Every year or so, the U.S. Postal Service changes the standard Terms and Conditions that apply to its newly awarded Highway Contract Route (HCR) and Contract Delivery Service (CDS) contacts. When this occurs, the new terms only apply to newly awarded contracts–existing contracts are unaffected and retain the same terms as when awarded.

But this year, the Postal Service has sought to apply new Terms and Conditions to existing CDS contracts as well as newly awarded ones. In an email to its CDS contractors, the Postal Service asked them to sign, without any “alterations or additions,” a contract modification that incorporated the new terms. If the contractor did not so, the Postal Service’s email threatened contract termination:

“Because of the Postal Service’s interest in maintaining consistency across its many CDS contracts, please note that a failure to respond to this correspondence … may lead the Postal Service to consider termination of the subject contract.”

After receiving this email, many contractors asked me: “Can the Postal Service really do this?” In my opinion, several legal arguments, if upheld, would make the resulting modification unenforceable. For example, the modification might fail for lack of consideration, because it gave the Postal Service what it wanted without giving anything that contractors valued in return. And it might fail for violation of the implied covenant of good faith and fair dealing, because it seeks to recapture benefits that were foreclosed at the time of contract award. But I think the best argument against its enforceability is based on the legal theory of coercion and duress. Normally, this is a difficult argument to make, but here the elements seem apparent from the Postal Service’s email itself.

Proving duress

To be relieved from a contract modification you signed on the basis of duress or coercion, you need to prove three things. First, you need to show that you involuntarily agreed to the modification. One common way of showing this is writing “under protest” next to your signature. But that was not an option here, because the Postal Service’s email said you must sign with “no alterations or additions” or it would nullify the document. No contractor sought the modification, nor was asked how they viewed it. The Postal Service’s email itself thus establishes involuntary action, as it permitted no response other than the contractor’s signature on an unaltered modification.

Second, you need to show that the circumstances permitted no other alternative than signing the modification. Once again, the Postal Service’s email again establishes this for you. The email says you must sign the modification or you risk having your contract terminated. In these circumstances, you have no other reasonable alternative to signing, because if you do not sign, you will lose the contract.

The Postal Service might argue that the email said a refusal to sign would only “lead the Postal Service to consider termination of the subject contract,” not that it was dead certain to be terminated. But viewed in context of the entire email, there was little reason to believe a non-conforming contract would survive. The Postal Service’s email explained that it was seeking uniformity in contract terms among all of its CDS contracts. If you did not sign the modification, then your contract would run counter to this policy. The email gave no reason to hope that your non-uniform contract would remain in place if you refused to sign the modification.

Third, you need to show that the circumstances you were faced with were the result of the Postal Service’s coercive acts and not a predicament of your own making. Once again, this is established by the Postal Service’s email. Contractors did nothing to place themselves into this predicament.

Gurdak case found similar coercion

A dozen years ago, the Postal Service tried something similar and the resulting modification was found to be coerced and unenforceable. In George P. Gurdak, PSBCA No. 5049, 05-2 BCA ¶ 33,092, the parties had previously agreed to a 10-year facility lease that required the contractor to make some renovations. When it came time for the Postal Service to approve the design of the renovations, the Postal Service balked, but not because of any problems it had with the design. Instead, the Postal Service wanted to pay a lower rent because it had re-measured the usable space and it was smaller than USPS had thought. The contractor strenuously objected to the modification, but the Postal Service said, “Take it or leave it.”  Without USPS’s design approval, the contractor could not proceed with the project, so the contractor signed the modification that reduced the lease rate.

After the building was renovated, the contractor submitted a claim for the original, higher lease rate. The contracting officer denied the claim, contending that the contractor had agreed to the lower rate in the signed modification. The contractor appealed to the Postal Service Board of Contract Appeals, contending the modification was coerced and unenforceable. The PSBCA agreed. Even though the Postal Service had the contractual right to approve the renovations design, its use of that right must still be exercised in good faith. The Board held that the Postal Service could not threaten exercise of a legitimate contract right if the exercise of that contract right would violate notions of fair dealing due to its coercive effect.

