6 Contract Administration - USPSabout.usps.com/manuals/ipm/ipmc6.pdf · Contract Administration 6.1.1.b Contents May 19, 2005 161 Updated With Postal Bulletin Revisions Through January

6.1.1.bContract Administration

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161May 19, 2005Updated With Postal Bulletin Revisions Through January 19, 2006

6 Contract Administration

6.1 General

6.1.1 Responsibilities6.1.1.a Contracting Officers and Purchase Teams. The make-up of a purchase team

may change as the contracting process moves into the administration phase,but the contracting officer remains the business leader of the purchase teamthroughout the life of the contract and continues to represent the purchaseteam in all dealings with the supplier. Beyond contract close out, othermembers of the purchase team may continue in their roles as part of a morecomprehensive life-cycle management team.

6.1.1.b Contracting Officer’s Representatives

1. The contracting officer may appoint in writing one or morerepresentatives (a contracting officer’s representative or COR) toperform any administrative function that does not involve a change inthe scope of work, specifications, or cost or duration of contractperformance. The appointment letter must detail the COR’sresponsibilities and recordkeeping duties, and require that the CORread and abide by the Standards of Ethical Conduct for Employees ofthe Executive Branch, 5 CFR 2635. See also Management InstructionPM-610-2001-1, Contracting Officer’s Representative Program.

2. Representatives of the contracting officer may not appoint otherrepresentatives without prior written approval of the contracting officer.

3. Representatives of the contracting officer may not perform any functionor exercise any authority not specifically delegated by the contractingofficer.

4. The contracting officer must notify the supplier in writing of theappointment of any representative or representatives, specifying theauthority delegated and cautioning the supplier to notify the contractingofficer any time the supplier believes the representative is exceedingthe authority granted by the delegation.

5. All contracts requiring a contracting officer’s representative mustinclude Clause 6-1, Contracting Officer’s Representative.

6.1.1.c Interim Internal Purchasing Guidelines

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162 May 19, 2005Updated With Postal Bulletin Revisions Through January 19, 2006

6.1.1.c Relationship Between the Postal Service and Supplier Representatives

1. The objective of any purchasing action is to meet contract objectives,not control the supplier’s business. Postal Service personnel involved incontract administration should direct their efforts to that objective (suchas quality assurance, cost monitoring, and other activities intended toensure compliance with contract terms). Except when required by theterms of the contract, they may not direct the supplier’s managementactivities or intervene to supervise, train, or discipline supplierpersonnel.

2. Disputes with suppliers are an obstacle to performance. Purchaseteams in general and contracting officers in particular should seek toresolve contract disputes in a businesslike manner that promotesefficiency and cost-effectiveness while protecting the Postal Service’sinterests.

6.1.2 Contract Administration Functions6.1.2.a Contracting Officer Responsibilities. The contracting officer, as the business

leader of and representing the purchase team, is responsible for:

1. Ensuring timely contract performance in accordance with the contractspecifications and clauses, with due regard to the need for quality andthe legal rights of the parties;

2. Ensuring that the supplier is compensated promptly in the properamount consistent with protecting the Postal Service’s interests;

3. Making changes, carrying out terminations, and taking other necessaryactions outside the normal course of contract performance;

4. Making decisions and determinations that affect contract performancefairly, impartially, and in accordance with Postal Service policy andapplicable law;

5. Maintaining complete documentation on performance ornonperformance to protect the Postal Service’s rights and to provide abasis for past performance assessments for use in future purchases;

6. Managing supplier relations and fairly and constructively resolvingdisputes; and

7. As appropriate, for example when modifying or terminating a contract,documenting the business reasons for the action, and including thedocumentation in the contract file.

6.1.2.b Other Responsibilities. The specific functions required to be performed underany contract are determined by the contract’s terms and conditions, clausesand the particular contract situation, as well as these guidelines. Thepurchase team and each contracting officer’s representative should carefullyreview the contract together immediately after award to determine thefunctions to be performed and the people responsible for performance.

6.2.2.aContract Administration

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6.2 Contract Performance

6.2.1 Postaward Orientation6.2.1.a General. Effective relationships between the Postal Service and its suppliers

are central to the success of any purchase. The relationship should be apartnership, with each party working together to achieve a mutual goal. A keyelement in establishing the relationship is postaward orientation. Thisorientation brings all parties together and provides for a clear, mutualunderstanding of the purchase requirements and objectives. It also providesa means whereby each party may identify and resolve potential problems atthe beginning, rather than later in the process when misunderstandings canhave a greater impact on successful performance. Therefore, the contractingofficer and the purchase team should hold postaward orientations wheneverfeasible.

6.2.1.b Use. In deciding whether to hold a postaward orientation, the purchase teamshould consider:

1. The nature and extent of any preaward survey or other discussions withthe supplier;

2. The contract type, value, and complexity;

3. The purchasing history of the supplies or services;

4. Requirements for spare parts and related equipment;

5. Urgency of the delivery schedule and relationship of the supplies orservices to critical programs; 6.

6. Length of the planned production cycle;

7. Extent of subcontracting;

8. Supplier’s past performance and experience with the supplies orservices;

9. Safety precautions required for hazardous materials or operations; and

10. Financing arrangements, such as progress payments.

6.2.1.c Scheduling. Postaward orientations should be held promptly after award. Thepurchase team must prepare an agenda, and afterwards summarize thetopics actually covered in a memorandum. Whenever possible, allrepresentatives (for example, inspectors) must attend any orientationsession.

6.2.1.d Changes to the Contract. A postaward orientation may not be used to changethe contract. Any change resulting from a postaward orientation must bemade by contract modification.

6.2.2 Record Keeping6.2.2.a General. Contract performance records are kept in the purchasing

organization. Maintaining complete records on performance is essential for(1) proper contract administration; and (2) creating and maintaining recordsof past performance. All actions taken must be documented.

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6.2.2.b Organization. Records must be maintained in an official contract file.

6.2.2.c Records in the Possession of Other Postal Employees. Records relating tocontract performance may be kept by offices outside the purchasingorganization (for example, records on repair and maintenance of equipmentunder warranty). The contracting officer should alert each such office of thesignificance of the records to contract administration and request they retainor transfer any records necessary to comply with a and b above.

6.2.3 Contract Monitoring

6.2.3.a Personnel

1. In addition to appointing representatives (see 6.1.1.b) to monitorcontract performance, the contracting officer may name one or morerepresentatives with authority to coordinate the activities of otherrepresentatives, such as inspectors or reviewers.

2. The contracting officer may authorize one or more representatives toprovide technical direction, but the authorization must specifically alertthem to the prohibition on ordering changes in the work affectingschedule, price, or quality.

3. Personnel from federal government agencies may be delegated audit,inspection, and testing responsibilities.

6.2.3.b Using Suppliers to Monitor Performance

1. Facilities Contracts. For contracts covered in 4.3, contracting officersmay contract with architects, engineers, construction or real estatemanagement professionals to perform any contract administration taskthat could be delegated to a Postal Service contracting officer’srepresentative.

2. Other Contracts. Contracting officers may contract with third parties toperform only those contract administration responsibilities related totesting for conformance, acceptance, reviewing supplier submittals,shop drawings, and requests for design approval.

6.2.3.c Review of Supplier Submittals

1. Reviewing supplier submittals such as material lists, shop drawings,catalog cuts, or samples is an important method of enforcing contractrequirements, and contract terms requiring submission and approvalshould be strictly enforced. The purchase team must ensure thatsupplier submittals are disapproved only for failure to meet a materialrequirement of the contract. If a supplier submittal indicates that thespecifications are inadequate, the contracting officer should use theapplicable changes clause to achieve necessary quality. For submittalsaffecting purchases for Technical Data Packages (TDPs), see 2.3.2.

2. Contracting officers and their representatives must approve,conditionally approve, or disapprove supplier submittals promptly withinany time limits set in the contract. Disapprovals and conditional


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approvals must clearly indicate what the supplier must do to complywith contract requirements.

6.2.4 Delivery6.2.4.a Transportation. The purchase team must ensure that supplies purchased by

the Postal Service are transported according to:

1. The solicitation provisions prescribed in Appendix A;

2. Chapters 2 and 3 of Handbook AS-701, Material Management; and

3. All policies, procedures, and technical guidance issued by the manager,SM Operations.

6.2.4.b Variation in Quantity. Suppliers are responsible for delivering the quantityspecified in the contract within the tolerances allowed (see Clause B-4,Variation in Quantity). Excess quantities totaling no more than $100 in valuemay be kept without compensating the supplier. Excess quantities worthmore than $100 may be returned at the supplier’s expense, or kept and paidfor at the contract price.

6.2.5 Right to Adequate Assurance of Performance6.2.5.a General. A contract obligates each party not to impair the other’s expectation

of receiving the performance due under the contract. When performanceconcerns arise, the contracting officer may, in writing, demand adequateassurance of due performance. The concerns need not arise from or bedirectly related to the contract.

