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Making Sense of Your Postal Service Contract, National Star Route Mail Contractors Association Newsletter

Article
6.01.10

Last month our firm presented a new seminar on postal contracting entitled:  "Making Sense of Your Postal Service Contract:  Do You Really Understand What You Just Signed?"  The seminar focused on the key contract clauses contained in most Postal Service contracts.  We explained what they mean and how they impact suppliers.  We also described how contractors can exercise their contractual rights.  More than half the attendees were HCR contractors.  I can always count on HCR contractors to support my programs -- thank you!

For this month's article, here's a free peak at a portion of the seminar manual.  The excerpt below is about your unwritten contractual rights.  I've edited out the case citations and condensed the text:

Your Unwritten Contractual Rights

The Postal Service typically doesn't need to rely on unwritten contractual terms because it writes the contract.  Thus, it is not surprising that most of the text in a Postal Service contract addresses your obligations and duties.  You do have some express contractual rights, which we've already described.  This section describes your unwritten rights -- rights that aren't expressly spelled out in the contract but exist nonetheless.

Freedom from Defective Specifications

You have the right to rely upon the contract specifications, which are warranted to be free from defective specifications.  In other words, if you perform the contract in accordance with the specifications, you should be able to produce the required item or service exactly as described in the contract.  If the Postal Service furnishes you defective specifications, causing you to incur additional costs in attempting to comply with them, you are entitled to recover those costs. To recover, you must show that you reasonably relied upon the defective specifications and complied fully with them.

HCR contractors should note, however, that Postal Service contracts typically state that the estimated hours and mileage are not guaranteed.  The Postal Service is essentially disclaiming its warranty of that data.  However, there may be other specifications in the contract that you can rely upon, such as any statements concerning what type of equipment is required, or when and where you will be furnished the mail.

Freedom from Impossibility and Commercial Impracticability

You have the right to be free from impossibility of performance or commercial impracticability.  Under general principles of contract law, a contractor is not required to perform that which is impossible or commercially impracticable.  This legal principle applies to USPS contracts, though proving its applicability to a particular problem can be difficult. 

To establish commercial impracticability, a USPS supplier must show that performance could be achieved only at excessive and unreasonable cost.  Attempting to prove this by relying on profits that are lower than those forecast is insufficient.  In a non-postal case, a contractor with a two year contract valued at $17 million was successful in establishing impossibility by showing that performance as specified by the government would have taken 17 years and cost $400 million.  The board held that commercial impracticability excused performance.

Freedom from Constructive Acceleration

You have the right to be free from constructive acceleration of performance.  Constructive acceleration occurs when the contract is changed to add new requirements (or when actual conditions are not as described by USPS) and the contracting officer refuses or fails to issue a time extension to the contract schedule and demands that the contractor complete performance within the original time period.

To justify a finding of constructive acceleration, five factors must be present: 1) the existence of one or more excusable delays; 2) notice by the contractor to the government of the excusable delay, and a request for a time extension; 3) failure or refusal by the government to grant the requested extension; 4) an express or implied order by the government to accelerate; and 5) reasonable efforts by the contractor to accelerate resulting in increased costs. 

Freedom from Delay

You have the right to be free from Postal Service caused delays to your performance.  Any delay caused by the Postal Service is both excusable and a grounds to assert a claim for delay costs.  If the delay is not caused by the Postal Service, but is excusable, the contractor will not be held to the contract’s delivery schedule.

Delays resulting from actions for which the Postal Service is responsible will not only be excusable, but normally will be compensable. Such compensable delays include all of those caused by USPS changes, including interfering with or hindering the supplier's performance, issuing defective specifications, unreasonable inspection, and late delivery of government furnished property.

Freedom from Withholding of Superior Knowledge

You have the right to be free from the withholding of superior knowledge about contract performance.  A superior knowledge claim arises when the Postal Service fails to disclose information vital to contract performance that was in its possession prior to bidding, was not otherwise reasonably available to the contractor, and the contractor was not put on notice to inquire by the contract specifications. 

Freedom from Hindrance or Interference in Performance

You have the right to be free from hindrance or interference in your performance by the Postal Service.  The Postal Service has an implied obligation to cooperate with its contractors and not to administer the contract in a manner that hinders, delays, or increases the cost of performance.  Government interference or hindrance with performance need not be direct, and can result from an agency’s failure to respond to a contractor’s request for direction. 

In Abcon Associates, Inc. v. United States, 49 Fed. Cl. 678 (Fed. Cl. 2001), the Postal Service over-withheld contract funds as liquidated damages, which substantially impeded the contractor's timely completion of the work.  The court held that this action interfered with the contractor’s performance and converted the termination for default to a termination for convenience.

Freedom from Over Inspection

You have the right to be free from over-inspection.  While the Postal Service is entitled to compliance with its contract specifications, and may reject work that does not strictly comply with them, a contractor may bring a claim to recover increased costs attributable to over inspection of that work.  There are two types of over inspection claims:

(1)  where the increased inspection (beyond the inspection specified or reasonably implied in the contract) delays and increases the cost of performance; and
(2)  where the increased inspection essentially sets out a more rigorous specification for production of the item or performance of the service.

 The contractor must take proper steps to preserve its rights when an unreasonable inspection is likely to increase costs.  Be advised that the Postal Service may be permitted to conduct multiple inspections if they are conducted at reasonable times and do not unduly delay the work or increase performance costs.

Duty of Cooperation and Fair Dealing

We saved the best for last!  Every Postal Service contract contains an implied duty of cooperation and fair dealing.  This duty is owed by each party to the other party.  The potential applicability of this duty to problems that arise in contract performance is very broad.   If you believe you are being treated unfairly, but you cannot identify any particular contract provision that is being violated, your claim might be based on the implied duty of cooperation and fair dealing.

This unwritten duty has many facets and applications because it arises not only from the express terms of the contract but from the circumstances under which the contract was made.  The duty of good faith and fair dealing is "an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract."

In Florida East Coast Railroad Co. v. United States, the Court of Claims described this implied obligation as an aspect of each party's duty to enable the other party to perform:

Even in the absence of an express duty to cooperate, the law implies an agreement between the parties of any contract to "do and perform those things that according to reason and justice they should do in order to carry out the purpose for which the contract was made, and to refrain from doing anything which will destroy or injure the other part’s right to receive the fruits of the contract (citations omitted)."

See also 13 Williston on Contracts (4th Ed.)  § 38.15.  There is an implied covenant that neither party will do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract; in other words, in every contract there exists an implied covenant of good faith and fair dealing.  Id. § 38:11

As a general rule, government agencies must cooperate with their contractors.  If the government fails to provide necessary assistance for efficient contractor performance, this may constitute a failure to cooperate.  Failing to prevent interference by another contractor also provides a basis for a failure to cooperate claim.

David P. Hendel
Husch Blackwell Sanders LLP
750 17th Street, N.W., Suite 1000
Washington, D.C. 20006

202.378.2356
fax: 202.378.2319
david.hendel huschblackwell.com