6 Contract Administration
6 Contract Administration 209
6.1 General 209
6.1.1 Responsibilities 209
6.1.1.a Contracting Officers and Purchase Teams. 209
6.1.1.b Contracting Officer's Representatives 209
6.1.1.c Relationship Between the Postal Service and Supplier Representatives 209
6.1.2 Contract Administration Functions 210
6.1.2.a Contracting Officer Responsibilities. 210
6.1.2.b Other Responsibilities. 210
6.2 Contract Performance 210
6.2.1 Postaward Orientation 210
6.2.1.a Policy. 210
6.2.1.b Use. 211
6.2.1.c Scheduling. 211
6.2.1.d Changes to the Contract. 211
6.2.2 Record Keeping 211
6.2.2.a Policy. 211
6.2.2.b Organization. 211
6.2.2.c Records in the Possession of Other Postal Employees. 211
6.2.3 Contract Monitoring 212
6.2.3.a Personnel 212
6.2.3.b Using Suppliers to Monitor Performance 212
6.2.3.c Review of Supplier Submittals 212
6.2.4 Delivery 212
6.2.4.a Transportation. 212
6.2.4.b Variation in Quantity. 213
6.2.5 Right to Adequate Assurance of Performance 213
6.2.5.a General. 213
6.2.5.b Failure to Provide Adequate Assurance. 213
6.2.6 Bankruptcy 214
6.2.6.a General. 214
6.2.6.b Procedures. 214
6.2.6.c Clause. 214
6.3 Quality Assurance 214
6.3.1 Inspection and Testing 214
6.3.1.a General 214
6.3.1.b Nonconforming Supplies or Services 214
6.3.2 Acceptance 216
6.3.2.a General 216
6.3.2.b Responsibility. 216
6.3.2.c Place of Acceptance. 216
6.3.2.d Supplier Certification. 217
6.3.2.e Revocation of Acceptance in Whole or in Part 217
6.3.2.f Transfer of Title and Risk of Loss 217
6.3.3 Receiving Reports 218
6.3.3.a General 218
6.3.3.b Responsibility 218
6.4 Payments and Financing 218
6.4.1 General 218
6.4.1.a Disputes. 218
6.4.1.b Partial Payments. 218
6.4.1.c Cost Reimbursement. 219
6.4.2 Invoices 219
6.4.2.a General. 219
6.4.2.b Submitting Invoices. 219
6.4.3 Payment 219
6.4.3.a Methods. 219
6.4.3.b Time of Payment. 219
6.4.3.c Interest Payments 219
6.4.3.d Calculating Interest 220
6.4.3.e Alternate Provisions. 221
6.4.3.f Final Payment. 221
6.4.4 Withholding Payments 221
6.4.4.a General. 221
6.4.4.b Actions by the Contracting Officer 221
6.4.4.c Disallowing Costs 222
6.4.4.d Setoffs and Recoupments 222
6.4.4.e Third-Party Claims. 222
6.4.4.f Withholding Payment Under Contract Clauses. 223
6.4.5 Progress Payments 223
6.4.5.a General. 223
6.4.5.b Computing Progress Payments 223
6.4.5.c Supervision. 223
6.4.5.d Administration 223
6.4.6 Limitation of Cost or Funds 224
6.4.6.a Administration 224
6.4.6.b Effect of a Modification. 224
6.4.7 Assignment of Claims 225
6.4.7.a Policy. 225
6.4.7.b Approval. 225
6.4.7.c Assignments by Law. 225
6.5 Contract Modifications 225
6.5.1 General 225
6.5.1.a Effective Dates 225
6.5.1.b Policy 225
6.5.1.c Types of Modifications. 226
6.5.1.d Notification of Contract Changes. 226
6.5.1.e Availability of Funds 226
6.5.1.f Exercise of Options 227
6.5.1.g Correcting Mistakes 227
6.5.2 Change Orders 228
6.5.2.a General 228
6.5.2.b Accounting 228
6.5.2.c Administration 228
6.5.3 Equitable Adjustments for Delays 229
6.5.3.a General. 229
6.5.3.b Excusable Delays 229
6.5.3.c Compensable Delays 229
6.5.3.d Concurrent Causes. 230
6.5.3.e Acceleration 230
6.5.4 Novation and Change-of-Name Agreements 230
6.5.4.a Definitions 230
6.5.4.b Responsibility 231
6.5.4.c Novation Policy 231
6.5.4.d Change of Name. 231
6.6 Postal Service Property 232
6.6.1 Supplier's Property Control Systems 232
6.6.1.a Review. 232
6.6.1.b Noncompliance. 232
6.6.2 Records 232
6.6.2.a Record Keeping. 232
6.6.2.b Maintenance by the Postal Service. 232
6.7 Subcontracting Policies and Procedures 233
6.7.1 General 233
6.7.1.a Requirements 233
6.7.1.b Considerations 233
6.7.2 Limitations 234
6.7.2.a Lack of Disapproval. 234
6.7.2.b Disapproval to Avoid Disputes. 234
6.8 Claims and Disputes 234
6.8.1 General 234
6.8.1.a Contract Disputes Act. 234
6.8.1.b Policy. 234
6.8.2 Claim Initiation 234
6.8.2.a Receipt. 234
6.8.2.b Decision. 235
6.8.2.c Certified Claims. 235
6.8.2.d Misrepresentation or Fraud. 235
6.8.3 Decision and Appeal 235
6.8.3.a Contracting Officer's Authority. 235
6.8.3.b Contracting Officer's Decision. 235
6.8.3.c Insufficient Information. 235
6.8.3.d Furnishing Decisions. 235
6.8.3.e Decisions on Claims for $100,000 or Less. 235
6.8.3.f Decisions on Certified Claims. 236
6.8.3.g Wording of Decisions. 236
6.8.3.h Additional Wording for Decisions of $50,000 or Less. 236
6.8.3.i Additional Wording for Decisions Over $50,000 Up to $100,000. 236
6.8.3.j Appeals 236
6.8.3.k Payment. 237
6.8.3.l Interest. 237
6.8.3.m Review of Adverse Actions. 237
6.9 Contract Termination 237
6.9.1 General 237
6.9.1.a Applicability 237
6.9.1.b Review and Approval. 238
6.9.1.c General Principles 238
6.9.1.d Termination Notice 238
6.9.2 Termination for Convenience 239
6.9.2.a General 239
6.9.2.b Supplier's Duties. 239
6.9.2.c Settlement of Subcontractor Claims 240
6.9.3 Termination for Default 241
6.9.3.a General 241
6.9.3.b Fixed-Price Contracts 241
6.9.3.c Contracts Other than Fixed-Price 246
6.9.4 Termination on Notice 246
6.9.4.a General. 246
6.9.4.b Written Notice. 246
6.9.4.c Default. 246
6.10 Remedies and Damages 247
6.10.1 Remedies 247
6.10.1.a Postal Service's Security Interest. 247
6.10.1.b Repurchase Against Supplier's Account 247
6.10.2 Damages 247
6.10.2.a Default. 247
6.10.2.b Breach Damages for Accepted Supplies 247
6.10.2.c Deduction of Damages from the Price. 248
6.10.2.d Damages for Nondelivery or Repudiation 248
6.1 General
6.1.1 Responsibilities
6.1.1.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 team
throughout the life of the contract and continues to represent the purchase
team in all dealings with the supplier. Beyond contract close out, other
members of the purchase team may continue in their roles as part of a more
comprehensive life-cycle management team of which the purchase team was
a part.