6.2.5.b Failure to Provide Adequate Assurance. The contracting officer may treat thecontract as defaulted if the purchase team’s concerns are not resolved within30 days of the demand for adequate assurance. Failure to provide adequateassurance is a breach of contract by repudiation. The supplier may retract therepudiation under 2 below unless the contracting officer has already acted onthe default.

1. Postal Service Rights. If the supplier repudiates the contract, thecontracting officer may:

(a) Await performance for a reasonable time; or

(b) Resort to any remedy provided in these guidelines or thecontract, even though the supplier has been notified that thePostal Service will await performance and the contracting officerhas urged retraction; and

(c) In either case, suspend the Postal Service’s own performance orproceed in accordance with the provisions of the contract’sDefault clause.

2. Supplier’s Retraction of Repudiation

(a) The supplier can retract a repudiation up until the nextperformance is due, unless the Postal Service has, since therepudiation, changed its position or otherwise indicated that therepudiation is final.

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(b) Retraction may be by any method that clearly indicates thesupplier intends to perform, but must include any assurancedemanded by the contracting officer.

(c) Retraction reinstates the supplier’s rights under the contract if thefailure to provide assurance is excusable and consideration ismade to the Postal Service for any delay caused by therepudiation.

6.2.6 Bankruptcy6.2.6.a General. When a supplier declares bankruptcy, the right of the Postal Service

to take unilateral action is limited. Contracting officers should monitor thesupplier’s financial strength to anticipate problems which could arise and actpromptly to protect Postal Service interests when notified of a supplier’sbankruptcy.

6.2.6.b Procedures. When notified that a supplier is in bankruptcy proceedings, thecontracting officer must:

1. Consult with assigned counsel before taking any action regarding thesupplier’s bankruptcy proceedings.

2. Determine the amount of any claims that the Postal Service may haveagainst the supplier on any contracts which have not been closed out.

3. Take actions necessary to protect the Postal Service’s financialinterests and safeguard Postal Service property.

6.3 Quality Assurance

6.3.1 Inspection and Testing

6.3.1.a General

1. Quality assurance requirements, including inspection and testing,acceptance, and first article approval, are discussed in 2.2.1 through2.2.3. This section focuses on administering those requirements duringcontract performance.

2. Unless there are special requirements (see 2.2.1.d), the Postal Serviceinspects commercially available items at destination and only for typeand kind; quantity; damage; operability (if readily determinable); andpreservation, packaging, packing, and marking, if applicable.

6.3.1.b Nonconforming Supplies or Services

1. General

(a) Purchase teams may reject supplies or services not conformingto contract requirements.

(b) The repeated delivery of nonconforming property or servicesmust not be allowed. In such cases, purchase teams should takeappropriate action, such as rejecting delivery and having the


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purchasing organization document the rejection in the supplier’sperformance record.

2. Correction or Replacement

(a) Suppliers must be given an opportunity to correct or replacenonconforming supplies or services when it can be accomplishedwithin the delivery schedule.

(b) Correction or replacement must be at no additional cost to thePostal Service.

(c) The Postal Service reserves the right to charge the supplier thecost of reinspection and retesting needed because of a previousrejection.

3. Rejection

(a) Determination. When correction within the delivery schedule isnot possible, the purchase team must ordinarily reject supplies orservices where nonconformance adversely affects safety, health,reliability, durability, performance, interchangeability of parts orassemblies, weight, appearance, or any other basic objective ofthe contract (but see 6.3.1.b.4).

(b) Notice. Suppliers must be given a notice of rejection promptly,including the reasons for rejection. If prompt notice is not given,acceptance may be implied as a matter of law. Notice must be inwriting when:

(1) The supplier persists in offering nonconforming supplies orservices for acceptance; or(2)

(2) Delivery or performance was late without an excusablecause.

4. Substitute Performance

(a) When replacement or correction is not possible within theperformance period, and the purchase team has rejectedperformance, the contracting officer may provide the supplier anopportunity to provide acceptable substitute performance if thepurchase team decides:

(1) Performance is still desired, and

(2) Substitute performance will best mitigate the damagesuffered by the Postal Service.

(b) When substitute performance is accepted, the contracting officermust modify the contract to provide for appropriate consideration.

5. Accepting Defective Performance

(a) Minor Defects. The purchase team may waive minornoncomformities.

(b) Other Defects. The purchase team may not accept supplies orservices where nonconformance adversely affects a basiccontract objective unless acceptance is clearly in the PostalService’s interest. The purchase team’s decision to accept the


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supplies or services must be put in writing by the contractingofficer and be based on:

(1) Information on the nature and extent of thenonconformance;

(2) Advice of technical specialists that the material is safe touse and will perform its intended purpose;

(3) The supplier’s request for acceptance of the supplies orservice;

(4) A recommendation for acceptance by the intended user,with supporting rationale; and

(5) Appropriate monetary or other consideration.

(c) Consideration for Acceptance of Defective Performance

(1) When nonconforming supplies or services are acceptedunder 6.3.1.b.5(a), the contracting officer need not modifythe contract to provide for appropriate consideration,unless:

(i) It appears that the savings to the supplier infabricating the nonconforming supplies or performingthe nonconforming services exceed the cost to thePostal Service of processing and enforcing amodification.

(ii) The Postal Service’s interests otherwise require acontract modification.

(2) When nonconforming supplies or services are acceptedunder (b) above, the contracting officer must modify thecontract to provide for consideration.

6.3.2 Acceptance

6.3.2.a General

1. Acceptance constitutes acknowledgment that supplies or servicesconform with quality, quantity, and packaging requirements set forth inthe contract.

2. Acceptance may take place before delivery, at delivery, or after delivery,depending on the contract’s provisions.

6.3.2.b Responsibility. Acceptance is the responsibility of the contracting officer or hisor her representative. When this responsibility is assigned to a contractingofficer’s representative or other party, acceptance by that person is bindingon the Postal Service.

6.3.2.c Place of Acceptance. Usually, contracts must specify the place ofacceptance. Contracts providing for Postal Service inspection at sourceordinarily provide for acceptance at source; those providing for inspection atdestination ordinarily provide for acceptance at destination. Suppliesaccepted at a place other than destination may not be reinspected for

6.3.2.fContract Administration

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acceptance at destination, but should be examined for quantity, damage intransit, and possible substitution or fraud.

6.3.2.d Supplier Certification. When purchasing commercially-available items,acceptance based on supplier certification may be in the Postal Service’sinterest when:

1. Only small losses will be incurred by a defect; or

2. The supplier’s reputation or past performance suggests that thesupplies or services will be acceptable, and defective work will bereplaced, corrected, or repaired without contest.

6.3.2.e Revocation of Acceptance in Whole or in Part

1. If the value of performance has been substantially impaired, thepurchase team represented by the contracting officer may revokeacceptance of nonconforming performance if acceptance has:

(a) Resulted from the reasonable assumption that thenonconformance would be cured and it is not cured; or

(b) Taken place because the nonconformance has not beendiscovered before acceptance, as a result of the difficulty ofdiscovery, or because of the supplier’s assurances.

2. Revocation of acceptance must occur within a reasonable time after thepurchase team discovers or should have discovered the grounds for itand before any substantial change not caused by their own defectstakes place in the condition of supplies. Revocation is not effective untilthe contracting officer notifies the supplier.

3. The Postal Service has the same rights and duties upon revocation asupon rejection.

6.3.2.f Transfer of Title and Risk of Loss

1. Title to supplies passes to the Postal Service upon formal acceptance,regardless of when or where the Postal Service takes physicalpossession, unless the contract specifically provides for earlier transferof title.

2. Unless the contract specifically provides otherwise, risk of loss ordamage remains with the supplier until:

(a) Delivery of the supplies to a carrier if transportation is f.o.b. origin;or

(b) Acceptance by the Postal Service or delivery to the PostalService at the destination specified in the contract, whichever islater, if transportation is f.o.b. destination.

3. The provisions of 6.3.2.f.2 do not apply to supplies that are rejected.The risk of loss of or damage to rejected supplies remains with thesupplier until cure or acceptance. After cure or acceptance, 6.3.2.f.2applies.


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6.3.3 Receiving Reports

6.3.3.a General

1. Completed receiving reports should be submitted to the AccountingService Center (ASC) within 5 days of receiving supplies or services.

2. If receiving activities’ reports are regularly received at the ASC morethan 10 days after receiving supplies or services, this will be reportedby the ASC to the appropriate purchasing organization for remedialaction.

6.3.3.b Responsibility

1. The contracting officer must ensure that receiving activities get propernotification of contract awards, including the receiving reportsgenerated by the contract writing system, with instructions for promptcompletion and submission.

2. The contracting officer must provide the proper shipping and paymentinformation to the supplier.

3. Day-to-day responsibility for monitoring the completion and submissionof receiving reports may be delegated to purchasing personnel or, asnecessary, to managers within the receiving installation.

4. Each installation head must:

(a) Designate in writing an individual (or individuals) responsible forreceiving and accepting all delivered supplies and services.

