Appeal of

THE GREEN SHACK MARKETPLACE

Under Contract No. 056768-89-S-0106
SBCA No. 4557

APPEARANCES FOR APPELLANT:
Christopher F. Bryan, Esq.

APPEARANCE FOR RESPONDENT:
Robert E. O’Connell, Esq.

OPINION OF THE BOARD

            Appellant, The Green Shack Marketplace, appealed the termination by Respondent, United States Postal Service, of Appellant’s contract to operate a contract postal unit in San Bernardino, California.  A hearing was held, and the parties have submitted briefs in support of their positions.

            Only entitlement is at issue (Transcript of Hearing, Page (“Tr.”) 6).

FINDINGS OF FACT

            1.  On January 12, 1987, Respondent awarded Appellant contract No. 056744-87-W-0005 (subsequently renumbered as contract No. 056768-89-S-0106) for the operation of a Contract Postal Unit (“CPU”) providing retail postal services in Appellant’s store in San Bernardino, California^[1] (Tr. 7, 350; Stipulation (“Stip.”) 1; Appeal File, Tabs (“AF”) 1, 3, 13, 15, 17; Supplemental Appeal File, Tab (“SAF”) B).

            2.  The contract required Appellant to use the proceeds of the CPU only for postal purposes:  “All monies received from the CPU are USPS property and must only be used for postal functions and CPU operations.” (AF 1, Specification Requirements, Contractor Responsibilities (PS Form 7311, Nov. 1984), Paragraph 3; Stip. 3).

            3.  The contract was of indefinite duration, subject to the following termination rights:

“Termination of Contract.  You [Appellant] or USPS may end (terminate) this contract on 60-days’ written notice.  The contracting officer may end the contract if necessary to protect USPS’ interests after a 1-day written notice.”  (AF 1, General Provisions 4, 5; Stip. 4).

            4.  The contract contemplated appointment of a contracting officer’s representative (“COR”) to monitor and direct the day-to-day operation of the contract postal unit.  In 1993, the San Bernardino Postmaster became the COR of Appellant’s contract.  (Tr. 96-97, 249-250; AF 1, Specification Requirements, Section I and II.1; AF 8, 20; Appellant’s Exhibit Bates Page Numbers (“AX”) 157-160; SAF D).

            5.  The contract’s Inspection of Work clause provided that the COR was entitled to inspect Appellant’s performance

“to make sure it is done according to the contract.  The COR immediately reports any poorly done work to you [Appellant].  If you continue to do poor work, the contracting officer warns you in writing to improve your work or the USPS may end the contract.”

The contract also provided that Appellant’s continued failure to perform work according to the contract requirements could result in termination of the contract. (AF 1, General Provisions 10, 11; Stip. 4).

            6.  The procedures applicable to contract units required that Appellant report the day’s business and remit the day’s revenue to Respondent at the end of each business day.  The remittance was to be sent by registered mail to the San Diego Accounting Office, along with a completed Postal Service Form 1412‑B, Daily Financial Report.  (Tr. 24, 52). Tr. 236-238; AX 111(Tr. 356)

            7.  In 1996, the sale of money orders was added to Appellant’s contract.  A money order imprinter was installed, and Appellant’s personnel at the contract unit were instructed in the procedures for processing and the daily reporting of money order sales.  (Tr. 147; AF 25 (p. 2); AX 111; SAF F (pp. 1-2); Stip. 8; contra Tr. 340, 345-346, 355-356, 373-374).

            8.  Each money order is a three-part form.  After the value of the money order is imprinted on all three copies, the money order and one copy are given to the customer purchasing it, and the CPU keeps one copy of the money order—the voucher—as the record of the sale (Tr. 24, 330).  Respondent’s procedures require that at the end of each day the CPU submit the money received and the vouchers for all money orders sold that day with its daily remittance to the San Diego Accounting Office (Tr. 24; AX 155 (Publication 116, Section 2-6)).

            9.  Appellant did not follow the procedures described above.  Appellant generally reported all the business of the CPU, including the sale of money orders, two to four times per week.  (Tr. 28, 32, 52-53, 57, 198-199, 282, 323-324, 330, 344; AF 24 (pp. 2-5)).

            10.  Respondent’s finance officials responsible for overseeing the CPU and receiving and reviewing the “daily” financial reports were well aware that Appellant continued to file the financial reports and remittances only a few times per week but took no action (Tr. 58-59, 76, 104, 196-197, 272, 333-334, 346).

