Termination for Convenience

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

An agency must use-it or lose-it under a fixed-priced contract.  When an agency makes it impossible to receive a contractor’s service under a fixed-priced contract, it must still pay the full contract price. So long as the contractor is willing to live up to its end of the bargain, the contractor is entitled to payment regardless of whether it provided any service. And the agency’s failure to tender work does not itself serve as a constructive termination, so the contract remains in effect until actually terminated.

Those are the lessons of Olbeter Enterprises, Inc., PSBCA No. 6543, January 12, 2016, involving a point-to-point mail transportation contract. During the course of the contract, the Postal Service closed one of its facilities, making it impossible for Olbeter to provide the contracted service. The Postal Service, however, did not issue a termination notice or contract modification. Instead, it allowed the contract to remain in force and continued to make full payment, occasionally ordering other work for which Olbeter was paid separately.

Nine months after the facility closure, the parties agreed to a convenience termination. Later, the Postal Service decided that the payments it had made during the nine-month closure period were over-payments. The Postal Service recovered those amounts by withholding payments under a different contract. Olbeter appealed the withholdings to the Postal Service Board of Contract Appeals.

At the PSBCA, the Postal Service contended that Olbeter knew the facility had been closed, that this made performance impossible, and that the Postal Service intended to terminate the contract. The Postal Service thus argued that the facility closure itself served to constructively terminate the contract. The Board disagreed. Whatever the Postal Service’s intentions may have been, and regardless of Olbeter’s knowledge of those intentions, the agency had not taken action to terminate the contract. In addition, the parties had agreed to a termination nine months after the facility closed and the Board would not supplant that agreement with a constructive retroactive termination.

The Postal Service next contended that it had breached the contract itself by not tendering any mail. Since it had breached the contract, the Postal Service argued, Olbeter was limited to recovering its expectancy damages, which were much less than nine months of payments. The Board rejected this argument, holding that the agency’s failure to tender mail was not a breach.

Finally, the Postal Service contended that allowing Olbeter to retain nine months of payments for service it did not perform would unjustly enrich Olbeter or constitute a windfall. The Board denied this argument as well, noting that unjust enrichment is an equitable doctrine that applies when parties do not have an express contract, and here an express contract existed. That contract simply did not provide the Postal Service a mechanism to withhold payment for service that the agency had made impossible to perform.  Olbeter was thus entitled to retain the payments it had received for the nine-month closure period.

The principle underlying the Olbeter decision would apply equally to any fixed-priced contract where the government made performance impossible or waived its right to receive performance. If the contract does not have a clause that directly addresses such events, and if no contemporaneous action is taken to terminate it, the agency remains obligated to pay the full contract price.

With budget cuts in the headlines and an election just around the corner, contractors once again face the threat of reduced funding for their contracts. The sequestration process established in the Budget Control Act of 2011 will impose automatic across-the-board spending cuts of more than $100 billion per year for each of the next ten years, significantly impacting contract expenditures by the Department of Defense and other agencies. As agencies look for ways to pare down their spending, contractors may find themselves hearing that there is not enough money to go around. Fortunately, contractors can take comfort in the fact that a lack of funding does not normally excuse the government’s payment obligations.

Line in the Sand

The Supreme Court’s decision in Salazar v. Ramah Navajo Chapter, No. 11-551 (U.S. June 18, 2012) addresses this subject. The government sought to avoid its contractual promise to pay the full amount of “contract support costs” to Indian tribes that contracted with the Department of the Interior to provide federally-funded services such as education, health services, and law enforcement. The contracts with the tribes were authorized by the Indian Self-Determination and Education Assistance Act, which requires the Secretary of the Interior to pay the full amount of a tribe’s contract support costs (e.g. auditing costs, workers’ compensation insurance, and start-up costs) subject to the availability of appropriations. But if the contract support costs are not paid, the tribal contractors can pursue money damages under the Contract Disputes Act and obtain payment through the Judgment Fund, which does not have any fiscal year limitations and is not subject to Congressional appropriations.