(b) Provide the appropriate purchasing organizations with a copy ofthe designation.

(c) See that procedures are established to ensure that the individualresponsible for receiving and accepting supplies is notified whena shipment arrives.

5. When partial shipments are certified for payment, a copy of the certifiedreceiving report must be kept for use in receiving the balance of theshipment.

6.4 Payments and Financing

6.4.1 General6.4.1.a Disputes. Contracting officers and financial personnel must ensure that

payments legitimately due are made promptly. If a dispute arises regardingthe supplier’s entitlement to payment, the contracting officer must pay thesupplier any amount not in dispute, except for withholding as allowed under6.4.4.f.

6.4.1.b Partial Payments. The contracting officer should generally approve requestsfor partial payment upon delivery of supplies or services that partially fillcontract requirements. When the contract does not provide unit prices, thecontracting officer may determine an appropriate formula for payment.

6.4.3.cContract Administration

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6.4.1.c Cost Reimbursement. Requests for payment under contracts that are notfixed-price must be reviewed by the contracting officer, with the assistance oftechnical specialists, to determine whether they comply with the requirementsfor allowability, allocability, and reasonableness (see 5.2.3).

6.4.2 Invoices6.4.2.a General. Payment will be made only after receiving an invoice (see

paragraph g of Clause 4-1, General Terms and Conditions, or Clause B-20,Invoices, which may be used as a substitute for paragraph g of Clause 4-1),except for:

1. Regularly scheduled payment under real estate leases and contractsfor cleaning services, vehicle hire, and contract postal units;

2. Payments under mail transportation contracts;

3. Over-the-counter transactions for commercial items; or

4. Advance payments, when authorized.

6.4.2.b Submitting Invoices. Invoices must be sent to the office specified in thecontract or order, with a copy to the contracting officer if necessary. Invoicessent to any other person or office are not considered properly submitted.Invoices submitted before performance or delivery violate the certificationprovision of the Invoices clause. Invoices may be submitted electronically.

6.4.3 Payment6.4.3.a Methods. Payments may be made by check or electronic funds transfer, as

requested by the supplier and approved by the contracting officer.

6.4.3.b Time of Payment. Payment must be made as close as possible to, but notlater than, the 30th day after receiving an invoice or acceptance, whicheveroccurs later, except:

1. In those limited circumstances when a specified payment date isprovided for in the contract, payment will be made as close as possibleto, but not later than, that date.

2. When a time discount is taken, payment must be made as close aspossible to, but not later than, the discount date. Discounts must betaken from the date on which the invoice is received by the officespecified in the contract, or the date on which supplies or services aredelivered or performed, whichever is later, to the discount date.Discounts should be taken whenever economically justified, but onlyafter acceptance.

6.4.3.c Interest Payments

1. Interest will be paid automatically, whether or not a supplier hasrequested it, when all of the following conditions have been met:

(a) Acceptance has occurred and there is no disagreement overquantity, quality, or other contract provisions;

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(b) A proper invoice has been received, except when no invoice isrequired for payment (see 6.4.2.a) or the contracting officer failsto give notice within 7 days after receipt of an improper invoice.

2. When a prompt payment discount is taken after the discount period hasexpired, the Postal Service has 10 days after expiration of the discountperiod to correct the underpayment. Failure to do so will result in theautomatic payment of interest, whether or not the supplier hasrequested payment.

6.4.3.d Calculating Interest

1. Except when interest is required by a government authority (e.g.,tariffs), it will be calculated using the rate set by the Secretary of theTreasury under section 12 of the Contract Disputes Act of 1978 (41U.S.C. 611) in effect on the day after the due date. The rate will bepublished semiannually in the Postal Bulletin, in January and July. Therate will remain fixed during the period for which interest is calculated.Interest will accrue daily on the invoice amount approved by the PostalService. It will be compounded in 30-day increments, starting with andincluding the first day after the due date through the payment date.Interest accrued at the end of any 30-day period will be added to theapproved invoice payment amount and be subject to interest if not paidin the succeeding 30-day period.

2. For the sole purpose of computing interest under these guidelines,acceptance will have occurred on the 7th day after the supplier hasdelivered the supplies or services under the contract, unless there is adisagreement over quantity, quality, or supplier compliance. If actualacceptance occurs within 7 days of delivery, interest will be calculatedbased on the actual date of acceptance. When necessary to inspectand test the supplies or evaluate services, the contracting officer mayspecify a longer period for constructive acceptance in the solicitationand contract. The justification for extending the period beyond 7 daysmust be documented in the contract file.

3. If the office specified in the contract for receiving invoices fails to datestamp the invoice, the invoice due date will be the 30th day after thedate of the invoice, provided that a proper invoice was received andthere is no disagreement over the quantity, quality, or suppliercompliance with the contract.

4. The interest amount, interest rate, and the period for which the interestwas computed, will be stated separately on the check or accompanyingremittance advice. If requested by the supplier, adjustments must bemade for errors in calculating interest.

5. For contracts awarded on or after October 1, 1989, a penalty amount(calculated according to Office of Management and Budget regulations)will be paid, in addition to the interest, if the supplier:

(a) Is owed interest;

(b) Is not paid the interest within 10 days after the date the invoiceamount is paid; and


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(c) Makes a written demand that the Postal Service pay such apenalty not later than 40 days after the date the invoice amount ispaid.

6. When a prompt payment discount is taken after the discount period hasexpired, interest must be calculated on the amount of discount takenimproperly. The interest must be calculated for the period beginningwith the first day after the end of the discount period through the datewhen the supplier is paid.

7. If the office specified in the contract for receiving invoices fails to notifythe supplier of a defective invoice within 7 days after its receipt, the duedate on the corrected invoice must be adjusted. The number of daystaken beyond the 7-day period must be subtracted from payment duedate. Any interest owed the supplier must be based on this adjusteddue date.

6.4.3.e Alternate Provisions. The provisions on time of payment may be changed byagreement of the parties, but no interest may be paid by the Postal Serviceexcept as provided in 6.4.3.c.

6.4.3.f Final Payment. Final payment under any contract involving progresspayments, retainage, payment or performance guarantees, or constructionmay not be made until the contracting officer receives a release from thesupplier.

6.4.4 Withholding Payments6.4.4.a General. The contracting officer may refuse to pay a supplier or may withhold

payments, in whole or in part, when:

1. The contract provides for withholding (for instance, when retainage isauthorized to withhold money to ensure debts are paid);

2. Elements of the amount invoiced by the supplier are not allowable (see5.2.3);

3. The supplier has been overpaid or otherwise owes the Postal Servicemoney as a result of the supplier’s actions or inactions under thecontract;

4. The supplier owes the Postal Service money for reasons unrelated tothe contract; or

5. As a result of judicial action or law, parties other than the supplier havemade claims against the Postal Service, or have not waived rights thatmay be exercised against the Postal Service.

6.4.4.b Actions by the Contracting Officer

1. Nonpayment may be damaging to a supplier’s business and mayjeopardize performance. Therefore, the contracting officer mustcarefully consider the reasons for withholding or refusing payment, andmust process disputes regarding payment quickly.

2. The contracting officer must notify the supplier of any intendedwithholding and must provide the supplier an opportunity to object. Iftime permits, the notice should be in writing.


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6.4.4.c Disallowing Costs

1. At any time during the performance of a contract that is not fixed price,the contracting officer may issue the supplier a written notice of intent todisallow specified incurred or planned costs (see Clause B-17,Disallowance of Costs). However, before issuing the notice, thecontracting officer should make a reasonable effort to reach asatisfactory settlement.

2. If the supplier disagrees with the deduction from current payments, thesupplier may:

(a) Request in writing that the contracting officer consider whetherthe unreimbursed costs should be paid and discuss the matterwith the supplier;

(b) File a claim under Clause B-9, Claims and Disputes, which thecontracting officer must process according to the procedures in39 CFR 601; or

(c) Do both of the above.

3. Supplier discounts, rebates, and refunds offered voluntarily or providedfor by contract clauses are not subject to this part and may be taken byadjustments to invoices or other procedures acceptable to theaccounting service center.

6.4.4.d Setoffs and Recoupments

1. At any time during performance of a contract, the contracting officermay issue the supplier a written notice of intent to set off or recoupamounts due the Postal Service from payments otherwise due thesupplier. However, before issuing the notice, the contracting officershould make a reasonable effort to reach a satisfactory settlementthrough negotiation.

2. If no settlement is reached, the contracting officer may withhold theamounts due the Postal Service by setoff or recoupment. A “setoff” is adeduction from payments due to the supplier under one contract foramounts due the Postal Service under one or more other contracts.“Recoupment” is a deduction of amounts due the Postal Service (forexample, for damages for delay or defective performance, warrantycosts, or repair costs) from the payment due the supplier under a singlecontract.

3. If the supplier disagrees with the intended setoff or recoupment, theprovisions of 6.4.4.c.2 apply.

4. When contract payments have been assigned (see 6.4.7), thecontracting officer must have the concurrence of counsel to use setoffsor recoupments.

