Appeals of

NOVA EXPRESS
PSBCA Nos. 5091, 5207, 5213 and 5267

Under Contract No. HCR 773L5

APPEARANCE FOR APPELLANT:
Philip Emiabata

APPEARANCE FOR RESPONDENT:
Douglas J. Colton, Esq.

OPINION OF THE BOARD

            Appellant, Nova Express, held a contract to transport mail between five Postal Service facilities.  Respondent, United States Postal Service, terminated the contract for default; withheld funds earned by Appellant before the termination; and demanded that Appellant pay Respondent’s excess costs of reprocuring the transportation service after the termination.  Respondent also demanded that Appellant pay for damage allegedly caused by its trucks at three of the post offices on the route.  Appellant appealed the contracting officer’s decisions terminating the contract and asserting Respondent’s damage claims.  Appellant filed claims for its withheld earnings and for damages stemming from the allegedly improper termination of its contract and appealed the contracting officer’s final decision denying its claims.  All of the appeals relating to the contract were consolidated for processing and decision (April 20, 2005 Order).

            A hearing was held in Austin, Texas,^[1] and the parties filed post-hearing briefs.  Entitlement and quantum are at issue with respect to Respondent’s monetary claims, and entitlement only is at issue with respect to the termination for default (September 23, 2005 Order; Transcript of Hearing, Volume I, Page (“Tr. I”) 5).^[2]

FINDINGS OF FACT

            1.  On January 23, 2002, Respondent awarded Appellant contract No.  HCR 773L5 for transportation of mail between Respondent’s North Houston, Texas Processing and Distribution Center (“North Houston”) and El Campo, Texas, with stops at the Richmond, Rosenberg, and East Bernard Post Offices.  The term of the contract was from February 23, 2002, to June 30, 2005, at an annual rate of $85,000.  (AF 2a^[3]; Stipulation dated October 26, 2005, paragraphs (“Stip.”) 5, 8).

            2.  The contracting officer was located at Respondent’s Dallas Networks Office.  However, the transportation network specialist at North Houston was the contract’s Administrative Official, responsible for its day-to-day administration.  (AF 3, Contract Clause B.1.4.f; Tr. II 158-165; Tr. IV 225).

            3.  The contract required service seven days per week.  Trip 1 was scheduled to leave North Houston at 3:00 a.m. daily except Sundays and certain holidays, making stops at Richmond and Rosenberg and arriving at East Bernard at 5:00 a.m. and El Campo at 5:55 a.m.  Trip 2 was to leave El Campo at 2:20 p.m. daily except Saturdays, Sundays and certain holidays, arriving at East Bernard at 3:05 p.m. and returning to North Houston at 5:30 p.m. after stops at Rosenberg and Richmond.  Trip 4 was the return trip on Saturdays leaving El Campo at 12:20 p.m., arriving at East Bernard at 1:05 p.m. and North Houston at 3:30 p.m. after stops at Rosenberg and Richmond.  Each of the above three trips was 97.7 miles in length.  Trip 3/6 was the Sunday round trip leaving North Houston at 11:00 a.m. (Trip 3), traveling only to Richmond and Rosenberg (50.5 miles) and arriving at Rosenberg at 12:25 p.m.  Trip 6 left Rosenberg at 12:35 p.m. and returned to North Houston, arriving at 1:40 p.m.  The schedule contained no trip numbered 5.  (AF 1; Stip. 9).

            4.  The contract required Appellant to provide one tractor and one 45-foot trailer to perform the route (AF 4).  Trailers used on the route were required to have security locking devices on the rear door and a load restraint system, including E-track rails mounted horizontally on each side of the interior of the trailer to which load restraining straps were to be attached to secure the mail (AF 5, 6, 30-52).  Appellant was required to maintain its vehicles in mechanically sound condition (AF 10, Contract Clause B.6) and to have readily available sufficient stand-by equipment meeting all contract requirements “to permit vehicle maintenance, and to prevent delays in emergencies such as mechanical failures and poor weather conditions.”  (AF 3, Contract Clause B.2.a; Stip. 10; Tr. IV 237).

            5.  The contract required Appellant to transport “all mail tendered for transportation under this contract . . . with certainty, celerity, and security, in accordance with the operating schedule” set forth in the contract.  Appellant could also be required under the contract “to perform all minor administrative services as may be necessary to track and trace the mail.”  (AF 6, Contract Clause B.3.a).

            6.  The contract included a Claims and Disputes clause, which described Appellant’s right to file a claim and the appeal rights available to Appellant if it was dissatisfied with a final decision of the contracting officer.  The clause required Appellant during the pendency of a dispute to “proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the contracting officer.”  (AF 64, Contract Clause H.2, CLAIMS AND DISPUTES (Clause B-9) (January 1997), subsection j).

            7.  The contract provided that Respondent may terminate the contract for default for Appellant’s failure to complete the requirements of the contract within the time specified or (after having received an opportunity to cure) to perform any of the other provisions of the contract.  Events of default noted in the contract as grounds for termination included Appellant’s failure to perform service according to the terms of the contract; if Appellant’s transportation equipment was insufficient, inadequate, or otherwise inappropriate for the service; and if Appellant failed “to establish and maintain continuously in effect insurance as required by this contract, or fails to provide proof of insurance prior to commencement of service and thereafter as required by the contracting officer.” (AF 65-67, Contract Clauses H.4, TERMINATION FOR DEFAULT (Clause B-13) (January 1997) (Modified), subsections a.(1) (a) & (c), a.(2), and H.5, EVENTS OF DEFAULT (Clause B-69) (January 1997), subsections a, j, m).

