Appeal of
FANTASTIQUE’ ULTIMATIQUE’ NAUTIQUE’
Under Contract No.  428460-93-P-0081
PSBCA No. 3652

APPEARANCE FOR APPELLANT:
Debra M. Filkins

APPEARANCE FOR RESPONDENT:
Margaret E. Harper, Esq.

OPINION OF THE BOARD

            Appellant, Fantastique' Ultimatique' Nautique', has filed a timely appeal from a decision of a Contracting Officer terminating its contract with Respondent, United States Postal Service.  Appellant contends that the Contracting Officer arbitrarily and without written notice terminated the contract on one day’s notice.   Respondent contends that the Contracting Officer properly terminated the contract to protect the Postal Service’s interests.  At the request of the parties, the appeal is being considered on the record in accordance with 39 C.F.R. §955.12.

FINDINGS OF FACT

            1.  On February 16, 1993, Appellant, operating as St. Thomas Crew Club,^[1] was awarded a contract for the operation of a Contract Postal Unit (CPU) in St. Thomas, United States Virgin Islands for a fixed annual price of $18,000.   Performance under the contract was to begin on February 20, 1993, and continue for an indefinite term (Appeal File (AF) Tab 1).

            2.  The contract required that Appellant “operate the CPU and provide all services and equipment in compliance with all terms of this contract and as described in Attachment 1. . . .” (Id., p. 3).  The contract also provided that the “[h]ours of service and hours of operation must be as specified in Attachment 1. . . .” (Id., p. 5 & Att 1, p. 1).  Attachment 1 to the contract, as modified by Appellant’s Business Proposal, which was included in the contract as Attachment 2, provided for specific hours of operation of the CPU as well as specific hours the CPU was to be open to the public (Id., Atts. 1 & 2).

            3.  Day-to-day operations were required by the contract to be conducted in accordance with provisions of the Domestic Mail Manual (DMM) provided to Appellant at the time of award (Id., p. 3). The DMM contains the prices to be charged for domestic mail services.

            4.  Although the contract allowed Appellant to engage in nonpostal transactions, it required that those transactions occur in a clearly separate area from the assigned CPU area and that all postal funds be kept separate from all other funds (Id., p. 4).  The contract specifically prohibited Appellant from locating the CPU “in, or directly connected to, a room where intoxicating beverages are sold for consumption on the premises” (Id. p. 3).

            5.  The contract included a Termination clause (OB-490, June 1988) under which either party could terminate the contract on 60 days’ written notice, or the contracting officer could “terminate the contract upon one day’s written notice if necessary to protect the Postal Service’s interest” (Id., p. 5).

            6.  The “Inspection of Work (Contract Postal Unit)” clause (OB-494, June 1988) included in the contract provided:

            “[t]he contracting officer’s representative (COR) will periodically inspect the contractor’s performance to make sure that it is in accordance with the contract.  The COR will immediately notify the contracting officer if the work is unsatisfactory.  If the contractor continues to perform unsatisfactorily, the contracting officer will notify the contractor in writing to correct the deficiencies; if uncorrected, the Postal Service may terminate the contract.”  (Id., p. 7)

            7.  Access to the CPU was provided through an adjacent retail store to the east as well as through an area to the north where intoxicating beverages were sold for consumption on the premises (Appellant’s September 6, 1994, Addendum to Appeal).

            8.  By letter dated November 24, 1993, a dissatisfied Postal Service customer complained to Respondent that she had been assessed a 20% surcharge for Postal Service products at Appellant’s CPU (AF Tab 6).

            9.  Effective December 28, 1993, Appellant began charging a $2.00 fee for Postal Service money orders (AF Tab 7; Simmonds’s Decl., ¶2).  Under the DMM in effect at the time, the price to be charged for a money order was $0.75.^[2]

            10.  Because of complaints received about Appellant’s operation of the CPU, two Postal Inspectors working undercover, made purchases at Appellant’s CPU on January 11, 1994.  The Inspectors were charged a $2.00 fee rather than $0.75 for a money order, $2.00 for a $1.25 postal retail product and $5.58 postage to mail a parcel which only required $4.65 postage (AF Tab 16).  As a result of these overcharges the Inspectors recommended an audit of the CPU (Id.).

