PSBCA Nos. 5092 and 5188

February 09, 2009 

Appeals of
Under Contract No. HCR 76041
PSBCA Nos. 5092 and 5188

W. J. Edwards
E & J Trucking

Judith K. Zehner, Esq.
Southwest Law Office
United States Postal Service


            Appellant, E & J Trucking, has appealed the default termination of its contract with Respondent, United States Postal Service, for the transportation of mail on a route in the vicinity of Ft. Worth, Texas.  Appellant also appeals Respondent’s assessment of excess reprocurement costs against it and Respondent’s claim based on unpaid fuel invoices.  Appellant also appeals from the denial, in whole or in part, of a number of claims made by it against Respondent.  A hearing was held in Dallas, Texas.  Both entitlement and quantum are at issue in this proceeding (Stipulation, page 13).


            1.  The parties originally entered into contract HCR 76041 for a term beginning on October 1, 1998, and ending June 30, 2002.  Nearing the end of the contract term, the parties attempted to negotiate a service change, but were unable to complete their negotiations.  Therefore, they entered into a short term renewal of the contract – for the period of July 1, 2002, through December 31, 2002.  The parties entered into another short term extension, effective December 31, 2002, that extended the contract term to June 30, 2003.  On May 17, 2003, simultaneously with the implementation of the negotiated service change, the parties extended the contract term to June 30, 2006.  (Appeal File, Tab (AF) 1, 3, 6, 10; Stipulation, paragraphs (Stip.) 4, 7, 9; Hearing Transcript, page (Tr.) 16-17, 79). 

            2.  The July 2002 contract renewal was at an annual rate of $311,972.11.  Under the contract, Appellant was required to provide three tractors and three 45-foot trailers and run 24 daily trips (with some differences on weekends and holidays).  The trips were relatively short, with nearly all in the 13 to 21 mile range and the longest at approximately 32 miles in length.  The trips were generally arranged into round trips originating at the Fort Worth Processing and Distribution Center (P&DC) and serving locations such as Hurst, Bedford, and Euless, with a small number of trips also serving the “Dallas AMC.”  Three of the daily trips were scheduled to depart the P&DC at 5:00 a.m.  A Network Specialist at the P&DC acted as the Administrative Official for the contract.  (Stip. 4, 5; Respondent’s Exhibit (RExh.) A; Tr. 10, 15).

            3.  In addition to the specified tractors and trailers, the contract required Appellant to “have readily available sufficient stand-by equipment … to perform extra trips, to permit vehicle maintenance, and to prevent delays in emergencies such as mechanical failures and poor weather conditions.”  (AF 3, p. 49; Stip. 5).

Default Termination and Excess Reprocurement Cost Assessment

            4.  The route covered by this contract was considered a big and particularly busy route.  When a morning trip was missed – including when one of the three scheduled trucks did not show up – the effect was to delay mail destined for one or more of the offices served.  Even a relatively short delay – e.g., 20 or 30 minutes - had the effect of delaying the processing and delivery of the mail by the clerks and carriers at the post offices, resulting in increased overtime payments by Respondent and increased complaints from customers.  When a late afternoon trip was delayed or missed, mail was delayed in getting to the processing plant in Fort Worth, thereby adversely affecting the efficiency of that plant’s operations.  (Tr. 18-19, 52-56).

            5.  Some of the afternoon runs also included picking up Express Mail from the post offices and bringing it to Fort Worth for scanning and dispatch to the airport.  When one of those trips was missed or was late, Express Mail could miss its cutoff time for dispatch to the airport and would miss its connection to the airplane.  This was potentially costly to Respondent, since Express Mail fees are subject to refund if the mail is delivered late.  (Tr. 54).

            6.  PS Form 5500 is a form on which Postal Service personnel such as dock expeditors and the Network Specialist at Fort Worth recorded a contractor’s performance deficiencies.  After Forms 5500 were issued, they normally were mailed to the affected contractor for a reply.  (Tr. 12-14).

            7.  Prior to May 2003, Appellant was issued only a small number of Forms 5500.  Beginning in May, however, the number of performance deficiencies increased significantly.  On May 3, Appellant failed to run three trips – two early-morning trips originating in Fort Worth (Trips 3 and 11) and one early-morning trip originating at the Dallas AMC (Trip 6).  On May 19, Appellant failed to run two early-morning trips originating at Fort Worth – Trips 3 and 9.  On May 20, Appellant again failed to run two early-morning trips – Trips 3 and 4.  (AF 27, pp. 273-279).

            8.  On June 24 and 26, 2003, Appellant failed to operate Trips 11 and 3, respectively  (AF 27, pp. 271, 272).

            9.  On July 7, 2003, Appellant was short one truck for the required three 5:00 a.m. dispatches, although it had run an additional trip before 5:00 a.m. in an effort to lessen the impact.  Respondent operated its own truck in place of Appellant’s missing truck.  On the same day, because of equipment problems, Appellant used a truck smaller than required to run three afternoon and evening trips from the outlying post offices back to Fort Worth (Trips 18, 22, 24).  On July 8, Appellant again used the smaller truck for one of the early-morning trips (Trip 9).  On July 9, Appellant failed to run Trip 9.  On July 14, Trip 7 departed Fort Worth 35 minutes late, and Appellant failed to operate Trip 5.  (AF 27, pp. 259-263, 266, 268-270).

