Appeal of
HUBBARD TRUCKING, INC.
Under Contract No. HCR 67020
PSBCA No. 3701

APPEARANCE FOR APPELLANT:
John A. Berman, Esq.

APPEARANCE FOR RESPONDENT:
Cary L. Katznelson, Esq.

OPINION OF THE BOARD

            Appellant, Hubbard Trucking, Inc., has appealed the decision of the Contracting Officer to terminate for default Highway Contract Route HCR No. 67020.  This appeal is being decided on the record in accordance with 39 C.F.R. §955.12

FINDINGS OF FACT

            1.  Appellant’s predecessor, B&L Trucking, was originally awarded Highway Contract Route No. HCR 67020 on July 1, 1989, for a four-year term  (Chancellor Declaration, Attachment 2).

            2.  In 1990, B&L Trucking incorporated in the state of Colorado as Hubbard Trucking, Inc.  (Hubbard Deposition, page (Dep.) 19).

            3.  Through a 1990 novation agreement with the United States Postal Service, Appellant, now Hubbard Trucking, Inc., was recognized as the contractor on HCR 67020  (Dep.  21, 22).

            4.  In January of 1993, Larry Hubbard, the president of Appellant, slipped and fell from a machine and injured his back  (Dep. 62-64).  This injury caused  Mr. Hubbard to take off from work for approximately one month.  During this convalescence, William Hubbard, the father of Larry Hubbard and co-owner of Appellant, took over the day-to-day operations of Appellant.  (Dep. 19, 66, 69).

            5.  On April 20, 1993, in response to the Postal Service’s inquiry, Appellant requested Respondent to renew Contract HCR 67020.  On June 18, 1993, Respondent issued a Notice of Renewal of Highway Contract Route (HCR) 67020 for the transportation of mail between Wichita, Kansas and Denver, Colorado, at an annual rate of $209,534.00.  Performance under the renewal contract was to begin on July I, 1993, and extend to June 30, 1997.  (Appeal File Tabs (AF) A, C).

            6.  The contract included the Postal Service standard form for highway transportation contracts, Postal Service Form 7407, July 1992, which in clause 16, TERMINATION BY THE POSTAL SERVICE FOR DEFAULT, permitted the Postal Service to terminate the contract for default if the contractor failed to perform according to the terms of the contract.  The Default clause also provided that the contractor may be found in default if the contractor transfers, assigns or sublets its contract contrary to applicable provisions of the Procurement Manual or without the approval of the Contracting Officer.  (AF D).

            7.  Under clause 15 of the contract, RELEASE OF THE CONTRACTOR, the Contracting Officer was authorized to release Appellant from the contract if a physical disability prevented Appellant from adequately operating the route or if his life would be endangered by continued operation.  In order for the release to be granted, the contract required Appellant to apply to the Contracting Officer for the release and agree to waive indemnity.  Additionally, the contract required the Contracting Officer to determine that the release was in the best interest of the Postal Service and to secure a new contract.  (AF D).

            8.  On February 24, 1994, Larry Hubbard telephoned a representative of Respondent to discuss assigning or subcontracting the subject contract  (Appellant’s Supplemental Evidence, Tabs 2 & 3).  Appellant did not, at this time or any other time, submit a written request to have the subject contract assigned or transferred to another entity^[1] (Chancellor Declaration; Dep. 47).

            9.  Appellant employed as many as twelve employees during peak business times  (Dep. 37).  Two of these employees, Scott Cravens and Keith Meyers, had discussions with Appellant regarding their purchase of Appellant’s assets and the transfer of Appellant’s mail delivery routes  (Declaration of Cravens and Meyers). 

            10.  The Postal Service generally prohibits contract transfer or novation  (U.S.P.S. Procurement Manual, § 6.5.4, June 30, 1993).  At its discretion, however, the Postal Service may recognize a third party as the successor in interest when the party’s interest arises out of the transfer of all the contractor’s assets or the entire portion of the assets involved in performing the contract  (Chancellor Declaration, Attachment 1).

            11.  During this time period, February-March, 1994, Larry Hubbard’s back injury apparently worsened, and he was forced to spend more time resting.  He did, however, take care of the day-to-day responsibilities of the business by telephone and his father assisted in running the business.  (Dep. 51-56).

            12.  By letter dated August 24, 1994, sent by facsimile to Respondent, Appellant stated that it would cease operation as of August 31, 1994, because of the declining health of its president  (AF F).

            13.  Respondent’s contracting specialist called Appellant’s president on August 30, 1994, and advised him that Appellant was responsible for continuing contract performance, and that if it failed to do so, Appellant would be liable for excess reprocurement costs.  Appellant was further advised that the illness of its president did not excuse the company from its contract obligations.  Mr. Hubbard responded that he was too ill and was dissolving the company and selling its trucks.  (AF F).

