The U.S. Postal Service spends about $3 billion per year to move the mail by truck and does so under a special type of contract called a Highway Contract Route (HCR) contract. These contracts have unique contract clauses, and even their own lingo. For example, an HCR “amendment” is what the rest of the government contracting world would call a contract “modification.”

One of the biggest differences between HCR contracts and other government contracts is the Changes clause. Under an HCR contract, the contracting officer has limited ability to direct unilateral changes. The CO may only issue a unilateral change, called a “minor service change,” if the price impact would be $5,000 or less. Under a Contract Delivery Service (CDS) contract – a subset of HCR contracts for mailbox deliveries – unilateral changes must be $2,500 or less. Even for these changes, a contractor who disagrees with the CO’s determination may file a claim for additional compensation.

In addition to these monetary thresholds, unilateral changes are further restricted to certain types of changes. The only unilateral changes a CO can direct are an extension, a curtailment, a change in line of travel, a revision of route, and an increase or decrease in frequency of service or number of trips. The CO has no authority to unilaterally direct any other change, even if the price impact would be $5,000 or less. For example, the contracting officer may not unilaterally direct a contractor to change equipment or buy new equipment. Continue Reading The unique Changes clause in Postal Service HCR contracts

Every government contract contains implied duties, such as the duty to cooperate and the duty of good faith and fair dealing. Such implied duties generally prohibit one party from interfering with the other’s performance or taking actions that undermine the other’s expected benefit of the bargain.

Implied duties offer important protections when an issue is not clearly addressed in the text of the agreement. But courts have been reluctant to apply them in a way that overrides express contract language. A party generally does not breach the duty of good faith and fair dealing, for example, simply by exercising a right that is expressly provided in the contract.

But the government does not have carte blanche. Even if there is express language that gives the government a certain right, the government cannot exercise that right unreasonably or in a way that interferes with the contractor’s performance. In Agility Public Warehousing Company KSCP v. Mattis, No. 2016-1265 (Fed. Cir. Apr. 4, 2017), for example, the Federal Circuit explained that the government can breach the duty of good faith and fair dealing even if its conduct is otherwise consistent with the express terms of a contract.

Airmen serve dinner in the field in a mobile kitchen trailer during Global Medic 13 on Fort McCoy, Wis., July 16, 2013. The food service specialists are assigned to the 940th Force Support Squadron, Beale Air Force Base, Calif.
Source: DOD Image Library

Continue Reading Can the government contract around the duty of good faith and fair dealing?

Claims for personal injuries that can be connected in some way to construction work often include allegations that the contractor was negligent. Even if the injured party sues only the property owner, the owner will often seek to pass this liability through to the contractor. In many states, such negligence claims are barred by the acceptance doctrine, which limits contractor liability to third parties for injuries that occur after the owner has accepted the work.

A recent decision by the Missouri Court of Appeals illustrates and applies this rule. In Wilson v Dura-Seal and Stripe, Inc., No. ED 104570 (Mo. Ct. App. Mar 21, 2017), the plaintiff alleged that she tripped in an area paved by Dura-Seal and Stripe, Inc. Dura-Seal paved a drive lane, but the paving did not extend all the way to the curb. The result was a gutter area and a resulting height differential. Ms. Wilson claimed she tripped on and because of the height differential.  Ms. Wilson sued the school district for which Dura-Seal did the work. The school district then sued Dura-Seal.

The trial court granted summary judgment for Dura-Seal because the work had been accepted. The court of appeals affirmed. Under Missouri law, a contractor is not liable for third party personal injuries after the owner accepts the work. The acceptance doctrine is founded on the assumption that the owner has made a reasonably careful inspection of the work of the contractor and the owner knows of the defects, if any. The owner then “accepts the defects and negligence that caused them as his own.” Continue Reading How the acceptance doctrine protects Missouri contractors from personal injury liability

Similar to a Termination for Convenience clause, a Termination with Notice clause (often found in U.S. Postal Service contracts) allows a party to end a contract without breaching it. Under the clause, either party may terminate the contract without cost consequences by providing advance written notice – usually 60 days – to the other party. The Postal Service Board of Contract Appeals (PSBCA) addressed the limits that apply to the exercise of this clause in a decision on two closely related cases. Cook Mail Carriers, Inc., PSBCA No. 6583, and Patricia Joy Sasnett, PSBCA No. 6584, issued on March 24, 2017.

