PSBCA No. 6474, 6519


June 25, 2015

TROJAN HORSE LTD. v. UNITED STATES POSTAL SERVICE

PSBCA Nos. 6474, 6519

APPEARANCES FOR APPELLANT:
David P. Hendel, Esq.
Elizabeth Leavy, Esq.
Husch Blackwell LLP

APPEARANCE FOR RESPONDENT:
Peter J. McNulty, Esq.
United States Postal Service Law Department  

OPINION OF THE BOARD

These two appeals challenge the contracting officer’s decisions terminating Appellant’s mail transportation contract for default and denying Appellant’s related claim for damages.  We deny both appeals and rule in favor of Respondent.

FINDINGS OF FACT

  1. On March 25, 2011, the United States Postal Service (Respondent) awarded Contract No. HCR 010AE in the amount of $3,178,750 per year to Trojan Horse Ltd. (Appellant or Trojan Horse) to transport mail by truck on thirty-two routes serving various locations in Massachusetts, Connecticut, New York, and New Jersey (AF 6).  The estimated combined annual mileage of all the trips on the routes was 1,320,359.7 miles (AF 6 at 82).1
  2. The contract included a Termination for Default clause and identified the events of default which included:
    • The supplier’s failure to perform service according to the terms of the contract . . .
    • Failure to follow the instructions of the contracting officer . . .
    • If the supplier’s transportation equipment is insufficient, inadequate, or otherwise inappropriate for the service . . . .
      (AF 7 at 112 and 117 (subsections a, c, and j)).
  3. Appellant predominantly transported Express, Priority, and First Class Mail (as opposed to heavier Periodicals, Standard or Bulk Mail, and Packages) (Tr. 1 at 223, Tr. 4 at 8-9, 11-12).2
  4. The contract required Trojan Horse to provide and utilize thirteen two-axle tractors (double drive) (AF 6 at 86).  A two-axle (double drive) tractor has two axles in the back of the tractor.  A single axle tractor has one axle in the back.  (Tr. 2 at 265-66).3  The contract also required that the tractors have a minimum gross vehicle weight rating sufficient to allow a 48,000 pound payload (AF 6 at 86).  A tandem axle tractor can transport a heavier payload than a single axle tractor (Tr. 1 at 223, 232-33).
  5. Because the Postal Service used Trojan Horse to transport Express, Priority, and First Class Mail instead of Bulk Mail, the payload remained within the weight limit of a single axle tractor (Tr. 1 at 223, 231-34).  The Postal Service did not fully load the trailers or transport heavier Bulk Mail, although the contract allowed it to do so (AF 7; Tr. 1 at 234).
  6. A single axle tractor is less expensive to operate because it incurs lower tolls than a tandem axle tractor (most of the routes had tolls), uses less fuel, and has lower operating costs (e.g., it has four fewer tires) (Tr. 2 at 267-68, Tr. 3 at 21-23, 293-94, 305-07; Tr. 5 at 27). 
  7. Another trucking contractor which had unsuccessfully competed for the contract complained that contractors who offered tandem axle tractors, as required by the solicitation, were placed at a competitive disadvantage against contractors which violated the terms of the contract by using single axle tractors (AF 16 at 565; Tr. 3 at 294, Tr. 5 at 27-28).  Sensitized by the complaint, the contracting officer was concerned that the continued use of single axle tractors instead of tandem axle tractors could affect the integrity of the competitive procurement process, which would eventually cost the Postal Service more money (Tr. 5 at 27-29).
  8. Shortly after the contract commenced, the Postal Service began issuing Contract Route Irregularity Reports, Postal Service Form 5500 (“Irregularity Reports” or “Form 5500s”) to Trojan Horse for its improper use of single axle tractors (Tr. 2 at 151-52, Tr. 4 at 22-24, Tr. 5 at 15-16).  Copies of the Form 5500s were provided to Trojan Horse (Tr. 2 at 151-56, Tr. 3 at 282-83).4
