At a Star Route meeting I attended this year, a question arose as to whether an HCR contractor was entitled to a price increase for performing additional work if the contractor was already performing the route faster than scheduled. The postal official who fielded the question said that if the contractor is already ahead of schedule, and the additional work could be accomplished within that schedule, there would be no entitlement to a price increase. This is simply wrong, and a dangerous misunderstanding of HCR contracts, as established by a case decided last year by the U.S. Court of Federal Claims called Keeter Trading Company, Inc. v. United States, 85 Fed. Cl. 613 (2009).
Keeter held an HCR contract requiring him to receive, sort, and deliver mail to 250 boxes in Yellville, Arkansas at an annual rate of about $39,000. A dispute arose when the contracting officer issued a Route Service Order which instructed Keeter to serve an additional 52 mailboxes along a branch of his existing route. The contracting officer unilaterally determined that the change would result in a $1,087 increase in the contract price.
Keeter, however, did not accept this edict. Keeter contended that the additional work associated with the new boxes should be priced according to the formula provided in the contract for "Adjustments for Route Extension or En Route Boxes." This formula provided that annual hours for casing and route operations should be increased by 3.64 hours for each new box, and 10.4 hours for each additional mile of service. Applying this formula, the additional service exceeded the $2500 (now $5000) threshold for minor service changes. Thus, Keeter contended that the additional boxes fell within the contract's definition of "Other Service Changes" and could not be imposed without mutual agreement.
The reason the Postal Service did not apply the contract formula to determine the contract price adjustment for the additional boxes was the local Postmaster's observation that Keeter "regularly had extra time during the period covered by his schedule." Similarly, the Administrative Official insisted that Keeter should have no additional time added to his contract for the new boxes because he only used 45 minutes of the one hour and 15 minutes already allotted for casing the mail. In addition, these postal officials noted that the contract allotted one hour to drive between two points on the route. Since Keeter only used 30 minutes of that time, no extra time should be added to the schedule for additional mileage.
Keeter strenuously disagreed with the Postal Service's contention that he was not entitled to additional pay and time for the additional work. He wrote the following to the Postal Service:
"[The AO] is saying that I am being allowed from 8:30 to 9:30 to get from Summit to Peel and it doesn't take that long. It doesn't, but why does that matter? I am a contractor. I am not an hourly employee. I am getting paid to perform a task within my own expenses."
Keeter went on to note that he found a way to perform the route faster by making an extra trip along the way, but "never dreamed this would be used against me." In addition, Keeter noted that when casing the mail, unlike the other contractors, he worked straight through without socializing or taking smoking breaks. The court agreed with Keeter that no contractual provision allowed the Postal Service to disregard the price adjustment formula simply because there is "extra time" in the schedule unused by the contractor.
In retaliation for Keeter's refusal to go along with the AO's edict, the AO began issuing daily deficiency notices under PS Form 5500 for "failure to observe contract schedule." This alleged failure consisted of Keeter's arriving and leaving the post office earlier than his scheduled time. The court rejected these deficiency notices, noting that Keeter had been arriving and leaving the post office earlier than scheduled for the previous one and a half years without any prior concern. In addition, the contracting officer confirmed that there was nothing wrong with the contractor arriving early, getting his work done, and leaving early. This was further confirmed by the standard practice in the post office, where carriers were allowed to leave the post office for their routes by 8:00 a.m. if the local newspaper had not arrived by then.
At trial, the Postal Service defended the actions of its officials by contending, among other things, that the contract's price adjustment formula for delivery to additional boxes was optional. The court, however, found that the Postal Service's argument made no sense and application of the contract formula was mandatory. The court also noted that the policy provision the Postal Service attempted to rely upon for its position could not override a mandatory contract provision.
In the end, the court found that four separate postal officials, including procurement officials, acted in bad faith toward Keeter, entitling Keeter to an award of damages for breach of contract, interest, and lost profits. In addition, Keeter would be eligible to recover attorney fees under the Equal Access to Justice Act.
All of this started from the errant, misguided, and dangerous assumption that an HCR contractor had "extra time" in its contract and therefore needn't be compensated for the imposition of additional work that could be accomplished within the contract schedule.
The latest variation on this errant line of thinking is the attempt to reduce contract payments if the volume of mail being delivered has declined. While that would certainly be a point for negotiation in the renewal of a contract, it has no place in the administration of an existing contract.
David P. Hendel
Husch Blackwell LLP
750 17th Street, NW, Suite 1000
Washington, D.C. 20006-4607
Direct Phone: 202.378.2356
Direct Fax: 202.378.2319
E-Mail: david.hendel huschblackwell.com