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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 other unilateral modification issued by the Postal Service is any effective date established in the contract or, if none, the date of the modification.

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

3. Modifications issued in connection with previous directions or agreements, such as settlements of the cost of changes, confirmations of terminations, or conversions of terminations for default to terminations for convenience, ordinarily take the effective date of the underlying action.

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

6.5.1.b Authorization and Price

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

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

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

2. Contract modifications, including changes that can be issued unilaterally, must be priced before they are signed if it can be done without adversely affecting the interest of the Postal Service. If a significant cost increase could result from a contract modification and time does not permit negotiating a price, at least a maximum price must be negotiated whenever practicable. See 2.3.2 for modifications affecting 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 by both the supplier and the contracting officer. Examples of bilateral modifications are modifications to:

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

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

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

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

(b) Issue change orders;

(c) Make changes authorized by specific clauses or contract provisions (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, or Clause 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 supplier must notify the contracting officer in writing that the supplier regards the order as 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 its funding;

2. Countermand the alleged change; or

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

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6.5.1.e Availability of Funds

1. The contracting officer may not execute a contract modification that causes or will cause an increase in funds without having first met with the 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 negotiated price. Modifications signed before there is price agreement may be based on the best available estimate.

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 by the option; and

(c) Exercising the option is the most advantageous alternative, price and other factors considered ("other factors" includes any need for continuity of operations and the cost of disrupting operations).

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

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

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

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

3. If the contract provides for economic price adjustment, the effect of such adjustment on prices under the option must be ascertained in determining whether to exercise the option.

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

(a) Determine that the option may properly be exercised under 6.5.1.f.1 above;

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

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

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6.5.1.g Correcting Mistakes

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

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

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

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

2. A claim of mistake that is asserted after award, and a decision to deny a claim of mistake asserted after award, in whole or in part, is handled under 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 contracting officer to make unilateral changes, as specified in the clause, within the general scope of the contract. These changes are accomplished by issuing written change orders.

2. The supplier must continue performing under the contract as changed, except under contracts that are not fixed-price or incrementally funded where the supplier is not obligated to continue or incur costs beyond the 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 when analyzing the price or cost of changed work.

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6.5.2.c Administration

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

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

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

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

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

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

6.5.3 Equitable Adjustments for Delays

6.5.3.a General. In determining the consequences of events that delay performance, the United States Court of Federal Claims and the Postal Service Board of Contract Appeals have applied general risk-allocation principles. These have been supplemented by standard contract clauses under which the time and cost effect of delays are dealt with separately. Clause B-19, Excusable Delays, deals with the types of events that protect the supplier from sanctions for late performance. Other clauses, such as Clause B-16, Suspensions and Delays, cover the recovery of costs associated with delays. The supplier bears the risk of schedule and cost effects for delays it causes or for delays within its control. Generally, the supplier is excused from nonperformance due to delays caused by factors for which neither the supplier nor the Postal Service is responsible. However, the supplier must bear the cost impact of such delays. The Postal Service is responsible for the schedule and cost effects of delays it causes, delays that are under its control, or delays for which it has agreed to compensate the supplier. Clause B-15, Notice of Delay, requires the supplier to notify the contracting officer of problems that might delay performance. Paragraph s of Clause 4-1 incorporates by reference each of these clauses.

6.5.3.b Excusable Delays

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

2. A supplier's failure to perform may be considered an excusable delay when it arises out of either:

(a) Causes beyond the control and without the negligence of the supplier - including acts of God or the public enemy; acts of the government in its sovereign capacity or the Postal Service in its contractual capacity; and fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather; or

(b) A subcontractor default due to causes beyond the control and without the fault or negligence of both the supplier and the subcontractor, unless the supplies or services were obtainable from another source in time to permit the supplier to meet the delivery schedule.

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6.5.3.c Compensable Delays

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

(a) Delay in issuing the notice to proceed;

(b) Delay in availability of the site;

(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 the equitable adjustment required to overcome the delay.

6.5.3.d Concurrent Causes. When a delay is attributable to both the Postal Service and the supplier, a contract delivery or performance schedule adjustment should not normally be granted for a period of delay caused at least in part by actions or failures on the part of the supplier. (But damages may not be assessed against the supplier in these situations.)

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6.5.3.e Acceleration

1. The Postal Service has the right to require accelerated performance under paragraph c of Clause 4-1. This right should be exercised only when required to maintain the operational capability of the Postal Service.

2. Contracting officers must document the specific facts that require acceleration of performance and the estimated impact on contract price. Whenever possible, the contracting officer must negotiate acceleration actions in advance.

3. Contracting officers should be alert to constructive acceleration situations. Constructive acceleration occurs when the Postal Service does not agree to a delivery or performance schedule extension to which the supplier is entitled (or is later determined to be entitled), causing the supplier to accelerate performance. Constructive acceleration 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 and the Postal Service that recognize a legal change of the supplier's name without otherwise altering the original contract.

2. Novation agreements. Agreements signed by the supplier (the transferor), the successor in interest (transferee), and the Postal Service, by which, among other things, the transferor guarantees performance of the contract, the transferee assumes all obligations under the contract, and the Postal Service recognizes the transfer of the contract and related assets.

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6.5.4.b General

1. The Postal Service generally prohibits contract novation (see paragraph b of Clause 4-1, and Clause B-8, Assignment of Claims). However, the Postal Service may recognize a third party as the successor in interest when 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 the contract.

2. Situations in which novation may be permitted include but are not limited to:

(a) Sale of the supplier's assets with a provision for assuming liabilities;

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

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

3. Before concurring in a contract novation, the contracting officer must determine 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 contract novation, 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 to permit contract novation; and

(b) Processing and signing novation and change-of-name agreements.

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

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

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