  9. From the outset of contract performance, the Postal Service notified Trojan Horse that the contract did not allow use of single axle tractors.  Notwithstanding this notice, Trojan Horse regularly used single axle tractors.  (AF 43 at 689-705; Tr. 2 at 276-79, Tr. 3 at 295-96, 301-02, 305-06, 315-16, Tr. 4 at 99).  Trojan Horse admitted that it had been using single axle tractors at the beginning of the contract and said the problem would be corrected (AF 24 at 579; Tr. 3 at 295, 302-03).
  10. After three months of contract performance, Trojan Horse began phasing in tandem axle tractors (Tr. 2 at 274-76, 287-88). 
  11. However, Trojan Horse continued to use single axle tractors regularly on the contract (AF 26 at 581; Tr. 3 at 305-06, 315).  From January through June 2012, Trojan Horse used a single axle tractor on at least 210 trips (AF 36 at 620-21; Tr. 4 at 23-27).
  12. On June 7, 2012, the parties held a telephone conference to discuss the Postal Service’s concerns about Trojan Horse’s failure to meet the contract’s schedule and its regular use of single axle tractors (AF 28; Tr. 4 at 17-20, 68-69). 
  13. After the June 7, 2012 conference, Trojan Horse intermittently continued to use single axle tractors (AF 36; Tr. 4 at 21-24).
  14. On July 9, 2012, the contracting officer sent Trojan Horse a Show Cause Notice which provided:
    This Show Cause Notice is based on evidence that appears to establish the following facts:
    1. On June 7, 2012, [a] telecom was held to discuss your On Time Performance.  Since that date you have been issued three (3) PS Form 5500’s for poor performance on July 6 and July 7, 2012.
    2. Failure to meet contractual equipment requirements.
      (AF 3 at 75).  “Failure to meet contractual equipment requirements” referred to Trojan Horse’s use of single axle tractors (AF 37 at 643; Tr. 1 at 145-46).
  15. On July 11, 2012, in response to the Show Cause Notice, Trojan Horse explained that it was not aware of poor performance on July 6 and July 7.  In addition, Trojan Horse’s president responded by letter stating that “After our June 7, 2012 teleconference, I personally reviewed this entire HCR [highway contract route] operation in order to ensure that we were meeting contractual requirements.  I can assure you that after that review we were in full compliance and will continue to be so. . . .  I reviewed all equipment requirements on the subject HCR and can assure you that the proper equipment is on this route.  I have included the assigned VIN’s of each tractor and they all meet contractual requirements.”  Attached to the letter was a list of thirteen tandem axle tractors.  (AF 37).
  16. On July 20 and 25, 2012, Trojan Horse used single axle tractors on two trips.  On August 1 and 2, 2012, Trojan Horse used single axle tractors on ten trips.  (AF 4, AF 37, AF 43, AF 47, AF 536; Tr. 2 at 160, 195, Tr. 3 at 84-85).5
  17. On August 2, 2012, the Postal Service terminated the contract for default effective August 10, 2012.  The Postal Service based the termination on Trojan Horse’s use of single axle tractors and failure to meet the delivery schedule.  Attached to the termination for default letter were ten Form 5500s identifying the use of single axle tractors after the Show Cause Notice.  (AF 4; AF 536; Tr. 2 at 195).6
  18. On August 3, 2012, Trojan Horse’s president sent a letter to the contracting officer addressing late deliveries and use of single axle tractors.  He stated that each instance of failing to meet the schedule should be excused by traffic delays.  “As for the 5500s in reference to the use of single-axle tractors versus double-axle, I will admit this error . . . .  This mistake will not happen again.”  (AF 3, emphasis in original). 
  19. On the same day, August 3, 2012, Trojan Horse used single axle tractors on five of the trips (AF 49, AF 536; Tr. 2 at 195).7
  20. Trojan Horse appealed the termination for default, which the Board docketed as PSBCA No. 6474.
  21. On May 10, 2013, Trojan Horse filed a $383,545.56 claim for damages resulting from an improper termination for default (AF 8).  On July 16, 2013, the contracting officer issued a final decision denying this claim (AF 9).  Trojan Horse appealed the denial of the claim, which the Board docketed as PSBCA No. 6519.