            10.  At some time prior to July 16, 2003, the Administrative Official had one or more conversations with one or more of Appellant’s drivers during which the drivers asked for information regarding how to become Postal Service contractors.  The Administrative Official informed the drivers of the general procedures for registering to receive contract solicitations when they were issued by Respondent.  (Tr. 35-39).

            11.  On July 16, 2003, at Respondent’s behest, the parties held a conference in Fort Worth to discuss Appellant’s service deficiencies between May 3 and July 14.  Appellant’s owners attended, as did Respondent’s Manager and Network Specialists from the P&DC.  Respondent’s personnel primarily emphasized the adverse impact from omitted and delayed service, and the need to have dependable, on-time service.  Appellant’s owners stated that their difficulties had been primarily due to two drivers in particular, and that many of the 5500s were written on only a few occasions and were due to the domino effect of missing an early trip.  Appellant’s owners also complained that it appeared that some of their drivers were attempting to sabotage the contract – in order to take it over – and that the Networks office personnel might have encouraged those actions.  Respondent’s personnel advised Appellant that unless it took immediate corrective action, the file might be referred to the contracting officer for action – including possible assessment of damages and/or termination.  (AF 17; Tr. 28, 70; Stip. 14, 15).

            12.  On July 16, 29, and 30, 2003, inbound Trip 18 arrived in Fort Worth at least 30 minutes late.  On July 30, inbound Trip 22 was also 30 minutes late arriving in Fort Worth.  Appellant later attributed these delays to traffic problems.  On July 30, Appellant failed to run Trip 11.  On August 4, Trip 11 departed Fort Worth 30 minutes late.  On August 15, Appellant failed to operate at least one of the early-morning trips (Trip 7).  (AF 27, pp. 250, 252-258).

            13.  By an August 15, 2003 memorandum to Appellant, the Administrative Official stated that service had not improved since the formal conference on July 16 (Finding 11), and asked Appellant to take whatever measures were necessary to restore and maintain satisfactory service within seven days.  The Administrative Official warned that the file would be referred to the contracting officer if satisfactory service was not restored.  (AF 19; Stip. 20).

            14.  On August 18, 2003, Appellant operated early-morning Trip 3 late, after the driver locked the keys in the truck.  The following trip, Trip 7, was also late as a result.  On that date, afternoon Trips 16, 18, and 20 operated between 25 and 55 minutes late, delays that Appellant later attributed to traffic.  On August 24, early-morning Trip 25 was 25 minutes late leaving Fort Worth.  On the same date, evening Trip 24 arrived at the P&DC 30 minutes late, a delay that Appellant attributed to a traffic (road closing) problem.  (AF 27, pp. 241-243, 245-249).

            15.  On September 2, 2003, Trips 13 and 14 did not operate at the outbound end – i.e., the Dallas AMC.  On September 6, Appellant’s driver failed to return the keys for the Bedford postal facility that he had checked out.  The keys were not returned until September 8.  As a result, other drivers were unable to get into Bedford on September 7, and mail destined for Bedford on early-morning Trip 5 was not delivered but was returned to Fort Worth.  (AF 27, pp. 238-240).

            16.  On September 10, 2003, one afternoon trip (Trip 17) failed to stop at Bedford and the driver of an evening trip (Trip 21) failed to pick up Priority and Express Mail from that location (AF 27, pp. 235, 237).

            17.  On September 11, 2003, inbound Trip 22 arrived in Fort Worth 2 hours and 20 minutes late.  On September 12, inbound Trip 18 operated one hour late and inbound Trip 22 arrived 20 minutes late.  On September 13, inbound Trip 22 arrived in Fort Worth 1 hour and 15 minutes late, and Trip 24 was not run at all, the mail being combined on the truck running Trip 22.  (AF 27, pp. 229, 231, 232, 234).

            18.  On September 15, 2003, Trips 18 and 22 arrived in Fort Worth 55 minutes and 20 minutes late, respectively.  On September 16, Trip 18 was 50 minutes late.  On that date, Trip 17 was one hour and 10 minutes late arriving in Bedford.  (AF 27, pp. 226-228).

            19.  On September 17, 2003, the Administrative Official from Fort Worth referred the file on this contract to the contracting officer, asking that action be taken to restore acceptable service.  On the same date, the contracting officer issued a letter to Appellant advising that it was required to restore satisfactory service within three days and that failure to do so would result in termination of the contract for default.  (AF 22, 23).

            20.  On September 23, 2003, Appellant failed to operate four mid-day and afternoon trips – Trips 13/14 and 15/16 (AF 24).

            21.  In a final decision dated September 24, 2003, the contracting officer terminated Appellant’s contract for default, citing the four trips missed on September 23 and concluding that Appellant’s performance had not improved following the September 17 warning (AF 25).

            22.  On the same date, the contracting officer ordered that all payments to Appellant be suspended.  At that time $16,689.16 was otherwise owed to Appellant for services rendered under the contract.  (AF 25, p. 222; Supplemental Appeal File Tab (SAF) 17, p. 481).