            11.  The audit recommended by the Postal Inspectors was conducted by three Postal Service employees on January 12, 1994, (Simmonds’s Decl., ¶2).  During the course of the audit the auditors observed:

“1.  A sign on the wall stated that as of 12/23/93 [sic], the fee for money orders were [sic] $2.00 each.

2.  Postal products on display (i.e., insulated bags, boxes, etc.) were being sold for $0.75 above the actual cost.

3.  Postal monies were combined with monies from other items sold in the store in a cash register.  (CPU not using a cash drawer).

4.  Express mail was being accepted after closing hours and postmarked, but not being dispatched until the following day, all being failures.

5.  We observed the fact that money orders were being sold after closing hours and were not sold in numerical sequence.

6.  Remittance not being deposited daily.

7.  A surcharge on postal products and services charged to customers after closing hours (i.e., 29¢ stamps being sold for 35¢, a $3.00 surcharge on a $9.95 express mail piece.)”  (AF Tab 9; Simmonds’s Decl., ¶2).

            12.  Following completion of the audit the auditors notified Appellant’s owner of the deficiencies that had been discovered.  Appellant’s owner was specifically advised:

“1.  That she cease and desist immediately from selling postal products above cost.

2.  No Postal products or services be sold after the 3:00 P.M. closing time.

3.  All Express mail be dispatched the same day received.

4.  Remittances must be submitted daily.

5.  All monies for postal products and services must be kept separate and apart from all other business transactions.

6.  Money Orders were not to be sold after closing hours and that they must be sold in numerical sequence.”  (AF Tab 9; Simmonds’s Decl., ¶3).

            13.  On February 11, 1994, a Postal Service Customer Service Representative attempted to purchase a Postal Service money order at Appellant’s CPU and was charged a $2.00 fee (AF Tab 17; Simmonds’s Decl., ¶4).  The Customer Service Representative discussed the overcharge with Appellant’s owner who stated that the $2.00 fee was to cover the administrative duties required to account for the money order (AF Tab 10; Simmonds’s Decl., ¶4).

            14.  By letter to Appellant dated February 14, 1994, the Contracting Officer’s Representative summarized the audit team’s observations and instructed Appellant to discontinue such practices (AF Tab 10).  By memorandum of the same date the Contracting Officer’s Representative recommended that the Contracting Officer close the CPU due to contract violations (AF Tab 11).

            15.  On February 14, 1994, the Contracting Officer issued a final decision terminating Appellant’s contract effective close of business February 15, 1994.  The decision stated that the termination was based on “numerous allegations that postal customers have been overcharged for services” and was necessary to protect Postal Service interests (AF Tab 12).

            16.  By letter dated February 14, 1994, Appellant notified the Contracting Officer’s Representative that it had closed the CPU as of close of business February 11, 1994 (AF Tab 13).  Respondent thereafter authorized payment to Appellant for the period extending through February 15, 1994 (AF Tabs 1 & 14).   By letter dated May 10, 1994, Appellant filed a timely notice of appeal (AF Tab 15).

DECISION

            Appellant contends that the Contracting Officer failed to provide it with written notification of unsatisfactory work as required by the contract’s Inspection of Work clause prior to terminating its contract on one day’s notice.  Appellant, in addition, contends that it was not provided proper training, procurement of Postal supplies was more difficult than expected, it incurred operating losses despite unexpectedly high revenues, it was not provided the documentation it needed to operate the CPU and finally that it was operating within normal parameters as verified by Postal Service auditors.  Appellant denies it did not maintain a separate Postal Service cash drawer,^[3] but admits to unilaterally extending the CPU hours of service beyond those set forth in the contract, charging Postal Service customers a 20% mark up on Postal Service products during the extended hours and having one of the entrances to the CPU through an establishment serving intoxicating beverages. Nonetheless, Appellant argues that the Contracting Officer arbitrarily terminated its contract.

            Respondent argues that because of Appellant's admitted contract violations the Contracting Officer properly terminated the contract on one day’s notice to protect Postal Service interests.  According to Respondent the Contracting Officer's final decision was sent to Appellant via Postal Service Express Mail on February 14, 1994, and was received by Appellant on February 15, 1994, thus establishing February 16, 1994, as the last day of the contract and the one additional day for which Appellant is entitled to receive compensation.