            8.  In the event of a termination for default, the contract authorized Respondent to acquire similar replacement service, and provided that Appellant “will be liable to the Postal Service for any excess costs.”  (AF 66, Contract Clause H.4, TERMINATION FOR DEFAULT (Clause B-13) (January 1997) (Modified), subsection b).

            9.  Appellant remained responsible for the faithful performance of the contract even if it had entrusted the performance to others and was to be easily reachable in the event of emergencies (AF 67-68, Contract Clause H.6, ACCOUNTABILITY OF THE SUPPLIER (HIGHWAY) (Clause B-64) (January 1997)).

Performance Irregularities

            10.  On March 25, 2002, Appellant’s truck was detained at a state weigh station for defective lights and for an expired registration or inspection sticker.  As a result, Appellant failed to complete Trip 1 and the return Trip 2.  Respondent issued Appellant a PS Form 5500 to record the failure to perform the contract services.^[4]  Another mail transportation contractor was engaged to complete these runs, and the cost was deducted from Appellant’s pay.  (AF 103-104b, 158-167; Tr. IV 96-97; Tr. V 244-246; Tr. VI 6-7; Stip. 20).

            11.  Further irregularities occurred thereafter, and Respondent issued Appellant Forms 5500 reporting the instances:

            12.  Missed or late trips by Appellant had a significant adverse effect on Respondent’s operations.  For the early morning outbound trips, the post offices on the route scheduled clerks to work the mail at its scheduled arrival time.  When Appellant missed a trip or was late, these clerks were paid by Respondent yet had no work to do, and, ultimately, mail, including Express Mail, would be processed late and could be delivered late.  For inbound trips to North Houston that were missed or late, mail from the post offices intended for dispatch could not be processed when scheduled and could miss dispatches from North Houston on other transportation resulting in delay of the mail, including Express Mail.  (AF 339, 429, 442; Tr. II 40-47).

            13.   Respondent’s officials met with Appellant on May 29 and June 6, 2002, and expressed their dissatisfaction with Appellant’s performance failures including missed and late trips and unacceptable equipment (AF 127-129, 135-137; Stip. 26).

            14.  Further irregularities occurred thereafter, and Respondent issued Appellant Forms 5500 reporting the instances:

            15.  In October 2002, Appellant missed trips completely on 3 occasions, was more than an hour late on one occasion and at least once used a tractor with an expired inspection sticker and expired registration (AF 185, 187, 189, 190, 192, 196, 200; Tr. I 209-210; Tr. IV 101).

            16.  Also in October 2002, Appellant’s driver failed to complete “target mail tracking forms” on 13 different trips where box collection was involved (AF 193-195, 197-199, 202, 204, 206-210).

            17.  As a mandated security measure instituted after the attacks of September 11, 2001, Respondent required mail transportation contractors to report instances of finding “target mail” in collection boxes.  Target mail was mail that because of its external characteristics, under airline security requirements, could not be transported on airplanes.  For example, parcels exceeding one pound that had uncancelled stamps applied as postage that were left in collection boxes were considered target mail.  At the end of each trip that included a pickup from a collection box—Appellant’s Trips 2 and 4 included collection boxes—drivers were required to complete a target mail tracking form indicating whether they received target mail in the collection boxes they cleared.  (AF 1; Tr. II 229-230; Tr. IV 257-260, 417-418, 422).

            18.  Target mail tracking forms were available at the North Houston dock for completion by returning drivers (Tr. IV 77; 257-259, 263-4, 424; contra Tr. IV 48-52; Tr. V 275-282).

            19.  When Appellant was first awarded HCR 773L5, the Administrative Official explained to its owner the requirement for completion of the target mail tracking forms, when they were required and how to complete them (Tr. IV 260-262, 284-285; Tr. V 175-179; contra Tr. IV 47-48).  Appellant’s owner was already familiar with the form because Appellant held mail transportation contracts out of the Austin Processing and Distribution Center that required completion of the forms (Tr. IV 284-285).

            20.  From November 2002, over the next 7 months, contract irregularities continued.  Appellant missed trips entirely on at least 7 occasions: November 15, 2002 (AF 217), two trips on December 22 (AF 229), March 21, 2003 (AF 339, 341-342, 345; Tr. II 40-41; Tr. IV 135), March 26 (AF 348-349; Tr. II 41-44; Tr. V 78), April 3 (AF 354-355, 455-459, 461-462; Tr. II 45), May 28 (AF 427, 432); was late on at least 9 occasions: November 17, 2002, (1:30 late) (AF 218; Tr. IV 90), November 24 (AF 227; Tr. IV 93-94), December 8 (1:45 late) (AF 228; Tr. IV 94-95), January 2, 2003 (1:10 late) (AF 240; Tr. V 247), March 19 (3:00 late) (AF 334-337), April 4 (:50 late) (AF 359), April 7 (:50 late) (AF 360), May 1 (:30 late) (AF 394), May 23 (2:30 late) (AF 424); provided unacceptable equipment on at least 4 occasions: January 24, 2003 (bad tires) (AF 319-320), February 4 (bald tires and expired license) (AF 325), April 8 (expired inspections on vehicles) (AF 362), May 28 (tires missing on trailer) (AF 427); and failed to complete the target mail tracking forms on at least 8 occasions: January 22, 23, 27, 28 and 29 and March 24, 26 and 27 (AF 315, 318, 322-324, 346, 350, 351).