6.1.1.b Contracting Officer's Representatives
1. The contracting officer may appoint in writing one or more
representatives to perform any administrative function that does not
involve a change in the scope of work, specifications, or cost or
duration of contract performance.
2. Representatives of the contracting officer may not appoint other
representatives without prior written approval of the contracting officer.
3. Representatives of the contracting officer may not perform any function
or exercise any authority not specifically delegated by the contracting
officer.
4. The contracting officer must notify the supplier in writing of the
appointment of any representative or representatives, specifying the
authority delegated and cautioning the supplier to notify the contracting
officer any time the supplier believes the representative is exceeding
the authority granted by the delegation.
5. All contracts requiring a contracting officer's representative must
include Clause 6-2, Contracting Officer's Representative.
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 in
contract administration should direct their efforts to that objective (such
as quality assurance, cost monitoring, and other activities intended to
ensure compliance with contract terms). Except when required by the
terms of the contract, they may not direct the supplier's management
activities or intervene to supervise, train, or discipline supplier
personnel.
2. Disputes with suppliers are an obstacle to performance. Purchase
teams in general and contracting officers in particular should seek to
resolve contract disputes in a businesslike manner that promotes
efficiency and cost-effectiveness while protecting the Postal Service's
interests.
6.1.2 Contract Administration Functions
6.1.2.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 contract
specifications and clauses, with due regard to the need for quality and
the legal rights of the parties;
2. Ensuring that the supplier is compensated promptly in the proper
amount consistent with protecting the Postal Service's interests;
3. Making changes, carrying out terminations, and taking other necessary
actions outside the normal course of contract performance;
4. Making decisions and determinations that affect contract performance
fairly, impartially, and in accordance with Postal Service policy and
applicable law; and
5. Maintaining complete documentation on performance or
nonperformance to protect the Postal Service's rights and to provide a
basis for past performance assessments for use in future purchases;
and
6. Managing supplier relations and fairly and constructively resolving
disputes.
6.1.2.b Other Responsibilities. The specific functions required to be performed under
any contract are determined by the contract's terms and conditions, clauses
and the particular contract situation, as well as the policies in this PM. The
purchase team and each contracting officer's representative should carefully
review the contract together immediately after award to determine the
functions to be performed and the people responsible for performance.
6.2 Contract Performance
6.2.1 Postaward Orientation
6.2.1.a Policy. It is Postal Service policy that effective relationships between the
Postal Service and its suppliers are central to the success of any purchase.
The relationship should be a partnership, with each party working together
to achieve a mutual goal. A key element in establishing the relationship is
postaward orientation. This orientation brings all parties together and
provides for a clear, mutual understanding of the purchase requirements and
objectives. It also provides a means whereby each party may identify and
resolve potential problems at the beginning, rather than later in the process
when misunderstandings can have a greater impact on successful
performance. Therefore, the contracting officer and the purchase team
should hold postaward orientations whenever feasible.
6.2.1.b Use. In deciding whether to hold a postaward orientation, the purchase team
should consider:
1. The nature and extent of any preaward survey or other discussions with
the 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 or
services to critical programs; 6.
7. Length of the planned production cycle;
8. Extent of subcontracting;
9. Supplier's past performance and experience with the supplies or
services;
10. Safety precautions required for hazardous materials or operations;
11. Financing arrangements, such as progress payments; and
12. Whether changes are anticipated that will require special accounting for
change orders (see 6.5.2.b).
6.2.1.c Scheduling. Postaward orientations should be held promptly after award. The
purchase team must prepare an agenda, and afterwards summarize the
topics actually covered in a memorandum. Whenever possible, all
representatives (for example, inspectors) must attend any orientation
session.
6.2.1.d Changes to the Contract. A postaward orientation may not be used to change
the contract. Any change resulting from a postaward orientation must be
made by contract modification.
6.2.2 Record Keeping
6.2.2.a Policy. 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 records of past
performance. All actions taken must be documented.
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 to
contract performance may be kept by offices outside the purchasing
organization (for example, records on repair and maintenance of equipment
under warranty). The contracting officer should alert each such office of the
significance of the records to contract administration and request they retain
or transfer any records necessary to comply with a and b above.
6.2.3 Contract Monitoring
1. In addition to appointing representatives (see 6.1.1.b) to monitor
contract performance, the contracting officer may name one or more
representatives with authority to coordinate the activities of other
representatives, such as inspectors or reviewers.
2. The contracting officer may authorize one or more representatives to
provide technical direction, but the authorization must specifically alert
them to the prohibition on ordering changes in the work affecting
schedule, 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 4.5, contracting
officers may contract with architects, engineers, construction or real
estate management professionals to perform any contract
administration task that could be delegated to a Postal Service
contracting officer's representative.
2. Other Contracts. Contracting officers may contract with third parties to
perform only those contract administration responsibilities related to
testing for conformance (but not 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 contract
requirements, and contract terms requiring submission and approval
should be strictly enforced. The purchase team must ensure that
supplier submittals are disapproved only for failure to meet a material
requirement of the contract. If a supplier submittal indicates that the
specifications are inadequate, the contracting officer should use the
applicable changes clause to achieve necessary quality. For submittals
affecting 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 within
any time limits set in the contract. Disapprovals and conditional
approvals must clearly indicate what the supplier must do to comply
with contract requirements.
6.2.4.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, Materiel
Management; and
3. All policies, procedures, and technical guidance issued by the manager,
Materials Distribution.
6.2.4.b Variation in Quantity. Suppliers are responsible for delivering the quantity
specified in the contract within the tolerances allowed (see Clause
B-4, Variation in Quantity). Excess quantities totaling no more than
$100 in value may be kept without compensating the supplier. Excess
quantities worth more than $100 may be returned at the supplier's expense,
or kept and paid for at the contract price.
6.2.5 Right to Adequate Assurance of Performance
6.2.5.a General. A contract obligates each party not to impair the other's expectation
of receiving the performance due under the contract. When performance
concerns arise, the contracting officer may, in writing, demand adequate
assurance of due performance. The concerns need not arise from or be
directly related to the contract.
6.2.5.b Failure to Provide Adequate Assurance. The contracting officer may treat the
contract as defaulted if the purchase team's concerns are not resolved within
30 days of the demand for adequate assurance. Failure to provide adequate
assurance is a breach of contract by repudiation. The supplier may retract the
repudiation under 2 below unless the contracting officer has already acted on
the default.
