PSBCA No. 6588, 6596


March 2, 2016

MATHESON POSTAL SERVICES, INC. v. UNITED STATES POSTAL SERVICE

PSBCA Nos. 6588, 6596

APPEARANCE FOR APPELLANT:
Patricia Kepner, Finance Director
Matheson Postal Services, Inc.

APPEARANCE FOR RESPONDENT:
Joseph B. Fray, Esq.
United States Postal Service Law Department  

OPINION OF THE BOARD 

Appellant, Matheson Postal Services, Inc., appeals two decisions by a contracting officer for Respondent, United States Postal Service, which denied Matheson’s claims totaling $218,377.87 under two mail transportation contracts.  We rule in favor of the Postal Service and deny both appeals.1

FINDINGS OF FACT

Contract 90110

  1. On March 31, 2010, the Postal Service and Matheson renewed Contract No. HCR 90110 (Contract 90110) for mail transportation service in California, Oregon and Washington.  Amendment 15 extended the renewed contract’s expiration date to July 31, 2014.  At the time of the amendment, the annual contract price was $2,590,201.39.2  (AF 5 at 7, 8 at 61, 15 at 419-421; see also AF 6, 7). 
  2. On March 12, 2014, the Postal Service notified Matheson that operational changes required reduced service in Contract 90110, effective on March 22.  On May 15, 2014, Matheson sent an email to the Postal Service with its “offer for the 90110 service change of March 22.”  Matheson attached supporting documentation, and explained in detail the impact of the reduced service on contract pricing.  (AF 15 at 726-29). 
  3. On July 8, 2014, the parties executed Amendment 16 to Contract 90110.  Amendment 16 was identified as a “NEGOTIATED SERVICE CHANGE,” stated that the amendment was made “[p]ursuant to the Changes Clause,” and identified a retroactive effective date of March 22, 2014.  Amendment 16 identified two deleted daily trips and four modified trips.  Overall, Amendment 16 reduced the scope of the contract by over 800,000 annual miles and decreased its annual price to $1,980,015.87.  It also included a $118,695.37 “Lump Sum Reduction from 3/22/2014 to 5/31/2014.”  (AF 8 at 60-64; AF 15 at 688-90).

    4. Contract 95213

  4. On August 31, 2012, the Postal Service and Matheson renewed Contract No. HCR 95213 (Contract 95213) for mail transportation service in California.  Amendment 7 extended the contract term to June 30, 2014.  At the time of the amendment, the annual contract price was $1,793,089.92.  (AF 13 at 90-94; AF 14 at 151, 174, 327).
  5. On March 31, 2014, the Postal Service sent Matheson an email stating that effective April 5, 2014, the “schedule requirements [for Contract 95213] are changed as shown on the enclosed schedule.”  The email attached a Negotiated Cost Statement with a “proposed decreased amount” of $988,262.37.  The email also stated that “[i]f you [Matheson] do not agree with the compensation recommended by the USPS,” Matheson may complete a blank Negotiated Cost Statement “showing your proposed costs.”  (AF 14 at 351-53).
  6. On April 17, 2014, Matheson sent the Postal Service an email that “attached our offer for [Contract] 95213 Apr 5, 2014 service change.  This was a significant change and we’re in agreement on miles and equipment.”  (AF 14 at 354).
  7. On April 25, 2014, the Postal Service sent Matheson another email that stated “Please see revised forms, hopefully we can agree.”  An attached Negotiated Cost Statement identified a yearly $897,584.58 price.  (AF Tab at 346-48). 
  8. On May 1, 2014, Matheson responded by email and stated
              We looked at the offer and it all looks good with one minor exception – line 5 and 17.  The operations are reduced but the overall           management structure will not change and we request to maintain the 5 & 17 as they were.  Keeping 5 & 17 at the pre-change levels           still produces a 48% reduction in the contract and a 53% reduction in miles.
    (AF 14 at 346).  The referenced worksheet eliminated the Postal Service’s proposed $16,185.95 reduction for line 5 (“General Overhead”) and its $13,875.48 reduction for line 17 (“Supplier’s Wages Personal Driving/Supv.”) for a total annual price of $927,693.01 (AF 14 at 350).
  9. On May 20, 2014, the parties executed Amendment 9 to Contract 95213.  Amendment 9 was identified as a “NEGOTIATED SERVICE CHANGE” made “[p]ursuant to the Changes Clause.”  Amendment 9 identified daily contract trips that were deleted, reduced the scope of the contract by over 500,000 annual miles, and decreased the annual contract price to $897,584.58.  (AF 14 at 342-44).  A Negotiated Cost Worksheet signed by a Matheson official on May 15, 2014, provided a detailed price breakdown (AF 14 at 344). 