            21.  The Administrative Official met with Appellant on January 17, 2003, to discuss the service irregularities as well as incidents of damage caused at post offices by Appellant’s vehicles.  Appellant was advised that Respondent would not tolerate continued poor performance and that immediate improvement was required.  (AF 249-252; Tr. IV 307-314; Tr. V 70).

            22.  By letter to Appellant, dated April 11, 2003, and designated a “Final Request for Service Improvement,” the Administrative Official listed the many service irregularities occurring since the meeting of January 17.  He warned that unless Appellant restored satisfactory service on the route within 7 days, the file would be referred to the contracting officer for possible termination.  (AF 365-366, 396-397; Tr. IV 304-305; Stip. 49).

            23.  After the April 11 letter, Respondent issued a number of 5500s, many of which Appellant disputed (AF 386-395).  On May 27, 2003, the Administrative Official referred the file to the contracting officer for further action (AF 385).

            24.  On June 2, 2003, Appellant failed to show up for Trips 1 and 2 (“no show”).  On June 3, the Administrative Official forwarded the Form 5500s and a written memorandum of a conference with Appellant regarding the June 2 no show to the contracting officer.  (AF 413-418, 429, 433, 447-454; Tr. II 52-53).

            25.  By letter dated June 9, 2003, the contracting officer issued Appellant a final warning letter, noting Appellant’s unsatisfactory service.  The letter concluded,

“This is a final warning.  The Postal Service may terminate your contract for failure to perform unless satisfactory service is restored within five (5) days of receipt of this letter, and maintained for the remaining term of the contract.”

(AF 423).

            26.  On or about June 30, 2003, Appellant sent a lengthy response to the contracting officer’s final warning.  Appellant argued that any irregularities based on failure to complete the target mail tracking form were excusable because the forms were not available to its drivers; that the Administrative Official had improperly marked a number of the 5500s as chargeable even before Appellant had responded; that the Administrative Official lied about the incidents reported on the 5500s and tampered with the forms; that the contracting officer encouraged the Administrative Official to write falsified and harassing Forms 5500; and that Appellant’s performance had met 100% of the requirements of the contract.  (AF 438-440).  When responding to Form 5500s and other charges that its performance failed to meet contract standards, Appellant had made these and similar allegations of corrupt and unethical conduct by Respondent’s employees regularly since late 2002 (e.g., AF 214-215, 320, 335, 342, 390, 394, 400, 419-421). 

            27.  Further irregularities occurred, and Respondent issued Appellant Forms 5500 reporting the instances:

            28.  By memorandum of September 4, 2003, the Administrative Official asked the contracting officer to terminate Appellant’s contract (AF 476-478).

            29.  On September 5, 2003, Appellant’s driver returned to North Houston after Trip 2 with an unsatisfactory trailer; the trailer was tilting, had broken shocks, and had two bad tires.  The Administrative Official advised Appellant’s owner that Appellant would not be permitted to perform on September 6 unless the tires were replaced (and proof of insurance was provided (see Finding 34)).  (AF 479-481, 484-486; Tr. V 318-322).

            30.  Appellant was 50 minutes late on Trip 2 on September 11 (AF 488) and 25 minutes late on Trip 1 on September 17, 2003 (AF 493).

Insurance

            31.  The contract required that Appellant establish and maintain continuously in effect policies of liability insurance providing specified liability insurance coverage for the motor vehicles used under the contract.  Further, the contract’s insurance provisions required Appellant to

“furnish to the contracting officer, prior to commencement of service under this contract, and thereafter as the contracting officer may require, proof that [Appellant] has all required insurance, plus a copy of the applicable policy or policies.”

(AF 13, Contract Clause B.7, INSURANCE REQUIREMENTS; Stip. 17-19; Tr. IV 7; see Finding 7).

            32.  Appellant obtained insurance for the trucks used in performing the contract through Fireman’s Fund County Mutual (“Fireman’s Fund”) in the required amount.  The relevant policy term was originally from September 3, 2002, through September 3, 2003, but the insurer cancelled the policy effective April 7, 2003.  Appellant was aware that the policy had been cancelled but did not advise Respondent.  (Tr. I 47-52, 57-58, 66, 87; Tr. IV 16; Tr. V 299; Tr. VI 73; AF 509-516).

            33.  The contracting office sent documents to Appellant on March 26 and August 7, 2003, to effect certain contract adjustments unrelated to insurance.  On each document, Respondent had stamped, “Your liability insurance as documented in our files has expired.  Please forward current policy immediately.”  (AF 332, 443; Tr. III 10-12; Tr. IV 138; Tr. V 211-212, 309; Tr. VI 61; Stip. 47, 59).

            34.  On September 5, 2003, the Administrative Official told Appellant’s owner that without proof of insurance on his vehicles (and replacement of tires on its trailer (Finding 29)) Appellant would not be permitted to run the route the next day.  Appellant’s owner said he would fax insurance information to the Administrative Official, but he did not do so.  (AF 479-481, 484-485; Tr. IV 205, 323-327).