Cook and Sasnett each had separate Highway Contract Route contracts to transport mail at designated times between various points in Alabama. In March 2014, the Postal Service made changes to its processing network that affected several contractors, including Cook and Sasnett. While the network changes could have been effected by modifying their contracts, the Contracting Officer (CO) instead exercised the Termination with Notice clause.

When he terminated the contracts, the CO misunderstood the network changes.  He thought the changes were needed because the Gadsden, AL mail processing facility was closing.  In fact, the Gadsden facility was already closed and revised routes were needed because other mail transportation hubs were being relocated.

Propriety of the termination

Cook and Sasnett filed claims asserting the terminations were improper and the case ended up at the Postal Service Board of Contract Appeals (PSBCA). Examining the Termination with Notice clause, the PSBCA noted that while it does not include any express limitations, its use “is not truly unlimited.”  The PSBCA then considered whether the CO’s action was proper under three separate legal principles. Continue Reading Three legal principles that limit the Termination with Notice clause

President Trump’s April 18, 2017 Executive Order announces that it is “the policy of the executive branch to buy American and hire American.” It demands that federal agencies enforce and comply with all current “Buy American Laws.”

There is nothing remarkable about that. New policy initiatives and statutory changes will come later, presumably with the input of the affected agencies. The Order requires federal agencies to assess and monitor their enforcement and implementation of existing Buy American Laws, including their use of waivers and the impact waivers may have on jobs and manufacturing. Based on the 150-day deadline in the Order, the agency reports are due by September 15, 2017.

The most controversial and most significant changes resulting from President Trump’s Order are likely to come as a result of changes to existing trade agreements. The President’s Order requires the Secretary of Commerce and the United States Trade Representative to assess the impact of all United States free trade agreements and the WTO Government Procurement Agreement. By November 24, 2017, they are to submit a report to the President containing “specific recommendations to strengthen implementation of Buy American Laws.”

Continue Reading Will “Buy American and Hire American” hurt American business?

The 1996 Congressional Review Act has been getting a lot of use since President Trump’s inauguration. On March 27, 2017, President Trump signed House Joint Resolution 37, revoking the “blacklisting regulations” put in place following former President Obama’s July 2014 Executive Order on Fair Pay and Safe Workplaces (EO 13673). As we discussed in an earlier post, the EO and the regulations implementing it directed federal agencies to take into account an employer’s workplace safety and other labor law violations as part of the their procurement decisions.

The CRA is an obscure legislative tool that can rescind recent executive actions, and thereby limit agency authority. Under the CRA, Congress has 60 legislative days (which are counted differently than calendar or business days) to pass a “joint resolution of disapproval” in the House and Senate. Joint resolutions of disapproval cannot be filibustered. A simple majority in both houses of Congress can overturn agency rules and regulations if the president signs the joint resolution.

There were significant questions regarding due process concerns with the blacklisting regulations. Industry strongly criticized the regulations because they allowed agencies to exclude contractors based on mere accusations, such as safety citations that had not yet gone through any adjudicatory proceedings.

Revoking the blacklisting regulations was the first of several actions President Trump and his allies in Congress intend to pursue to reduce the administrative/regulatory burdens on employers.

Continue Reading Will the rollback of Obama’s executive orders be permanent?

postalTransportation contractors once again dominate the top spots in our annual list of the Top 150 U.S. Postal Service Suppliers. In fiscal year 2016, USPS spent over $14 billion on outside purchases, about half of that for transportation. As it has since 2002, Federal Express Corporation lands atop the list, this year with $1.678 billion in revenues – about a $300 million increase from last year. FedEx carries package and letter mail for the Postal Service. FedEx’s air cargo network contract with the Postal Service was recently renewed for a five-year period, extending the contract until September 29, 2024. Continue Reading Transportation Contractors Lead List of Top U.S. Postal Service Suppliers

The Missouri Court of Appeals decision in Penzel Constr. Co. v. Jackson R-2 School District, No. ED103878 (Mo. Ct. App. Feb. 14, 2017), is an important development for public construction contracting in Missouri. The decision adopts the Spearin Doctrine and approves the use of the Modified Total Cost method for proving damages. While these concepts have been used widely in federal construction contracting, the Penzel decision is the first published decision recognizing them in Missouri.