            14.  Appellant never applied for a medical release from performing the contract, nor did Appellant ever send to Respondent any documentation regarding a medical condition affecting contract performance  (Declaration of Chancellor, Eufinger and Davis).  In fact, prior to Appellant’s letter of August 24, 1994, no one representing Appellant ever informed Respondent in writing of Mr. Hubbard’s back injuries  (Dep. 78).

            15.  On August 30, 1994, Appellant ceased performance on route HCR 67020  (AF F).

            16.  By Final Decision dated September 13, 1994, the Contracting Officer terminated Contract HCR 67020 for default, under Clause 16.a.1 of the contract’s General Provisions, for failure to perform according to the terms of the contract.  Appellant filed a Notice of Appeal on October 14, 1994, in which Appellant claimed that Respondent had materially breached the contract by not granting Appellant’s request to transfer the contract.  (AF F).

            17.  On August 31, 1994, Respondent solicited bids from several highway transportation contractors for emergency replacement of Appellant’s contract.  Respondent awarded emergency contract HCR No. 670MU to the low bidder in the amount of $259,900.00.  This represented an annual increase of $42,894.68 over the value of Appellant’s contract.  This emergency contract was terminated by Respondent in November 1994, and a second emergency contract (HCR 670QU) was awarded to replace it.  Performance was rendered and payment made by Respondent under each of these emergency service contracts.  (Declaration of Chancellor and Eufinger; Respondent’s Supplemental Exhibit (RSE) 2-5). 

            18.  By Contracting Officer’s Final Decision dated February 15, 1995, reprocurement costs in the amount of $4,942.68 were assessed against Appellant.  This amount was determined by multiplying the incrementally increased daily cost of the first emergency contract^[2] (HCR 670MU), $117.52, times 100 days, resulting in a total of $11,752.00.  Respondent then added $325.00 in administrative cost incurred in procuring the emergency contract but credited Appellant with $7,134.32 in funds that had been withheld from Appellant. 

          $11,752.00    Excess Cost of Emergency Contract
          $     325.00    Administrative Cost
          $12,077.00    Total Excess Reprocurement Cost
minus $   7,134.32   Withheld Funds
          $    4,942.68               Balance  (RSE 2).

            19.  Appellant received this Final Decision on March 1, 1995, but did not file a timely appeal  (Declaration of Chancellor).

DECISION

            The issues to be decided in this appeal are whether Respondent acted properly in terminating the contract for default and, if so, whether Respondent reasonably mitigated the amount of excess reprocurement costs assessed against Appellant.  Respondent contends that Appellant’s letter on August 24, 1994, stating that it would cease all contract operations effective August 31, 1994, and the subsequent telephone conversation on August 30, 1994, between Respondent and Appellant’s president, in which Appellant confirmed its intent to cease performance, dissolve the corporation and sell its trucks, warranted the termination for default of the contract.  (Finding of Fact Nos. (FOF) 12, 13).

            Respondent also contends that the Contracting Officer’s Final Decision of February 15, 1995, assessing excess reprocurement cost, should be considered final and not reviewable since Appellant failed to appeal it within the 90 day time period prescribed by the Contract Disputes Act.  41 U.S.C. §606(b).  Respondent further contends that this case is distinguishable from the cases in which Boards of Contract Appeals have applied the “Fulford doctrine,” which permits a contractor to contest the propriety of a default termination when it timely appeals an assessment of excess reprocurement costs, since, in this case, the contractor timely appealed the default but did not file an appeal of the assessment of excess reprocurement costs.

            In Dynamic Products Co., PODBCA No. 2, January 6, 1959, we held that the Board had jurisdiction to consider a contractor’s appeal of a decision assessing excess reprocurement costs, notwithstanding its failure to timely appeal that decision since it had timely appealed the earlier decision to terminate its contract for default.  In that decision the Board held that a contractor could appeal either at the time of a notice of default or at the time of the assessment of excess reprocurement costs, citing Fulford Mfg. Co., ASBCA Nos. 2143, 2144, May 20, 1955.  See also, Jeff Talano, PSBCA Nos. 3695 & 3696, November 14, 1996, slip op. at    ; Tom Warr, IBCA No. 2360, 88-1 BCA ¶ 20,231; Pantronics Inc., ASBCA No. 20982, 78-2 BCA ¶ 13,285; El-Tronics Inc., ASBCA No. 5457, 61-1 BCA ¶ 2961.  Accordingly, Appellant, having filed a timely appeal of the decision to terminate its contract for default, may contest the propriety of the reprocurement cost assessment, notwithstanding its failure to file a timely appeal of that decision.

            Appellant contends its repudiation and abandonment of contract performance were excusable because of Respondent’s material breach by not reasonably accommodating the disability of Appellant’s president and allowing it to transfer the contract to another entity.  Appellant did not submit any evidence regarding the reasonableness of the assessment of excess reprocurement costs, nor did Appellant make any arguments regarding this issue.