            35.  Appellant had been using a Mack truck (“Mack”) for the route with a Volvo truck (“Volvo”) as a backup that he used occasionally.  He also leased the Volvo from time to time to a cargo shipping company, Gulf Winds International, Inc.  The Mack had been covered in the Fireman’s Fund policy (Finding 32), but on September 6, when asked to provide evidence of insurance on the Mack, which he had parked at the North Houston dock for the morning run, Appellant’s driver could not.  Then the driver went to the Volvo, which was parked in the North Houston lot, and retrieved a Texas Liability Insurance Card reflecting insurance on the Volvo from April 19, 2003, through April 19, 2004.  However, the named insured was Gulf Winds International, Inc.  Appellant had never submitted to Respondent any policy or other information regarding the Gulf Winds insurance on the Volvo, and that insurance did not cover any of Appellant’s other vehicles.  (AF 482-483; Tr. III 12-16; Tr. IV 206-207, 217, 324-327; Tr. V 12, 83, 240-242, 318-319; Tr. VI 16-22, 49, 55-59).

            36.  Appellant was permitted to perform on September 6, using the Volvo truck, and thereafter until September 18.  However, during that period Respondent checked with Gulf Winds and concluded that the insurance reflected on the Volvo insurance card did not cover the Volvo when it was being used to perform Appellant’s contract with Respondent.  On the evening of September 18, 2003, the Administrative Official asked Appellant’s driver for proof of insurance on the truck, and he could not produce it.  The Administrative Official advised the driver that without further proof of insurance Appellant would not be permitted to run on September 19 and requested that the driver inform Appellant.  The Administrative Official arranged for emergency service to cover the route on the 19th.  (AF 489-90; Tr. IV 328-332, 437-440; Stip. 69).

Damage to Post Offices

            37.  Under the contract’s Permits and Responsibilities Clause, Appellant was responsible for obtaining necessary licenses and permits and for complying with applicable federal and state laws in connection with performing the contract.  Additionally, Appellant was “responsible for all damage to persons or property . . . that occurs as a result of its omission(s) or negligence.”  (AF 70, Contract Clause H.12, PERMITS AND RESPONSIBILITIES (SERVICE) (Clause B-30) (January 1997)).

            38.  On August 10, 2002, a Saturday, while backing into the dock at the East Bernard Post Office at about 5:20 a.m., Appellant’s driver struck the building, damaging brick and a downspout adjacent to the dock (Tr. I 143-145, 201, 204, 225-228, 263-276; AF III 28-29, 30 (items 4 and 6), 31-32, 36; Stip. 30).  Respondent’s cost to repair the damage was $600 (AF III 33-34; Tr. IV 30), and by letter dated August 26, 2003, with repair invoice attached, the contracting officer demanded that Appellant pay $600.00 for the damage (AF III 18-19).

            39.  Also on August 10, 2002, at approximately 4:30 p.m., a truck hit and damaged the gate at the Rosenberg Post Office (AF 265-269; AF III 45-56).  According to Appellant’s schedule, its truck for Trip 4 would have arrived at Rosenberg at 1:40 p.m. and departed at 1:55 p.m.  (AF 1).  There is no direct evidence that Appellant caused the damage and no Form 5500 or other evidence in the record indicating that Appellant returned late to North Houston on Trip 4 that day.  The truck of another mail transportation contractor was scheduled into Rosenberg at 6:00 p.m., departing at 6:15 p.m.  (Appellant’s Exhibit (“App. Exh.”) 10; Tr. IV 385).

            40.  On August 24, 2002, Appellant’s driver, while trying to back into the dock at the El Campo Post Office, struck the facility’s sliding gate, bending the gate to such an extent that it would not slide into the locking position (AF III 62-84; Stip. 34).  Respondent’s cost to repair the damaged gate was $535 (AF III 82; Stip. 35), and by letter dated August 20, 2003, with repair invoice attached, the contracting officer demanded that Appellant pay $535 for the damage (AF III 57-58).

            41.  On September 19, 2002, the Administrative Official notified Appellant’s owner that he was temporarily barred from driving on postal premises pending investigation of complaints and accidents on the route and that Appellant’s other drivers would have to perform the route.  This suspension lasted from one to six days.  (AF 172-180; Tr. IV 397-399; Tr. V 39-42, 285-289; App. Exh. 17).

            42.  On November 20, 2002, Appellant’s driver backed into the dock lift at East Bernard, causing damage to the lift gate and railing (Tr. I 157-165, 178-193, 212-214, 261-262; AF 219-220; SAF 26-28, 32-33; Respondent’s Exhibit (“Resp. Exh.”) 3; Stip. 37-38; contra Tr. IV 90-93; AF 222-224; Resp. Exh. 4).  The damage was repaired on February 7, 2003, at a cost to Respondent of $785 (SAF 29-31).

            43.  On June 12, 2003, Appellant’s truck struck the side of the East Bernard Post Office and damaged the brick wall near the dock (Tr. II 53-71, 83-84, 88-90, 97, 120-125, 127-128, 130-131; AF 434-435; AF III 88-92, 112-113; Resp. Exh. 1; Stip. 52-57).  Respondent’s cost to repair the damage was $700 (AF III 87; Stip. 58; Tr. IV 31), and by letter dated August 20, 2003, with repair invoice attached, the contracting officer demanded that Appellant pay $700 for the damage (AF III 86-87).^[7]

Final Decisions and Appeals

            44.  By final decision dated September 19, 2003, the contracting officer terminated Appellant’s contract for default effective close of business on September 19.  The grounds for the termination were Appellant’s “failure to perform service according to the terms of the contract and failure to establish and maintain continuously in effect insurance as required by the contract.”  (AF 99, 494; Tr. II 227; Tr. III 19-20; Stip. 70).