6.4.4.e Third-Party Claims. The Postal Service may be subject to claims by thirdparties for money due a supplier. When a claim is filed with the contractingofficer, assigned counsel must be notified immediately. Assigned counsel willprovide instructions for handling the claim, disposing of the fund, andnotifying the supplier.

6.4.5.dContract Administration

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6.4.4.f Withholding Payment Under Contract Clauses. Some contract clauses, suchas Clause 2-10, Liquidated Damages, and Clause 2-8, Warranty, provide forwithholding payment in certain circumstances. In addition, some contractclauses provide for withholding a percentage or portion of payments toinduce continued acceptable performance. The contracting officer muststrictly enforce such clauses and keep a complete record of the amountswithheld under any clause, the basis for withholding them, and the dispositionof funds withheld.

6.4.5 Progress Payments6.4.5.a General. The Postal Service only makes progress payments, when provided

for by the contract, in return for demonstrated progress toward completion ofperformance.

6.4.5.b Computing Progress Payments

1. Progress payments for nonconstruction contracts must be based oncosts incurred in performance. However, as provided in Clause 1-3,Progress Payments, the contracting officer may reduce or suspendpayments where incurred costs vary substantially from actual progressunder the contract. In such cases, the contracting officer should obtainthe advice of technical personnel and assigned counsel beforecomputing the amount justified.

2. Progress payments for construction contracts are made according toClause B-48, Payment (Construction).

6.4.5.c Supervision. The extent to which progress payments need to be superviseddepends on the supplier’s accounting system and controls and the supplier’sexperience, performance record, reliability, management, and financialstrength.

6.4.5.d Administration

1. The contracting officer must obtain monthly progress reports from thesupplier, showing progress on the work in relation to progresspayments made.

2. The contracting officer may, in approving progress payment requests,rely on the supplier’s accounting system and certification withoutprepayment reviews. However, post-payment reviews (including audits,when necessary) must be made periodically, or when necessary todetermine the validity of progress payments already made or expectedto be made.

3. Clause 1-3, Progress Payments, gives the Postal Service the right toreduce or suspend progress payments, or to increase the liquidationrate, under specified conditions. The contracting officer may take suchactions only in accordance with the contract terms and only after:

(a) Notifying the supplier and providing an opportunity for discussion;

(b) Evaluating the effect of the action on the supplier’s operations, onthe basis of the supplier’s financial condition, projected cashrequirements, and existing or available credit arrangements; and


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(c) Considering what is equitable in the particular situation.

4. The contracting officer may take immediate unilateral action only ifwarranted by circumstances such as overpayments or unsatisfactorycontract performance. The contracting officer must always:

(a) Act in a reasonable and business-like manner;

(b) Base decisions on substantial evidence; and

(c) Document the contract file.

5. Progress payments are recouped by deducting liquidations frompayments that would otherwise be due the supplier for completedperformance. Usually, the liquidation rate is the same as the progresspayment rate; and at the beginning of a contract, only this method maybe used. Any liquidation method other than the usual method must beapproved by a Portfolio manager, or one of the following: the manager,Supply Management Infrastructure; the manager, SM Operations; orthe manager, Supply Chain Management Strategies.

6.4.6 Limitation of Cost or Funds

6.4.6.a Administration

1. When a contract contains Clause 2-31, Limitation of Cost, or Clause2-32, Limitation of Funds, and the supplier has notified the contractingofficer that incurred costs are approaching the estimated cost of thecontract or the funding limit, the purchase team must promptly obtainfunding and information regarding the contract’s continuation. Thecontracting officer must notify the supplier in writing that:

(a) Additional funds have been allotted, or the estimated cost hasbeen increased, in a specified amount;

(b) The contract is not being funded further, and the supplier shouldsubmit a proposal for a fee adjustment, if any, based on thepercentage of work completed in relation to the total work calledfor under the contract; or

(c) The contract is to be terminated.

2. The supplier is entitled by the contract terms to stop work when thefunding or cost limit is reached, and any work beyond the funding orcost limit is at the supplier’s risk.

6.4.6.b Effect of a Modification. The contracting officer may issue a change order, adirection to replace or repair defective items or work, or a termination noticewithout immediately increasing the funds available. Since a supplier is notobligated to incur costs above the estimated cost in the contract, thecontracting officer must ensure that funds are available for directed actions.The contracting officer may direct that any increase in the estimated cost oramount allotted to a contract be used for the sole purpose of fundingtermination or other specified expenses.


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6.4.7 Assignment of Claims6.4.7.a General. A supplier may assign money that will be due under a Postal

Service contract to a single bank or other financial institution, with theapproval of the contracting officer (see paragraph b of Clause 4-1). Any otherattempted assignment may be treated as a breach of contract.

6.4.7.b Approval. Contracting officers may approve any authorized assignment thatdoes not jeopardize contract performance. See also the discussion ofnovation agreements in 6.5.4.

6.4.7.c Assignments by Law. This part does not pertain to assignments ordered by acourt or law. Contracting officers should consult with assigned counsel insuch cases.

6.5 Contract Modifications

6.5.1 General

6.5.1.a Effective Dates

1. The effective date of an administrative change, change order, or otherunilateral modification issued by the Postal Service is any effective dateestablished in the contract or, if none, the date of the modification.

2. The effective date of a bilateral modification (such as a supplementalagreement; see 6.5.1.c.1) is any effective date established in thecontract or, if none, the date agreement is reached (usually the datesigned by the last agreeing party).

3. Modifications issued in connection with previous directions oragreements, such as settlements of the cost of changes, confirmationsof terminations, or conversions of terminations for default toterminations for convenience, ordinarily take the effective date of theunderlying action.

4. For modifications converting a termination for default to a terminationfor convenience, the effective date will be the same as the effectivedate of the termination for default.

6.5.1.b Authorization and Price

1. Except for certain mail transportation contracts (see 4.4.3), onlycontracting officers are authorized to sign contract modifications for thePostal Service. Other Postal Service personnel may not:

(a) Act in a manner that causes the supplier to believe they haveauthority to bind the Postal Service; or

(b) Direct or encourage the supplier to perform work that should becovered under a contract modification.

2. Contract modifications, including changes that can be issuedunilaterally, must be priced before they are signed if it can be donewithout adversely affecting the interest of the Postal Service. If a


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significant cost increase could result from a contract modification andtime does not permit negotiating a price, at least a maximum price mustbe negotiated whenever practicable. See 2.3.2 for modificationsaffecting Technical Data Packages.

6.5.1.c Types of Modifications. There are two types of contract modifications:

1. Bilateral modifications (supplemental agreements) that are signed byboth the supplier and the contracting officer. Examples of bilateralmodifications are modifications to:

(a) Make equitable adjustments under paragraph c of Clause 4-1;Clause B-37, Changes (Construction); or other clauses providingfor equitable adjustment; or

(b) Reflect other agreements of the parties modifying contract terms.

2. Unilateral modifications are signed only by the contracting officer inaccordance with a contract clause. Examples of unilateral modificationswould be modifications to:

(a) Make administrative changes (unilateral changes, in writing, thatdo not affect the substantive rights of the parties, such as achange in the paying office);

(b) Issue change orders;

(c) Make changes authorized by specific clauses or contractprovisions (such as exercising an option or suspending work);and

(d) Issue termination notices.

6.5.1.d Notification of Contract Changes. Under paragraph c of Clause 4-1, orClause B-37, when a supplier considers that any written or oral order(including a direction, an interpretation, an instruction, or a determination)from the contracting officer causes a change in the contract, the suppliermust notify the contracting officer in writing that the supplier regards the orderas a change order. The contracting officer must then evaluate the order,notify the purchase team of the findings, and:

1. Confirm that it is a change, direct further performance, and plan for itsfunding;

2. Countermand the alleged change; or

3. Notify the supplier that no change is considered to have been ordered.

6.5.1.e Availability of Funds

1. The contracting officer may not execute a contract modification thatcauses or will cause an increase in funds without having first met withthe purchase team and obtained a certification of funds availability,except for modifications to contracts that:

(a) Are conditioned on availability of funds; or

(b) Contain a limitation of cost or funds clause.

2. The certification of funds availability should be based on the negotiatedprice. Modifications signed before there is price agreement may bebased on the best available estimate.

6.5.1.gContract Administration

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6.5.1.f Exercise of Options

1. Before exercising an option, the purchase team must determine that:

(a) Funds are available;

(b) The Postal Service still needs the supplies or services covered bythe option; and

(c) Exercising the option is the most advantageous alternative, priceand other factors considered (“other factors” includes any needfor continuity of operations and the cost of disrupting operations).

2. The contracting officer must determine that the option price is the mostadvantageous to the Postal Service, based on one of the following:

(a) Market research clearly indicates that a better price than thatoffered by the option cannot be obtained;

(b) The time between the award of the contract containing the optionand the exercise of the option is so short that the option price isprobably the lowest obtainable, considering such factors asmarket stability and usual duration of supply or service contracts;or

(c) A new solicitation fails to produce a better price than that offeredby the option. (This method of testing the market should be usedonly if neither of the other methods is satisfactory.)