THE DEFAULT TERMINATION

            There is no dispute that Appellant stopped performing on August 30, 1994  (FOF 16).  Such abandonment of performance under the contract, if not excusable or caused by Respondent’s material breach, justifies the decision to terminate the contract for default.  Michael N. Beckloff, PSBCA No. 2249, 89-2 BCA ¶ 21,767; Brooks E. Cook, PSBCA No. 1350, 86-3 BCA ¶ 19,073; Lawrence D. Bane, PSBCA Nos. 1440, 1491, 86-2 BCA ¶ 18,997, recon. denied, 86-3 BCA ¶ ¶ 19,252, 19,276.  Therefore, Appellant must come forward with evidence to demonstrate its default was excusable.

            Appellant’s actions during the course of this contract do not support a finding of excusability, nor does the record support a finding that Respondent breached the contract.  Appellant had no right to have its contract transferred to another entity.  Such transfers are generally prohibited by the Postal Service Procurement Manual.  (FOF 10).  Appellant failed to present to the Contracting Officer a concrete proposal to transfer the contract in accordance with the requirements of the Postal Service Procurement Manual.  Appellant made a single telephone call to Respondent on February 24, 1994, to explore the possibility of transferring its contract to another entity.  Appellant did not follow up this telephone call with a specific, written request to transfer the contract.^[3]  (FOF 8).  Appellant never raised this issue again until after the contract was terminated and it filed a notice of appeal  (FOF 16).  Respondent’s failure to grant a novation under these circumstances does not constitute a breach of contract.

            Similarly, nothing in the record supports a finding that Respondent breached the contract by failing to grant a medical release to Appellant.  The contract’s General Provision No. 15 makes clear that a release may be granted only if a physical disability prevented contract performance or would endanger the contractor’s life if performance continued.  Most importantly, General Provision No.15 requires the contractor to apply to the Contracting Officer for a medical release.  (FOF 7).  Appellant never applied for a medical release and did not present any documentation to Respondent, prior to filing this appeal, which would support a release under General Provision No.15.  Prior to sending Respondent a letter on August 24, 1994, in which Appellant repudiated further contract performance, neither Appellant nor its president, Larry Hubbard, ever informed Respondent in writing that Mr. Hubbard had a back injury.  (FOF  14).  Under these circumstances Respondent’s failure to grant a release did not constitute a breach of the contract.

            Accordingly, the contract was properly terminated for default.

EXCESS REPROCUREMENT COST

            Respondent has demonstrated that it solicited bids from several highway transportation contractors for an emergency replacement of Appellant’s defaulted contract and awarded the contract to the low bidder.  Respondent has also established that services were rendered and payment made to this emergency contractor  (FOF 17).  See Bowman’s Transport Co., PSBCA Nos. 1088, 1089, 1092, 84-1 BCA ¶ 17217.

            In its final decision assessing excess reprocurement cost against Appellant, Respondent charged Appellant the incrementally greater daily cost of this emergency contract ($117.52 per day) for a 100-day period of time.  Respondent also charged Appellant with $325.00 of administrative costs associated with putting the emergency contract in place  (FOF 18).

            Respondent’s reprocurement cost assessment is prima facie reasonable.  Appellant has only been charged for the additional costs associated with emergency services for a 100-day period rather than the two years and ten months remaining on the defaulted contract.  Respondent reasonably mitigated the cost of the emergency service contract by competitively procuring the services from qualified bidders.  See Alvin P. Koetitz, PSBCA No. 1261, 1985 WL 16639 (June 6, 1985).  Appellant offered no evidence to rebut the reasonableness of Respondent’s mitigation efforts in reprocuring an emergency replacement contract, or the administrative costs charged to Appellant.  Therefore, the excess reprocurement costs incurred by Respondent as a result of the default of Contract HCR 67020 may properly be assessed against Appellant. 

            The appeal is denied in its entirety.

William K. Mahn
Administrative Judge
Board Member

I concur:
James A. Cohen
Administrative Judge
Chairman

I concur:
David I. Brochstein
Administrative Judge
Vice Chairman

^[1]  Respondent’s contracting personnel, including the Contracting Officer, have no recollection of this telephone call.  The Contracting Officer, however, would not normally make any decision regarding the novation or transfer of a contract over the phone but would require that the request be made in writing and accompanied by the necessary documentation.  (Declaration of Chancellor, Davis and Eufinger).

^[2]  The second emergency contract awarded as a replacement for Appellant’s defaulted contract was at the annual rate of $305,250.00.  However, this more expensive contract rate was not assessed against Appellant.  (Declaration of Chancellor).

^[3]  Appellant was well aware of the procedures involved in obtaining a transfer or novation of a contract from the Postal Service, having obtained the subject contract by novation agreement in 1990  (FOF 3).