            45.  Appellant’s December 19, 2003 appeal of the termination was docketed as PSBCA No. 5091.

            46.  At the time of the termination, Appellant had earned $3,100.29 for contract service between September 6 and 18, 2003.  Respondent withheld those earned funds to cover its anticipated reprocurement costs and Respondent’s damages related to the accidents at the post offices.  (AF 495; Tr. II 233-234; Tr. V 134-135; AF III 1).

            47.  By final decision dated May 7, 2004, the contracting officer demanded that Appellant pay Respondent’s costs of $3,074.88 for obtaining service on Appellant’s route after the termination of Appellant’s contract.  Attached to the letter was a worksheet purporting to calculate the amount claimed by Respondent as the difference between Appellant’s contract rate ($89,729.42 at the time of termination) and a contract with an annual rate of $100,000 for a period of 98 days after the termination, plus an administrative fee of $325.  (AF III 1-3; Tr. II 239-241).^[8]

            48.  By letter dated July 30, 2004, Appellant submitted a certified claim relating to this and other contracts it had held with Respondent.  Relating to this contract (HCR 773L5), Appellant claimed the following damages for the allegedly improper termination of the contract:  (1) $168,000 that it would have earned under the contract had it not been terminated; (2) $6,200, which included the amount allegedly earned by Appellant before the termination and withheld by Respondent, plus interest of 10% per month up to the date of the claim; and (3) $700,000 for pain and suffering of Appellant’s owner and his family and the time spent preparing the claim.  (AF 534-537).

            49.  In a final decision dated September 3, 2004, the contracting officer denied Appellant’s claims relating to HCR 773L5 (AF 528-530).

            50.  Appellant’s October 18, 2004 appeal of the September 3 final decision (AF 531-533) was docketed as PSBCA No. 5207.

            51.  By final decision dated July 15, 2004, the contracting officer demanded that Appellant pay $2,710 for the damage caused to the East Bernard Post Office on August 10, 2002 ($600), and June 12, 2003 ($700), to the Rosenberg Post Office on August 10, 2002 ($875), and to the El Campo Post Office on August 24, 2002 ($535).  (AF III 4-5, as corrected by SAF 1; Stip. 72).  Appellant’s appeal of that final decision was docketed as PSBCA No. 5213.

            52.  On February 23, 2005, the contracting officer issued a final decision to Appellant demanding payment of $785 for the damage occurring at the East Bernard Post Office on November 20, 2002 (SAF 2-4; Stip. 73).  Appellant’s appeal of that final decision was docketed as PSBCA No. 5267.

DECISION

            Respondent argues that Appellant’s failure to maintain insurance on its vehicles and the history of performance deficiencies, including the damage caused to post offices on the route, justified the contracting officer’s decision to terminate the contract for default.  It argues that it is entitled to recover its costs of reprocuring service on the route and its costs to repair the damage done at the post offices.  Appellant argues that its performance was good and that the termination was unjustified and motivated by bad faith of Respondent’s officials.

            The contracting officer based the default termination on two grounds: (1) Appellant’s failure to maintain insurance on its vehicles and failure to provide evidence thereof when demanded and (2) the history of performance deficiencies, including the damage Appellant caused to post offices on the route.

            Appellant’s record of performance leading up to the contracting officer’s final warning in the June 9, 2003 letter (Finding 25) reflected repeated instances of non-complying equipment (Findings 10, 11, 14, 20), late or omitted performance due to mechanical or other reasons (Findings 10, 11, 14, 15, 20, 24) and failure to complete the target mail tracking forms (Findings 16, 20).  Further significant performance deficiencies followed the contracting officer’s final warning (Finding 27).  Notably, due to its failure to have required equipment in operable condition, Appellant failed to show for one trip on August 1, missed all scheduled trips on August 2 through 4, had defective equipment on August 5 and 6, and missed one trip on August 7, 2003 (Finding 27).^[9]  Appellant was substantially late on one trip on September 2 and one trip on September 3 (Finding 27).

            Appellant’s late and omitted service had a significant adverse effect on Respondent’s operations and its ability to meet its standards for delivery of mail to its customers (Finding 12).  The effect of repeated instances of late or missed service deprived Respondent of the reliable, regular service it was entitled to under the contract and justified the default termination.  See John Michael Hall, PSBCA No. 1311, 1985 PSBCA LEXIS 68, May 15, 1985; F.W.H. Motor Transit, Inc., PSBCA No. 1317, 1985 PSBCA LEXIS 60, July 30, 1985, recon. denied, 1985 PSBCA LEXIS 47, November 22, 1985.

            Appellant’s failure to comply with the insurance requirements of the contract also justified the default termination.  Appellant’s continued use of its primary (Mack) tractor to perform the route (Finding 35) after the April 7, 2003 cancellation of insurance on the vehicle (Finding 32) was in breach of the contract requirement that Appellant continuously maintain liability insurance policies for the vehicles used on the contract (Findings 7, 31).  See Ernest Johnson, PSBCA No. 3658, 95-2 BCA ¶ 27,692; John A. Fournier; John A. and Maryanne Fournier, PSBCA Nos. 2337, et al., 89-1 BCA ¶ 21,574; M & T Co., ASBCA No. 38128, 93-3 BCA ¶ 25,926.  In its defense, Appellant argues that the cancellation was due to a mistake by the insurance company, a mistake by the company financing the insurance premium, or a mistake by the insurance agent.  However, regardless of fault for the cancellation, Appellant’s operation of the contract for five months with at least one vehicle it knew not to be covered by the contract-required insurance policies was a material breach of its contract obligations.  Id.