            11.  Appellant’s practice of reporting sales only every few days or longer permitted Appellant the use of the funds until the remittance was made to Respondent and deprived Respondent of interest on those funds until it received Appellant’s remittance (Tr. 20-21, 23, 28, 50, 53, 74, 267, 305; AF 24 (p. 2-5)).

            12.  In approximately July or August of 1999, the San Diego District Accounting Office alerted the Postal Inspection Service to Appellant’s financial reporting practices (Tr. 61-62).  The inspectors assigned to investigate confirmed that throughout 1999 Appellant had delayed reporting money order sales and remitting the proceeds on many occasions (Tr. 62-63, 83).  The delay in reporting was five to six days after sale in a significant number of cases, and for one group of money orders, in February of 1999, the delay was eleven days.^[2]  In a number of instances, Respondent had paid a money order before receiving the voucher and remittance from Appellant.  (Tr. 24-29; AF 24).

            13.  In late January 2000, the postal inspectors discussed Appellant’s financial practices with the San Diego District Accounting Office and with a retail specialist who also oversaw some aspects of CPU operations in the area.  The consensus was that Appellant had been adequately warned to stop the practice and that Appellant’s CPU should be closed.  (Tr. 29-30, 34, 45, 52-53, 63-72, 81-82, 158, 169, 189, 194; AF 24).  The plan to close Appellant’s CPU was not discussed with the San Bernardino Postmaster, the COR for this contract, or the contracting officer (Tr. 34-35, 41-42, 70, 118).

            14.  On January 26, 2000, two postal inspectors and a Postal Service systems coordinator familiar with auditing CPUs went unannounced to Appellant’s store to audit and close the CPU.  At the conclusion of the audit, the inspectors closed the CPU and retrieved all Postal Service stamps, cash and merchandise on the premises.  (Tr. 30-31, 63, 81-82, 360-362; AF 24, p. 117; Stip. 9).

            15.  Upon being advised of the inspectors’ actions, the contracting officer, on January 27, 2000, temporarily closed the CPU and stopped Appellant’s compensation, effective January 26, pending his review of the results of the investigation.  He took this action based solely on the Inspection Service’s closure of the CPU, but he reserved any decision whether to terminate the contract or reopen the CPU until he had received further information.  (Tr. 255, 257-258, 262-264, 292, 293, 296, 300, 304, 311-312; AF 11; AX 131-139; SAF C-M010).

            16.  None of Respondent’s officials, including the auditors who regularly audited the CPU, had ever advised Appellant that a continuation of its financial reporting practices could cause loss of the contract (Tr. 76, 101, 104, 191-192, 272, 334, 346, 352, 354, 369; AF 27).

            17.  Appellant’s CPU provided a benefit to Respondent.  Although the revenue generated by the CPU was below what Respondent expected from a CPU,^[3] the rate Respondent paid Appellant was less than the cost of providing the service and generating the revenue through Postal Service employees.  Postal Service officials regarded Appellant as a conscientious, reliable contractor providing a valuable community service.  The San Bernardino Postmaster believed retention of Appellant’s CPU was in the interest of the Postal Service and opposed closing it, but he was not consulted on this issue.  He was not consulted when closure was being considered either before the January 26 suspension or during the time thereafter while the contracting officer was considering whether to terminate the contract.  (Tr. 103-104, 107-108, 110, 115, 116, 117, 131-132, 171-174, 179, 186-187, 202, 283, 314-315, 352, 367; AX 116-117, 140).

            18.  On February 7, 2000, the Inspection Service issued a report of its findings regarding Appellant’s financial reporting practices.  The report was sent to the San Bernardino Postmaster with copies to the San Diego Accounting Office and the retail specialist.  In April, the retail specialist sent a copy to the contracting officer, who received it on April 6, 2000.  (Tr. 260-261; AF 24; AX 163, 167).

            19.  Based on his review of the report prepared by the Inspection Service (AF 24) and discussion of the circumstances with the retail specialist and others, the contracting officer in a May 30, 2000 final decision terminated the contract “for default” effective January 26, 2000.  The termination was based on Appellant’s failure to report transactions daily and the delays in remitting money order proceeds which allowed Appellant use of Respondent’s money until the money was remitted.  (Tr. 195, 251-252, 262, 264, 267, 305, 307, 308, 313; AF 12, 24, 28; AX 168; SAF C-M011).