    10. Contract terms

  10. The Termination with Notice clause included in both contracts provided:
              The contracting officer or the supplier, on 60 days written notice, may terminate this contract or the right to perform under it, in whole           or in part, without cost to either party.
    (AF 7 at 41, 137 (§ 2.3.3a); see AF 14 at 137; AF 15 at 483).
  11. Both contracts included Changes (Transportation) (Clause B-67):
              a. Service Changes
              The supplier shall proceed diligently in accordance with service changes and extra trips ordered unilaterally by the contracting officer.            Disputes concerning such orders shall be resolved pursuant to the Claims and Disputes clause.
              (1) Minor Service Changes.  The contracting officer may, at any time, without consulting the supplier, issue orders directing an                     extension, curtailment, change in line of travel, revisions of route, or increase in frequency of service or number of trips and                     fixing an adjustment in the supplier’s compensation which increases or decreases the supplier’s rate of pay by no more than                     5%, not to exceed $5,000 of any single contract.  If the supplier believes the change in cost of providing the service required by                     the order is inequitable with the changes made in compensation, the supplier may request an adjustment of compensation for                     the service change.
              (2) Other Service Changes.  Service changes other than minor service changes, including increases or decreases in compensation,                     may be made by mutual agreement of the contracting officer and the supplier.  Such changes shall be memorialized by formal                     amendment to the contract.
    (AF 7 at 39-40 (§ 2.3.2a)).

    12. Procedural history

  12. On August 25, 2014, Matheson submitted an $83,531.07 claim under Contract 90110.  Matheson’s claim stated that Amendment 16 reduced the scope of the contract by 38.6%.  Matheson stated that it considered “this service change a partial termination” subject to 60 days’ written notice under the contract.  Matheson explained that it received 10 days’ notice (notified on March 12, 2014 about the service reduction, to become effective on March 22, 2014) rather than the required 60 days’ notice.  Therefore, Matheson claimed the value of 50 days’ notice, which it calculated at $83,531.07.  (AF 9 at 66).
  13. Also on August 25, 2014, Matheson submitted an uncertified $134,846.80 request under Contract 95213.  Matheson’s request stated that Amendment 9 reduced the scope of the contract by 53.2%.  Matheson stated that it considered “this service change a partial termination” subject to 60 days’ notice under the contract.  Matheson explained that it received five days’ notice (notified on March 31, 2014 for the service reduction to begin April 5, 2014) rather than the required 60 days’ notice.  Therefore, Matheson claimed the value of 55 days’ notice, which it calculated at $134,846.80.  (AF 1).
  14. On September 9, 2014, in the form of two separate final decisions, the contracting officer denied Matheson’s $85,531.07 claim under Contract 90110 and its uncertified $134,846.80 request under Contract 95213 (AF 10 at 67; AF 2).
  15. On December 4, 2014, Matheson appealed to the Board challenging the contracting officer’s decision denying its claim under Contract 90110, which the Board docketed as PSBCA No. 6588 (AF 3).  On the same date, Matheson filed a protective notice of appeal with the Board, challenging the contracting officer’s denial of its uncertified request under Contract 95213 (AF 11).  The Board docketed the Contract 95213 notice of appeal as PSBCA No. 6587.
  16. On December 4, 2014, Matheson submitted its $134,846.80 request to the contracting officer under Contract 95213 as a certified claim, which the contracting officer denied on January 6, 2015 (Board’s Case File).
  17. On February 26, 2015, Matheson appealed the contracting officer’s denial of that certified claim to the Board, which the Board docketed as PSBCA No. 6596 (Board’s Case File).
  18. On March 26, 2015, the Board consolidated the appeals, and on April 21, 2015, dismissed PSBCA No. 6587 (the appeal involving Matheson’s uncertified request under Contract 95213) as having been superseded by PSBCA No. 6596 (appeal involving denial of certified claim).