            23.  At the time of termination, Appellant’s contract rate was $321,485.99 per annum (Tr. 138; SAF 16, p. 475).  Following the termination, Respondent solicited offers for emergency replacement service.  Respondent solicited offers from eight potential contractors (SAF 14, 15, p. 457-59).  On September 26, 2003, Respondent awarded a contract to one contractor in the amount of $314,000 per annum, but terminated the contract eight days later.  (SAF 14, p. 456; Tr. 137).  Respondent resolicited bids and, on October 4, 2003, awarded a second replacement contract in the amount of $332,932.49 per annum to the low offeror (Tr. 138-140; SAF 14, p. 456; SAF 15, p. 460).  Respondent incurred administrative costs in the amount of $325.00 in soliciting and awarding the replacement contracts (SAF 16, pp. 473, 477; Tr. 142-43).  The schedule of trips under the replacement contract was the same as the schedule under Appellant’s contract as of the date of the termination (Tr. 59).

            24.  Respondent calculated the excess reprocurement costs incurred by taking the per-annum difference between the second replacement contract and Appellant’s contract, dividing the difference by 366 days and multiplying the result by 84 days for a total of $2,626.68.[2]  To that sum, Respondent added the $325.00 in administrative costs for a total of $2,951.68.  (SAF 3, p. 306; SAF 16, pp. 473, 477; Tr. 141-143).

            25.  On November 21, 2003, the contracting officer directed that the excess reprocurement costs be deducted from the previously-withheld amount otherwise owed Appellant (Finding 22) and that the balance be paid to Appellant.  That balance was released on December 12, 2003.  (SAF 16, p. 473; SAF 18, p. 484).

            26.  By letter dated December 15, 2003, Appellant filed a timely appeal of the termination, which appeal was docketed as PSBCA No. 5092.

Appellant’s Claims

            27.  By letters received by Respondent on July 8 and 14, 2004, Appellant sought payment for a number of items it claimed it was owed by Respondent (SAF 1, 2).  The claim items will be discussed individually:

Adjustment for Increased Insurance Costs

            28.  Section H.7 (Clause B-65 (January 1997)) of Appellant’s contract provided that compensation could be adjusted from time to time by mutual agreement between the parties.  Any such adjustments were to be in accordance with that clause and “any USPS Management Instruction governing adjustments in effect on the date of adjustment.”  (AF 4, p. 76; Stip. 40).

            29.  Management Instruction PM-4.4.1-2002-3, effective August 8, 2002, expressed Postal Service policy allowing adjustments in the rate of compensation “when changed economic conditions or operational requirements occur over which the supplier has little or no control, subject to the provisions of this instruction.”  The Instruction also provided, under “Basic Principles,” that as a prerequisite to eligibility, a supplier must have submitted, prior to award, a completed Postal Service Form 7468A (Worksheet), which Form sets out the costs, including insurance, anticipated by the contractor in performing the contract.  In addition, the supplier was required to provide documented evidence of actual increased costs.  Finally, under the sections entitled “Limitations and Restrictions” and “Effective Date,” the Instruction provided that adjustments to documented items (including insurance) would be retroactive to the date costs were incurred provided the supplier “notified the [contracting officer]” of increases within 60 days of the supplier’s knowledge of such increases.  Otherwise, the increased costs would become effective at the time documentation of the increase was received.  (SAF 29, §§111, 13 b., 13 c., 144 d., 175).[3]

            30.  Under the Insurance Requirements provisions of both the 1998 contract and 2002 renewal (clause B.7.b.), Appellant was required to carry a minimum liability insurance coverage of $750,000 Combined Single Limit (“CSL”) (AF 1, p. 19; AF 3, p. 59; AF 8, p. 124).  It was Respondent’s policy to pay only for increases in the cost of $750,000 of coverage, no matter what level a contractor actually purchased (Tr. 108-09).  Appellant filled out a PS Form 7468A, Cost Worksheet, in conjunction with the 2002 contract renewal.  The “Insurance” line on that form indicated that Appellant’s estimate for insurance was $7,500.  That estimate had not changed since the inception of the 1998 contract.[4]  (SAF 3, p. 313; Tr. 111).  Appellant received neither adjustments to its contract price nor lump sum payments for increases in insurance costs during the four-year term of the 1998 contract (RExh. D).

            31.  The cost to Appellant for the equivalent of $750,000 CSL coverage for the 2000-2001 time period (March 31, 2000, through March 31, 2001) was $9,914 (SAF 21, p. 496; SAF 25, p. 511; Tr. 116).[5]

            32.  The cost to Appellant for the equivalent of $750,000 CSL coverage for the 2001-2002 time period (April 30, 2001, through April 30, 2002) was $17,539 (SAF 22, pp. 498, 502; Tr. 116-118.)

            33.  The cost to Appellant for the equivalent of $750,000 CSL coverage for the 2002-2003 time period (July 25, 2002, through July 25, 2003) was $23,630 (SAF 24, pp. 508, 509; Tr. 123-24).

            34.  Effective July 7, 2003, Appellant secured an insurance policy with an annual premium of $16,095 for the period July 7, 2003, through July 7, 2004.  The record does not reflect the amount of coverage under the policy.  (SAF 25, p. 510).

            35.  Respondent’s contracting personnel agreed to adjust Appellant’s contract based on insurance increases going back to 2000 (Tr. 111).  The adjustment was not addressed until after completion of negotiations related to the schedule change that became effective on May 17, 2003 (AF 8).

            36.  At some time between May 17 and June 2, 2003, Appellant provided Respondent with the documentation necessary to calculate the insurance adjustments for the periods beginning with the year 2000-2001 adjustment.  Appellant had “put in for” the adjustments for insurance before the time of the 2002 renewal.  However, it had not provided all of the necessary documentation until this time.  (Tr. 107-108, 110-111).

