PSBCA Nos. 3460 and 3622


October 30, 1995 


Appeal of
ROBERT A. and SANDRA B. MOURA
Under Contract No. 363192-90-P-0305
PSBCA Nos. 3460 and 3622

APPEARANCE FOR APPELLANTS:
Robert A. Moura[1]
Sandra B. Moura

APPEARANCE FOR RESPONDENT:
Glenn L. Smith, Esq.
Gary W. Bigelow, Esq.

OPINION OF THE BOARD

            Appellants have timely appealed decisions of the Contracting Officer (1) terminating on one-day’s written notice their contract to operate a postal unit;  (2) assessing costs against Appellants in the amount of $50,353.05; and (3) denying Appellants’ claim for breach of contract in the amount of  $261,046.83.  At the request of the parties, a hearing was held at which both parties presented evidence to support their contentions.

FINDINGS OF FACT

            1.  By novation agreement dated March 31, 1990, Appellants, Robert A. and Sandra B. Moura, were recognized as a successor in interest to operate a contract station known as Falls Contract Station in Raleigh, North Carolina, effective June 2, 1990.  The contract number, as subsequently changed, was 363192-89-P-0305.  The duration of the contract was indefinite, and the annual rate was $79,904.  (Appeal File (AF)-1; Dec. Transcript 22[2]).

            2.  The contract General Provisions (PS Form 7369) contained the following provision pertaining to termination:

“TERMINATION-This contract may be terminated by either party upon sixty days written notice.  In the event of such termination, neither party shall be liable for any costs except for payment in accordance with the payment provisions of the contract for the actual services rendered prior to the effective date of the termination.  Should the Contracting Officer determine the contractor to be in default, the Contracting Officer shall terminate the contract by giving the Contractor one day’s notice thereof in writing.” (AF-1)

            The contract Specification Requirements (PS Form 7311) contained two provisions pertinent to these disputes:

“18.  The contractor shall be personally responsible, accountable, and answerable for the faithful performance and discharge of all the duties and obligations assumed by him in this contract, whether or not he personally conducts the Contract Unit.  The contractor shall be chargeable with all acts and omissions of his employees who assist in the conduct of the Contract Unit.

***

20.  During periods when the Contract Unit is closed, or is unattended for any reason, all monies and postage supplies, including money order forms, shall be kept in the safe, which must be securely locked by at least three complete turns of the combination dial.  Envelope and postal card stock may be kept in a suitable cabinet, provided that it is kept locked.”  (AF-1)

            3.  Handbook AS-707F (July 1989) “Contracting for Contract Postal Units” contains internal procedural guidelines for administration of contract units such as Appellants’.  The Handbook is not part of Appellants’ contract and does not contain Postal Service contracting policies.  The Handbook in Chapter 4 states that subsequent to award of a contract, the Contracting Officer should designate a Contracting Officer’s representative (“COR”), should provide the contractor with initial training and should assure the COR performs an annual audit of the contractor (Dec. Tr. 12-15; Appellants’ Appeal File (AAF)-10).

            4.  In 1990, subsequent to the novation agreement by which Appellants became the contractor for the Falls Contract Station, the station manager at the North Ridge, NC Post Office was the COR (June Tr. 166).  Appellants were unaware of the identity of the COR, however (Id. 258-59).

                       5. Appellant, Mr. Moura, operated other businesses and was not involved in the day-to-day operation of the contract postal unit.  He visited the unit about once every other month for 20-30 minutes per visit.  Although offered two weeks of training by Respondent in the operation of the unit, he declined for personal reasons.  One of Appellants’ employees did attend the training session however.  Appellant, Mrs. Moura, has never worked at the Falls Contract Station (June Tr. 257-58, 292-93, 320).

            6.  An audit of the stamp stock and cash on hand at the Falls Contract Station was conducted by Respondent on the day that Appellants began operation of the unit (June Tr. 195, 251-52, 292).  The audit indicated an overage of $74.19 (AF-14).