DECISION

Matheson asks the Board to construe the substantial trip reductions as partial terminations on notice entitling it to additional compensation for the remainder of the contractual notification periods.  Specifically, Matheson argues that the Postal Service has not published procedures or provided guidance regarding whether a substantial service reduction is a partial termination on notice or a negotiated service change.  As a result, Matheson contends that it is entitled to rely on its prior experience where the Postal Service treated a substantial service reduction as a partial termination on notice despite presenting it as a negotiated service change. 

Matheson also argues that partial termination on notice is appropriate when an entire contract trip (or more) is cancelled.  Matheson states that it expected two components of compensation to be addressed – costs associated with the impact of the service changes (for which it was paid) and the cost impact from the short notice it received of those changes (for which it maintains it was not paid).  Finally, Matheson contends that it was afforded insufficient time to analyze the financial impact of the service reductions, and it therefore would be unfair to deny recovery that only could have been determined with sufficient time to assess those additional cost impacts.

In response, the Postal Service argues that both parties treated the service reductions as negotiated service changes, and that they expressly and bilaterally amended the contracts to implement the reductions in that way.  The Postal Service maintains that we should not alter the parties’ express contract amendment.

This case is substantially similar to Justman Freight Lines, Inc. v. United States Postal Service, PSBCA No. 6428, 15-1 BCA ¶ 35,819, aff’d, 2016 WL 105888 (Fed. Cir. Jan. 11, 2016).  As in Justman, Matheson’s contracts unambiguously provide alternative methods to implement substantial (non-minor) service reductions, including elimination of entire trips.  Substantial service reductions can be accomplished by mutual agreement that is memorialized in a contract amendment under § 2.3.2a(2) of the contracts.  (Finding 11).  The alternative method allowed by the contracts is a unilateral partial Termination on Notice which the Postal Service can implement by providing 60 days’ written notice (Finding 10).  See Justman Freight Lines, 15-1 BCA ¶ 35,819.  Even if we accept Matheson’s statement that the Postal Service has not provided guidance regarding which alternative method is preferable, the parties’ actions control.  After negotiations, the parties permissibly, bilaterally, and expressly amended the contracts to implement the service reductions as negotiated service changes (Findings 3, 9).  As we explained in Justman Freight Lines, 15-1 BCA ¶ 35,819, we will not constructively find a partial termination on notice when the parties expressly amended the contract as a negotiated service change.3 

However, Matheson also argues that it relied on a prior course of dealing, which justifies finding a partial termination on notice.  Matheson argues that in one instance (relating to a different contract – Contract No. HCR 980Y5), the Postal Service treated a substantial service reduction as both a service change request and a partial termination.  That situation is easily distinguished from that presently before us.  On the same day Matheson submitted its service change proposal to amend Contract 980Y5, it submitted a letter to the contracting officer requesting compensation based on a partial termination on notice (see Complaint ¶ 3.a; Response to Postal Service’s Initial Brief, Exh. 1).4  Thus, the parties negotiated a settlement for Contract 980Y5 under both clauses at the same time.