            37.  Respondent calculated that Appellant would be entitled to an insurance adjustment of $2,414 for the year 2000.  This was based on Appellant’s insurance cost of $9,914 for 2000 less the $7,500 used as the base amount for insurance.  (See Findings 30, 31).  (Tr. 115-116).

            38.  For the year 2001, Respondent calculated that Appellant would be entitled to an additional adjustment of $7,625.  This amount was based on Appellant’s 2001 insurance cost of $17,539, less the $9,914 amount previously calculated as the cost for 2000.  Thus, the total adjustment for 2001 would have been $10,039 – i.e., $7,625 + $2,414.[6]  (See Findings 30, 32).

            39.  Through Route Service Order No. 7, dated June 2, 2003, Respondent made a lump sum payment of $8,828.82 to Appellant.  This amount was a prorated portion of the total $10,039 adjustment for 2000 and 2001, representing the percentage of that adjustment accrued between July 1, 2002 (the beginning of the renewal period) and May 16, 2003.  In addition, Appellant’s contract was increased by $10,039 per annum, effective May 17, 2003.  (Tr. 119, 121-123; AF 9; SAF 26, p. 518a).

            40.  For the year 2002, Respondent calculated that Appellant would be entitled to an additional adjustment of $6,090.65.  This amount was based on the difference between Appellant’s 2001 insurance cost of $17,539 and its 2002 insurance cost of $23,630.[7]  Through Route Service Order No. 11, dated September 3, 2003, Appellant was paid a lump sum amount of $6,090.65 and its contract was increased by an amount of $6,091 per annum, effective July 1, 2003.  (See Findings 32, 33).  (Tr. 125, 135; AF 13; SAF 27, p. 519).

            41.  Through its July 8 and 14, 2004 claim letters, Appellant demanded the payment of a total of $20,756.72 for insurance adjustments it contended it was owed.  Specifically, Appellant contended it was owed $16,005.33 above what it had been paid for insurance adjustments for the years 2000 – 2001, 2001 – 2002, and 2002 – 2003.  In addition, Appellant claimed that it was owed $4,751.39 representing a prorated share of its 2003 – 2004 insurance costs, covering the period between July 1, 2003, and termination of the contract in September 2003.  (SAF 1, 2).

            42.  In a final decision dated August 10, 2004, the contracting officer denied the insurance claim, concluding that Appellant had already received any insurance cost adjustments to which it was entitled (SAF 3).

Unpaid Late Slips:

            43.   Late slips are issued by Respondent’s personnel whenever the contractor experiences a delay caused by the Postal Service.  Late slips are issued with three copies, including one for the contractor’s driver and one for the destination office.  By letter dated November 8, 2001, Respondent’s Southwest Area transportation contracting office implemented a revised procedure for contractors seeking payment for late slips.  Specifically, the revised procedure required the contractor to submit the driver’s copy to the Administrative Official with a request for payment.  The Administrative Official was required to verify the late slips by determining whether the contractor actually arrived late at the destination and submit verified hours to the contracting officer at the Area office for payment.  The letter also stated that requests for compensation submitted directly to the Southwest Area office would be returned.  (Tr. 149-151; SAF 5).

            44.  In the form requesting payment for late slips, the contractor was required to certify that the late slips represented time that it had actually been delayed beyond its schedule.  It was also required to certify that it had compensated its drivers, as required by the Department of Labor.  (e.g., AF 14, p. 138).

            45.  In its July 8 and 14, 2004 claim letters, Appellant alleged it was owed payment for late slips from 2002 and later specified that it was seeking payment for 2500 minutes (41.67 hours).  In the contracting officer’s August 10, 2004 final decision, he referred to the procedure set out in the November 8, 2001 letter (Finding 43).  He acknowledged receipt of the drivers’ copies of late slips for 2002 sufficient to support payment for 11 hours and 17 minutes (677 minutes) and stated that Appellant would have been entitled to recover $238.59 but for its failure to submit the late slips to the Administrative Official for verification, as required.  On that basis, the contracting officer denied the late-slips portion of Appellant’s claim.  (SAF 3, pp. 308-309; Appellant’s Exhibit (AExh.) 2, p. 29; Stip. 26; SAF 5, 6).

Cancelled Check and Fees:

            46.  In Appellant’s July 14, 2004 letter, it requested reimbursement in the amount of $445.32 for a check allegedly issued by Respondent and then cancelled.  In addition, Appellant requested reimbursement in the amount of $50.00 for “fees for check cancellation.”  In his August 10, 2004 final decision, the contracting officer stated that the check had been cancelled because it had been issued to Appellant in error by Respondent’s Accounting Service Center – i.e., that the payment had been intended for another contractor.  The contracting officer stated that the check did not represent payment for any services rendered by Appellant.  Accordingly, the contracting officer concluded that Appellant was not entitled to the payment and denied this portion of Appellant’s claim.  (SAF 1, p. 292; SAF 3, pp. 306, 331, 332).

Deductions for Omitted Service:

            47.  Contract Clause H.18 – “Forfeiture of Compensation” – provided,  “If the supplier fails to perform a trip for any reason, the supplier shall forfeit the compensation otherwise due for that trip”  (AF 4, p. 80).

            48.  Trip 11, which Appellant failed to operate on June 24 and July 30, 2003, and Trip 3, which Appellant failed to operate on June 26, were both 13.0 miles long.  Trip 5, which Appellant failed to operate on July 14, was 17.2 miles long.  (AF 8, pp. 108, 109).