            Appellant’s contract for the operation of the CPU allowed for termination by either party on 60 days’ notice, and termination on one day’s notice by the Contracting Officer to protect Postal Service interests.  Under this provision the Contracting Officer has great latitude and discretion in determining whether to terminate the contract and the decision of the Contracting Officer will generally be upheld unless it is exercised in bad faith or constitutes an abuse of discretion.^[4]  Contrary to Appellant’s contentions the record does not establish that the Contracting Officer improperly exercised his discretion or acted arbitrarily or in bad faith when he terminated Appellant’s contract.

            It is undisputed that Appellant overcharged Postal Service customers for Postal Service products, located the CPU so that one entrance was through an establishment which served intoxicating beverages, operated the CPU beyond the hours set forth in the contract and did not dispatch all Express Mail on the day it was received.  Despite customer complaints and advice by Postal Service auditors to discontinue these practices, Appellant continued overcharging Postal Service customers and selling Postal Service products beyond the hours set forth in the contract.  Appellant’s continued disregard of the requirements of the contract and the advice of Respondent’s representatives, together with the alienation of customer good will warranted the termination of Appellant’s contract on one day’s notice in order to protect Postal Service interests.^[5]

            While Appellant contends it was operating within normal parameters as verified by Postal Service auditors, the undisputed evidence, including the auditors’ findings, establishes otherwise.  Appellant was clearly violating the terms of the contract in several material respects.  Appellant was placed on notice of these violations by the auditors 30 days prior to the termination of the contract.  However, no improvement in performance occurred.  Under such circumstances it cannot be concluded that the Contracting Officer’s determination to terminate the contract was improper.

            It is true, as Appellant contends, that the Inspection of Work clause provides for written notification of deficient performance and no such notice was given.  However, the absence of a written notice will not preclude a termination, where, as here, Appellant had actual notice of the contract violations, took no corrective action during the one month period it was on notice of the contract violations and has shown no prejudice as the result of Respondent’s failure to provide the written notification.  Thus, the Inspection of Work clause affords Appellant no relief under the circumstances of this appeal.

            Finally, Appellant contends that it was not provided proper training, it incurred operating losses despite unexpectedly high revenues, it was not provided documentation needed to operate the CPU, and procurement of Postal supplies was more difficult than expected.  Even if true, none of these contentions would excuse Appellant’s failure to comply with the terms of the contract or otherwise preclude the termination action taken by the Contracting Officer.  Appellant was specifically notified that its actions were contract violations, but it nonetheless took no corrective action.  Under these circumstances and in view of the customer complaints received by the Postal Service, the Contracting Officer properly exercised his discretion to terminate Appellant’s contract on one day’s notice to protect Postal Service interests.

Conclusion

            Appellant’s appeal is denied.  However, the appeal is remanded to the parties to negotiate any amount due Appellant for the one day period following receipt of the termination notice.

James A. Cohen
Administrative Judge
Chairman

I concur:
James D. Finn, Jr.
Administrative Judge
Vice Chairman

I concur:
David I. Brochstein
Administrative Judge
Board Member

^[1]  The contract was modified to reflect Appellant’s name change to F.U.N. (Fantastique’ Ultimatique’ Nautique’), Inc. on April 14, 1993 (AF Tab 5).

^[2]  DMM §R900.11.2 (Issue 46 July 1, 1993).

^[3]  Since sufficient grounds exist to support the termination, no findings have been made or conclusions reached concerning this contention.

^[4]  Tom Kime, PSBCA No. 3480, 95-1 BCA ¶ 27,490, motion for recon. denied, 95-2 BCA ¶ 27,673; E. Gerald Hanes, PSBCA No. 3082, 92-3 BCA ¶25,127, citing, Salsbury Industries v. United States, 905 F.2d 1518, 1521 (Fed. Cir. 1990)

^[5]  Although the Contracting Officer’s final decision is based on “numerous allegations that postal customers have been overcharged for services” additional grounds justifying termination may be and have been considered on appeal in order to determine the propriety of the termination.  See, Kelso v. Kirk Bros. Mechanical Contractors, Inc., 16 F.3d 1173, 1175 (Fed. Cir. 1994); Tom Kime, PSBCA No. 3480, 95-1 BCA ¶ 27,490, motion for recon. denied,  95-2 BCA ¶ 27,673;  Arthur Napier, PSBCA Nos. 3044, 3140, 94-2, BCA ¶26,695, (AF Tab 12)