In contrast, in the present dispute, the parties amended Contract 95213 on May 20, 2014, and Contract 90110 on July 8, 2014 (Findings 3, 9).  It was not until August 25, 2014, well after the parties negotiated and signed the bilateral contract amendments on Contracts 95213 and 90110, that Matheson submitted its termination on notice claims.  The prior course of dealing alleged by Matheson for Contract 980Y5 is fundamentally different from the facts of this case.  See Mitchell Enter., Inc. v. General Serv. Admin., GSBCA No. 16130, 03-2 BCA ¶ 32,403 (circumstances must be the same for application of course of dealing).

Even had Matheson demonstrated that the parties previously treated the same situation as a partial termination on notice in one instance, the outcome would remain unchanged.  See DeLeon Indus., LLC v. Dep’t. of Veterans Affairs, CBCA No. 986, 12-1 BCA ¶ 34,904 (“single transaction cannot constitute a course of dealing”); Moore Elec. Co., ASBCA No. 33828, 87-3 BCA ¶ 20,039, aff’d on recon., 1987 WL 41320 (Sept. 2, 1987) (“a ‘single occasion of conduct’ simply is insufficient to establish a course of conduct which reasonably can be relied upon”).

Matheson could have refused to amend the contracts, forcing the Postal Service either to abandon its trip reduction plans or to issue the partial termination on notice that Matheson presently seeks.  See Justman Freight Lines, 15-1 BCA ¶ 35,819.  However, Matheson did not take that course.  Rather, it signed the amendments.  (Findings 3, 9).  Indeed, Matheson did more than that – it actively negotiated the terms of those amendments with the Postal Service (Findings 2, 5-8).  The contract amendments the parties negotiated and agreed upon are comprehensive, addressing in detail all relevant cost categories comprising the service at issue.  No elements of compensation were reserved in the amendments or the negotiations leading to them.  (Findings 2-3, 5-9).  Matheson therefore has no basis to complain that it was entitled to compensation in addition to what it negotiated and agreed to receive under the amendments that it signed.  While Matheson contends that it expected two components of compensation to be addressed – costs associated with the impact of the service changes (for which it was paid) and the cost impact of the short notice it received about those changes (for which it maintains it was not paid), no evidence in the record shows that it communicated that expectation to the Postal Service prior to agreeing to the contract amendments.

We understand Matheson’s final argument to allege that it agreed to the contract amendments under duress and, therefore, that it should not be bound by them.  To demonstrate duress, Matheson must show that it involuntarily accepted the terms of the contract amendments under circumstances permitting it no reasonable alternative, and that those circumstances resulted from wrongful coercive acts of the Postal Service.  See Sys. Tech. Assoc., Inc. v. United States, 699 F.2d 1383, 1387-88 (Fed. Cir. 1983).  On the evidentiary record before us here, Matheson has not satisfied these elements.  It did not involuntarily accept the Postal Service’s terms, nor was it without a reasonable alternative.  Not only did Matheson actively negotiate the terms with the Postal Service, but it remained free to decline the negotiated service change entirely.  See Steve C. Miller, PSBCA No. 5264, 09-2 BCA ¶ 34,282.  Nor has Matheson alleged any wrongful acts by the Postal Service leading to its acceptance of imposed terms.  See Gary W. Noble, PSBCA No. 4094, 99-2 BCA ¶ 30,413.

CONCLUSION

The appeals are denied.

Gary E. Shapiro
Administrative Judge
Chairman

I concur:

Peter F. Pontzer
Administrative Judge

I concur:

Alan R. Caramella
Administrative Judge

1 At the parties’ joint request, the Board is deciding these appeals on the written record rather than with an oral hearing.

2 Contract 90110 included segments.  Only Segment A is at issue and discussed in this decision.

3 As we rule in the Postal Servie’s favor, we need not separately address its accord and satisfaction argument.

4 While the record is scant regarding Contract 980Y5, we have credited the factual allegations in Matheson’s complaint and briefs even though not corroborated in the record only so that we fully may consider Matheson’s argument.