DECISION

The Postal Service has the burden of proof in a termination for default appeal.  See Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987).  In order to prevail, the Postal Service must prove that deficiencies in Trojan Horse’s performance constituted a material breach of the contract, not a minor violation.  See Gordon T. Smart, PSBCA No. 6123, 11-1 BCA ¶ 23,695; Lee Aron VanDyke, PSBCA No. 6150, 09-2 BCA ¶ 34,291.

If the Postal Service is able to do so, the evidentiary burden shifts to Trojan Horse to present evidence of excusable causes.  See Charli Selsa Schiver d/b/a NGX-Schiver, PSBCA No. 4545, 02-2 BCA ¶ 31,937.  Alternatively, Trojan Horse may present evidence showing that the termination represented an abuse of the contracting officer’s discretion.  See Smart, 11-1 BCA ¶ 23,695; Jesse A. Farmer, PSBCA No. 2702, 91-3 BCA ¶ 24,181. 

The contract required the use of tandem axle tractors (Finding 4).  From the outset, Trojan Horse repeatedly used single axle tractors notwithstanding notices and conferences with the Postal Service explaining that the use of single axle tractors violated the terms of the contract (Findings 7-12). 

The Postal Service issued a Show Cause Notice to Trojan Horse requiring discontinuance of the use of single axle tractors (Finding 14).  Trojan Horse continued to use single axle tractors after receiving the Show Cause Notice (Findings 16, 17, 19).  The Postal Service then terminated the contract for default based on the use of single axle tractors after the Show Cause Notice.  We conclude that Trojan Horse materially breached the contract after receiving the Show Cause Notice, representing that single axle tractors would not be used, and thereafter using single axle tractors.  See Tamba Manya Momorie v. United States Postal Service, PSBCA Nos. 6362, et. al, 15-1 BCA ¶ 35,874.

Trojan Horse raises five arguments in its defense:  (1) it did not receive timely  notice of noncompliance, preventing it from correcting the problem; (2) its infrequent use of single axle tractors was a minor infraction, not a material breach; (3) its use of single axle tractors was not a material breach because the mail was safely delivered; (4), the Postal Service should have pursued a less severe remedy for non-compliance – such as filing a monetary claim against Trojan Horse; and (5) the Postal Service treated Trojan Horse more harshly than other contractors who similarly used noncomplying equipment but whose contracts were not terminated.

Timely Notice

The facts do not support Trojan Horse’s argument that it did not know that the Postal Service considered the use of single axle tractors to be a problem.  Throughout this dispute, the Postal Service notified Trojan Horse that the use of single axle tractors breached the terms of the contract (Findings 8 – 19).8  Accordingly, Trojan Horse’s argument is unfounded.  See, e.g., Dale W. Maxwell, PSBCA No. 3886, 98-1 BCA ¶ 29,475.

Use of Single Axle Tractors After Show Cause Notice

Second, Trojan Horse argues that the trips in which Trojan Horse used a single axle tractor after the Show Cause Notice were at most, minor contract violations in the scheme of the contract and as such not material breaches of the contract.  See, e.g., Wayne L. Orr, PSBCA No. 6268, 10-2 BCA ¶ 34,560.  Trojan Horse begins by arguing that only two trips using a single axle tractor after the Show Cause Notice actually occurred and that these two were the result of an employee not following directions.  It argues that because these two trips were the actions of a rogue employee, they should not be held against Trojan Horse. 

We do not agree that the use of a single axle tractor only occurred twice after issuance of the Show Cause Notice (Findings 16, 17, 19).  Trojan Horse used a single axle tractor on twelve trips after the Postal Service issued a Show Cause Notice and five more trips after the termination notice (but before the effective date) (Findings 16, 17, 19).

Trojan Horse next argues that the infrequent use of single axle tractors after the Show Cause Notice is a minor violation in comparison to the total of 821 trips made after the Show Cause Notice was issued.  It argues that seventeen trips9 would be only 2% of the total number of trips.  In the context of this case, the use of single axle tractors after the Show Cause Notice was significant.  The Postal Service warned Trojan Horse at the outset of contract performance of the requirement to use tandem axle tractors (Findings 8 – 10); Trojan Horse then frequently used single axle tractors (Findings 8 – 11); and the Postal Service again warned Trojan Horse against the use of single axle tractors at the June 7, 2012 conference (Finding 12).  We find the recurrence after the June 7, 2012 conference and the Show Cause Notice to be material because it shows that Trojan Horse had not fixed the problem.  Accordingly, we are not persuaded by Trojan Horse’s argument.