1. Postal Service Rights. If the supplier repudiates the contract, the
contracting officer may:
(a) Await performance for a reasonable time; or
(b) Resort to any remedy provided in this manual or the contract,
even though the supplier has been notified that the Postal Service
will await performance and the contracting officer has urged
retraction; and
(c) In either case, suspend the Postal Service's own performance or
proceed in accordance with the provisions of the contract's
Default clause.
2. Supplier's Retraction of Repudiation
(a) The supplier can retract a repudiation up until the next
performance is due, unless the Postal Service has, since the
repudiation, changed its position or otherwise indicated that the
repudiation is final.
(b) Retraction may be by any method that clearly indicates the
supplier intends to perform, but must include any assurance
demanded by the contracting officer.
(c) Retraction reinstates the supplier's rights under the contract if the
failure to provide assurance is excusable and consideration is
made to the Postal Service for any delay caused by the
repudiation.
6.2.6 Bankruptcy
6.2.6.a General. When a supplier declares bankruptcy, the right of the Postal Service
to take unilateral action is limited. Contracting officers should monitor the
supplier's financial strength to anticipate problems which could arise and act
promptly to protect Postal Service interests when notified of a supplier's
bankruptcy.
6.2.6.b Procedures. When notified that a supplier is in bankruptcy proceedings, the
contracting officer must:
1. Consult with assigned counsel before taking any action regarding the
supplier's bankruptcy proceedings.
2. Determine the amount of any claims which the Postal Service may
have against the supplier on any contracts which have not been closed
out.
3. Take actions necessary to protect the Postal Service's financial
interests and safeguard Postal Service property.
6.2.6.c Clause. The contracting officer must insert Clause 6-1, Bankruptcy,
in all solicitations and contracts that are not for commercial items.
6.3 Quality Assurance
6.3.1 Inspection and Testing
1. Quality assurance requirements, including inspection and testing,
acceptance, and first article approval, are treated in 2.2.1
through 2.2.3. This section focuses on administering those
requirements during contract performance.
2. Unless there are special requirements (see 2.2.1.d), the Postal
Service inspects commercial items (see 4.3) at destination and
only for type and kind; quantity; damage; operability (if readily
determinable); and preservation, 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 conforming
to contract requirements.
(b) The repeated delivery of nonconforming property or services
must not be allowed. In such cases, purchase teams should take
appropriate action, such as rejecting delivery and having the
purchasing organization document the rejection in the supplier's
performance record.
2. Correction or Replacement
(a) Suppliers must be given an opportunity to correct or replace
nonconforming supplies or services when it can be accomplished
within the delivery schedule.
(b) Correction or replacement must be at no additional cost to the
Postal Service.
(c) The Postal Service reserves the right to charge the supplier the
cost of reinspection and retesting needed because of a previous
rejection.
3. Rejection
(a) Determination. When correction within the delivery schedule is
not possible, the purchase team must ordinarily reject supplies or
services where nonconformance adversely affects safety, health,
reliability, durability, performance, interchangeability of parts or
assemblies, weight, appearance, or any other basic objective of
the 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 in
writing when:
(1) The supplier persists in offering nonconforming supplies or
services for acceptance; or(2)
(3) Delivery or performance was late without an excusable
cause.
4. Substitute Performance
(a) When replacement or correction is not possible within the
performance period, and the purchase team has rejected
performance, the contracting officer may provide the supplier an
opportunity to provide acceptable substitute performance if the
purchase team decides:
(1) Performance is still desired, and
(2) Substitute performance will best mitigate the damage
suffered by the Postal Service.
(b) When substitute performance is accepted, the contracting officer
must modify the contract to provide for appropriate consideration.
5. Accepting Defective Performance
(a) Minor Defects. The purchase team may waive minor
noncomformities.
(b) Other Defects. The purchase team may not accept supplies or
services where nonconformance adversely affects a basic
contract objective unless acceptance is clearly in the Postal
Service's interest. The purchase team's decision to accept the
supplies or services must be put in writing by the contracting
officer and be based on:
(1) Information on the nature and extent of the
nonconformance;
(2) Advice of technical specialists that the material is safe to
use and will perform its intended purpose;
(3) The supplier's request for acceptance of the supplies or
service;
(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 accepted
under 6.3.1.b.5.(a), the contracting officer need not modify
the contract to provide for appropriate consideration,
unless:
(i) It appears that the savings to the supplier in
fabricating the nonconforming supplies or performing
the nonconforming services exceed the cost to the
Postal Service of processing and enforcing a
modification.
(ii) The Postal Service's interests otherwise require a
contract modification.
(2) When nonconforming supplies or services are accepted
under (b) above, the contracting officer must modify the
contract to provide for consideration.
6.3.2 Acceptance
1. Acceptance constitutes acknowledgment that supplies or services
conform with quality, quantity, and packaging requirements set forth in
the 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 his
or her representative. When this responsibility is assigned to a contracting
officer's representative or another postal employee, acceptance by that
person is binding on the Postal Service.
6.3.2.c Place of Acceptance. Usually, contracts must specify the place of
acceptance. Contracts providing for Postal Service inspection at source
ordinarily provide for acceptance at source; those providing for inspection at
destination ordinarily provide for acceptance at destination. Supplies
accepted at a place other than destination may not be reinspected for
acceptance at destination, but should be examined for quantity, damage in
transit, and possible substitution or fraud.
6.3.2.d Supplier Certification. When purchasing commercial items, acceptance based
on supplier certification may be in the Postal Service's interest when:
1. Only small losses will be incurred by a defect; or
2. The supplier's reputation or past performance suggests that the
supplies or services will be acceptable, and defective work will be
replaced, 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, the
purchase team represented by the contracting officer may revoke
acceptance of nonconforming performance if acceptance has:
(a) Resulted from the reasonable assumption that the
nonconformance would be cured and it is not cured; or
(b) Taken place because the nonconformance has not been
discovered before acceptance, as a result of the difficulty of
discovery, or because of the supplier's assurances.
2. Revocation of acceptance must occur within a reasonable time after the
purchase team discovers or should have discovered the grounds for it
and before any substantial change not caused by their own defects
takes place in the condition of supplies. It is not effective until the
contracting officer notifies the supplier.
3. The Postal Service has the same rights and duties upon revocation as
upon 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 physical
possession, unless the contract specifically provides for earlier transfer
of title.
2. Unless the contract specifically provides otherwise, risk of loss or
damage 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 Postal
Service at the destination specified in the contract, whichever is
later, if transportation is f.o.b. destination.
3. The provisions of f.2 do not apply to supplies that are rejected. The risk
of loss of or damage to rejected supplies remains with the supplier until
cure or acceptance. After cure or acceptance, f.2 applies.