            7.  On August 3, 1992, the Acting MSC Director/Finance wrote the Station Manager, North Ridge Post Office, the Contracting Officer’s representative, that Appellants’ accountability at the end of a particular accounting period was $120,213.21, but that the amount of their bond was only $65,000.  An audit of the stamp stock and cash on hand at the Falls Contract Station therefore was requested (AF-17; June Tr. 98, 105, 166).

            8.  It was determined that the audit would be conducted on August 7, 1992 (June Tr. 10, 98, 263; Supplemental Appeal File (SAF) -11).  Appellants were advised on August 5 or 6 that the audit would be conducted on August 7.  Appellants had planned a vacation to begin on August 7 and departed Raleigh on that date to commence their vacation (June Tr. 263-64, 319-20).

            9.  The audit, the first one since 1990, was conducted as scheduled on August 7, 1992 (June Tr. 196; SAF-11).  A shortage of $51,413.10 was found (Id.; Dec Tr. 23; June Tr. 148-49).  It cannot be determined whether the shortage consisted of stamps, cash, or a combination of both (June Tr. 26).  At the time of the audit, first-class and second-class mail was found in trash cans in the contract station, and 3,900 blank money orders were found unsecured.  Other accountable items also were not secured (June Tr. 7-8, 99-100, 135;  AF-19).

            10.  The Sectional Center Manager/Postmaster, Raleigh, Ms. Floretta Reed, was advised of the audit findings and the lack of security observed at the time of the audit on August 7, and suspended operation of the Falls Contract Station on the afternoon of Friday, August 7, 1992 (June Tr. 178).

            11.  Appellants were called that evening by a Postal Service Inspector at their vacation home and were advised of the audit result and of the suspension of their contract (June Tr. 9-10, 264).  Appellant, Mr. Moura, offered to return to Raleigh at that time, but was advised that the suspension action would not be affected by his return.  He was further advised that the Postal Service Inspectors, not the Raleigh police, were conducting the investigation (June Tr. 266-67).

            12.  On Monday, August 10, 1992, Appellants had the Raleigh police contacted by one of their employees (June Tr. 267, 316; AAF-12).  In the afternoon of August 10, 1992, a meeting was held between Ms. Reed and her staff.  At that time, it was the consensus that Appellants’ contract be terminated on one day’s notice.  Ms. Reed thereupon made that recommendation to the Contracting Officer (Board Exhibit 1; June Tr. 179-80).

            13.  The Contracting Officer received that recommendation on August 11, 1992, and on that date terminated Appellants’ contract, effective August 12.  The decision to terminate was based on three factors: (1) the audit shortage of $50,000+, (2) mail security irregularities, and (3) the recommendation of local management officials that the contract unit be closed and not reopened (Dec. Tr. 26-27).  Appellants were paid in full for their contract services for the period between initiation of suspension and termination (June Tr. 289).

            14.  A second audit of the Falls Contract Station was made on August 24, 1992.  Appellant, Mr. Moura, was present at that audit, as were two Postal Service employees.  That audit revealed a final contract shortage of $50,353.05 (June Tr. 138-45; AF-8).

            15.  Mr. Moura met with Ms. Reed on August 24, and on August 25, 1992, Mr. Moura wrote Ms. Reed and requested reinstatement of Appellants’ contract.  Ms. Reed responded by letter of August 28, 1992, and declined to reinstate the contract.  Three reasons were given for the declination: (1) the $50,353.05 shortage, (2) numerous customer complaints as to service and courtesy, and (3) the close proximity of North Ridge Station -- built in 1989 and located only 1.1 miles from Falls Station (June Tr. 278-79; AAF 7, 18).

            16.  In regard to customer complaints pertaining to service and courtesy at the Falls Contract Station, the record does not disclose any such complaints, and in fact supports a finding that with one exception, none existed (June Tr. 281).