3. If the contract provides for economic price adjustment, the effect ofsuch adjustment on prices under the option must be ascertained indetermining whether to exercise the option.

4. When an option is to be exercised, the contracting officer must, inwriting:

(a) Determine that the option may properly be exercised under6.5.1.f.1 above;

(b) Notify the supplier within the time specified in the contract that theoption is being exercised; and

(c) Modify the contract as needed, citing the option clause asauthority.

6.5.1.g Correcting Mistakes

1. A contract may be modified to correct or mitigate the effect of amistake. Examples are:

(a) A mistake or ambiguity consisting of the failure to express, orexpress clearly, in a written contract, the agreement as bothparties understood it.

(b) A supplier’s mistake so obvious that it was or should have beenapparent to the contracting officer.

(c) A mutual mistake concerning a material fact (particularly,mistakes concerning the promises the parties made to oneanother under the contract).


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2. A claim of mistake that is asserted after award, and a decision to denya claim of mistake asserted after award, in whole or in part, is handledunder the procedures of Clause B-9, Claims and Disputes (see 6.8.3).

6.5.2 Change Orders

6.5.2.a General

1. Paragraph c of Clause 4-1, and Clause B-37, allow the contractingofficer to make unilateral changes, as specified in the clause, within thegeneral scope of the contract. These changes are accomplished byissuing written change orders.

2. The supplier must continue performing under the contract as changed,except under contracts that are not fixed-price or incrementally fundedwhere the supplier is not obligated to continue or incur costs beyondthe limits established in Clause 2-31, Limitation of Cost, or Clause 2-32,Limitation of Funds.

6.5.2.b Accounting. The Postal Service uses the guidelines in Chapter 5 whenanalyzing the price or cost of changed work.

6.5.2.c Administration

1. When change orders are not priced before performance, they usuallyrequire two documents: the change order and a supplementalagreement reflecting an equitable adjustment for the change order. Ifan equitable adjustment in the contract price or delivery terms, or both,can be agreed upon in advance, only a supplemental agreement needbe issued. If the change order has no effect on price or delivery, noequitable adjustment or supplemental agreement is needed.Administrative changes and changes issued under a clause giving thePostal Service a unilateral right to make a change (such as an optionclause) require only one document.

2. Contracting officers must promptly negotiate equitable adjustmentsresulting from change orders, and must follow up when claims forequitable adjustment are not received within 30 days after the order.

3. Before negotiating an equitable adjustment, the contracting officer mustensure that price and cost analyses, as appropriate, are made andmust consider the supplier’s segregable costs of the change, ifavailable. If additional funds are required as a result of the change, thefunds must be available before the supplemental agreement is signed.

4. To avoid controversies that may result from a supplemental agreementmaking an equitable adjustment, the contracting officer should:

(a) Ensure that all elements of the equitable adjustment have beenpresented and resolved; and

(b) Include a release of claims in the supplemental agreement.


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6.5.3 Equitable Adjustments for Delays6.5.3.a General. In determining the consequences of events that delay performance,

the United States Court of Federal Claims and the Postal Service Board ofContract Appeals have applied general risk-allocation principles. These havebeen supplemented by standard contract clauses under which the time andcost effect of delays are dealt with separately. Clause B-19, ExcusableDelays, deals with the types of events that protect the supplier from sanctionsfor late performance. Other clauses, such as Clause B-16, Suspensions andDelays, cover the recovery of costs associated with delays. The supplierbears the risk of schedule and cost effects for delays it causes or for delayswithin its control. Generally, the supplier is excused from nonperformancedue to delays caused by factors for which neither the supplier nor the PostalService is responsible. However, the supplier must bear the cost impact ofsuch delays. The Postal Service is responsible for the schedule and costeffects of delays it causes, delays that are under its control, or delays forwhich it has agreed to compensate the supplier. Clause B-15, Notice ofDelay, requires the supplier to notify the contracting officer of problems thatmight delay performance. Paragraph s of Clause 4-1 incorporates byreference each of these clauses.

6.5.3.b Excusable Delays

1. A supplier may be granted an extension of the delivery or performanceschedule for an excusable delay.

2. A supplier’s failure to perform may be considered an excusable delaywhen it arises out of either:

(a) Causes beyond the control and without the negligence of thesupplier — including acts of God or the public enemy; acts of thegovernment in its sovereign capacity or the Postal Service in itscontractual capacity; and fires, floods, epidemics, quarantinerestrictions, strikes, freight embargoes, and unusually severeweather; or

(b) A subcontractor default due to causes beyond the control andwithout the fault or negligence of both the supplier and thesubcontractor, unless the supplies or services were obtainablefrom another source in time to permit the supplier to meet thedelivery schedule.

6.5.3.c Compensable Delays

1. A supplier may be granted an extension of the contract delivery orperformance schedule, a price adjustment, or both, as the purchaseteam, represented by the contracting officer, deems appropriate, whenan unreasonable delay in performance is caused by the Postal Serviceor is under its control, or when it has agreed to pay the supplier for thedelay. Situations that may entitle the supplier to an equitableadjustment (schedule, cost, or both) include:

(a) Delay in issuing the notice to proceed;

(b) Delay in availability of the site;

6.5.3.d Interim Internal Purchasing Guidelines

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(c) Differing site conditions;

(d) Actual or constructive changes or delays;

(e) Delay in providing funding;

(f) Delay in inspections;

(g) Delay in issuing changes;

(h) Delay in providing Postal Service-furnished equipment; and

(i) Failure to perform by other Postal Service suppliers.

2. The supplier has the burden of proof in establishing the basis for theequitable adjustment required to overcome the delay.

6.5.3.d Concurrent Causes. When a delay is attributable to both the Postal Serviceand the supplier, a contract delivery or performance schedule adjustmentshould not normally be granted for a period of delay caused at least in part byactions or failures on the part of the supplier. (But damages may not beassessed against the supplier in these situations.)

6.5.3.e Acceleration

1. The Postal Service has the right to require accelerated performanceunder paragraph c of Clause 4-1. This right should be exercised onlywhen required to maintain the operational capability of the PostalService.

2. Contracting officers must document the specific facts that requireacceleration of performance and the estimated impact on contractprice. Whenever possible, the contracting officer must negotiateacceleration actions in advance.

3. Contracting officers should be alert to constructive accelerationsituations. Constructive acceleration occurs when the Postal Servicedoes not agree to a delivery or performance schedule extension towhich the supplier is entitled (or is later determined to be entitled),causing the supplier to accelerate performance. Constructiveacceleration may result in a claim for a price increase.

6.5.4 Novation and Change-of-Name Agreements

6.5.4.a Definitions

1. Change-of-name agreements. Agreements signed by the supplier andthe Postal Service that recognize a legal change of the supplier’s namewithout otherwise altering the original contract.

2. Novation agreements. Agreements signed by the supplier (thetransferor), the successor in interest (transferee), and the PostalService, by which, among other things, the transferor guaranteesperformance of the contract, the transferee assumes all obligationsunder the contract, and the Postal Service recognizes the transfer ofthe contract and related assets.


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6.5.4.b General

1. The Postal Service generally prohibits contract novation (see paragraphb of Clause 4-1, and Clause B-8, Assignment of Claims). However, thePostal Service may recognize a third party as the successor in interestwhen that party’s interest arises out of the transfer of:

(a) All the supplier’s assets; or

(b) The entire portion of the assets involved in performing thecontract.

2. Situations in which novation may be permitted include but are notlimited to:

(a) Sale of the supplier’s assets with a provision for assumingliabilities;

(b) Transfer of assets as part of a merger or corporate consolidation;and

(c) Incorporation of a proprietorship or partnership, or formation of apartnership.

3. Before concurring in a contract novation, the contracting officer mustdetermine the capability (see 2.1.9.c) of the successor in interest.

4. When it is not in the Postal Service’s interest to concur in a contractnovation, the original supplier remains responsible for performance,and the contract may be terminated for default for failure to perform.

6.5.4.c Responsibility

1. The contracting officer is responsible for:

(a) Determining, in consultation with assigned counsel, whether topermit contract novation; and

(b) Processing and signing novation and change-of-nameagreements.

2. When multiple contracts of one supplier or transfers from severaltransferors to one transferee are involved, the contracting officerresponsible for the largest unsettled (unbilled plus billed-but-unpaid)contract dollar balance is responsible for executing the novation orchange-of-name agreement.

6.5.4.d Change of Name. A change-of-name agreement is appropriate when only achange of the supplier’s name is involved, and the rights and obligations ofthe parties remain unaffected. The agreement must be signed by thecontracting officer and the supplier modifying all existing contracts betweenthe parties to reflect the name change.