            Appellant argues that Respondent discriminated against it by allowing other mail transportation contractors up to three weeks to provide evidence of insurance while on September 18, 2003, Respondent demanded that Appellant provide the policies immediately (Finding 36).  However, Respondent had previously demanded Appellant’s insurance policies on March 26, 2003, and August 7, 2003 (Finding 33), and again on September 5 (Finding 34), and took no action based on Appellant’s failure to comply until September 19, 2003 (Findings 36, 44).  Despite Respondent’s requests, Appellant provided neither a policy covering its primary vehicle nor the policy it eventually claimed covered the backup Volvo (Findings 35, 36).  Appellant had ample time to provide the policies, and its failure to do so over a five-month period justified termination of the contract (Finding 7).  See Mary E. St. Clair, PSBCA No. 2883, 1991 PSBCA LEXIS 24, April 23, 1991; Jerry Mackey, PSBCA No. 1736, 88-3 BCA ¶ 21,070; Christina Corp., PSBCA No. 762, 1980 PSBCA LEXIS 45, December 24, 1980.

            Appellant’s history of performance irregularities, including the damage negligently caused at the post offices (Findings 38, 40, 42, 43), and its failure to insure its vehicles and to provide evidence of insurance when demanded by the contracting officer justified termination of Appellant’s contract.  Accordingly, the burden shifts to Appellant to present evidence of excusable causes, Pamela J. Sutton, PSBCA No. 1622, 88-3 BCA ¶ 21,031 at 106,237, or to show 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; Patricia J. Stevens, PSBCA No. 3272, 94-1 BCA ¶ 26,419 at 131,429, recon. denied, 94-2 BCA ¶ 26,951.

            Appellant’s overarching argument is that it performed well on the contract and that its termination resulted from a conspiracy among the contracting officer, the Administrative Official and a Postal Service official at the Austin Processing and Distribution Center who oversaw other mail transportation contracts held by Appellant.  It claims that the contracting officer held a grudge against Appellant for something that had occurred several years earlier under a different contract and that he acted in bad faith in terminating this contract.  Appellant contends that Respondent’s officials were motivated by hostility toward Appellant and its drivers and had two sets of rules: one set for all other mail transportation contractors and a harsh, oppressive set of rules for Appellant, designed to eliminate Appellant as a contractor.

            In Appellant’s view, the wrongful actions of the Administrative Official were the prime cause of the termination of its contract.  Appellant alleges that the Administrative Official, with the approval of the contracting officer, (1) falsified 5500s reporting Appellant’s performance irregularities; (2) improperly tampered with 5500s prepared by others; (3) pressured North Houston expeditors and officials at the post offices on the route to issue Appellant unjustified 5500s and to report falsely that Appellant had accidents at the post offices; (4) recorded multiple 5500s for late or missed service on the same trip; (5) wrongly issued 5500s for a driver’s failure to complete a target mail tracking form; (6) improperly suspended Appellant’s owner from driving the route for up to six days in September 2002; (7) abused his power by preparing 5500s on deficiencies he personally observed then making the administrative judgment that the deficiency was “chargeable;” and (8) often found an irregularity to be chargeable without waiting 10 days for Appellant to respond.  Appellant argues that the last two practices by the Administrative Official denied Appellant its right to due process under the United States Constitution.

            We have considered Appellant’s arguments, and we are not persuaded that Appellant has shown any basis for overturning the default termination of its contract.  First, Respondent’s documentary and testimonial evidence was sufficiently reliable and credible to establish that the irregularities we have relied on occurred as reported, and we found no evidence that 5500s were falsified or improperly tampered with (Appellant’s allegations (1) and (2), above).  Form 5500s were issued to Appellant by a number of Postal Service officials at different locations, and the evidence in the record does not support Appellant’s allegations of conspiracy or that the Administrative Official pressured these officials to issue false 5500s (Appellant’s allegation (3), above).  Accordingly, the 5500s cited herein are accepted as the preparers’ independent and accurate assessment of Appellant’s performance.

            Appellant correctly points out that late or omitted service on a trip was frequently written up by more than one of the offices served.  However, although this resulted in multiple 5500s for the same trip (Appellant’s allegation (4), above), Respondent considered them together as one late or missed trip, as did the Board in reaching this decision (See Finding 11, Note 6).

            Appellant argues that all irregularities related to the failure of its drivers to complete the target mail tracking forms must be disregarded (Appellant’s allegation (5), above) because the forms were not available for its drivers to complete.  Based on the evidence in the record, we have concluded that the forms were available on the North Houston dock (Finding 18).  Appellant next argues that its contract did not require completion of the target mail tracking forms.  However, the contract explicitly required Appellant “to perform all minor administrative services as may be necessary to track and trace the mail.”  (Finding 5).  Completion of the target mail tracking form was an important duty (Finding 17, 19) that fell within the scope of the contract, and Appellant has not shown that its completion was more than a “minor administrative service.”  Appellant’s drivers’ failures to complete the forms breached Appellant’s duty under the contract.