            17.  It was Appellants’ policy to keep all public doors to the facility locked.  It was also their policy to keep the safe in the facility locked during non-business hours.  The record does not support a finding, however, that these policies were implemented with any degree of consistency (June Tr. 117-18). 

            18.  Neither the Postal Service Inspectors nor the Raleigh police have been able to identify, arrest and/or prosecute the individual(s) responsible for the $50,353.05 loss.  Because the safe was left open most of the time during the business day, too many people had access to the stamp stock and funds to identify with particularity the culpable person(s) (June Tr. 14, 19-20, 253).

            19.   Subsequent to the August 12, 1992 termination action, the Contracting Officer by final decision dated February 12, 1993, assessed Appellants the $50,353.05 account shortage.  A timely appeal was taken and was docketed as PSBCA No. 3460.  On January 6, 1994, Appellants filed a breach of contract claim with the Contracting Officer in the amount of  $261,046.83.  That claim was denied by final decision dated February 4, 1994 (SAF 13, 15; June Tr. 42).  Another appeal was taken on February 14, 1994, and was docketed as PSBCA No. 3622 (SAF 16).  The appeals thereafter were consolidated.

DECISION

            Appellants initially argue that Respondent breached its obligations under the contract by (1) failing to train workers at the post office, (2) failing to supply the Appellants with a Contracting Officer’s representative, (3) failing to perform required audits, and (4) failing to give 60 days notice of termination.  Upon consideration of each argument, we find that none has merit.

            Appellants rely upon the provisions of Handbook AS-707F “Contracting for Postal Units” in support of their contentions pertaining to the first three items of breach.  (See Finding of Fact No. 3).  However, contrary to Appellants’ assertion, the Handbook is not part of the contract between Appellants and Respondent.  The Handbook instead contains internal procedural guidelines only and is utilized by Respondent’s employees in administration of postal unit contracts.  Thus, Respondent’s failure to adhere to any of the guidelines would not breach any contractual agreement made by the parties.  See Jake Sweeney Auto Leasing, Inc., PSBCA Nos. 2942-2945, 91-3 BCA ¶24, 112; See also Automation Fabricators & Engineering Co., PSBCA No. 2701, 90-3 BCA ¶22,943.  Additionally, we note that Appellant, Mr. Moura, was offered, and refused, two weeks of training and that one of Appellants’ employees did attend a two-week training session.  Further, there was a Contracting Officer’s representative appointed, although Appellants were unaware of his or her identity.  The record fails to show any effort made by Appellants to ascertain such identity however.  Additionally, Respondent’s failure to identify the representative to Appellants would not have been a material breach which would have excused any of Appellants’ performance deficiencies.  Finally, a yearly audit was not performed in 1991, but the record does not indicate such lack of diligence by Respondent to have been a contributing factor to the monetary loss discovered in August 1992, nor to have excused Appellants’ performance deficiencies.

            As to the fourth item of breach -- failure to give 60 days notice -- Appellants argue that there was no contractual right to suspend operation of Appellants’ contract and that the contract required a 60-day termination notice.  Appellants’ position is not well taken.  At the time of the August 7, 1992 audit, a shortage of $51,413.10 was identified.  Additionally, first and second-class mail was found deposited in trash cans, 3,900 blank money orders were found unsecured, and other accountable items likewise were found not secured.  At that time Respondent therefore had the right to terminate the contract for default on one-day’s notice.

                       Although no specific contractual provision provides for suspension of the operation of the contract station, the right to default on one-day’s notice which then existed certainly encompassed the lesser right to suspend performance temporarily.  The extremely serious monetary shortage discovery and breach of security required at least some temporary remedial action by Respondent pending resolution of the problem and determination of whether to exercise its right to terminate the contract.  Under the circumstances then present, it was reasonable to temporarily suspend operation of the contract unit immediately.  Appellants suffered no monetary loss due to the temporary suspension as they were paid in full for operation of the station during the suspension period.