6.6 Interim Internal Purchasing Guidelines

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6.6 Postal Service Property

6.6.1 Supplier’s Property Control Systems6.6.1.a Review. The contracting officer or the representative assigned to act as

property administrator should review the supplier’s property control systemsto ensure compliance with the contract’s property clauses.

6.6.1.b Noncompliance. The property administrator should notify the supplier inwriting when its property control system does not comply with the contractrequirements, requesting prompt correction of deficiencies. If the supplierdoes not correct the deficiencies within a reasonable period, the propertyadministrator should request action by the contracting officer. The contractingofficer may:

1. Notify the supplier in writing of any required corrections and establish aschedule for completion;

2. Caution the supplier that failure to take the required corrective actionwithin the time specified will result in withholding or withdrawing systemapproval; and

3. Advise the supplier that its liability for loss of or damage to PostalService property may increase if approval is withheld or withdrawn.

6.6.2 Records6.6.2.a Record Keeping. Supplier records of Postal Service property, established and

maintained under the terms of the contract, are the Postal Service’s officialrecords. Duplicate official records should be furnished to or maintained byPostal Service personnel, except as provided in 6.6.2.b.2.

6.6.2.b Maintenance by the Postal Service. Contracts may provide for the officialrecords to be maintained by the Postal Service when Postal Service propertyis furnished:

1. For repair or servicing and return to the shipping organization;

2. For use at a Postal Service installation;

3. Under a local support service contract;

4. Under a contract with a short performance period or involving PostalService property with an acquisition cost of $50,000 or less; or

5. When otherwise determined by the contracting officer to be in thePostal Service’s interest.


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6.7 Subcontracting Guidelines

6.7.1 General

6.7.1.a Requirements

1. When a contract contains Clause B-18, Subcontracts, the supplier mustnotify the contracting officer in advance of its intent to subcontract. Thesupplier may enter into a subcontract unless notice of disapproval isreceived from the contracting officer within 15 days from the date thecontracting officer was notified.

2. The purchase team, represented by the contracting officer, must:

(a) Promptly evaluate supplier notices of intent to subcontract;

(b) Obtain assistance in this evaluation, as necessary, fromsubcontracting, audit, pricing, technical, or other specialists; and

(c) Have the contracting officer notify the supplier in writing if thesubcontract is disapproved.

6.7.1.b Considerations

1. The purchase team must review the notice of intent to subcontract andany supporting data and should consider the following:

(a) Is the subcontractor to acquire special test equipment or facilitiesthat are available from Postal Service sources?

(b) Is the selection of the particular supplies, equipment, or servicestechnically justified?

(c) Was adequate price competition obtained or its absence justified?

(d) Did the supplier adequately assess its subcontractor’s alternateproposals?

(e) Does the supplier have a sound basis for selecting anddetermining the capability of the subcontractor?

(f) Has the supplier performed adequate price or cost analysis?

(g) Is the proposed subcontract type appropriate for the risksinvolved and consistent with current policy?

(h) Will subcontractors be working in Postal Service-furnishedfacilities?

(i) Has the supplier adequately and reasonably translated primecontract technical requirements into subcontract requirements?

(j) Is the proposed subcontractor on the Postal Service’sconsolidated list of debarred, suspended, and ineligiblesuppliers?

2. Particularly careful and thorough consideration is necessary when:

(a) The prime supplier’s purchasing system or performance isinadequate;


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(b) Close working relationships or ownership affiliation between theprime and subcontractor may preclude free competition or resultin higher prices;

(c) Noncompetitive subcontracts are proposed at prices that appearunreasonable, or higher than those offered the Postal Service incomparable circumstances; or

(d) Subcontracts are proposed that are not fixed-price.

6.7.2 Limitations6.7.2.a Lack of Disapproval. Lack of disapproval of a subcontract does not constitute

a determination of the acceptability of the subcontract terms or price, or of theallowability of costs.

6.7.2.b Disapproval to Avoid Disputes. Subcontracts should not be disapprovedmerely because they give the subcontractor the right to appeal a dispute tothe Board of Contract Appeals in the name of the prime supplier.

6.8 Claims and Disputes and Alternate DisputeResolution

See 39 CFR 601.

6.9 Contract Termination

6.9.1 General

6.9.1.a Applicability

1. These guidelines apply to contracts that contain clauses permittingtermination for the convenience of the Postal Service or for supplierdefault, and to those contracts with clauses that provide for terminationon notice. It establishes uniform guidelines for the complete or partialtermination of such contracts.

2. These guidelines must be used by the contracting officer as a guide inevaluating settlement of a subcontract terminated for the convenienceof a supplier whenever the settlement could be the basis of a claim forreimbursement.

3. The contracting officer may follow these guidelines in determining anyequitable adjustment resulting from a modification to a fixed-pricecontract under the Changes clause.

6.9.1.b Review and Approval. No contract priced at or with a potential terminationliability exceeding $1 million may be terminated for convenience or defaultunless the VP, SM, has approved termination. In addition, no contract,regardless of price, which is considered sensitive or highly visible may be


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terminated for convenience or default unless the VP, SM, has approvedtermination.

6.9.1.c General Principles

1. Contracts may be terminated, whether for default, convenience, orupon notice, only when it is in the interest of the Postal Service.

2. The contracting officer may terminate a contract on notice or use ano-cost settlement agreement instead of other forms of terminationwhen:

(a) The supplier will accept a no-cost settlement or the contractallows termination on notice;

(b) Postal Service property was not furnished or will be returned; and

(c) All outstanding payments, claims, and supplier obligations are orwill be resolved.

6.9.1.d Termination Notice

1. General

(a) The contracting officer may terminate contracts only by writtennotice to the supplier. (In terminating a fixed-price contract fordefault for a cause other than failure to make timely delivery, thetermination notice discussed here must be preceded by the noticeor notices discussed in 6.9.3.b.5 and 6.9.3.b.6.)

(b) Notice must be by:

(1) Certified mail, return receipt requested;

(2) Telegraphic notice; or

(3) Hand delivery with written acknowledgment by the supplier.

(c) The notice must state:

(1) The type of termination and the contract clause authorizingthe termination;

(2) The date the supplier is required to stop performance;

(3) The extent of the termination and, if a partial termination,the portion of the contract to be continued; and

(4) Any special instructions.

2. Distribution. When the termination notice is sent to the supplier, thecontracting officer must simultaneously send a copy to the informationservice center and to any known assignee, guarantor, or surety of thesupplier.

3. Amendment. The contracting officer may amend a termination notice to:

(a) Correct nonsubstantive mistakes in the notice;

(b) Add supplemental data or instructions;

(c) Rescind the notice if the work terminated has been completed orshipped before the supplier receives the notice; and

(d) Reinstate the terminated portion of a contract.


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4. Reinstatement. The contracting officer may, with the consent of thesupplier, reinstate the terminated portion of a contract in whole or inpart by amending the notice of termination when:

(a) Circumstances clearly indicate a requirement for the terminatedportion; or

(b) Reinstatement is otherwise advantageous to the Postal Service.

6.9.2 Termination for Convenience

6.9.2.a General

1. Applicability. The following guidelines apply to all fixed-price contracts.Paragraph I of Clause 4-1 addresses termination for convenience.When a non-fixed price contract will be used, it must contain ClauseB-12, Termination for Convenience or Default, in place of paragraph l.

2. Type of Settlement

(a) The contracting officer may settle contracts terminated forconvenience by:

(1) Negotiated agreement;

(2) Contracting officer determination;

(3) Costing out under vouchers, if the contract is acost-reimbursement contract; or

(4) A combination of these methods.

(b) When possible, the contracting officer should negotiate a fair andprompt settlement with the supplier.

6.9.2.b Supplier’s Duties. After receiving a termination notice and unless directedotherwise by the contracting officer, the supplier must comply with thecontract clause and the termination notice, which generally require that thesupplier:

1. Stop work immediately on the terminated portion of the contract andstop placing subcontracts under that portion;

2. Terminate all subcontracts related to the terminated portion of thecontract;

3. Immediately advise the contracting officer of any special circumstancesprecluding stoppage of work;

4. Perform the continued portion of the contract and promptly submit anyrequest for an equitable adjustment of price with respect to thecontinued portion, supported by evidence of any increase in the cost;

5. Take necessary action to protect and preserve property in which thePostal Service has or may acquire an interest, and deliver the propertyto the Postal Service or otherwise dispose of it as directed by thecontracting officer;

6. Promptly notify the contracting officer in writing of any legalproceedings growing out of a subcontract or other commitment relatedto the terminated portion of the contract;


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7. Settle outstanding liabilities and claims arising out of subcontractterminations, with prior approval or ratification as required by thecontracting officer;

8. Promptly submit a settlement proposal, supported by appropriateschedules; and

9. Dispose of any termination inventory, as directed by the contractingofficer.

6.9.2.c Settlement of Subcontractor Claims

1. Subcontractor Rights. A subcontractor has no contractual rights againstthe Postal Service but may have rights against the Postal Servicesupplier or the immediate subcontractor with which it has contracted.Upon termination of a Postal Service contract, or a change thatnecessitates subcontract termination, the supplier and eachsubcontractor are responsible for prompt settlement of the terminationclaims of their immediate subcontractors.