6.3.3 Receiving Reports
1. Completed receiving reports should be submitted to the Accounting
Service Center (ASC) within 5 days of receiving supplies or services.
2. If a receiving activities' reports are regularly received at the ASC more
than 10 days after receiving supplies or services, this will be reported
by the ASC to the appropriate purchasing organization for remedial
action.
6.3.3.b Responsibility
1. The contracting officer must ensure that receiving activities get proper
notification of contract awards, including the receiving reports
generated by the contract writing system, with instructions for prompt
completion and submission.
2. The contracting officer must provide the proper shipping and payment
information to the supplier.
3. Day-to-day responsibility for monitoring the completion and submission
of receiving reports may be delegated to purchasing personnel or, as
necessary, to managers within the receiving installation.
4. Each installation head must:
(a) Designate in writing an individual (or individuals) responsible for
receiving and accepting all delivered supplies and services.
(b) Provide the appropriate purchasing organizations with a copy of
the designation.
(c) See that procedures are established to ensure that the individual
responsible for receiving and accepting supplies is notified when
a shipment arrives.
5. When partial shipments are certified for payment, a copy of the certified
receiving report must be kept for use in receiving the balance of the
shipment.
6.4 Payments and Financing
6.4.1.a Disputes. Contracting officers and financial personnel must ensure that
payments legitimately due are made promptly. If a dispute arises regarding
the supplier's entitlement to payment, the contracting officer must pay the
supplier any amount not in dispute, except for withholding as allowed under
6.4.4.f.
6.4.1.b Partial Payments. The contracting officer should generally approve requests
for partial payment upon delivery of supplies or services that partially fill
contract requirements. When the contract does not provide unit prices, the
contracting officer may determine an appropriate formula for payment.
6.4.1.c Cost Reimbursement. Requests for payment under contracts that are not
fixed-price must be reviewed by the contracting officer, with the assistance of
technical specialists, to determine whether they comply with the requirements
for allowability, allocability, and reasonableness (see 5.2.3).
6.4.2.a General. Payment will be made only after receiving an invoice (see Clause
B-20, Invoices), except for:
1. Regularly scheduled payment under real estate leases and contracts
for 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 the
contract or order, with a copy to the contracting officer if necessary. Invoices
sent to any other person or office are not considered properly submitted.
Invoices submitted before performance or delivery violate the certification
provision of the Invoices clause. Invoices may be submitted electronically.
6.4.3.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 not
later than, the 30th day after receiving an invoice or acceptance, whichever
occurs later, except:
1. In those limited circumstances when a specified payment date is
provided for in the contract, payment will be made as close as possible
to, but not later than, that date.
2. When a time discount is taken, payment must be made as close as
possible to, but not later than, the discount date. Discounts must be
taken from the date on which the invoice is received by the office
specified in the contract, or the date on which supplies or services are
delivered or performed, whichever is later, to the discount date.
Discounts should be taken whenever economically justified, but only
after acceptance.
6.4.3.c Interest Payments
1. Interest will be paid automatically, whether or not a supplier has
requested it, when all of the following conditions have been met:
(a) Acceptance has occurred and there is no disagreement over
quantity, quality, or other contract provisions;
(b) A proper invoice has been received, except when no invoice is
required for payment (see 6.4.2.a) or the contracting officer fails
to give notice within 7 days after receipt of an improper invoice.
2. When a prompt payment discount is taken after the discount period has
expired, the Postal Service has 10 days after expiration of the discount
period to correct the underpayment. Failure to do so will result in the
automatic payment of interest, whether or not the supplier has
requested 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 the
Treasury under section 12 of the Contract Disputes Act of 1978
(41 U.S.C. 611) in effect on the day after the due date. The rate will be
published semiannually in the Postal Bulletin, in January and July. The
rate will remain fixed during the period for which interest is calculated.
Interest will accrue daily on the invoice amount approved by the Postal
Service. It will be compounded in 30-day increments, starting with and
including 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 the
approved invoice payment amount and be subject to interest if not paid
in the succeeding 30-day period.
2. For the sole purpose of computing interest under this policy,
acceptance will have occurred on the 7th day after the supplier has
delivered the supplies or services under the contract, unless there is a
disagreement over quantity, quality, or supplier compliance. If actual
acceptance occurs within 7 days of delivery, interest will be calculated
based on the actual date of acceptance. When necessary to inspect
and test the supplies or evaluate services, the contracting officer may
specify a longer period for constructive acceptance in the solicitation
and contract. The justification for extending the period beyond 7 days
must be documented in the contract file.
3. If the office specified in the contract for receiving invoices fails to date
stamp the invoice, the invoice due date will be the 30th day after the
date of the invoice, provided that a proper invoice was received and
there is no disagreement over the quantity, quality, or supplier
compliance with the contract.
4. The interest amount, interest rate, and the period for which the interest
was computed, will be stated separately on the check or accompanying
remittance advice. If requested by the supplier, adjustments must be
made 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 invoice
amount is paid; and
(c) Makes a written demand that the Postal Service pay such a
penalty not later than 40 days after the date the invoice amount is
paid.
6. When a prompt payment discount is taken after the discount period has
expired, interest must be calculated on the amount of discount taken
improperly. The interest must be calculated for the period beginning
with the first day after the end of the discount period through the date
when the supplier is paid.
7. If the office specified in the contract for receiving invoices fails to notify
the supplier of a defective invoice within 7 days after its receipt, the due
date on the corrected invoice must be adjusted. The number of days
taken beyond the 7-day period must be subtracted from payment due
date. Any interest owed the supplier must be based on this adjusted
due date.
6.4.3.e Alternate Provisions. The provisions on time of payment may be changed by
agreement of the parties, but no interest may be paid by the Postal Service
except as provided in 6.4.3.c.
6.4.3.f Final Payment. Final payment under any contract involving progress
payments, retainage, payment or performance guarantees, or construction
may not be made until the contracting officer receives a release from the
supplier.
6.4.4 Withholding Payments
6.4.4.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 is
authorized to withhold money to ensure debts are paid);
2. Elements of the amount invoiced by the supplier are not allowable (see
5.2.3);
3. The supplier has been overpaid or otherwise owes the Postal Service
money as a result of the supplier's actions or inactions under the
contract;
4. The supplier owes the Postal Service money for reasons unrelated to
the contract; or
5. As a result of judicial action or law, parties other than the supplier have
made claims against the Postal Service, or have not waived rights that
may 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 may
jeopardize performance. Therefore, the contracting officer must
carefully consider the reasons for withholding or refusing payment, and
must process disputes regarding payment quickly.
2. The contracting officer must notify the supplier of any intended
withholding and must provide the supplier an opportunity to object. If
time permits, the notice should be in writing.
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 to
disallow specified incurred or planned costs (see Clause B-17,
Disallowance of Costs). However, before issuing the notice, the
contracting officer should make a reasonable effort to reach a
satisfactory settlement.
