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 Austin, Texas, and the parties filed post-hearing briefs.  Entitlement and quantum are at issue with respect to Respondent’s claim for excess reprocurement costs, and entitlement only is at issue with respect to the termination for default and Appellant’s claims (Transcript of Hearing, Page (“Tr.) 6).

FINDINGS OF FACT

            1.  On October 30, 2001, Respondent awarded Appellant contract No.  HCR 78640 for transportation of mail between Respondent’s Austin, Texas Processing and Distribution Center (“Austin P&DC”) and Round Rock West, Texas.  Appellant’s service on the route began December 1, 2001, and the contract was to run until June 30, 2005, at an annual rate of $56,748.  (Appeal File, Pages (“AF”) 4-5, 40, 122-123; Stipulation dated December 9, 2005, paragraphs (“Stip.”) 2, 4-7).

            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 September 3, 2002, through September 3, 2003.  (Resp. Exh. PN 21^[1]; Tr. 35-37; AF 41).

            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 April 7, 2003 (Resp. Exh. PN 1, PN 2, PN 3, PN 9, PN 10; Tr. 44-45, 65).  When the policy was cancelled before the end of the term (Resp. Exh. PN 11), Fireman’s Fund refunded the unearned portion of the premium to Pronote.  After satisfying its own claims against Appellant, Pronote refunded the excess, $1,153.12, to Appellant.  (Tr. 62; Resp. Exh. PN 9).

            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 September 26, 2003 (Tr. 47-49, 964-966, 987, 990-991; Resp. Exh. PN 1, PN 2, PN 5, PN 6, PN 9, PN 10).

            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 September 3, 2003, according to its original term (Finding 5).  (Tr. 405-406).  Often, in such circumstances, Respondent sends the contractor an automatically-generated reminder allowing a period of time for the contractor to provide evidence of updated insurance coverage (Tr. 492-493; e.g., App. Exh. 13, 27-28).  In Appellant’s case, a contract specialist working for the contracting officer called Appellant several times, leaving messages on Appellant’s answering machine, and sent faxes to Appellant regarding updating its insurance information.  Appellant did not respond.  Unable to reach Appellant to obtain insurance information, the contract specialist called Appellant’s insurance agent directly.  On September 19, 2003, the agent advised Respondent that the insurance policy Appellant had provided as proof that its trucks were properly insured had been cancelled in April 2003.  (AF 323; Tr. 406-408).

            10.  By letter dated September 19, 2003, the contracting officer suspended Appellant’s right to perform the contract because of the apparent lack of liability insurance on Appellant’s vehicles since April 2003.  He demanded that Appellant provide copies of policies in force, with no lapses, documenting proof of insurance after September 3, 2002, to present.  (AF 323-325; Tr. 254-256, 408-411, 455; App. Exh. 24; Stip. 32).

            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 September 26, 2003, and advised that the contract would be terminated for default if Appellant did not do so.  (AF 327; Tr. 256-257).

            12.  In response to the contracting officer’s September 19 and 23 letters, Appellant faxed to the contracting officer on or before September 26, 2003, documents it contended proved that Appellant had the required liability insurance coverage.  Appellant included copies of the Fireman’s Fund policy purporting to cover the period September 3, 2002, through September 3, 2003 (AF 337), but made no mention that the policy had been cancelled.  As explained in Findings 13-16, below, Appellant also provided copies of truck rental agreements for trucks it had rented during several months when its own truck had broken down.  Appellant asserted that it had taken and paid for insurance coverage offered by the rental companies that met the contract requirements.  (Tr. 804, 963, 964, 967; AF 328-344; Resp. Exh. 15; Stip. 33, 35).

            13.  Appellant’s September 26 submittal included a rental agreement with Ryder reflecting rental of a 24-foot van from May 20 through June 10, 2003.  That agreement reflected that liability protection had been purchased, but did not indicate the extent or nature of coverage.  (AF 329; Tr. 482, 812, 869).

            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 July 14, 2003 (Tr. 114-115, 147-148; AF 330).  The rental agreement reflected acceptance of and payment for Limited Damage Waiver (“LDW”).  Penske provides no liability insurance on household moving rentals, and even the LDW would have been void if the truck were placed in commercial use on Appellant’s contract.  (Tr. 114-116; AF 330; Stip. 35).

            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 July 30, 2004, Appellant submitted a certified claim relating to this and other contracts it had held with Respondent.  Relating to this contract (HCR 78640), Appellant claimed the following damages for the allegedly improper termination of the contract:  (1) $101,464.12 that it would have earned under the contract had it not been terminated; (2) $3,849.97, which included the amount allegedly earned by Appellant before the termination and withheld by Respondent; and (3) $700,000 for pain and suffering of Appellant’s owner and his family.  (Attachment to Notice of Appeal in PSBCA No. 5205).