            49.  During June and July of 2003, Appellant’s contract rate was the equivalent of $2.51041 per mile.  That rate was used by Respondent in calculating its assessments for missed service.  (SAF 16, p. 475; SAF 2, pp. 293-297).

            50.  In its July 14, 2004 claim letter, Appellant sought reimbursement in the amount of $377.07 for omitted-service deductions that it contended were improperly calculated.  Appellant challenged deductions allegedly made for omitted service on the above four dates (Finding 48) plus August 5 and August 15, 2003.  However, the record does not demonstrate that the deductions alleged for August 5 and August 15 were ever made.[8]  Accordingly, we only address the remaining four deductions.  (SAF 1, p. 292; SAF 2, pp. 293-297; SAF 3; AF 27, pp. 256, 260, 271, 272).

            51.  Respondent assessed Appellant the following amounts because of missed service on the remaining four dates:

June 24:         $71.79 (based on 28.6 miles)

June 26:         $70.29 (apparently based on 28.0 miles)

July 14:           $119.99 (based on 47.8 miles)

July 30:           $71.79 (based on 28.6 miles)


(SAF 1, p. 292; SAF 2, pp. 293, 294, 297).

            52.  In the contracting officer’s August 10, 2004 final decision, he concluded that the four deductions should have been as follows:

June 24:         $84.60

June 26:         $84.60

July 14:           $86.36

July 30:           $84.60


(SAF 3, pp. 306-307).

“Reprocurement of Services”:

            53.  In its July 8 and 14 claim letters, Appellant included an item in the amount of $2,800.00 for “Reprocurement of Services.”  This item was not an independent monetary claim, but was Appellant’s method of demanding the return of the funds that had been deducted by Respondent for excess reprocurement costs.  In the contracting officer’s August 10, 2004 final decision, he denied this part of Appellant’s claim. (SAF 1, pp. 285, 292;  AExh. 1, p. 1; SAF 3, p. 305). 

Respondent’s Claim for Unpaid Fuel Invoices:

            54.  Under the provisions of the contract, Appellant purchased fuel at “host” fuel suppliers designated by the Postal Service.  Under this program, Appellant received fuel on credit and was billed directly by the supplier.  However, if Appellant failed to pay, the supplier would seek payment directly from the Postal Service.  On two occasions prior to the termination, Respondent had made deductions from Appellant’s pay because of unpaid fuel invoices.  (AF 4, p. 68; Tr. 80-82; SAF 16, p. 475).

            55.  As of the time of the termination, Appellant owed $9,407.13 in unpaid fuel invoices (RExh. F; Tr. 160-61).  Appellant had purchased fuel in this amount on credit, and Respondent had paid the supplier when Appellant did not.  Respondent intended to collect the funds from Appellant (Tr. 82), and, in October 2003, the contracting officer directed that a deduction be made from Appellant’s pay in the amount of the unpaid invoices (SAF 13).  However, before the deduction was processed Respondent had already released to Appellant the balance of the funds withheld at the time of the termination (SAF 18) (see Finding 25).  Therefore, no deduction for the unpaid fuel invoices was made.  On February 6, 2004, Respondent’s Accounting Service Center issued an invoice in the amount of the unpaid fuel invoices, with a payment due date of March 7, 2004.  There is no evidence showing when or if Appellant received the invoice.  (RExh. B).  In his August 10, 2004 final decision, after addressing Appellant’s monetary claims, the contracting officer asserted a claim against Appellant in the amount of $9,407.13.  (SAF 3, p. 309).

            56.  On or about September 13, 2004, Appellant filed a timely appeal from the contracting officer’s August 10, 2004 final decision, which appeal was docketed as PSBCA No. 5188.


PSBCA No. 5092

Termination for Default

            It is Respondent's burden to prove that the termination was justified by Appellant's failure to perform in accordance with the contract, Charli Selsa Schiver d/b/a NGX-Schiver, PSBCA No. 4545, 02-2 BCA ¶ 31,937.  Appellant’s repeated instances of omitted and late service, especially those occurring after explicit warnings from Respondent’s P&DC and contracting personnel, justified the default termination of this contract.  At the July 16, 2003 conference, Respondent’s personnel emphasized the impact of missed or delayed service, and Respondent has demonstrated the adverse effects of such service deficiencies (Findings 4, 5).  The incidents of late and omitted service continued and, in fact, increased in frequency thereafter.  In September, before the termination, Appellant failed to pick up or deliver mail on at least nine occasions and operated at least eight trips with significant delays.  Those failures represented a material failure by Appellant to comply with the terms of its contract and deprived Respondent of the reliable, regular service to which it was entitled.  E.g., Charli Selsa Schiver d/b/a NGX-Schiver, PSBCA No. 4545, 02-2 BCA ¶ 31,937.

            As Respondent has demonstrated that Appellant failed to perform according to the terms of the contract, the burden shifts to Appellant to present evidence of excusable causes, Charli Selsa Schiver, supra; Patricia J. Stevens, PSBCA No. 3272, 94-1 BCA ¶ 26,419 at 131,429, recon. denied, 94-2 BCA ¶ 26,951, or to show that 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.  In arguing that its deficiencies should be excused, Appellant relies principally on its contention that its drivers were influenced to perform poorly because they had been advised by Respondent’s personnel that they might be able to take over the contract should it be terminated.  Appellant’s contention, however, is not supported by the evidence of record.  One of Respondent’s Network Specialists, whom Appellant suggested was at least partly responsible, testified without contradiction that he did nothing more than respond to general questions from the drivers regarding how they might qualify to become contractors (Finding 10).  A second Network Specialist testified only that she had heard “rumors” that one of Respondent’s expeditors was “stirring things up” with the drivers (Tr. 173).  Such evidence is insufficient to demonstrate that Appellant’s drivers were improperly influenced by Respondent’s personnel.