2. If the supplier disagrees with the deduction from current payments, the
supplier may:
(a) Request in writing that the contracting officer consider whether
the unreimbursed costs should be paid and discuss the matter
with the supplier;
(b) File a claim under Clause B-9, Claims and Disputes,
which the contracting officer must process according to the
procedures in 6.8; or
(c) Do both of the above.
3. Supplier discounts, rebates, and refunds offered voluntarily or provided
for by contract clauses are not subject to this part and may be taken by
adjustments to invoices or other procedures acceptable to the
information service center.
6.4.4.d Setoffs and Recoupments
1. At any time during performance of a contract, the contracting officer
may issue the supplier a written notice of intent to set off or recoup
amounts due the Postal Service from payments otherwise due the
supplier. However, before issuing the notice, the contracting officer
should make a reasonable effort to reach a satisfactory settlement
through negotiation.
2. If no settlement is reached, the contracting officer may withhold the
amounts due the Postal Service by setoff or recoupment. A "setoff" is a
deduction from payments due to the supplier under one contract for
amounts due the Postal Service under one or more other contracts.
"Recoupment" is a deduction of amounts due the Postal Service (for
example, for damages for delay or defective performance, warranty
costs, or repair costs) from the payment due the supplier under a single
contract.
3. If the supplier disagrees with the intended setoff or recoupment, the
provisions of 6.4.4.c.2 apply.
4. When contract payments have been assigned (see 6.4.7), the
contracting officer must have the concurrence of counsel to use setoffs
or recoupments.
6.4.4.e Third-Party Claims. The Postal Service may be subject to claims by third
parties for money due a supplier. When a claim is filed with the contracting
officer, counsel must be notified immediately. Counsel will provide instructions
for handling the claim, disposing of the fund, and notifying the supplier.
6.4.4.f Withholding Payment Under Contract Clauses. Some contract clauses, such
as Clause 2-10, Liquidated Damages, and Clause 2-8,
Warranty, provide for withholding payment in certain circumstances. In
addition, some contract clauses provide for withholding a percentage or
portion of payments to induce continued acceptable performance. The
contracting officer must strictly enforce such clauses and keep a complete
record of the amounts withheld under any clause, the basis for withholding
them, and the disposition of funds withheld.
6.4.5 Progress Payments
6.4.5.a General. The Postal Service only makes progress payments, when provided
for by the contract, in return for demonstrated progress toward completion of
performance.
6.4.5.b Computing Progress Payments
1. Progress payments, for nonconstruction contracts, must be based on
costs incurred in performance. However, as provided in Clause
1-3, Progress Payments, the contracting officer may reduce or
suspend payments where incurred costs vary substantially from actual
progress under the contract. In such cases, the contracting officer
should obtain the advice of technical personnel and counsel before
computing the amount justified.
2. Progress payments for construction contracts are made according to
Clause B-48, Payment (Construction).
6.4.5.c Supervision. The extent to which progress payments need to be supervised
depends on the supplier's accounting system and controls and the supplier's
experience, performance record, reliability, management, and financial
strength.
6.4.5.d Administration
1. The contracting officer must obtain monthly progress reports from the
supplier, showing progress on the work in relation to progress
payments made.
2. The contracting officer may, in approving progress payment requests,
rely on the supplier's accounting system and certification without
prepayment reviews. However, post-payment reviews (including audits,
when necessary) must be made periodically, or when necessary to
determine the validity of progress payments already made or expected
to be made.
3. Clause 1-3, Progress Payments, gives the Postal Service the
right to reduce or suspend progress payments, or to increase the
liquidation rate, under specified conditions. The contracting officer may
take such actions 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, on
the basis of the supplier's financial condition, projected cash
requirements, and existing or available credit arrangements; and
(c) Considering what is equitable in the particular situation.
4. The contracting officer may take immediate unilateral action only if
warranted by circumstances such as overpayments or unsatisfactory
contract performance. The contracting officer must always:
(a) Act fairly and reasonably;
(b) Base decisions on substantial evidence; and
(c) Document the contract file.
5. Progress payments are recouped by deducting liquidations from
payments that would otherwise be due the supplier for completed
performance. Usually, the liquidation rate is the same as the progress
payment rate; and at the beginning of a contract, only this method may
be used. Any liquidation method other than the usual method must be
approved by the manager of Materials, Headquarters Purchasing, Field
Customer Support, National Mail Transportation Purchasing, or Major
Facilities Purchasing.
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
Clause 2-32, Limitation of Funds, and the supplier has notified
the contracting officer that incurred costs are approaching the
estimated cost of the contract or the funding limit, the purchase team
must promptly obtain funding and information regarding the contract's
continuation. The contracting officer must notify the supplier in writing
that:
(a) Additional funds have been allotted, or the estimated cost has
been increased, in a specified amount;
(b) The contract is not being funded further, and the supplier should
submit a proposal for a fee adjustment, if any, based on the
percentage of work completed in relation to the total work called
for under the contract; or
(c) The contract is to be terminated.
2. The supplier is entitled by the contract terms to stop work when the
funding or cost limit is reached, and any work beyond the funding or
cost limit is at the supplier's risk.
6.4.6.b Effect of a Modification. The contracting officer may issue a change order, a
direction to replace or repair defective items or work, or a termination notice
without immediately increasing the funds available. Since a supplier is not
obligated to incur costs above the estimated cost in the contract, the
contracting officer must ensure that funds are available for directed actions.
The contracting officer may direct that any increase in the estimated cost or
amount allotted to a contract be used for the sole purpose of funding
termination or other specified expenses.
6.4.7 Assignment of Claims
6.4.7.a Policy. A supplier may assign money that will be due under a Postal Service
contract to a single bank or other financial institution, with the approval of the
contracting officer (see Clause B-8, Assignment of Claims). Any
other attempted assignment may be treated as a breach of contract.
6.4.7.b Approval. Contracting officers may approve any authorized assignment that
does not jeopardize contract performance. See also the discussion of
novation agreements in 6.5.4.
6.4.7.c Assignments by Law. This part does not pertain to assignments ordered by a
court or law. Contracting officers should consult with counsel in such cases.
6.5 Contract Modifications
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.
1. Except for certain mail transportation contracts (see 4.5.3),
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 Clause B-2, Changes;
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 the Changes clause, 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.
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 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.
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
1. The Changes clause allows 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.
1. Suppliers' accounting systems are seldom designed to segregate the
costs of performing changed work. Clause B-21,
Change-Order Accounting, requires them to do so.
2. The following categories of direct costs are usually segregable and
accountable under Clause B-21:
(a) Nonrecurring costs (for example, engineering costs and costs of
reperformed work).
(b) Costs of distinct tasks added by the change order (for example,
new subcontract work, new prototypes, or new retrofit kits).
(c) Costs of recurring work (for example, labor and material costs).
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.
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.
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.)
1. The Postal Service has the right to require accelerated performance
under Clause B-2, Changes. 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
1. "Change-of-name agreements" are 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" are 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.