Continue Reading Contractors get paid even if appropriations are exhausted

Personal use of an undeliverable coupon by a mail delivery contractor violated postal regulations but did not justify the default termination of her contract.  The particular post office had allowed others in the office to use such undeliverable items, though that local practice violated postal regulations.  Although the Postal Service Board of Contract of Contract Appeals (PSBCA) decided the case in the contractor’s favor, one judge dissented and believed the termination was justifiable.  See Laura K. McNew, PSBCA No. 6286, April 23, 2012.

Continue Reading Postal contractor’s default termination overturned

Oral contracts do exist, and the U.S. Postal Service cannot force you to sign a contract with different terms than previously agreed upon. That’s the take-way from a recent decision issued by the Postal Service Board of Contract Appeals (PSBCA) in a case called Sharon Roedel, PSBCA No. 6347, 6348, April 10, 2012.  The PSBCA found that the Postal Service breached an oral contract it had with Roedel, and that USPS owed her the profits and wages she would have earned under the six-month emergency contract.

Continue Reading Postal Service breaches oral contract: owes contractor lost profit and wages

The draft RFP issued by the Army Energy Initiatives Task Force is a significant step in the Army’s plan to develop large-scale renewable energy projects. It presents as much as $7 billion in new opportunities to the alternative energy market and reflects a growing synergy between the defense and energy industries. Here we highlight some of the key provisions in the draft RFP, including some that are unique to contracts with the federal government.

The Draft RFP

The draft RFP was issued by the Army Energy Initiatives Task Force. It contemplates a multiple-award indefinite delivery-indefinite quantity contract under which the Army could purchase up to $7 billion worth of renewable and alternative energy over 10 years—a base period of 3 years with 7 option years. Through competition with the IDIQ contract holders, the Army would issue individual firm-fixed-price task orders to purchase electricity through Power Purchase Agreements based on a fixed rate per unit of energy (e.g. $/kWh). The PPAs would be allocated across four renewable technologies:  solar (1.5 billion kWh); wind (9 billion kWh); biomass (19 billion kWh); and geothermal (8 billion kWh).

Depending on the requirements of a particular task order, bidders could be responsible for constructing the energy generating systems and guaranteeing a certain level of renewable energy output by a specific date. Failing to meet the specified date could subject the contractor to liquidated damages for the output shortfall on a price-per-MWh basis.

Maintenance of the energy generation systems would be the contractor’s responsibility, as would achieving certain output performance levels over the course of the PPA. For variable energy production technologies (i.e. solar and wind), contractors would have to maintain performance levels that are in the top 25 percent of the industry in the United States. For continuous energy production technologies (i.e. geothermal and biomass), contractors would be required to provide replacement energy at no cost when their systems fail to meet the minimum production requirements.

To offset the construction and maintenance costs, bidders would be required to take advantage of all available utility incentive programs.  The government would retain ownership of any renewable energy credits associated with the energy generated under the task order.

Continue Reading Breaking down the Army’s $7 billion RFP for renewable energy

If your Postal Service HCR contract is terminated for convenience, what costs are you entitled to recover?  The Postal Service Board of Contract Appeals recently addressed this very question.  Here’s a hint: it’s more than just the cost of your now underused equipment.  Read on for the details.

Continue Reading Recoverable Costs under a Terminated Postal Service Contract

Even a dog knows the difference between being accidentally stepped on and intentionally kicked.  Having your contract terminated by the government is similar. If it happens because circumstances have changed, it’s like being accidentally stepped on. You don’t like it, but you know it wasn’t intentionally done to harm you. But if your contract is terminated solely because the agency seeks a better price—that is an intentional kick to the gut. Does the law recognize the difference between these two scenarios? Read on.

Continue Reading Can the government terminate your contract to get a better price?