            Additionally, even if not specifically required by the contract, Appellant was directed by Respondent to complete the forms.  Appellant was not free to disregard Respondent’s instruction.  If Appellant believed its contract did not require completion of the forms, it was, nevertheless, obligated to comply with Respondent’s directions and to file a claim for additional compensation if it believed completing the forms exceeded what the contract required (Finding 6).  See Overflo Public Warehouse, Inc., PSBCA Nos. 4531, 4550, 4649, 04-1 BCA ¶ 32,488 at 160,714; Irving Stumer, PSBCA No. 1256, 1985 PSBCA LEXIS 82, February 6, 1985, reaffirmed on recon., 1985 PSBCA LEXIS 74, April 8, 1985.

            Appellant has not shown that the Administrative Official’s suspension of Appellant’s owner’s driving privileges (Appellant’s allegation (6), above) for a short time in September 2002 (Finding 41) had any effect on Appellant’s performance, and certainly not in 2003 when the termination occurred.  In reaching its decision, the Board has not considered the one 5500 that was issued during the six days after the suspension.  Furthermore, the record does not reflect that in suspending Appellant’s owner’s contract driving privileges the Administrative Official was motivated by anything other than a concern for the safe operation of Appellant’s vehicles under the contract.

            Finally, the Administrative Official’s practices regarding irregularity reports (Appellant’s allegations (7) and (8)) were not shown to have had any effect on the validity of the irregularities reported on the 5500s.  That the Administrative Official both observed the irregularity and determined it to be chargeable does not excuse Appellant for the underlying irregularity.  The Form 5500 does not mandate that a different official determine the chargeability of the irregularity, and Appellant has pointed to no authority that would require such a practice.  Likewise, the Administrative Official’s determinations that certain irregularities were chargeable without waiting for Appellant’s ten-day response period to run (Finding 10, Note 4) do not excuse the underlying irregularities.  Appellant has shown no prejudice resulting from the Administrative Official’s practice of occasionally noting an irregularity as chargeable without waiting for Appellant’s response.

            Additionally, any failures to follow the standard process set forth on the Form 5500 do not amount to violations of Appellant’s due process rights.  Appellant has had its opportunity to raise, and we have considered, its explanations regarding the service and insurance deficiencies in this proceeding, thus satisfying Appellant’s rights to a hearing and due process.  See Patricia J. Stevens, PSBCA No. 3272, 94-1 BCA ¶ 26,419, recon. denied, 94-2 BCA ¶ 26,951; Melvin R. Kessler, PSBCA Nos. 2820, 2972, 92-2 BCA ¶ 24,857 at 123,997, aff’d on recon., 92-3 BCA ¶ 25,092; Shorthaul Trucking Co., PSBCA No. 1046, 1985 PSBCA LEXIS 64, June 18, 1985.

Bad Faith

            Appellant argues that in terminating its contract Respondent’s officials acted in bad faith out of malice and hostility towards Appellant.  However, the record does not contain clear and convincing evidence to support Appellant’s allegations of a bad faith conspiracy among Respondent’s officials to harm Appellant or wrongfully to terminate Appellant’s contract, see Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1240 (Fed. Cir. 2002).  In fact, other than Appellant’s unsupported assertions, the record contains no indication of bad faith on the part of Respondent.  Appellant’s suspicions do not amount to evidence of wrongdoing.  See CACI, Inc. – Federal v. United States, 719 F.2d 1567, 1582 (Fed. Cir. 1983); J. Cooper & Assocs., Inc. v. United States, 53 Fed. Cl. 8, 25 (2002), aff’d, 65 Fed. Appx. 731 (2003) (Table).

            Appellant’s failure to maintain insurance and its failure to provide copies of insurance policies when required were sufficient breaches of Appellant’s contractual obligations to justify the default termination.  Appellant’s performance irregularities, including the several accidents at post offices, provided further grounds for the termination.  In sum, the contracting officer had ample and reasonable grounds for the termination, and Appellant has not shown that he abused his discretion.

Excess Reprocurement Costs^[10]

            The only evidence in the record addressing Respondent’s claim for excess reprocurement costs is the worksheet attached to the contracting officer’s final decision of May 7, 2004 (Finding 50).  The record does not reflect what steps Respondent took to obtain the replacement service.  The worksheet by itself does not satisfy Respondent’s burden to show that the replacement service it procured was the same or similar to that required by Appellant’s contract, that Respondent actually incurred the costs claimed, or that Respondent acted reasonably in awarding a replacement contract, thus mitigating the amount of excess costs incurred.  See Peter A. Sobiecki d/b/a Roadmax, PSBCA Nos. 4901, 4940, 04-1 BCA ¶ 32,600; Lorah’s Hauling, PSBCA No. 4778, 04-1 BCA ¶ 32,502.  Accordingly, Respondent may not recover its claimed excess reprocurement costs or the associated administrative costs.  See Linda Copman, PSBCA Nos. 4889, 4903, 03-2 BCA ¶ 32,342; Werner Lembke d/b/a Lembke Trucking, PSBCA No. 3875, 98-2 BCA ¶ 29,999 at 148,366.

Accident Damage

            Except for the damage to the Rosenberg Post Office on August 10, 2002, Respondent has demonstrated that the damage in each instance resulted from the negligence of Appellant’s drivers (Findings 38, 40-42).  Appellant denies that the incidents were caused by its drivers and claims that the reports made by postal officials were false, made at the insistence of the Administrative Official as part of what Appellant sees as his design to end Appellant’s contract.  Appellant also argues that another contractor with similar equipment served East Bernard and could have caused the damage there.  However, witness statements and other credible evidence demonstrate that Appellant’s drivers were at fault.