6.5.4.b Responsibility
1. The contracting officer is responsible for:
(a) Determining, in consultation with 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.c Novation Policy
1. The Postal Service generally prohibits contract novation (see 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 2.1.7.3) 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.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.
6.6 Postal Service Property
6.6.1 Supplier's Property Control Systems
6.6.1.a Review. The contracting officer or the representative assigned to act as
property administrator should review suppliers' property control systems to
ensure compliance with the contract's property clauses.
6.6.1.b Noncompliance. The property administrator should notify the supplier in
writing when its property control system does not comply with the contract
requirements, requesting prompt correction of deficiencies. If the supplier
does not correct the deficiencies within a reasonable period, the property
administrator should request action by the contracting officer. The contracting
officer may:
1. Notify the supplier in writing of any required corrections and establish a
schedule for completion;
2. Caution the supplier that failure to take the required corrective action
within the time specified will result in withholding or withdrawing system
approval; and
3. Advise the supplier that its liability for loss of or damage to Postal
Service property may increase if approval is withheld or withdrawn.
6.6.2.a Record Keeping. Supplier records of Postal Service property, established and
maintained under the terms of the contract, are the Postal Service's official
records. Duplicate official records should be furnished to or maintained by
Postal 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 official
records to be maintained by the Postal Service when Postal Service property
is 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 Postal
Service property with an acquisition cost of $50,000 or less; or
5. When otherwise determined by the contracting officer to be in the
Postal Service's interest.
6.7 Subcontracting Policies and Procedures
1. When a contract contains Clause B-18, Subcontracts, the
supplier must notify the contracting officer in advance of its intent to
subcontract. The supplier may enter into a subcontract unless notice of
disapproval is received from the contracting officer within 15 days from
the date the contracting 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, from
subcontracting, audit, pricing, technical, or other specialists; and
(c) Have the contracting officer notify the supplier in writing if the
subcontract is disapproved.
6.7.1.b Considerations
1. The purchase team must review the notice of intent to subcontract and
any supporting data and should consider the following:
(a) Is the subcontractor to acquire special test equipment or facilities
that are available from Postal Service sources?
(b) Is the selection of the particular supplies, equipment, or services
technically justified?
(c) Was adequate price competition obtained or its absence justified?
(d) Did the supplier adequately assess its subcontractor's alternate
proposals?
(e) Does the supplier have a sound basis for selecting and
determining the capability of the subcontractor?
(f) Has the supplier performed adequate price or cost analysis?
(g) Is the proposed subcontract type appropriate for the risks
involved and consistent with current policy?
(h) Will subcontractors be working in Postal Service-furnished
facilities?
(i) Has the supplier adequately and reasonably translated prime
contract technical requirements into subcontract requirements?
(j) Is the proposed subcontractor on the Postal Service's
consolidated list of debarred, suspended, and ineligible
suppliers?
2. Particularly careful and thorough consideration is necessary when:
(a) The prime supplier's purchasing system or performance is
inadequate;
(b) Close working relationships or ownership affiliation between the
prime and subcontractor may preclude free competition or result
in higher prices;
(c) Noncompetitive subcontracts are proposed at prices that appear
unreasonable, or higher than those offered the Postal Service in
comparable circumstances; or
(d) Subcontracts are proposed that are not fixed-price.
6.7.2 Limitations
6.7.2.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 the
allowability of costs.
6.7.2.b Disapproval to Avoid Disputes. Subcontracts should not be disapproved
merely because they give the subcontractor the right to appeal a dispute to
the Board of Contract Appeals in the name of the prime supplier.
6.8 Claims and Disputes
6.8.1.a Contract Disputes Act. This section and Clause B-9, Claims and
Disputes, implement the Contract Disputes Act of 1978, as amended
(41 U.S.C. 601-613).
6.8.1.b Policy. It is Postal Service policy to resolve contractual issues by mutual
agreement at the level of the contracting officer. In addition, the Postal
Service supports and encourages the use of alternative dispute resolution
(ADR) as an effective way to understand, address and resolve conflicts with
suppliers. The contracting officer, working with the purchase team, should
consider an ADR method to resolve a dispute, if agreed to by the supplier.
ADR methods may include informal negotiation, mediation by a neutral third
party, facilitation by an ombudsman, or other approved methods. These
efforts to resolve differences should be made before the issuance of a final
decision on a claim. Even when the supplier does not agree to use ADR, the
contracting officer, working with the purchase team, should consider holding
informal discussions between the parties in order to resolve the conflict
before the issuance of a final decision.
6.8.2 Claim Initiation
6.8.2.a Receipt. Supplier claims must be submitted in writing to the contracting officer
for final decision. The contracting officer must document the contract file with
evidence of the date of receipt of any submission that the contracting officer
determines is a claim. Supplier claims must be submitted within 6 years after
accrual of a claim unless the parties agreed to a shorter time period. The
6 year time period does not apply to contracts awarded prior to October 1,
1995.
6.8.2.b Decision. The contracting officer must issue a written decision on any Postal
Service claim against a supplier, within 6 years after accrual of a claim unless
the parties agreed to a shorter time period. The 6 year time period does not
apply to contracts awarded prior to October 1, 1995, or to a prior Postal
Service claim based on a supplier claim involving fraud.
6.8.2.c Certified Claims. Each supplier claim exceeding $100,000 must be
accompanied by the certification required in Clause B-9, Claims and
Disputes. That certification must also be provided for any claim, regardless of
dollar amount, before ADR is used.
6.8.2.d Misrepresentation or Fraud. When the contracting officer determines that the
supplier is unable to support any part of the claim and there is evidence that
the inability is attributable to either misrepresentation of fact or fraud on the
supplier's part, the contracting officer must deny the claim and refer the
matter to the Inspection Service.
6.8.3 Decision and Appeal
6.8.3.a Contracting Officer's Authority. Contracting officers are authorized to decide
or settle all claims arising under or relating to a contract subject to the
Contract Disputes Act, except for:
1. Claims or disputes for penalties or forfeitures prescribed by statutes or
regulation that a federal agency administers; or
2. Claims involving fraud.
6.8.3.b Contracting Officer's Decision. When a claim by or against a supplier cannot
be resolved by agreement, and a decision under Clause B-9, Claims
and Disputes is necessary, the contracting officer, working with the purchase
team, may use an approved ADR method to assist in resolving the claim. If
the purchase team determines that ADR is not appropriate, or if the supplier
refuses to participate, the contracting officer must review the facts pertinent
to the claim, obtain assistance from assigned counsel and other advisors,
and issue a final decision in writing. The decision must include a description
of the claim or dispute with references to the pertinent contract provisions, a
statement of the factual areas of agreement and disagreement, and a
statement of the contracting officer's decision with supporting rationale.
6.8.3.c Insufficient Information. When the contracting officer cannot issue a decision
because the supplier has not provided sufficient information, the contracting
officer must promptly request the required information. Further failure to
provide the requested information is an adequate reason to deny the claim.
