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.
Postal Service HCR contracts can contain a variety of termination clauses. This article discusses what happens when your contract is terminated under the Termination for the Postal Service’s Convenience clause. The HCR version of this clause allows the Postal Service to terminate an HCR contract for its convenience, but provides that the contractor may recover the costs it incurred “by reason of the termination.” The clause does not specify what costs are recoverable. By the same token, the only stated restriction on recovery is that the contractor “will not be paid for any work performed or costs incurred which reasonably could have been avoided.” Similarly, the clause does not impose any undue burdens on the contactor in establishing what its termination costs are. Indeed, the clause notes that the contractor “will not be required to comply with the cost accounting standards and principles” in submitting its termination claim.
An inkling of what costs are recoverable was provided in a decision by the Postal Service Board of Contract Appeals (PSBCA). In Elton T Colvin Jr – PSBCA 6220 – Nov 19, 2009 (TY090778).PDF, November 18, 2009, the Postal Service terminated for convenience an HCR contract to transport mail between two cities in Mississippi. Colvin had performed the service for 32 years and was in the middle of his latest renewal when the Postal Service’s consolidation of mail processing operations made the route redundant.
The Board held that Colvin was entitled to recover “the unrecovered costs of the truck used to perform the contract and the insurance costs for that truck.” The Board found that Colvin had made reasonable efforts to sell the truck, demonstrating that the continuing costs of the truck were unavoidable. He was thus entitled to the unrecovered portion of his truck costs, including insurance costs. The case was remanded back to the parties to determine what Colvin’s termination costs were.
The Board noted that other costs could be recoverable but did not address what they might be, so let me suggest some that might apply to a terminated HCR contract. With respect to truck-related costs, the contractor could recover for no longer needed spare parts and tires, or recent unamortized maintenance that had been performed on the truck. Perhaps there are also location tracking devices and related software costs. In addition, there may be unamortized licensing, registration, and taxes related to trucks that are no longer needed.
Beyond truck-related costs, there may be recoverable personnel costs. For example, driver training and start-up costs should be amortized over the entire contemplated length of the contract, not just the shortened performance period. The contractor may also be justified in keeping his drivers and other employees on the payroll for a reasonable period of time until they can be assigned new work or it is clear they are no longer necessary. Contractors can also recover severance payments made under an established severance policy to employees who are no longer needed after the termination.
Contractors can also recover costs related to facilities that are now not needed or under-utilized. Similarly, there could be other equipment costs — such as computers, yard equipment, or driver vans — that are no longer needed or under-utilized.
Nearest and dearest to my heart, the contractor would be entitled to recover the costs of professional fees incurred in advising what costs are recoverable and in preparing the termination claim. This includes reasonably incurred attorney and accountant fees. A contractor would also be entitled to recover for the time its own personnel spends on closing out the contract and preparing the termination claim. To do this, the contractor would need to track and document the time incurred in such tasks.
Note that your entire contract need not be terminated to recover termination costs. The elimination of even one route under your contract would be a partial termination for convenience, under which the same recovery rules would apply.
At the end of the day, a terminated contractor may find itself entitled to a larger financial recovery under the Termination for the Postal Service’s Convenience clause than under the prior indemnity method. At minimum, under the new clause, the contractor is entitled to recover all termination-related costs that it was unable to avoid – something that cannot be said for the indemnity method.
In any case, don’t delay: a termination claim must be submitted to the Postal Service within 180 days after the effective date of the termination unless an extension had been granted in writing. If you wish to recover your termination costs, do not miss this deadline.