            Appellant’s performance deficiencies are also not excused by its allegation regarding financial difficulties brought on by Respondent’s alleged failure to make insurance payments while simultaneously withholding funds because of unpaid fuel invoices.  While Appellant made such arguments in its brief, there was no record evidence indicating that any such financial difficulties caused or contributed to Appellant’s performance deficiencies.  Further, while Appellant complained in its brief about Respondent’s failure to make timely payments for increases in insurance premiums, we note that it was not until May or June 2003 that Appellant provided the documentation needed to support such payments.

            Given the large number of daily trips required by the contract, Appellant’s failures may not have affected a large percentage of the trips.  However, based on the significant effects of the failures and on the increasing frequency of those failures, we cannot say that the contracting officer abused his discretion in deciding to terminate the contract.

            Thus, Respondent has demonstrated that the default termination of Appellant’s contract was justified by Appellant’s performance deficiencies, and Appellant has failed to demonstrate excusable causes for its failure to perform or to show that the termination was an abuse of discretion.  Accordingly, the appeal of the termination is denied.

Excess Reprocurement Costs

            Following the termination, Respondent solicited multiple sources and originally awarded an emergency contract for the same route at an amount lower than Appellant’s final annual rate – thus precluding the recovery of damages based on a difference in contract prices.  However, after eight days Respondent terminated the contract and awarded a second contract, but at an amount higher than Appellant’s annual rate.

            Respondent has the burden of proving that it made a reasonable attempt to mitigate Appellant’s damages in connection with the reprocurement, e.g., Cascade Pacific International v. United States, 773 F.2d 287, 293 (Fed. Cir. 1985); Barrett Refining Corp., ASBCA Nos. 36590, 37093, 91-1 BCA ¶ 23,566 at 118,145; Bowman’s Transport Co., PSBCA Nos. 1088, 1089, 1092, 84-1 BCA ¶ 17,217, but it has not done so here.  The only record evidence regarding the reason for terminating the first emergency replacement contract is a notation on a handwritten page that listed the various contractors that operated this route after Appellant’s termination.  The notation, referring to the first contractor, read: “Terminated for Convenience due to safety concerns with equipment (too large) for contract.”  (SAF 14, p. 456).  The witness who testified regarding the reprocurement was not the author of the handwritten page and did not testify regarding the reason for the termination of the first contractor.  Even assuming the notation to accurately reflect what occurred, the evidence leaves unanswered the question of what attempts, if any, were made to preserve the first contract by resolving Respondent’s safety concerns short of terminating the contract- i.e., whether Respondent’s decision to terminate the contract as the means of solving the safety problem was reasonable in the context of its obligation to mitigate Appellant’s damages.  Absent such evidence, the record does not demonstrate that Respondent exerted reasonable efforts to mitigate Appellant’s damages, and Respondent may not recover the portion of the reprocurement assessment that was based on the difference in contract prices.  It may, however, recover the administrative costs it incurred, since it was Appellant’s default that required it to go through the process of soliciting for and awarding a new contract.

            Accordingly, except for the assessment of administrative costs, the appeal of the reprocurement assessment is sustained.  Respondent is to refund $2,626.68 (plus Contract Disputes Act (CDA) interest) to Appellant.  See Fortec Constructors, ASBCA No. 27601, 83-1 BCA ¶ 16,402 at 81,551. 

PSBCA No. 5188

Adjustment for Increased Insurance Costs

            The primary difference between the parties with regard to this claim is whether Appellant is entitled to receive insurance adjustments retroactive to the 2000 – 2001 time period, or whether Appellant’s recovery is to be limited to the period beginning on July 1, 2002, when the parties entered into the renewal of Appellant’s original contract.  In calculating the amounts owed to Appellant (see Findings 37-40), Respondent took the latter position – i.e., that although calculation of the adjustment to be paid Appellant may include the insurance increases that occurred in 2000 - 2001 and 2001 - 2002, the adjustment is to be paid only for the period beginning July 1, 2002.

            Respondent relies almost exclusively on the provisions of the Management Instruction which limit the retroactive recovery of such costs unless the contractor has given the contracting officer notice within 60 days of becoming aware of the increases (Finding 29).  Respondent argues that Appellant failed to give such notice prior to July 2002 and, therefore, that it may not recover any increases for the 2000 – 2001 and 2001 – 2002 periods.

            The Management Instruction provisions cited by Respondent require that the contracting officer be “notified” but do not require any particular type of notification.  In this instance, Respondent’s contracting personnel had been aware since before the time of the 2002 renewal that Appellant was seeking adjustments because of increased insurance costs.  While the evidence is no more specific than that Appellant “put in for” the increases, we conclude that Appellant provided some form of notice to Respondent’s contracting personnel that its owner believed Appellant had incurred insurance costs for which it was entitled to an adjustment.  Accordingly, Appellant may also recover the increases in its insurance costs for the 2000 – 2001 and 2001 – 2002 periods.