6.8.3.d Furnishing Decisions. The contracting officer must furnish a copy of the
decision to the supplier by certified mail, return receipt requested, or by any
other method that provides evidence of receipt.
6.8.3.e Decisions on Claims for $100,000 or Less. If the supplier has asked for a
decision within 60 days, the contracting officer must issue a final decision on
a claim of $100,000 or less within 60 calendar days of its receipt. The
supplier may consider the contracting officer's failure to issue a decision
within the applicable time period as a denial of its claim, and may file a suit or
appeal on the claim.
6.8.3.f Decisions on Certified Claims. For certified claims over $100,000, contracting
officers must either issue a final decision within 60 calendar days of their
receipt or notify the supplier within the 60-day period of the time when a
decision will be issued. The time period established must be reasonable,
taking into account the size and complexity of the claim, the adequacy of the
supplier's supporting data, and any other relevant factors.
6.8.3.g Wording of Decisions. The contracting officer's final decision must contain the
following paragraph:
"This is the final decision of the contracting officer pursuant to the Contract
Disputes Act of 1978 and the clause of your contract entitled Claims and
Disputes. You may appeal this decision to the Postal Service Board of
Contract Appeals by mailing or otherwise furnishing written notice (preferably
in triplicate) to the contracting officer within 90 days from the date you receive
this decision. The notice should identify the contract by number, reference
this decision, and indicate that an appeal is intended. Alternatively, you may
bring an action directly in the United States Court of Federal Claims within 12
months from the date you receive this decision."
6.8.3.h Additional Wording for Decisions of $50,000 or Less. When the claim or
claims denied total $50,000 or less, the contracting officer must add the
following to the paragraph in g:
"In taking an appeal to the Board of Contract Appeals, you may include in
your notice of appeal an election to proceed under the Board's Small Claims
(expedited) procedure, which provides for a decision within approximately
120 days, or an election to proceed under the Board's accelerated procedure,
which provides for a decision within approximately 180 days. If you do not
make an election in the notice of appeal, you may do so by written notice
anytime thereafter."
6.8.3.i Additional Wording for Decisions Over $50,000 Up to $100,000. When the
claim or claims denied total $100,000 or less, but more than $50,000, the
contracting officer must add the following to the paragraph g:
"In taking an appeal to the Board of Contract Appeals, you may include in
your notice of appeal an election to proceed under the Board's accelerated
procedure, which provides for a decision within approximately 180 days. If
you do not make an election in the notice of appeal, you may do so by written
notice anytime thereafter."
1. Contracting officers must have sufficient information available at the
time a final decision is issued on a claim so as not to delay the
resolution of appeals within the period set for an expedited or
accelerated disposition. Once an appeal is docketed and expedited or
accelerated disposition is elected, contracting officers must devote
sufficient resources to the appeal to ensure that the schedule for
resolution is met.
2. Purchasing offices may seek to settle the controversy after an appeal
has been filed. However, processing of the appeal must not be
suspended during the efforts to settle the controversy, unless the Board
of Contract Appeals directs a suspension.
6.8.3.kPayment. Any amount determined in a final decision to be payable, less any
portion previously paid, usually should be promptly paid to the supplier
without prejudice to either party in the event of appeal or action on the claim.
In the absence of appeal by the Postal Service, a board or court decision
favorable in whole or in part to the supplier must be implemented promptly by
payment by the appropriate information service center. In cases when only
the question of entitlement has been decided and the matter of amount has
been remanded to the parties for negotiation, a final decision of the
contracting officer must be issued if agreement is not reached promptly.
6.8.3.l Interest. Interest on the amount found due on the supplier's claim must be
paid from the date the contracting officer received the claim (properly
certified, if required, in accordance with Clause B-9, Claims and
Disputes), or from the date payment would otherwise be due, if that date is
later, until the date of payment. Simple interest will be paid at the rate
established by the Secretary of the Treasury for each 6-month period in
which the claim is pending. Information on the rate at which interest is
payable is announced periodically in the Postal Bulletin.
6.8.3.m Review of Adverse Actions. The Postal Service will seek review of an
adverse decision of the Board of Contract Appeals in the Court of Appeals for
the Federal Circuit, if the Vice President (VP), Purchasing and Materials
(P&M), with the concurrence of the General Counsel or the General
Counsel's designee, decides to pursue an appeal.
6.9 Contract Termination
1. This section applies to contracts that contain clauses permitting
termination for the convenience of the Postal Service or for supplier
default, and to those contracts with clauses that provide for termination
on notice. It establishes uniform policies for the complete or partial
termination of such contracts.
2. The provisions of this section must be used by the contracting officer as
a guide in evaluating settlement of a subcontract terminated for the
convenience of a supplier whenever the settlement could be the basis
of a claim for reimbursement.
3. The contracting officer may follow the provisions of this section in
determining any equitable adjustment resulting from a modification to a
fixed-price contract under the Changes clause.
6.9.1.b Review and Approval. No contract priced at or with a potential termination
liability exceeding $1 million may be terminated for convenience or default
unless the VP, P&M, has approved termination. In addition, no contract,
regardless of price, which is considered sensitive or highly visible may be
terminated for convenience or default unless the VP, P&M, has approved
termination.
6.9.1.c General Principles
1. Contracts may be terminated, whether for default, convenience, or
upon notice, only when it is in the interest of the Postal Service.
2. The contracting officer may terminate a contract on notice or use a
no-cost settlement agreement instead of other forms of termination
when:
(a) The supplier will accept a no-cost settlement or the contract
allows termination on notice;
(b) Postal Service property was not furnished or will be returned; and
(c) All outstanding payments, claims, and supplier obligations are or
will be resolved.
6.9.1.d Termination Notice
1. General
(a) The contracting officer may terminate contracts only by written
notice to the supplier. (In terminating a fixed-price contract for
default for a cause other than failure to make timely delivery, the
termination notice discussed here must be preceded by the notice
or 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 authorizing
the 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, the
contracting officer must simultaneously send a copy to the information
service center and to any known assignee, guarantor, or surety of the
supplier.
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 or
shipped before the supplier receives the notice; and
(d) Reinstate the terminated portion of a contract.
4. Reinstatement. The contracting officer may, with the consent of the
supplier, reinstate the terminated portion of a contract in whole or in
part by amending the notice of termination when:
(a) Circumstances clearly indicate a requirement for the terminated
portion; or
(b) Reinstatement is otherwise advantageous to the Postal Service.
6.9.2 Termination for Convenience
1. Applicability. The provisions of 6.9.2 apply to all fixed-price contracts
containing Clause B-11, Termination for Convenience, and all
contracts that are not fixed-price containing Clause B-12,
Termination for Convenience or Default.