2. Prime Supplier’s Rights and Obligations

(a) The termination clauses provide that, upon termination, thesupplier must, unless directed otherwise by the contractingofficer, terminate all subcontracts to the extent that they relate toperformance of the work terminated.

(b) The reasonableness of the supplier’s settlement with asubcontractor should be measured by the aggregate amount thatwould be due under an equivalent Postal Service terminationclause. The contracting officer may allow reimbursement inexcess of that amount only in unusual cases, and then only whensatisfied that the subcontract terms were negotiated in good faithand did not unreasonably increase the subcontractor’s rights.

3. Delay in Settling Subcontractor Claims. When a supplier’s inability toreach settlement with a subcontractor delays the settlement of thePostal Service contract, the contracting officer may settle with thesupplier for all amounts except the subcontractor’s settlement proposal,and reserve Postal Service and supplier rights as to the proposal.

4. Assistance in Subcontract Settlements. In unusual cases, thecontracting officer may determine that it is in the interest of the PostalService to offer to assist the supplier in settling a particular subcontract.The Postal Service, the supplier, and the subcontractor may then enterinto an agreement covering settlement of the subcontract. In thesecases, the subcontractor must be paid through the supplier as part ofthe overall settlement.

5. Direct Settlement by the Postal Service. The Termination forConvenience clause gives the Postal Service the right, but not theobligation, to settle and pay any claims arising out of subcontractterminations. Direct settlements with subcontractors are notencouraged, because the Postal Service supplier is obligated to settleand pay a subcontractor’s termination claims. However, when thecontracting officer determines that it is in the interest of the Postal


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Service to settle a subcontractor’s claim directly, the contracting officermay, after consultation with assigned counsel and after notifying thesupplier, direct the assignment of all supplier rights to the PostalService, and settle the subcontractor’s claim using the procedures forsettling Postal Service contracts. An example in which the interest ofthe Postal Service would be served is when a subcontractor is the solesource of a product and it appears that a delay by the supplier insettling the subcontractor’s claim will jeopardize the subcontractor’sfinancial position.

6.9.3 Termination for Default

6.9.3.a General

1. Paragraph m of Clause 4-1 addresses terminations for default.Termination for default is the exercise of the Postal Service’s right tocompletely or partially terminate a contract by reason of the supplier’sactual or anticipated failure to perform. When the contracting officer hasthe right to terminate a contract for default, the total undeliveredcontract quantity, whether delinquent or not, may be terminated fordefault.

2. If the supplier can establish that its failure to perform arose out ofcauses beyond its control and without its fault or negligence, theDefault Termination clause provides that a termination for default will bedeemed a termination for the convenience of the Postal Service, andthe rights and obligations of the parties will be governed accordingly.

3. When a contract provides for liquidated damages, the contractingofficer must mitigate damages when grounds for termination for defaultexist by having the supplier perform or terminating the contract fordefault. Liquidated damages, once incurred, may be remitted in wholeor in part as may be just and equitable, upon the recommendation ofthe VP, SM, and after consultation with assigned counsel.

4. When the contracting officer determines in writing that the supplies orservices are still required and that reinstatement is advantageous to thePostal Service, the contracting officer may reinstate the terminatedportion of a contract, but only with the supplier’s written consent.

5. For termination for default of orders placed under Federal SupplySchedule (FSS) contracts, consult the General Services Administration.

6.9.3.b Fixed-Price Contracts

1. Postal Service Rights and Obligations

(a) Under the Termination for Default clause, the Postal Service hasthe right, subject to the notification requirements of the clause, toterminate all or any part of a contract without regard toseverability of contract obligations when the supplier:

(1) Fails to complete any material requirement of the contractwithin the time specified in the contract (including anyextensions);


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(2) Fails to make progress to a degree that it endangersperformance of the contract;

(3) Fails to perform any other contract provision; or

(4) Fails to give adequate assurances as required by 6.2.5.

(b) The Postal Service is not liable for the supplier’s costs onundelivered work and is entitled to repayment of any progresspayments for undelivered work.

(c) The contracting officer may have the supplier transfer title anddeliver the completed supplies and manufacturing materials to thePostal Service. The completed supplies and manufacturingmaterials may be acquired for use in continuing the terminatedcontract work or use under another contract.

(d) Subject to the provisions of (e)(4), the Postal Service must paythe supplier the contract price for any supplies completed anddelivered, and the amount agreed upon by the contracting officerand the supplier for any manufacturing materials acquired by thePostal Service.

(e) The Postal Service must be protected from failure to makeprovision for the Postal Service’s potential liability to laborers andmaterial suppliers for lien rights. The contracting officer must takeone or more of the following measures before making thepayment referred to in (d):

(1) Ascertain whether any payment bonds furnished by thesupplier are adequate to satisfy all claims, or whether it isfeasible to obtain similar bonds to cover outstanding liens.

(2) Require the supplier to furnish statements from laborersand material suppliers disclaiming any lien rights they mayhave in the supplies and materials.

(3) Obtain agreement between the Postal Service, the supplier,and any claimants to release the Postal Service from anypotential liability to the supplier or claimants.

(4) Withhold from the amount otherwise due for the supplies ormaterials an amount the contracting officer determinesnecessary to protect the Postal Service’s interest, inaccordance with 6.4.4.

(5) Take any other action that is appropriate in view of thesupplier’s degree of solvency and other circumstances.

(f) The supplier is liable to the Postal Service for any excess coststhe Postal Service incurs in acquiring supplies and servicessimilar to those terminated for default, and any other damages,whether or not repurchase is made.


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2. Determination of Appropriateness. When a default termination is beingconsidered, the contracting officer should ensure that termination fordefault, rather than convenience, is appropriate. The contracting officershould consult with the purchase team, other purchasing personnel,technical specialists, and assigned counsel, and consider:

(a) The provisions of the contract, and applicable laws andregulations.

(b) The specific failure of the supplier and, unless time does notpermit, the excuses for failure.

(c) The availability of the supplies or services from other sources.

(d) The urgency of the need for the supplies or services, and whetheror not they can be obtained sooner from sources other than thedelinquent supplier.

(e) The degree to which the supplier is essential to the PostalService, and the effect of a termination for default on thesupplier’s capability as a supplier under other contracts.

(f) The effect of a termination for default on the ability of the supplierto liquidate progress payments.

(g) Any other pertinent facts and circumstances.

3. Surety Notification and Arrangements

(a) When a termination for default appears imminent, the contractingofficer must send a written notification of that fact (not an actualnotice of default) to any surety, at both its main and local offices.

(b) If requested by the surety, and agreed to by the supplier and anyassignees, arrangements may be made to have future checksmailed to the supplier in care of the surety. In this case, thesupplier must forward a written request to the designateddisbursing officer, specifically directing a change in address formailing of checks.

4. Initiating Termination — Failure to Make Timely Delivery

(a) When a supplier fails to make timely delivery, the contractingofficer has a reasonable time after the delivery date to determinewhether the contract should be terminated for default. When thesupplier is continuing performance of the contract, a reasonabletime for the contracting officer to make a decision is 30 workingdays. Delay beyond that period may result in a waiver of the rightof the Postal Service to terminate for default.

(b) When the contracting officer determines that termination fordefault is proper, the contracting officer should issue a terminationnotice at once, following the procedures in 6.9.3.b.7. No demandfor adequate assurances should be issued. However, thecontracting officer may allow the supplier to assert any allegedexcusable delay.

(c) If a contracting officer’s delay in issuing a notice of termination fordefault results in a waiver of that right, a new delivery date mustbe established by bilateral or unilateral modification of the


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contract. The new delivery date must be reasonable consideringall the circumstances of contract performance. When the newdate is established, the right to terminate for default is reinstated.

5. Notice of Impending Termination — Causes Other Than Failure toMake Timely Delivery. When the contracting officer makes a preliminarydetermination that termination for default is appropriate in cases otherthan failure to make timely delivery, the contracting officer should, ifpracticable, notify the supplier in writing of the possibility of termination.This notice may:

(a) Call the supplier’s attention to its liabilities in the event that thecontract is terminated for default;

(b) Request that the supplier show cause why the contract should notbe terminated for default;

(c) State that failure of the supplier to explain why the contractshould not be terminated may be taken as an admission that novalid explanation exists;

(d) When appropriate, invite the supplier to discuss the matter at aconference.

6. Demand for Adequate Assurance — Causes Other Than Failure toMake Timely Delivery

(a) A written notice must be issued when the contracting officerdetermines that the supplier is failing to make satisfactoryprogress to a degree it endangers contract performance, ordetermines that some other failure, under the contract orotherwise (other than failure to make timely delivery), is cause forconcern. However, no demand is required when there isanticipatory repudiation of the contract, that is, when the supplierpositively states, by work or action, that it will not or cannotperform its contractual obligations (see 6.2.6).