Just as in Gurdak, the Postal Service has threatened CDS contractors with exercise of a legitimate contract right (here, termination) in a way that violates notions of fair dealing and is coercive. In both cases, a “take it or leave it” threat was made for the wrongful purpose of forcing the contractor to accept new contract terms.

The Board in Gurdak held that the coerced modification was not binding on the contractor. Did this mean that the contractor could hold the Postal Service to those parts of the modification that it wished to enforce? In its email to CDS contractors, the Postal Service stated that the modification would also remove “outdated supplier obligations.”  If that is indeed true, then under Gurdak, is it possible that the Postal Service would still be bound to those parts of the modification?

What’s next?

In most cases, the modification will likely have little impact on performance, but it does increase the risk of disputes arising from the modification’s new obligations and approval requirements. Should USPS seek to enforce one of these new obligations, you may need to assert that such directive constitutes a constructive change because it arises from a coercive and unenforceable modification. If a mutually agreeable solution cannot be reached, you may need to bring a claim for the cost impact of the new directive under the Claims and Disputes clause of the contract.

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

Leslie Arkansas Post Office
The termination of a $34,000 mail delivery contract serving this post office in Leslie, AR could result in three standard clauses being declared unlawful on thousands of USPS transportation contracts.

Three standard clauses used in virtually all Postal Service surface transportation contracts are now on the chopping block. In an interim ruling, the Court of Federal Claims ordered the Postal Service to show why these three clauses should not be declared unlawful and unenforceable. Tabetha Jennings v. U.S., Fed. Cl. No. 14-132C, May 29, 2016.

The case involves the default termination of a $34,000 contract to provide mail delivery between Leslie and Timbo, Arkansas. Tabetha Jennings, the sole proprietor contractor, had provided service for seven years without any issues. Then, during a heavy volume Christmas season, a postmaster accused her of using a vehicle with insufficient capacity. The postmaster was wrong, but this charge led to other accusations. Eventually, the postmaster accused Jennings of conducting herself “in an unprofessional manner” and disrupting mail processing operations. These accusations, in turn, led the contracting officer to rescind Jennings’s security clearance and her access to postal premises and the mail.

Jennings disputed the accusations against her and presented statements from a different postmaster and from another contractor that backed her up. But the contracting officer was unmoved and did not lift the suspension of her security clearance. When Jennings failed to provide a substitute carrier to continue the service she had been barred from performing herself, the contracting officer terminated her contract for default. Continue Reading Court orders Postal Service to justify lawfulness of three standard clauses

HCR Seminar Postal Contracting Brochure 2016_3Unpaid for work you performed on your HCR contract?  Can’t agree with the Postal Service on a contract price adjustment?  Not given a chance to bid on new work in your area?

Learn about remedies for these problems at our new seminar, “Claims and Disagreements under Postal Service HCR contracts.”  Husch Blackwell partner David Hendel will present the seminar on January 19, 2016, at 9:00 – 10:30 a.m., at the Golden Nugget Hotel in Last Vegas, NV.

The seminar focuses on two areas where HCR contractors have substantial rights and remedies. First, we examine the claims process, which gives contractors the right to recover funds for various Postal Service actions – or inactions. We describe the activities that potentially generate claims, how to prepare a claim, when to bring a claim, and how claims are processed and resolved. We review actual claims that arose from service changes and describe how courts have ruled on them. We also provide a list of do’s and don’ts when preparing and submitting claims.

Second, we describe the “disagreement” process, which allows contractors to protest a Postal Service procurement action or award decision. We explain the grounds for bringing a disagreement, deadlines and filing requirements, and decisions by the USPS Supplier Disagreement Resolution Officer (SDRO).

