Board of Contract Appeals General Services Administration Washington, D.C. 20405 ______________________ GRANTED: July 31, 1998 ______________________ GSBCA 14302 HBS NATIONAL CORPORATION, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Marshall J. Doke, Jr., of Gardere & Wynne, L.L.P., Dallas, TX, counsel for Appellant. Adele Ross Vine, Office of Regional Counsel, General Services Administration, Kansas City, MO, counsel for Respondent. Before Board Judges NEILL, HYATT, and DeGRAFF. DeGRAFF, Board Judge. The General Services Administration (GSA) entered into a contract with HBS National Corporation (HBS) and then terminated HBS's performance based upon what GSA believed to be HBS s anticipatory repudiation of its contractual obligation to perform. The parties filed cross-motions for summary relief. We deny GSA s motion, grant HBS s motion, and consequently grant the appeal. Findings of Fact[foot #] 1 On November 22, 1996, GSA issued a solicitation for janitorial services at the Federal Center Complex in St. Louis, Missouri. HBS submitted an offer in response to the solicitation, and GSA awarded HBS a contract on January 28, 1997. ----------- FOOTNOTE BEGINS --------- [foot #] 1 These facts are uncontested and are supported by exhibits contained in the appeal file. ----------- FOOTNOTE ENDS ----------- Exhibit 1, 2. The contract had a term of one year, with four one-year option periods. Exhibit 2. On June 18, 1997, HBS s corporate contract administrator sent a cover letter and an attachment to the GSA contracting officer. The cover letter states: Attached is a draft of a letter that HBS will be sending to all of our employees on the GSA project within the week. I am offering this letter for your review to solicit your opinion as to whether there is any strong objections [sic] to any of the wording. If so, please call me immediately, otherwise this letter will be mailed no later than Friday (6/20/97). I wanted you to have a chance to see this letter before it goes out, but I cannot guarantee that our legal counsel will accept revisions. Exhibit 3. The attached draft letter, which has "SAMPLE" written across the top, reads: On Monday, June 16, 1997 the owners and managers of HBS National Corporation ("HBS") made the decision to enter a request for termination of our contract with the GSA. The current contract with the GSA runs through February 1998, however, for various reasons HBS has decided to terminate prematurely. Whether this request is granted or not, HBS will be forced to permanently discontinue its activities and all employment at the GSA Federal Complex, St. Louis, MO. HBS anticipates that this will occur within 60-90 days. In compliance with the Federal Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. Part [sic] 2101 et seq., this is to advise you that your employment with HBS will be terminated on or after August 15, 1997. Official notice of this potential permanent loss of employment is given to you under WARN. There are no applicable bumping rights. Other employment opportunities can be discussed in official company correspondence, however, you should not accept any speculation on the part of our supervision or project management. The current contract status is nothing different than what has occurred in the past during rebids or renewals with the GSA (eg: WorldWide, TriArk, etc.). HBS is simply complying with new federal statutes which concern notices to employees at GSA. I would hope that your performance record will secure you a position with the new subcontractor that takes over servicing this facility, as it did when HBS hired you! Again, do not rely on speculation or rumors. You may contact me at [telephone number] and at the address shown below. Exhibit 3. The GSA contracting officer thought that the June 18 cover letter made clear that HBS was going to send the WARN letter to its employees.[foot #] 2 Exhibit 50 at 32. She thought that the WARN letter meant that HBS would stop performing within sixty to ninety days, regardless of whether GSA terminated the contract for the convenience of the Government. Exhibit 50 at 60. The contracting officer did not call HBS about the June 18 cover letter and attached WARN letter. Exhibit 50 at 33. The contracting officer understood that the purpose of a WARN letter is to provide notice to a company's employees if it is reasonably foreseeable their employment might be terminated. Exhibit 50 at 31-32, 34. The contracting officer also understood that HBS was not required to terminate its employees simply because it sent them WARN letters. Exhibit 50 at 36. Also on June 18, 1997, HBS s corporate contract administrator sent the GSA contracting officer a copy of a letter addressed to GSA's contracting officer's representative. This letter states: I am the Corporate Contract Administrator overseeing logistics on all contract terms and provisions. My ----------- FOOTNOTE BEGINS --------- [foot #] 2 The Worker Adjustment and Retraining Notification Act (WARN Act), 29 U.S.C.A. 2101-09 (West Supp. 1998), requires covered employers to provide "affected employees" notice of a "mass layoff." "Affected employees" include "employees who may reasonably be expected to experience an employment loss as a consequence of a proposed plant closing or mass layoff by their employer." 29 U.S.C.A. 2101(a)(5). An "employment loss" is a termination, a layoff exceeding six months, or a reduction in work hours of more than fifty percent each month for six months. 29 U.S.C.A. 2101(a)(6). A "mass layoff" is any employment loss at a single site of employment that involves either one-third of the employees at the site and at least fifty employees, or at least 500 employees. 