            The contract contained alternate termination rights - 60 days’ notice by either party without cause or one day’s notice by Respondent for Appellants’ default.  Here the Contracting Officer, after due consideration and following a reasonable period of suspension to consider the matter, found Appellants in default as a result of the inventory/cash shortage and the serious mail and stock security irregularities.  Thus, his one-day notice of termination was properly and reasonable taken, and we so hold.  Although the recommendation of local management officials that the contract unit not be reopened was also considered by the Contracting Officer, that recommendation was not the motivating factor for the termination action.

            Appellants also contend that Respondent was negligent in conducting its investigation of the loss, was less than diligent in its investigation, and did not attempt to solve the crime.  This contention is not supported by the record.  A prompt investigation of the crime was made both by Respondent and the Raleigh, North Carolina police.  Neither the Postal Service Inspectors nor the Raleigh police were able to identify the culpable party or parties as too many of Appellants’ employees had access to the stamp stock and funds.

            We thus turn to the issue of Appellants’ responsibility for repayment of the $50,353.05 final audited inventory loss.  The contract’s Specification Requirements (PS Form 7311) in paragraph 18 (Finding of Fact No. 2) provided that the contractor shall be personally responsible and accountable for the performance and discharge of all duties and obligations under the contract.  It also provided that the contractor shall be chargeable with all acts and omissions of employees.  Following the precedent of Jaehee Yoshimoto, PSBCA Nos. 2315, 2749, 92-1 BCA ¶24,504; Clines Office Products, PSBCA No. 3045, 92-1 BCA ¶24,725; and John W. Bradbary, PSBCA No. 3126, 93-2 BCA ¶25,563, we hold Appellants strictly accountable under paragraph 18 for the loss in issue.

            Appellants, relying on Maude Ellen Thacker, PSBCA No. 2923, 92-3 BCA ¶25,093, argue that paragraph 20 (Finding of Fact No. 2) of the same form requires a different result, as Appellants adhered to its requirements.  Paragraph 20 required that all money and postage supplies, including money order forms, be kept in a locked safe.  In Thacker money was stolen from a locked safe during non-business hours, and we held the existence of Paragraph 20, which Ms. Thacker contended she abided by, created an ambiguity in contract terms, and thus precluded granting Respondent’s motion for summary judgment.  Thacker is inapposite.  Mr. Moura testified that it was Appellants’ policy to keep the inventory in a locked safe during non-business hours.  However, Mr. Moura visited the facility about once every other month for only 20-30 minutes per visit.  Therefore, he lacked personal knowledge as to whether that policy in fact was followed.  No employee of Appellants who worked at the unit within a year and a half of the August 1992 termination action testified on this issue.  Additionally, the record does not establish that the losses in this instance were the result of money or stamp stock being stolen from a locked safe during non-business hours.  We find Appellants responsible for repayment of the $50,000 plus loss as the evidence establishes that reasonable care was not used in the operation of the contract unit (Finding of Fact No. 9).  Respondent seeks prejudgment interest on such amount.  However, the Contracting Officer’s final decision did not seek interest from Appellants, and the issue is therefore not properly before the Board for consideration.

            Also, Appellants argue that Respondent did not give proper consideration to its January 6, 1994 breach of contract claim which has been docketed as PSBCA No. 3622.  The record discloses that the Contracting Officer gave careful  consideration to the claim, and in any event, we find it non-meritorious as we have found the termination action properly taken.

SUMMARY

            Respondent properly terminated the contract on one-day notice; Appellants are liable for payment of the amount of $50,353.05 without interest to Respondent; Appellants’ breach of contract claim is denied.  Accordingly, the appeals are denied.


James D. Finn
Administrative Judge
Vice Chairman

I concur:
James A. Cohen
Administrative Judge
Chairman

I concur:
David I. Brochstein
Administrative Judge
Board Member




[1]
Counsel who represented Appellants at hearing has filed with the Board a Notice of Withdrawal as counsel for Appellants.

[2] The hearing originally commenced in December, but due to procedural problems related to certification of Appellants’ breach claim, had to be adjourned and did not resume until June of the next year.