            Appellant’s recovery is calculated as follows:

            Insurance Adjustments Due:[9]

            2000-2001 period:  $9,914 - $7,500 = $2,214 (Findings 30, 31)

            2001-2002 period:  $17,539 - $7,500 = $10,039 (Finding 32)

            2002-2003 period:  $23,630 - $7,500 = $16,130 (Finding 33)

            2003-2004 period:  ($16,095 - $7,500) x 79/365 = $1,860.29 (Finding 34; prorated for the period of July 7, 2003, through September 24, 2003)

            Total:  $30,243.29

            Less:  Amounts Paid by Respondent:

            Lump Sum Payments:
                                    $8,828.82 (Route Service Order 7; Finding 39)
                                    $6,090.65 (Route Service Order 11; Finding 40)

            Payments through Increases in Annual Rate:
                                    $3,603.04  ($10,039 increase in annual rate, prorated from May 17 through September 24, 2003) (Finding 39)
                                    $1,435.14  ($6,091 increase in annual rate prorated from July 1 through September 24, 2003) (Finding 40)

            Total Payments:  $19,957.65

            Net Amount Due Appellant for Insurance Adjustments:  $30,243.29 - $19,957.65 = $10,285.64 (Plus CDA interest)

Unpaid Late Slips

            Under the procedure set up by Respondent, contractors were required to submit their late slips to the Administrative Official.  That official would then verify the late slips by determining whether the contractor actually was late completing the trip for which the late slip was issued.  If so, the contractor would be paid for the additional time taken to complete the trip.  Appellant contends that it should be paid for the 2002 late slips and contends that it submitted the slips to the Southwest Area office, but that they were not returned (as the November 8, 2001 letter (Finding 43) stated they would be).  (See Tr. 151).  Respondent’s position is that Appellant, having failed to follow the procedure set out in the November 8 letter, has failed to prove that it is entitled to receive payment.

            The record does not contain any of the 2002 late slips that Appellant alleged it had submitted, other than those referred to by the contracting officer in his final decision.  Moreover, we do not find persuasive the unsworn and otherwise unsupported statement by Appellant’s owner during the course of the hearing that he did submit all of the slips to the Area office.  There is also no evidence (or argument) that Appellant ever submitted the late slips to the Administrative Official for verification.

            Without evidence of verification by the Administrative Official or other evidence of actual delayed operations, the record before us does not demonstrate the extent to which the 2002 late slips in evidence represented actual late operations for which Appellant would be required to compensate its drivers and for which payment would be made (see Finding 44).  Accordingly, Appellant has failed to meet its burden of proving entitlement to any payment for the late slips it was issued in 2002.

Cancelled Check and Fees

            In its claim, Appellant seeks payment in the amount of $445.32 because of a check in that amount that was allegedly issued to it and then “cancelled” by Respondent.  Appellant also seeks $50 for “fees” allegedly associated with the cancellation.  Respondent takes the position, as did the contracting officer in his final decision, that the check had been issued to Appellant in error and that Respondent may recover funds erroneously paid out.

            Initially, we note that the record contains no evidence describing the nature of the “fees” allegedly incurred or demonstrating that any fees were actually incurred.  The record also contains virtually no evidence supporting Appellant’s contention that a check was issued and then improperly cancelled.  As part of its claim submittal, Appellant provided copies of two “Remittance Advice” documents issued by Respondent’s Accounting Service Center.  Those documents appear to indicate that on both December 12 and December 29, 2003, Respondent made payments to Appellant in the amount of $445.32.  Other than handwritten notes on the documents, apparently by Appellant’s owner, indicating that one or both of the payments were cancelled, there is no evidence supporting Appellant’s contention that this occurred.

            Appellant has failed to prove that Respondent improperly cancelled a payment made to Appellant and thereby damaged it.  Accordingly, Appellant may not recover on this element of its claim.[10]

Deductions for Omitted Service

            Respondent withheld a total of $333.86 from Appellant for four instances of missed service.  It appears, however, that Respondent calculated the amount to be withheld under the assumption that, in each case, Appellant failed to run both the outbound trip referred to in the Form 5500 and its corresponding return trip.  (Findings 48, 51).  The record evidence, however, does not support Respondent’s apparent conclusion that both trips were missed in each case.

            Based on the Forms 5500 in evidence, Respondent was entitled to recover only the compensation paid for a total of four trips, with a combined mileage of 56.2 miles.  The total deduction for the four instances in question, therefore, should have been $141.09.[11]  Appellant is entitled to recover the difference between this amount and the amount withheld by Respondent ($333.86), or $192.77 (plus CDA interest).  (See Findings 48, 49, 51).

“Reprocurement of Services”

            As noted above (Finding 53), this item was Appellant’s method of demanding the return of the amount withheld from it for excess reprocurement costs.  As we ruled in the discussion of excess reprocurement costs, above, Appellant is entitled to receive $2,626.68 plus CDA interest under this item.[12]

Respondent’s Claim for Unpaid Fuel Invoices

            Respondent argues that it has demonstrated that Appellant is indebted in the amount of $9,407.13, and seeks to recover that amount, plus interest.  Appellant concedes that it owes a debt based on unpaid fuel invoices, but has questioned – without any specific arguments - the amount owed (see AExh. 1, p. 4).

            We agree that Respondent has shown that Appellant is indebted to it in the amount demanded.  Respondent paid the fuel supplier $9,407.13 when Appellant did not and is entitled to be reimbursed that amount.