            20.  Appellant filed a timely appeal of the termination (AF 29; SAF A).

DECISION

            The contract’s Inspection of Work clause (Finding 5) entitled Appellant to notice of and an opportunity to improve unsatisfactory service before Respondent could terminate the contract by giving Appellant one-day’s notice.  See Clinical Pharmacy, Inc., PSBCA No. 3585, 95-1 BCA ¶ 27,449 at 136,749; On Time Postal Services, Inc., PSBCA No. 2528, 90-2 BCA ¶ 22,698, recon. denied, 90-3 BCA ¶ 23,113.^[4]  In this case the contracting officer did not provide the warning and opportunity to correct Appellant’s offending financial practices because neither he nor the contracting officer’s representative was advised of what local officials considered the deficiencies in Appellant’s performance before the unit was closed.  Absent that notice and opportunity to cure, the attempted January 26 termination was ineffective.

            However, even though the attempted termination was ineffective as a one-day termination, Respondent retained the right to terminate the contract by giving Appellant 60 days’ notice.  See Clinical Pharmacy, Inc., PSBCA No. 3585, 95-1 BCA ¶ 27,449 at 136,749; Michael J. Earl, PSBCA No. 3332, 93-3 BCA ¶ 26,234; On Time Postal Services, Inc., PSBCA No. 2528, 90-2 BCA ¶ 22,698, recon. denied, 90‑3 BCA ¶ 23,113.  Under the contract’s termination provision, affording both parties the right to terminate by giving the other 60 days’ notice, the contracting officer has great latitude and discretion in deciding whether to terminate.  When terminating on 60-days’ notice, Respondent need not afford the contractor advance notice of and an opportunity to cure deficient performance, see Michael J. Earl, PSBCA No. 3332, 93-3 BCA ¶ 26,234, and the contracting officer’s election to terminate will be upheld unless it was exercised in bad faith or constitutes an abuse of discretion.  See 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), cert. denied, 498 U.S. 1024 (1991); On Time Postal Services Inc., PSBCA No. 2528, 90-2 BCA ¶ 22,698, recon. denied, 90-3 BCA ¶ 23,113.

            Appellant argues that Respondent acted in bad faith, but it has not established that Respondent acted with a specific intent to injure Appellant, a showing it must make to support a finding of bad faith.  See Krygoski Constr. Co. v. United States, 94 F.3d 1537 (Fed. Cir. 1996), cert. denied, 520 U.S. 1210 (1997); Kalvar Corp. v. United States, 543 F.2d 1298 (Ct. Cl. 1976), cert. denied, 434 U.S. 830 (1977); Marine Constr. & Dredging, Inc., ASBCA Nos. 38412 et al., 95-1 BCA ¶ 27,286 at 136,026-027.  When considering his course of action in May of 2000, the contracting officer determined that it was in Respondent’s best interest to terminate Appellant’s contract based on Appellant’s financial reporting practices.  He concluded the delayed reporting of money order sales worked to Respondent’s disadvantage and violated the financial reporting requirements applicable to Appellant’s contract unit (Finding 19).  Appellant argues that the contracting officer’s decision was not in Respondent’s or the community’s best interest, but it is not the province of the Board to balance the pros and cons to determine whether termination was the best course under the circumstances.  Therefore, notwithstanding the positive contribution of the CPU to the community, Appellant’s record of reliable service, and the postmaster’s desire to keep the CPU open (Finding 17), it was within the contracting officer’s discretion to terminate the contract on 60 days’ notice, and Appellant has not shown that the termination of its contract was motivated by an intent to injure Appellant.  See Caldwell & Santmyer, Inc. v. Glickman, 55 F.3d 1578, 1581 (Fed. Cir. 1995); Stephen Zucker, Packages Services Plus, PSBCA Nos. 3396-3398, 96-2 BCA ¶ 28,282 at 141,202.

            Additionally, although Respondent’s officials who favored termination of the contract intentionally left the COR out of the loop in considering closure of the station, their actions were motivated by a belief that the revenue generated by the CPU was not sufficient to warrant keeping it open as well as what they perceived as financial irregularities.  They believed that Appellant had been adequately cautioned to stop delaying its report of money order sales.  (Findings 13, 17).  Even if their purpose was to close what they considered an under-performing CPU, a circumstance not relied on by the contracting officer, as well as one engaging in improper financial practices, that is not bad faith.^[5]  Respondent’s personnel were motivated by what they considered Respondent’s best interests and not by malice toward or an intent to harm Appellant.  See Stephen Zucker, Packages Services Plus, PSBCA Nos. 3396-3398, 96-2 BCA ¶ 28,282 at 141,203.