Mail Safely Delivered

Third, Trojan Horse argues that the use of single axle tractors is not a material breach because the mail was delivered safely.  The Postal Service does not contest Trojan Horse’s argument that its tractors and trailers were within the contractual weight limit, and thus did not pose a safety hazard.  However, the government may prescribe the method of contract performance.  “The Government is entitled to receive what it has contracted for, even if that exceeds what is absolutely needed for a satisfactory result. . . .  Unless [the appellant] sought and obtained a change in the specifications before bid opening, [it was] bound to perform the contract in accordance with its clear requirements.”  R.B. Wright Constr. Co. v. United States, 919 F.2d 1569, 1573 (Fed. Cir. 1990).  We have held that the Postal Service is entitled to strict performance of its contract requirements.  See Derrick Van Greene, PSBCA Nos. 5093, 5215, 07-1 BCA ¶ 33,471; Charles E. Blanton, PSBCA No. 1381, 86-1 BCA ¶ 18,723. 

Trojan Horse agreed to perform the contract using tandem axle tractors and did not seek a waiver or change after contract award.  See Triax Pac., Inc. v. West, 130 F.3d 1469, 1474 (Fed. Cir. 1997) (citing Wright Constr., 919 F.2d at 1571-72) (neither the industry practice nor the contractor’s view as to what is necessary to complete performance can alter the plain requirements of the contract).  The contracting officer’s termination of the contract for failure to use tandem axle tractors is therefore reasonable.  See J & M Trucking, PSBCA No. 2804, 92-1 BCA ¶ 24,598 (failure to provide contract-required equipment after warnings and a promise by the contractor to obtain the required equipment is a sufficient basis for a termination for default).  The Postal Service had reserved to itself the contractual right to add heavier loads on the tractors by requiring that capacity in the contract.  Although it did not use that capacity, it had the right to do so.  The nonconforming equipment deprived the Postal Service of the possible use of that capacity making the breach material.

This basis for enforcing the contract requirement is reasonable.  See Blanton, 86-1 BCA ¶ 18,723.  In Blanton, the contractor was required to provide equipment to secure heavy cargo in the truck, but refused to do so because the transported loads were under the weight limits requiring this equipment.  The Postal Service was paying for the truck to be so equipped and wanted the flexibility to transport heavier loads if necessary.  We were not persuaded by the contractor’s argument in Blanton that the equipment needed to transport heavier loads was not necessary, and we are not persuaded now when Trojan Horse makes the same argument.  Id.

Additionally, the contracting officer was concerned that allowing Trojan Horse to deviate from the contract’s terms would undermine the integrity of the contracting process.  In this particular case, an unsuccessful competing contractor specifically complained (Finding 6), which while not required for a material breach, highlights the reason to enforce the requirement.  See Hanley Indus. Inc., ASBCA No. 56584, 14-1 BCA ¶ 35,699 (“[T]he CO was acting responsibly when she demanded strict compliance with contractual specifications.”); see also J & M Trucking, 92-1 BCA ¶ 24,598 (the use of nonconforming vehicles compromises the integrity of the contract solicitation process).  Therefore, we do not find Trojan Horse’s third argument persuasive.

Option for Monetary Claim Rather Than Termination for Default

Fourth, Trojan Horse argues that the Postal Service should have reduced the pay for each single axle tractor trip instead of terminating for default.  Trojan Horse does not explain why the availability of an alternative remedy would affect the propriety of the default termination. 

We do not need to decide if an alternate remedy was available or proper.  The Postal Service proved that the contracting officer’s decision to terminate the contract for default was reasonable and we will not substitute our judgment for that of the contracting officer or decide whether another remedy was better for the Postal Service.  See, e.g., William A. Hulett, AGBCA No. 92-196-3, 93-1 BCA ¶ 25,389 (“The Board’s role is not to make independent decisions on behalf of the COs, but to determine if COs’ decisions are supported by the facts and are reasonable.”); Cal-Pacific Bldg. Serv., Inc., GSBCA No. 7388, 85-1 BCA ¶ 17,905; Cervetto Bldg. Maint. Co. v. United States, 2 Cl. Ct. 229, 300-01 (1983).  Trojan Horse has neither argued nor shown an abuse of the contracting officer’s discretion in this instance.