The seminar is presented in conjunction with the Central/Western Area regional meeting of the National Star Route Mail Contractors Association. Separate registration is required. For Star Route Association members, the seminar fee is $195; for non-members, $295.  A $50 discount applies to each additional person who attends from the same company. Those wishing to register may go to https://www.regonline.com/hcr  or contact seminar coordinator Shana Hoy at  816.983.8809 at shana.hoy@huschblackwell.com.

PSBCA sealThe first Board of Contract Appeals to fully enter the digital age is the Postal Service Board of Contract Appeals, which recently issued new rules on electronic filing.  Although the PSBCA hears claims against the agency that provides U.S. Mail, that method of filing will no longer be allowed (absent permission). The Postal Service, however, is not a Luddite agency and has embraced modern technology in running its business.

Effective July 2, 2015, PSBCA filings must be made electronically unless permission to submit physical filings is requested and obtained. The website for electronic filing is https://uspsjoe.justware.com/JusticeWeb.  Online filers must use this exact web address. Omitting the initial “https://” – or the final “justiceweb” – results in an error message.  To assist users, the Board has created a PSBCA tutorial on electronic filing. Continue Reading U.S. Postal Service board enters the digital age

COVER of USPS OIG report Voyager capping Sept 30 2014Calling the Voyager fuel card program unmanageable and uneconomic, the USPS Office of Inspector General recommends that the Postal Service use another method to manage fuel under its HCR contracts. In its advisory report dated September 30, 2014, the OIG concludes that the Voyager fuel card program has cost more money that it saved and discourages fuel efficiency. The Postal Service spent $5.1 billion for 1.6 billion gallons of fuel for Highway Contract Route (HCR) contracts under the program over the last nine years.

Continue Reading Voyager card fuel program is unmanageable, says USPS OIG

Retaliating against an employee for reporting safety violations, the U.S. Postal Service asserted baseless terrorism charges against him. As a result, the employee was dismissed from his job, arrested, detained, harassed, criminally charged with committing acts of terrorism, and subjected to an extended campaign of public disparagement. That sounds like the exaggerated ranting of a would-be whistleblower seeking to cash in on a big pay day. But it’s not. These are the allegations made by the U.S. Department of Labor in a lawsuit it filed against its sister agency, the U.S. Postal Service, in an action filed in the U.S. District Court for the Eastern District of Missouri, Eastern Division, Case No. 4:14-cv-1233.

Continue Reading U.S. Postal Service plays the terrorist card against whistleblower

Top 150 USPS Suppliers in FY 2013Federal Express Corporation was the U.S. Postal Service’s largest contractor in fiscal year 2013. The next largest USPS supplier was EnergyUnited, which provides consolidated telecommunication and energy billing services. Military air mail transportation provider Kalitta Air was third. Six of the Postal Service’s top 10 suppliers served the agency’s transportation needs. The Top 150 USPS supplier list is compiled annually by David P. Hendel, a partner in Husch Blackwell LLP’s Government Contracts practice group who focuses on Postal Service contracting matters.

Continue Reading FedEx tops list of U.S. Postal Service contractors in 2013

A double whammy has hit the U.S. Postal Service. At the close of business on August 1, 2012, the Postal Service failed to make a $5.5 billion payment owed the U.S. Treasury. And on September 30, 2012, the Postal Service defaulted on another $5.6 billion payment. Will this $11.1 billion default impact postal contractors?  No it won’t, according to the agency. But it certainly won’t help those who are doing business with the Postal Service.

Continue Reading Will the Postal Service’s $5.5 billion default impact its contractors?

Doing business with the U.S. Postal Service has always been different from contracting with other federal agencies and commercial entities. As a starting point, the Postal Service is exempt from most federal procurement laws and regulations. such as the Federal Acquisition Regulation (FAR) and the Competition in Contracting Act (CICA). The Postal Service has its own special purchasing policies called the Supplying Principles and Practices. On top of these differences, the Postal Service is on the brink of insolvency. To help contractors understand and succeed within this special environment, our firm is presenting a full-day seminar on October 21, 2011 in Chicago on “What Every Postal Service Contractor Should Know.”  

Continue Reading What every Postal Service contractor should know