            Appellant also sees as evidence of bad faith Respondent terminating the contract when a bond was in place to protect Respondent from any financial loss resulting from delayed reporting of money order receipts.  However, the availability of a bond does not deprive Respondent of the right to terminate on 60 days’ notice as provided in the contract.

            Therefore, the termination of the contract, even though improper as a termination on one-day’s notice, was effective as a termination on 60 days’ notice that became effective 60 days after Appellant received the contracting officer’s May 30, 2000 final decision.^[6]  Accordingly, the appeal is sustained to the extent described above.  Appellant’s recovery, calculation of which is remanded to the parties, is limited to the period from January 26, 2000, until 60 days after Appellant received the May 30 termination notice.

            Appellant’s request for attorney fees is premature.  See Computer Power Support, Inc., PSBCA No. 3401, 94-2 BCA ¶ 26,626.  Qualified applicants who are prevailing parties in Board proceedings may only recover attorney fees pursuant to the Equal Access to Justice Act, as amended, 5 U.S.C. §504, and Postal Service regulations implementing the Act, 39 C.F.R. Part 960.

Norman D. Menegat
Administrative Judge
Board Member

I concur:
James A. Cohen
Administrative Judge
Chairman

I concur:
David I. Brochstein
Administrative Judge
Vice Chairman

[1] The contract was awarded to The Green Shack.  Appellant changed its name to The Green Shack Marketplace in 1996 (AF 21).

[2] The inspectors took a random sampling of issue dates from Postal Service records showing money orders issued by Appellant’s CPU and then requested copies of the vouchers from the Postal Service Money Order Division.  Their comparison of these records revealed that Appellant frequently delayed reporting the proceeds of money order sales.  For example, forty-three money orders Appellant sold on February 5 were reported and the funds remitted to Respondent on February 16, 1999 (Tr. 24; AF 24 (Exhibit Nos. 1 and 2)).  Sixty-five money orders Appellant sold on January 18 and 19, 2000, were not reported and the funds were not remitted to Respondent until January 24, 2000 (Tr. 24; AF 24 (Exhibit Nos. 16 and 17).

[3] In 1996 and again in 1997, the retail specialist who consulted with the inspectors in advance of the January 26, 2000 audit had initiated a review of Appellant’s CPU with a view towards closing it for inadequate revenue.  The Pacific Area office had established a target ratio for the cost to Respondent of operating a CPU (the compensation it paid the contractor) to the revenue generated by the CPU of 7%.  Appellant failed to meet that standard.  In 1996, Appellant accepted a rate reduction to lower that ratio, but in 1997, Appellant refused to decrease its price further.  However, due to the intervention of the San Bernardino Postmaster (the COR), the CPU was not closed, and Appellant was given an opportunity to submit a business plan addressing methods to raise its revenue.  The retail specialist believed the CPU should have been closed in 1997 for low revenue and never changed his view in that regard.  (Tr. 98-100, 126-127, 143-145, 149-151, 226-234, 356-357; AF 27, 30; AX 103, 126, 133-139; SAF F (p. 7), G (p. 73)).

[4]  Appellant’s financial reporting practices did not result in substantial cash shortages or serious and immediate risk to Postal Service funds, circumstances that have justified termination of CPUs without the required notice in the past.  See Carlos D. Delbrey, PSBCA No. 3892, 97-2 BCA ¶ 29,239; Fantastique’ Ultimatique’ Nautique’, PSBCA No. 3652, 96-1 BCA ¶ 28,150.

[5] Respondent may terminate a CPU contract on 60 days’ notice for no other reason than that its revenues do not meet cost to revenue ratios established by Respondent.  See Fax-Photo-Shipping Etc., PSBCA Nos. 3916, 3970, 98-2 BCA ¶ 29,998 at 148,360, recon. denied, 00-2 BCA ¶ 31,079.

[6] Respondent, relying on Robert A. and Sandra B. Moura, PSBCA Nos. 3460, 3622, 96-1 BCA ¶ 27,956, suggests that the contracting officer’s temporary suspension effective January 26, 2000, relieves Respondent of responsibility for compensating Appellant during the suspension.  However, in Moura, the Postal Service did not suspend compensation under the contract as did the contracting officer in this appeal (Finding 19).  Respondent has pointed to no provision of the contract that allows suspension of Appellant’s pay under the circumstances of this appeal.