Comparison With Other Contractors

Finally, Trojan Horse argues that by terminating its contract for default, the Postal Service singled out Trojan Horse for unfair treatment in comparison to other mail transportation contractors generally and the replacement contractor specifically.  An allegation that one company was treated differently does not alone state an actionable claim.  See Precision Pine & Timber, Inc. v. United States, 62 Fed. Cl. 635, 652 (2004).  Trojan Horse must show a breach of a contractual obligation by the Postal Service.  Id.  We conclude that Trojan Horse’s fifth argument is not supported by the terms of the contract and facts.

In summary, the Postal Service has met its burden of proof by showing that Trojan Horse materially breached the contract’s equipment requirements because of its substantial use of single axle tractors during the course of performance.  Because we uphold the termination for default on this ground, we do not address the second ground of failing to meet the contract schedule.

Because we uphold the termination for default, Trojan Horse’s claim for $383,545.56 based on an improper termination for default is denied.

CONCLUSION

The Postal Service has proved that it properly terminated Trojan Horse for default.  The appeals are denied.

Peter F. Pontzer
Administrative Judge
Board Member

I concur:

William A. Campbell
Administrative Judge
Chairman

Gary E. Shapiro
Administrative Judge
Vice Chairman

1 The record includes various references where the terms “route” and “trip” are used interchangeably.  For clarity, we refer to route as the line of travel between a starting point and an endpoint.  We refer to trip as the passage of a truck (usually once a day) on the route.

2 The Board conducted a five-day hearing.  Citations to the transcript volumes are “Tr. 1” through “Tr. 5.”

3 In the trucking industry, the terms  “tandem axle,” “dual axle,” “double axle,” and “two axle” all refer to the same type of tractor (Tr. 2 at 267).  While these terms are used interchangeably in the record, we use the term “tandem axle.”

4 Trojan Horse challenges the accuracy of the Form 5500s relied upon by the Postal Service in this litigation.  Trojan Horse also argues that it did not timely receive copies of the Form 5500s.  The process by which the Form 5500s were drafted by the Postal Service and sent to Trojan Horse was explained by the Postal Service’s Transportation Network Specialist responsible for monitoring HCR contractor performance.  The process was further explained by the clerk/administrative assistant who sent the forms to Trojan Horse. (Tr. 3 at 263-92; Tr. 2 at 152-61, 169-77).  Their testimony is credible and corroborates the Form 5500s in the record.

5 The record includes numerous Form 5500s, some of which may be duplicates (i.e., a handwritten version along with a typed version) covering the same use of a single axle tractor.  We resolve any conflict of potential duplicates in Trojan Horse’s favor by adopting its analysis as to the number of uses identified by the Postal Service.  (See AF 536; Tr. 2 at 195).

6 Late in the proceedings, the Postal Service sought to admit into evidence approximately 250 Form 5500s showing additional uses of single axle tractors (AF 13 – not admitted; Tr. 1 at 4-8).  The contracting officer’s final decision did not attach the 250 Form 5500s (see AF 4; see also Postal Service complaint in PSBCA No. 6474, Postal Service answer in PSBCA Nos. 6474 and 6419).  Because of the late production of these documents, the Board did not admit AF 13 into the record.  (See Order dated June 23, 2014).  Because AF 13 is not admitted into the record, we do not rely upon it in rendering our decision. 

7 The Postal Service stopped issuing Form 5500s after August 2, 2012 because it had issued notice on August 2, 2012 that the contract was terminated effective August 10, 2012 (Tr. 4 at 39-40; Tr. 3 at 86-87).

8 Trojan Horse also challenges whether the Form 5500s should be given any weight because they are inherently unreliable and were never transmitted to Trojan Horse.  We discount this argument because the Postal Service provided credible testimony showing that the Form 5500s were issued in the normal course of business and were reliable.

9 The seventeen trips include the twelve trips after the Show Cause Notice and the five trips after the day of the termination for default notice (Findings 16, 19).