            21.  In a final decision dated September 3, 2004, the contracting officer denied Appellant’s claims relating to HCR 78640 (AF 354-356).

            22.  Appellant’s October 18, 2004 appeal of the September 3, 2004 final decision (AF 531-533) was docketed as PSBCA No. 5205.

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 September 19, 2003 (Finding 10), the contract specialist solicited other contractors to provide the service on Appellant’s route on an emergency basis.  She contacted three suppliers and provided them with the statement of work from Appellant’s contract.  She received bids from those suppliers, and Respondent awarded an emergency replacement contract for a six-month term to the lowest bidder at an annual rate of $68,000, which was $27.37 per day higher than Appellant’s rate as of the termination date.  (Tr. 257, 432-437, 453, 457; Supplemental Appeal File, Page (“SAF”) 2).

            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 January 31, 2005, the contracting officer claimed from Appellant Respondent’s excess reprocurement costs of $2,706.20 (Tr. 257-258, 437-438, 452; SAF 1 and 2).

            27.  Appellant’s April 13, 2005 appeal of the January 31, 2005 decision was docketed as PSBCA No. 5268 (Notice of Appeal in PSBCA No. 5268).

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 September 26, 2003, before the contracting officer terminated the contract, it provided proof that it had adequate liability insurance.  It argues that its original Fireman’s Fund policy remained in effect and that it was only through an error by the insurance company that the policy appeared to have been cancelled.  Additionally, it claims that it had been providing contract service using rented trucks and that it always obtained the required liability insurance as part of the rental agreement.  Appellant claims that Respondent’s officials discriminated against it and acted in bad faith in administering and eventually terminating the contract.

            Until April 7, 2003, Appellant had liability insurance coverage in the amount required by the contract, $750,000 CSL (Findings 5-7).  Appellant argues that the purported cancellation of the policy for nonpayment of installments was ineffective, pointing to the $1,153.12 refund it received as evidence that there was a sufficient fund available to cover the full cost of the policy through the end of its term (Findings 5-7).  This argument is without merit.  Pronote, the finance company, caused the insurance company to cancel the insurance policy and refund unearned premiums to Pronote.  After satisfying the debt Appellant owed it, Pronote refunded the remaining unearned premium to Appellant.  (Finding 7).  That refund did not reflect a premium surplus, as Appellant contends, but was Appellant’s share of the refund for the cancelled remainder of the policy, i.e., April 8 through September 3, 2003.  The record reflects that Appellant’s liability insurance was indeed cancelled effective April 7, 2003.

            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 June 10, 2003, reflected that liability protection had been purchased but indicated no amount (Finding 13).  The Penske commercial truck rental from July 15 through July 22, 2003, provided liability coverage far below that required by the contract, and any coverage thereafter was voided by Appellant’s failure to return or pay for the vehicle when required (Finding 15).  The local household moving rental agreement for June 13 through July 14 provided no liability coverage (Finding 14), and there was no showing that the rental from September 5 through 21, 2003, included any liability coverage (Finding 16).

            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. Texas, 985 S.W.2d 698, n. 1 (Tex. App. 1999); Tex. Rev. Civ. Stat. art. 9026c (2007).  Those waivers are not the equivalent of liability insurance, and Appellant’s efforts to convince the contracting officer and the Board that the damage waivers it obtained on its rented trucks satisfied its contractual obligation to maintain liability insurance of $750,000 CSL were, at best, disingenuous.

            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 September 30, 2003 termination, or during the months leading up to it.  See Jerry Mackey, PSBCA No. 1736, 88-3 BCA ¶ 21,070; Mary E. St. Clair, PSBCA No. 2883, 1991 PSBCA LEXIS 24, April 23, 1991.

            Appellant has not shown that at any time after its insurance was cancelled on April 7, 2003, it had liability insurance in the amounts required by the contract on the vehicles it used to perform this contract.  It knowingly breached its obligation to maintain the required coverage continuously in effect (Finding 2), and its submission on September 26, 2003 (Findings 12-16) did not prove the existence of the required insurance.  See Ernest Johnson, PSBCA No. 3658, 95-2 BCA ¶ 27,692; Mary E. St. Clair, PSBCA No. 2882, 91-2 BCA ¶ 23,948; 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.  Accordingly, the contracting officer was justified in terminating Appellant’s contract for Appellant’s failure to comply with the insurance requirements of the contract.  See Christina Corp., PSBCA No. 762, 1980 PSBCA LEXIS 45, December 24, 1980; Environmental Data Consultants, Inc. v. General Services Administration, GSBCA Nos. 12951, 13520, 13575, 97-2 BCA ¶ 29,208 at 145,372.

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. United States, 281 F.3d 1234, 1240 (Fed. Cir. 2002).  Appellant’s suspicions and accusations 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).  We are not persuaded that the evidence demonstrates conspiracy or malice on the part of Respondent’s officials, and Appellant’s arguments in this regard are rejected.

            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.