(b) The demand must specify the failure and give the supplier 10days (or longer, if necessary) to assure the Postal Service ofsteps that will be taken to cure the failure.

(c) When the time remaining in the contract delivery schedule doesnot permit a response period of 10 days or longer, a demand maybe made part of the notice described in 6.9.3.b.5.

7. Termination Notice

(a) Immediately upon determining that termination is proper under6.9.3.b.4., or upon expiration of the 10-day or longer periodallowed by a notice under 6.9.3.b.6., the contracting officer mayissue a notice of termination for default, unless it is determinedthat nonperformance will be cured.

(b) When a demand for adequate assurance has been issued, thenotice of termination must be coordinated with assigned counselbefore issuance.


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(c) The notice of termination for default must meet all the generalrequirements set forth in 6.9.1.d, as well as:

(1) Set forth the contract number and date;

(2) Describe the acts or omissions constituting the default;

(3) State that the supplier’s right to proceed with performanceof the contract (or a specified portion of the contract) isterminated;

(4) State that the supplies or services terminated may beprocured against the supplier’s account, and that thesupplier will be held liable for any excess repurchase costs;

(5) State that the Postal Service reserves all rights andremedies provided by law or under contract, in addition tocharging excess costs; and

(6) Inform the supplier that the termination is subject to ClauseB-9, Claims and Disputes.

(d) When the contracting officer has determined that the failure toperform is not excusable, the termination notice must also statethat it reflects that decision, and that the supplier has the right toappeal as specified in Clause B-9, Claims and Disputes.

(e) The contracting officer must make the same distribution of thetermination notice as was made of the contract, and any suretymust be furnished a copy and asked to advise whether it desiresto arrange for completion of the work.

(f) The contracting officer must notify the information service centerto withhold further payments under the terminated contract.

8. Procedure in Lieu of Termination. When the contracting officerdetermines that the supplier’s failure to perform arose from causesbeyond its control and without its fault or negligence, the contractingofficer may not terminate the contract for default. When it is in theinterest of the Postal Service, the contracting officer may, instead ofterminating the contract for default:

(a) Terminate the contract for convenience;

(b) Permit the supplier, its surety, or its guarantor to continueperformance under a revised delivery schedule;

(c) Permit the supplier to continue performance by means of asubcontract or other arrangement with an acceptable third party, ifthe rights of the Postal Service are adequately preserved; or

(d) Execute a no-cost termination settlement agreement (or terminateon notice if allowed under the contract) if the requirement for thesupplies and services specified in the contract no longer existsand the supplier is not liable to the Postal Service for damages,as provided below.

9. Determination Following Termination Notice. When the contractingofficer is unable to determine, before issuing the notice of termination,whether the supplier’s failure to perform arose from causes beyond itscontrol and without its fault or negligence, the contracting officer must


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make a written decision on that point as soon as practicable afterissuing the notice. This decision must be delivered promptly to thesupplier, with a notification of the right to appeal as specified in ClauseB-9, Claims and Disputes.

10. Contracting Officer Memorandum. When a contract is terminated fordefault, or when a procedure authorized by 6.9.3.b.8. is followed, thecontracting officer must prepare a memorandum for the contract filethat fully explains the action taken.

6.9.3.c Contracts Other than Fixed-Price

1. Postal Service Rights and Obligations. The right to terminate a contractthat is not fixed-price for default is provided under Clause B-12,Termination for Convenience or Default. In the event of termination, thesupplier must be reimbursed costs allowed under the clause (the costsof preparing the supplier’s settlement proposal are not allowable). Anyfee payable under the contract must be reduced as directed by theclause. The clause does not give the Postal Service the right to recoverexcess repurchase costs, but it does give the Postal Service continuingrights when the supplier fails to replace or correct defective supplies.

2. Determination and Notice. The contracting officer must consider thefactors in b.2 in determining whether termination for default isappropriate. Under Clause B-12, Termination for Convenience orDefault, the supplier must be given the notice or notices required by6.9.3.b.5. and 6.9.3.b.6., before terminating for default.

6.9.4 Termination on Notice6.9.4.a General. Termination on notice is the exercise of a right to terminate a

contract without further obligation. Such a right is frequently provided incontracts requiring the performance of services or those of indefinite length. Ifappropriate to the particular purchase, contracting officers, with theassistance of assigned counsel, may draft and include contract clauses whichprovide only the Postal Service or both parties the right to terminate onnotice. The clause should provide that the notice to terminate will be providedto the other party a certain number of days before the termination will occur.In appropriate instances (as, for example, where claims associated withtermination are unlikely), termination on notice may be an acceptablesubstitute for termination for convenience. In almost all cases, however,contracts providing for termination on notice should also include provisionsfor termination for default.

6.9.4.b Written Notice. If the contract contains a termination on notice clause, thePostal Service may terminate the contract by sending the supplier a writtennotice consistent with the clause. Compliance with the clause is required; asupplier need not honor a notice inconsistent with the contract terms.

6.9.4.c Default. If a contract containing a termination for notice clause also containsa clause allowing for termination for default or for cause which calls for lessnotice than that required by the termination on notice clause, and it issubsequently established that the termination for default or cause was

6.10 Interim Internal Purchasing Guidelines

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improper, the supplier’s damages entitled will be limited to the additionalamount to which the supplier would have been entitled had the terminationfor default or cause been a termination on notice.

6.10 Remedies and Damages

6.10.1 Remedies6.10.1.a Postal Service’s Security Interest. On rightful rejection or justifiable revocation

of acceptance, the Postal Service has a security interest in supplies deliveredunder the contract for any payments and expenses reasonably incurred ininspection, receipt, transportation, care, and custody (in other words, theycan be used to secure payment to cover those incurred costs).

6.10.1.b Repurchase Against Supplier’s Account

1. When supplies or services are still required after termination for default,the contracting officer may repurchase the same or similar supplies orservices against the supplier’s account as soon as practicable. Therepurchase price must be reasonable considering the quality and timerequirements. Whenever practicable, the contracting officer shouldmake the decision to repurchase before issuing a termination notice.

2. The contracting officer may repurchase a larger quantity than thequantity terminated for default when needed, but the defaulting suppliermay be charged for no more than the terminated quantity (including anyvariations in quantity permitted by the terminated contract).

3. If the repurchase is for a quantity no larger than the terminated quantity,the contracting officer may use any terms and purchase methodsappropriate for the repurchase, following normal approval or deviationprocedures. If the repurchase is for a larger quantity than theterminated quantity, the entire quantity must be treated as a newpurchase.

4. If the repurchase price is higher than the price of the terminatedsupplies or services, the contracting officer must, after final payment onthe repurchase contract, demand the excess amount from the supplier,in writing, taking into account any increases or decreases in cost due totransportation charges, discounts, and other factors.

6.10.2 Damages6.10.2.a Default. If a contract is terminated for default, or if a procedure is used in lieu

of termination for default, the contracting officer must ascertain and demandany damages to which the Postal Service may be entitled. These damagesare in addition to any excess repurchase cost.

6.10.2.b Breach Damages for Accepted Supplies

1. When the contracting officer has accepted defective supplies under6.3.1.b.5, the Postal Service may recover, as damages for any


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nonconformity, the loss under usual circumstances resulting from thesupplier’s breach. This may be determined in any reasonable manner.

2. Damages for breach of warranty are the difference, at the time andplace of acceptance, between the value of the supplies or servicesaccepted and the value they would have had if they had been aswarranted, unless special circumstances show there are proximatedamages (damages resulting directly from the breach of warranty) of adifferent amount.

3. Normally, incidental and consequential damages may also berecovered.

(a) Incidental damages include expenses reasonably incurred in theinspection, receipt, transportation, and care and custody ofsupplies rightfully rejected; any commercially reasonable charges;expenses in connection with repurchase; and any otherreasonable expense incidental to the delay or other breach.

(b) Consequential damages include:

(1) Any loss resulting from contract requirements and needswhich the supplier should have been aware of when thecontract was signed and which could not be reasonablyprevented; and

(2) Injury to people or property resulting directly from a breachof warranty.

6.10.2.c Deduction of Damages from the Price. The contracting officer, on notifyingthe supplier, may deduct all or any part of the damages resulting from anybreach of the contract, or from late delivery or delay not subject to liquidateddamages (see 2.2.6), from any part of the price still due.

6.10.2.d Damages for Nondelivery or Repudiation

1. Damages for nondelivery or repudiation by the supplier whenrepurchase is not possible are the difference between the market priceat the time when the contracting officer learned of the breach and thecontract price, together with any incidental and consequential damages,but less expenses saved as a consequence of the supplier’s breach.

2. Market price is determined at the place of acceptance or, in cases ofrejection after arrival or revocation of acceptance, at the place ofarrival.

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Documents

6 Contract Administration - USPSabout.usps.com/manuals/ipm/ipmc6.pdf · Contract Administration 6.1.1.b Contents May 19, 2005 161 Updated With Postal Bulletin Revisions Through January