation to terminate or the resulting termination stemmed from a desire to punish or harm Appellant as opposed to an exercise of Respondent’s business judgment.

            Appellant also argues that the contracting officer abused his discretion because he conducted no independent evaluation of Appellant’s contract station before terminating the contract by giving 60-days’ notice but, rather, merely rubber-stamped the recommendations of the San Jose Retail Division.  These actions, according to Appellant, demonstrate an abuse of discretion, which results in the action being considered a breach entitling him to damages.

            In determining whether to terminate a contract for convenience, the contracting officer is expected to rely on the advice of his staff and others.  Melvin R. Kessler, PSBCA Nos. 2820, 2972, 92-2 BCA ¶ 24,857; see Nuclear Research Corp. v. United States, 814 F.2d 647, 649-50 (Fed. Cir. 1987); Pacific Architects and Engineers Inc. v. United States, 491 F.2d 734, 744 (Ct. Cl. 1974).  In this case, the contracting officer acted on the termination request of the Retail Division by exercising Respondent’s right to terminate by giving Appellant 60 days’ notice (Findings 19, 23, 24).  Such reliance was shown to be the regular practice of the contracting officer since he oversaw a large number of contracts, including over 100 contract units, and he relied on the expertise of the Retail Division in matters of management of contract stations (Finding 24).  Additionally, the contracting officer believed that no reason was necessary to terminate a contract station on 60-days’ notice under the contract (Findings 23, 24).  The Retail Division based its termination request on its business judgment that Appellant’s new location was not suitable for a contract station, and the contracting officer’s prompt accommodation of the Retail Division’s request was not an abuse of discretion.[6]

            Finally, Appellant argues that the contract permitted him to relocate his contract station provided the new location served the needs of the Postal Service and urges that his new location was better from the standpoint of providing service to the public than his original location.  He contends that since he met the conditions of the contract provision addressing relocation of the contract station (Finding 4), it was an abuse of discretion for the contracting officer to terminate the contract.  However, by its terms, the relocation provision of the contract (Finding 4) applies only when the contractor loses his lease involuntarily and not where a contractor chooses to relocate for business reasons.

            The appeal is denied. 

Norman D. Menegat
Administrative Judge
Board Member

I concur:
James A. Cohen
Administrative Judge

I concur:
David I. Brochstein
Administrative Judge
Vice Chairman

[1]  At first, the Retail Division was not aware that Appellant intended to move, and their selection of his contract station as a candidate for the CPOE concept was based on his successful performance at his old location (Tr. 81-82).  However, discussions continued even after Respondent’s representatives became aware that Appellant was moving (Tr. 82-85).

[2]  The contracting officer who terminated the contract was not the same contracting officer who had taken previous actions under the contract (See Finding 8).  However, the address of the terminating contracting officer was the same San Bruno, California address given for the contracting officer in the September 17, 1993 modification to the contract that was the last contract action immediately preceding the termination.  It was also the address given in a December 14, 1992 order from the then-contracting officer to Appellant advising where future information for the contracting officer was to be sent (AF 4).

[3]  In the course of briefing, Appellant has reduced its monetary claim to $72,234.00, based on its costs related to the lease of the “extra” 500 square feet of space (Tr. 140; AX 6, 7).

[4]  There is disputed testimony regarding whether the postmaster told Appellant that he was the contracting officer.  However, in view of information made available to Appellant over the course of the contract regarding the identity of the contracting officer and the limited authority of the postmaster, reliance by Appellant on such advice from the postmaster would have been unreasonable.  Furthermore, Appellant bears the risk that the postmaster was acting beyond his authority when he approved the relocation even if the postmaster himself may have been unaware of the limitations on his authority.   See Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384, 68 S.Ct. 1, 3, 92 L.Ed. 10 (1947); Trauma Service Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997); CACI, Inc. v. Stone, 990 F.2d 1233, 1236 (Fed. Cir. 1993).

[5]  The report of the survey was not admitted into evidence, and testimony regarding the survey results was limited to showing what the Postal Service relied on in making its decision to terminate.  Therefore, the Board does not make any finding regarding whether the survey was accurate.  However, the use of such surveys was Respondent’s common practice in determining where to locate its customer service facilities, including contract stations (Finding 19), and its use in this case and Respondent’s subsequent reliance on it have not been shown to be acts of bad faith.

[6]  That the contracting officer was not aware of the reasons underlying the Retail Division’s request does not cause his action to be an abuse of discretion under these circumstances.  See Cotco Leasing Co., PSBCA No. 586, 81-1 BCA ¶ 14,821 aff’d Strick Lease, Inc. v. United States, 229 Ct. Cl. 471 (1981); cf. College Point Boat Corp. v. United States, 267 U.S. 12, 15-16, 45 S. Ct. 199, 69 L.Ed 490 (1925); John Reiner & Co. v. United States, 325 F.2d 438 (Ct. Cl. 1963).