29 U.S.C.A. 2101(a)(3); 20 CFR 639.3(c) (1997). An employer who anticipates carrying out a mass layoff must provide written notice to affected employees at least sixty days prior to the planned layoff. 29 U.S.C.A. 2102; 20 CFR 639.4, 639.5. An employer who violates the WARN Act is liable for back pay, lost benefits, civil penalties, and attorney fees. 29 U.S.C.A. 2104. ----------- FOOTNOTE ENDS ----------- responsibilities are not so much concerned with scope or cleaning specifications, as with federal, state and contract compliance issues. To the point, HBS National Corporation ("HBS") will be asking the GSA for a "No Cost Termination" of this contract within the week. For various reasons to be outlined in a letter to [the GSA contracting officer], HBS has determined that it is the best interests of the GSA to attempt to find another contractor to provide services to your facility. It has been reported that early in our contract, there were numerous reports from your tenants about the improved service (ie: "the HBS difference"). However, those months had excessive losses and recently I would suspect that the number of good reports has decreased. HBS is simply not in a position to provide the level of service that we feel the facility requires, without posting tremendous losses on a monthly basis. Compounding those losses are the Deficiency Deductions that [the assistant contracting officer's representative] continues to submit on a monthly basis. Mr. Lawrence Ricketts, our Regional VP, has made several attempts to put together a program to reduce those deductions, however, HBS has only seen [the assistant contracting officer's representative] quadruple the dollar amount of those deductions in the past three months. Presently, those deductions exceed 10% of the gross monthly contract and there was never even 10% in this contract for overhead and profit! It is an unbearable situation for this company. Mr. Ricketts passed me a copy of a letter indicating that on June 25th there is going to be a performance evaluation on this subcontract. Can you assist us by recommending to your [contracting officer] that the contract with HBS be terminated at "no cost" because of Quality-of-Service concerns? It is very disappointing to our Corporate Office to have the situation that exists continue for either the GSA, or for us. My goal is to ensure that this contract ends amicably. HBS will of course facilitate GSA to the extent possible with the transition to a new contractor, and HBS is committed to a plan that does not leave the GSA without service or paper supplies. (I am looking [at] a copy of your June 16th letter that just arrived which indicates that there are adequate supplies and equipment.) I cannot say that I will be in attendance at any future meeting that results from your June 25th performance review so I would appreciate a response to this letter and would ask that you copy me on any further correspondence on this contract. Please feel free to contact me at the phone number and address shown in this correspondence regarding any issue in this letter. Thank you for your cooperation and assistance. Exhibit 50-7. The contracting officer considered this second June 18 letter at the same time that she considered the June 18 cover letter and attached WARN letter. Exhibit 50 at 50. The contracting officer decided that HBS's statement to the contracting officer's representative, that it was committed to a plan that would not leave GSA without service or paper supplies, contradicted the statements made to her in HBS's June 18 cover letter and WARN letter. The contracting officer did not call HBS to ask about the contradiction between the two letters. Exhibit 50 at 50-53. On June 27, 1997, GSA terminated HBS s right to perform the contract for default, based upon HBS s anticipated failure to perform. Exhibits 4, 6. HBS performed until GSA terminated its right to do so. Exhibit 50 at 44-45; Exhibit 51 at 9. On September 5, 1997, HBS filed this appeal. The parties filed cross-motions for summary relief on July 1, 1998, and HBS filed a reply to GSA s motion on July 20, 1998. Discussion Summary relief is appropriate when there are no genuine issues of material fact in dispute and when the moving party is entitled to relief as a matter of law. A fact is material if it will affect our decision. An issue is genuine if enough evidence exists such that the fact could reasonably be decided in favor of the non-movant at a hearing. Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). The facts set out above were put forward by the parties in support of their positions, and are supported and not contradicted by the record. Although both parties asked us to find additional facts, all of the facts that are material to the resolution of this appeal are set out above. Two legal standards are relevant to determining whether either HBS or GSA is entitled to relief as a matter of law. First is the standard we use in order to evaluate a challenge to a termination for default. Second is the standard we use when we determine whether one party to a contract has anticipatorily repudiated its obligation to perform the contract. A termination for default is a drastic step that the Government should take only when there are good grounds for doing so and when solid evidence supports such action. J.D. Hedin Construction Co. v. United States, 408 F.2d 424 (Ct. Cl. 1969). A decision to terminate a contract for default is an exercise of discretion and, as such, must be a reasonable decision. Nuclear Research Corp. v. United States, 814 F.2d 647 (Fed. Cir. 1987); Darwin Construction Co. v. United States, 811 F.2d 593 (Fed. Cir. 1987). The Government bears the burden of proving that a decision to terminate a contract for default was proper. Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987). An anticipatory repudiation is a breach of contract. In United States v. DeKonty Corporation, 922 F.2d 826 (Fed. Cir. 1991), the court of appeals explained as follows: The Supreme Court set forth the standard for anticipatory breaches: When one party to [a] . . . contract absolutely refuses to perform his contract, and before the time arrives for performance distinctly and unqualifiedly communicates that refusal to the other party, that other party can, if he choose, treat that refusal as a breach and commence an action at once therefore. Dingley v. Oler, 117 U.S. 490, 499-500, 6 S.Ct. 850, 853, 29 L.Ed. 984 (1886). Dingley further adopted the language of an earlier case which stated: [A] mere assertion that the party will be unable, or will refuse to perform his contract, is not sufficient; it must be a distinct and unequivocal absolute refusal to perform the promise, and must be treated and acted upon as such by the party to whom the promise was made . . . . Id. at 503, 6 S.Ct. at 854 (quoting In re Smoot, 82 U.S. 36, 21 L.Ed. 107 (1872)). This court followed that standard in Cascade Pacific Int'l v. United States, 773 F.2d 287 (Fed. Cir. 1985). Cascade held that a contracting officer may terminate a contract for anticipatory breach in the event of a positive, definite, unconditional, and unequivocal manifestation of intent . . . on the part of the contractor . . . not to render the promised performance when the time fixed . . . by the contract shall arrive . . . . Cascade, 773 F.2d at 293. DeKonty, 922 F.2d at 827-28. Applying these two legal standards, we will grant GSA's motion for summary relief if GSA meets its burden of proving that there were good grounds and solid evidence in support of its decision to terminate HBS's performance. We will grant HBS's motion for summary relief if HBS establishes that GSA cannot meet its burden of proof. Because GSA based its decision to terminate HBS's right to perform upon what GSA viewed as HBS's anticipatory repudiation of the contract, GSA's decision was properly grounded and is adequately supported only if the facts show that HBS positively, definitely, unconditionally, and unequivocally manifested an intent not to perform the contract. GSA contends that HBS s intent not to perform is found in the June 18, 1997 cover letter addressed to the contracting officer and the attached WARN letter, and in the June 18, 1997 letter addressed to the contracting officer's representative. We agree with HBS that these letters do not establish that HBS expressed a positive, definite, unconditional, unequivocal intent not to perform the contract work. The contracting officer thought, and we agree, that the June 18, 1997 cover letter made clear that HBS was going to send the attached WARN letter to its employees on June 20, in the absence of an objection by GSA, or possibly notwithstanding GSA's objection. As the contracting officer realized, however, HBS would not have been required to terminate its employees even if it sent the WARN letter. The contracting officer thought that the June 18, 1997 letter addressed to GSA's contracting officer's representative contradicted the June 18 cover letter and attached WARN letter. We, too, read the letters as being inconsistent. In the letter to the contracting officer's representative, HBS clearly expressed its desire for GSA to terminate HBS's contract and hire another janitorial services contractor. But, HBS also stated (and emphasized the statement by underlining it) that it was committed to a plan that would not leave GSA without services and supplies, and this language is not consistent with an intent to stop performing. GSA points out that HBS complained in the letter to the contracting officer's representative that it was incurring losses, but HBS never said that the losses would cause it to stop performing and HBS s complaints do not establish that HBS lacked the ability to continue to perform. HBS's intentions concerning its future performance were ambiguous, uncertain, and doubtful. In neither the June 18, 1997 cover letter to the contracting officer and the attached WARN letter, nor the June 18, 1997 letter to the contracting officer's representative does HBS say either that it was incapable of performing the contract work, or that it would stop performing on a certain date. In fact, HBS kept performing until GSA terminated its right to do so. Although the June 18 cover letter to the contracting officer and the attached WARN letter sound as if HBS intended to stop performing at some time in the future, the June 18 letter to the contracting officer's representative emphasizes that HBS was committed to ensuring that GSA would not be left without services or supplies. Evidence that HBS s intentions were ambiguous, uncertain, and doubtful does not support a conclusion that HBS anticipatorily repudiated its contractual obligations, and is inadequate support for a decision to terminate HBS s right to perform. We deny GSA's motion for summary relief because GSA has not proven that its decision to terminate HBS's performance of the contract for default was based upon evidence of HBS s positive, definite, unconditional, unequivocal intent not to perform its contractual obligations. We grant HBS's motion for summary relief because HBS has established that GSA's decision to terminate HBS's performance was not based upon evidence of a clear intent not to perform. Decision GSA's motion for summary relief is DENIED. HBS's motion for summary relief is GRANTED and, as a result, the appeal is also GRANTED. ___________________________________ MARTHA H. DeGRAFF Board Judge We concur: ________________________________ __________________________________ EDWIN B. NEILL CATHERINE B. HYATT Board Judge Board Judge