            Respondent may also recover reasonable interest on the amount due, e.g., Butler Gulch, LLC, PSBCA No. 5353, 08-1 BCA ¶ 33,839; J. Leonard Spodek, PSBCA No. 4207, 00-1 BCA ¶ 30,593; J. Leonard Spodek d/b/a Nationwide Postal Management, PSBCA No. 3710, 96-2 BCA ¶ 28,457; Electronics & Space Corp., ASBCA No. 47539, 95-2 BCA ¶ 27,768 at 138,447; Harrisville Heights, Inc., ASBCA No. 20707, 77-1 BCA ¶ 12,358 at 59,813, from September 13, 2004, until the date of payment.[13]


            The appeal in PSBCA No. 5092 is denied with respect to the default termination and granted, except for the recovery of administrative costs, with respect to Respondent’s claim for excess reprocurement costs.  Appellant may recover $2,626.68 plus CDA interest.

            The appeal in PSBCA No. 5188 is granted to the extent that Appellant may recover $10,285.64 (plus CDA interest) under its insurance adjustments claim, $192.77 (plus CDA interest) under its deductions for omitted service claim and, as noted above, $2,626.68 (plus CDA interest) under its reprocurement of services claim.[14]  The appeal in PSBCA No. 5188 is otherwise denied, including the appeal of Respondent’s unpaid fuel invoices claim.  Respondent may recover $9,407.13 (plus reasonable interest) under that claim.

David I. Brochstein
Administrative Judge
Vice Chairman

I concur:                                                                      I concur:
William A. Campbell                                                     Norman D. Menegat
Administrative Judge                                                  Administrative Judge
Chairman                                                                     Board Member

[1]  Administrative Judge Gary E. Shapiro took no part in the consideration of these appeals.

[2]  $332,932.49 - $321,485.99 = $11,446.50.  ($11,446.50 ÷ 366) x 84 = $2,626.68.

[3]  Appellant filed the August 8, 2002 version of this Instruction with its brief, asking that it be substituted for the February 24, 2004 version included as SAF 8.  As Appellant did not object to the substitution, we accept it and have added it under SAF Tab 29.  We would, in any event, take note of the 2002 Management Instruction as an official publication of the Postal Service.  The applicable provisions of the 2002 and 2004 Management Instructions do not differ.

[4]  The record does not contain the PS Form 7468A that would have accompanied the award of the 1998 contract.  However, both parties have proceeded on the basis that the insurance line in that Form was also $7,500 and we adopt that figure for the purposes of this Opinion.

[5]  The cost for Appellant’s actual coverage of $1,000,000 was $10,814 (SAF 21, p. 496).  The differential between $750,000 and $1,000,000 in coverage was $900 (SAF 25, p. 511).

[6]  Appellant’s contract amount had not been adjusted in 2000 to reflect the initial $2,414 increase in insurance costs.  Therefore, an alternative way of viewing this calculation is that the total adjustment would be the difference between Appellant’s total insurance cost for 2001 ($17,539) and the base amount of $7,500.

[7]  The actual difference was $6,091.  The record does not explain why Respondent’s calculation differed by $0.35.

[8]  With regard to the alleged August 5, 2003 deduction, the record contains no evidence that there was any omitted service on that date, and Appellant has provided no evidence that there was any deduction requested or assessed for that date.  With regard to the alleged August 15, 2003 deduction, while the record contains a request from the P&DC to Respondent’s contracting office that the deduction be made, the request was never processed (SAF 2, p. 296; Tr. 147-148).

[9]  We use $7,500 as the base for the calculation of each year’s adjustment because Appellant’s contract price had not been adjusted for the increased cost of insurance at any time since its inception in 1998 (Finding 30; Footnote 4).  Compare Fallen Trucking Co., Inc., PSBCA Nos. 3133, 3237, 93-2 BCA ¶ 25,827 at 128,564.

[10]  Even crediting the contracting officer’s statement in the final decision, which we need not do, Wilner Constr. Co. v. United States, 24 F.3d 1397, 1401 (Fed. Cir. 1994), that a check was issued and cancelled (Finding 46), there is no evidence to challenge Respondent’s position that the check was issued in error.  Appellant has not even argued that it was entitled to the payment(s) under its contract or for any other reason.  The United States may generally recover funds erroneously paid.  See United States v. Wurts, 303 U.S. 414, 415-416 (1938); American Fidelity Fire Insurance Co. v. United States, 513 F.2d 1375, 1381 (Ct. Cl. 1975); Fansteel Metallurgical Corp. v. United States, 172 F. Supp. 268, 270 (Ct. Cl. 1959); Russell and Ruby Lambert, PSBCA Nos. 2287, 2300, 89-3 BCA ¶ 22,227.

[11]  56.2 miles x $2.51041 per mile

[12]  Although this claim amount is discussed in two parts of this Opinion, Appellant may recover the $2,626.68 only once.

[13]  Although Respondent issued an invoice seeking to recover the amount of the unpaid fuel invoices in February 2004, there is no evidence showing when or if Appellant received that invoice.  In the absence of any other determinable date, we use as the date for beginning the interest calculation the date Appellant received the August 10, 2004 contracting officer’s final decision demanding the payment.  (Harrisville Heights, Inc.).  The record contains no evidence showing exactly when Appellant received the final decision, but its appeal of that decision was received and docketed by the Board on September 13, 2004 – and that date is to be used for the beginning date of the interest calculation.

[14]   See footnote 12, above.