The Penzel case involved additions to a public high school. The School District hired an architect. The architect retained an electrical engineering sub-consultant. When the project went to bid, the School District furnished bidders with the architect’s plans and specifications. Penzel Construction Company submitted a bid as the general contractor.

Penzel’s electrical subcontractor was Total Electric. Total’s bid was $1,040,444. Neither Penzel nor Total “noticed” any errors, omissions, or other problems with the plans and specifications during the bidding process.

Total encountered delays totaling 16 months, which Total attributed to “defects and inadequacies” in the electrical design. Under a liquidating agreement between Penzel and Total, Penzel sued the District. Penzel alleged that the District impliedly warranted the design. Penzel claimed the design was not adequate for completing the project.

In addition to proving liability, Penzel needed to prove the damages associated with its loss of productivity claim. To do so, Penzel sought to use the Modified Total Cost Method. The claimed damages were comprised of additional project management and supervision costs, wage escalation, unpaid change order work, and consultant’s fees. Continue Reading The Spearin Doctrine and Modified Total Cost claims on Missouri public projects

The Congressional Review Act of 1996 may be an effective tool for rolling back recent federal regulations implementing President Obama’s policy initiatives. But it is limited. It applies only to very recent rules. It requires action by both houses of Congress and the President’s signature. It is strongly limited by political factors. In the 21 years since it was adopted, it has been used only once.

Congress is seeking stronger weapons. H.R. 5, the “Regulatory Accountability Act of 2017,” represents a substantial rewrite of the existing Administrative Procedure Act. H.R. 5 includes provisions that would allow courts to review agency rules on a “de novo” basis, without any deference to the agency’s interpretation of Constitutional or statutory requirements and other regulations.

H.R. 26, “Regulations from the Executive in Need of Scrutiny Act of 2017,” introduces a new mechanism for Congressional review of a broad category of Federal agency regulatory actions defined as “major rules.” Basically, the mechanism in H.R. 26 is designed to prevent a broad class of actions by Executive Branch agencies and independent regulatory agencies from becoming effective without a Joint Resolution of approval passed by Congress and signed by the President within a narrowly prescribed period (70 legislative days).

Even if these bills get through Congress and are signed by President Trump, they will likely face challenges in the Supreme Court. H.R. 26 in particular faces an uphill climb. For the reasons discussed in this article, the Joint Resolution mechanism in H.R. 26 suffers from the same Constitutional infirmities as the “one-House veto” that was popular in the 1970s but declared unconstitutional in INS v. Chadha, 462 U.S. 919 (1983). Continue Reading Why Congress can’t have the one-House veto in H.R. 26

According to Shakespeare, “What’s done cannot be undone.” This may not be true with respect to many of the regulations implementing President Obama’s Executive Orders.

Let’s look at the fate of the rules implementing Executive Order 13673 (July 2014), formally called “Fair Pay and Safe Workplaces.” The DOL guidance and the FAR provisions implementing this Order were commonly referred to as “the blacklisting rules.”

The final blacklisting rules were published on August 25, 2016. Industry moved quickly to challenge them. An October 24, 2016 preliminary injunction issued by United States District Judge Marcia Crone stopped most of them from going into effect. Judge Crone’s order cites two constitutional problems with the blacklisting rules. First, they likely violate contractors’ due process rights because they require contractors to report mere allegations of labor law violations without the benefit of judicial or quasi-judicial safeguards to contest them. Second, they likely violate contractors’ First Amendment rights because they require contractors to “to report that they have violated one or more labor laws and to identify publicly the ‘labor law violated’ along with the case number and agency that has allegedly so found” even when there had been no adjudication. Continue Reading The fate of “Fair Pay and Safe Workplaces” under President Trump