            Respondent incurred damage as claimed caused by the negligence of Appellant’s drivers in failing to exercise reasonable care in maneuvering Appellant’s tractor/trailer to the dock.  Accordingly, Respondent is entitled under the contract’s Permits and Responsibilities Clause (Finding 37) to recover $2,620 from Appellant (East Bernard: $600 for 8/10/02 incident, $785 for 11/20/02 incident, and $700 for 6/12/03 incident; El Campo: $535 for 8/24/02 incident).  See Winter Enterprises LLC, PSBCA Nos. 5096, 5146, 06-2 BCA ¶ 33,424.

            Respondent has not demonstrated that Appellant caused the August 10, 2002 damage to the gate at Rosenberg.  Another mail transportation contractor with similar equipment served the Rosenberg Post Office, and there is no direct evidence in the record that Appellant caused the damage.  The incident occurred at 4:30 p.m., well after Appellant’s truck should have stopped at the Rosenberg post office, and there is no evidence its truck was late on that day (Finding 39).  Respondent’s claim related to the Rosenberg damage is denied.

Appellant’s Claims

            As we have sustained the termination for default, Appellant’s claim for damages arising from the termination is denied.^[11]

            At the time of termination, Respondent withheld $3,100.29 Appellant had earned for service provided under the contract between September 6 and 18, 2003 (Finding 46).  Respondent may collect the amount owed it for damage caused by Appellant, $2,620, from the amount withheld, but the remainder, $480.29, is to be paid to Appellant, plus Contract Disputes Act interest from the date of its claim, July 30, 2004 (Finding 48), to the date of payment.

Conclusion

            The termination for default is sustained, but Respondent has not shown entitlement to its claimed reprocurement costs.  To that extent, the appeal of PSBCA No. 5091 is granted, but it is otherwise denied.  PSBCA No. 5207, Appellant’s affirmative claim is denied, except to the extent described above that it is entitled to recover the excess of the funds withheld at termination over the amount

            Respondent may recover for its damages to the post offices.  PSBCA No. 5213 is granted to the extent Respondent may not recover its claimed damages relating to the Rosenberg Post Office, but is otherwise denied.  PSBCA No. 5267 is denied.

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]  Administrative Judge James A. Cohen, who has since retired, conducted the hearing.

[2]  Volume I of the transcript reports the proceedings on the first day of the hearing.  Volumes II-VI relate to the succeeding days of the hearing.

[3]  The record includes Appeal File volumes I – III.  Volumes I and II are paginated consecutively, and references herein to documents in those volumes will be to the page number of the document.  Those volumes will be referred to as “AF” followed by the page number.  Appeal File volume III will be referred to as “AF III” and documents therein will be identified by page number.  Documents in the Supplemental Appeal File (“SAF”) will be identified by page number.  

[4]  Respondent recorded failures of a highway contractor to meet the requirements of the contract on PS Form 5500, Contract Route Irregularity Report (Tr. II 165).  The PS Form 5500 is a multi-copy form, prepared by local Postal Service employees—the Administrative Official, supervisors, dock expeditors, postmasters—who notice a contract irregularity (Tr. II 165-166; Tr. IV 226-230, 232-234).  Two copies of each 5500 were sent to Appellant.  Appellant could explain any reasons for the deficiency on one of the copies and return it to Respondent within 10 days after receipt (Tr. IV 234).  Thereafter, the Administrative Official was to consider the description of the deficiency and Appellant’s explanation and note if the irregularity was “chargeable,” i.e. unexcused.  Generally, the Administrative Official waited until receiving Appellant’s explanation before determining whether a particular irregularity reported on a 5500 was chargeable.  However, when he considered the irregularity to be inherently inexcusable, such as unsafe equipment or a missing state inspection sticker, he sometimes noted the irregularity as chargeable immediately.  (Tr. IV 234-236).

[5]  The Administrative Official issued three separate 5500s, one for each of the equipment violations.  We have considered the three as one incident of deficient equipment.

[6]  North Houston, East Bernard and El Campo each issued a 5500 reporting Appellant’s late performance of May 21, 2002.  However, in these and similar incidents, we have considered each late or failed trip to be only one irregularity, regardless of the number of 5500s issued by the several postal facilities served on the trip.  Respondent also counted multiple reports on the same trip as only one missed or late trip (AF 334-337, 339, 384, 462).

[7]  The letter erroneously referred to damage at El Campo on July 12, 2003, but was subsequently corrected to reflect the June 12, 2003 damage at East Bernard (SAF 1; AF III 85).

[8]  The copy of the final decision at Appeal File III 1-3 does not bear the contracting officer’s signature.  However, on July 2, 2004, Respondent provided a copy of the signed final decision to the Board and represented that it was delivered to Appellant on May 21, 2004.

[9]  We have not credited Appellant’s assertion that a contract specialist in the contracting officer’s office gave Appellant permission not to provide a vehicle for the August 1 through August 7 period and excused its failures to provide contract service during that period.

[10]  Appellant did not appeal the contracting officer’s final decision assessing reprocurement costs.  Nevertheless, as Appellant timely appealed the default termination, we have jurisdiction to consider Respondent’s claim for reprocurement costs that followed.  See Arthur L. Johnson, PSBCA No. 3894, 97-1 BCA ¶ 28,773; Hubbard Trucking, Inc., PSBCA No. 3701, 04-2 BCA ¶ 32,667.

[11]  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.