2. Type of Settlement
(a) The contracting officer may settle contracts terminated for
convenience by:
(1) Negotiated agreement;
(2) Contracting officer determination;
(3) Costing out under vouchers, if the contract is a
cost-reimbursement contract; or
(4) A combination of these methods.
(b) When possible, the contracting officer should negotiate a fair and
prompt settlement with the supplier.
6.9.2.b Supplier's Duties. After receiving a termination notice and unless directed
otherwise by the contracting officer, the supplier must comply with the
contract clause and the termination notice, which generally require that the
supplier:
1. Stop work immediately on the terminated portion of the contract and
stop placing subcontracts under that portion;
2. Terminate all subcontracts related to the terminated portion of the
contract;
3. Immediately advise the contracting officer of any special circumstances
precluding stoppage of work;
4. Perform the continued portion of the contract and promptly submit any
request for an equitable adjustment of price with respect to the
continued portion, supported by evidence of any increase in the cost;
5. Take necessary action to protect and preserve property in which the
Postal Service has or may acquire an interest, and deliver the property
to the Postal Service or otherwise dispose of it as directed by the
contracting officer;
6. Promptly notify the contracting officer in writing of any legal
proceedings growing out of a subcontract or other commitment related
to the terminated portion of the contract;
7. Settle outstanding liabilities and claims arising out of subcontract
terminations, with prior approval or ratification as required by the
contracting officer;
8. Promptly submit a settlement proposal, supported by appropriate
schedules; and
9. Dispose of any termination inventory, as directed by the contracting
officer.
6.9.2.c Settlement of Subcontractor Claims
1. Subcontractor Rights. A subcontractor has no contractual rights against
the Postal Service but may have rights against the Postal Service
supplier or the immediate subcontractor with which it has contracted.
Upon termination of a Postal Service contract, or a change that
necessitates subcontract termination, the supplier and each
subcontractor are responsible for prompt settlement of the termination
claims of their immediate subcontractors.
2. Prime Supplier's Rights and Obligations
(a) The termination clauses provide that, upon termination, the
supplier must, unless directed otherwise by the contracting
officer, terminate all subcontracts to the extent that they relate to
performance of the work terminated.
(b) The reasonableness of the supplier's settlement with a
subcontractor should be measured by the aggregate amount that
would be due under an equivalent Postal Service termination
clause. The contracting officer may allow reimbursement in
excess of that amount only in unusual cases, and then only when
satisfied that the subcontract terms were negotiated in good faith
and did not unreasonably increase the subcontractor's rights.
3. Delay in Settling Subcontractor Claims. When a supplier's inability to
reach settlement with a subcontractor delays the settlement of the
Postal Service contract, the contracting officer may settle with the
supplier 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, the
contracting officer may determine that it is in the interest of the Postal
Service to offer to assist the supplier in settling a particular subcontract.
The Postal Service, the supplier, and the subcontractor may then enter
into an agreement covering settlement of the subcontract. In these
cases, the subcontractor must be paid through the supplier as part of
the overall settlement.
5. Direct Settlement by the Postal Service. The Termination for
Convenience clause gives the Postal Service the right, but not the
obligation, to settle and pay any claims arising out of subcontract
terminations. Direct settlements with subcontractors are not
encouraged, because the Postal Service supplier is obligated to settle
and pay a subcontractor's termination claims. However, when the
contracting officer determines that it is in the interest of the Postal
Service to settle a subcontractor's claim directly, the contracting officer
may, after consultation with assigned counsel and after notifying the
supplier, direct the assignment of all supplier rights to the Postal
Service, and settle the subcontractor's claim using the procedures for
settling Postal Service contracts. An example in which the interest of
the Postal Service would be served is when a subcontractor is the sole
source of a product and it appears that a delay by the supplier in
settling the subcontractor's claim will jeopardize the subcontractor's
financial position.
6.9.3 Termination for Default
1. Termination for default is the exercise of the Postal Service's right to
completely or partially terminate a contract by reason of the supplier's
actual or anticipated failure to perform. When the contracting officer has
the right to terminate a contract for default, the total undelivered
contract quantity, whether delinquent or not, may be terminated for
default.
2. If the supplier can establish that its failure to perform arose out of
causes beyond its control and without its fault or negligence, the default
termination clause provides that a termination for default will be
deemed a termination for the convenience of the Postal Service, and
the rights and obligations of the parties will be governed accordingly.
3. When a contract provides for liquidated damages, the contracting
officer must mitigate damages when grounds for termination for default
exist by having the supplier perform or terminating the contract for
default. Liquidated damages, once incurred, may be remitted in whole
or in part as may be just and equitable, upon the recommendation of
the Vice President, Purchasing & Materials, and after consultation with
assigned counsel.
4. When the contracting officer determines in writing that the supplies or
services are still required and that reinstatement is advantageous to the
Postal Service, the contracting officer may reinstate the terminated
portion of a contract, but only with the supplier's written consent.
5. For termination for default of orders placed under Federal Supply
Schedule (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 has
the right, subject to the notification requirements of the clause, to
terminate all or any part of a contract without regard to
severability of contract obligations when the supplier:
(1) Fails to complete any material requirement of the contract
within the time specified in the contract (including any
extensions);
(2) Fails to make progress to a degree that it endangers
performance 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 on
undelivered work and is entitled to repayment of any progress
payments for undelivered work.
(c) The contracting officer may have the supplier transfer title and
deliver completed supplies and manufacturing materials to the
Postal Service. The completed supplies and manufacturing
materials may be acquired for use in continuing the terminated
contract work or use under another contract.
(d) Subject to the provisions of (e)(4), the Postal Service must pay
the supplier the contract price for any supplies completed and
delivered, and the amount agreed upon by the contracting officer
and the supplier for any manufacturing materials acquired by the
Postal Service.
(e) The Postal Service must be protected from failure to make
provision for the Postal Service's potential liability to laborers and
material suppliers for lien rights. The contracting officer must take
one or more of the following measures before making the
payment referred to in (d):
(1) Ascertain whether any payment bonds furnished by the
supplier are adequate to satisfy all claims, or whether it is
feasible to obtain similar bonds to cover outstanding liens.
(2) Require the supplier to furnish statements from laborers
and material suppliers disclaiming any lien rights they may
have in the supplies and materials.
(3) Obtain agreement between the Postal Service, the supplier,
and any claimants to release the Postal Service from any
potential liability to the supplier or claimants.
(4) Withhold from the amount otherwise due for the supplies or
materials an amount the contracting officer determines
necessary to protect the Postal Service's interest, in
accordance with 6.4.4.
(5) Take any other action that is appropriate in view of the
supplier's degree of solvency and other circumstances.
(f) The supplier is liable to the Postal Service for any excess costs
the Postal Service incurs in acquiring supplies and services
similar to those terminated for default, and any other damages,
whether or not repurchase is made.
2. Determination of Appropriateness. When a default termination is being
considered, the contracting officer should ensure that termination for
default, rather than convenience, is appropriate. The contracting officer
should consult with the purchase team, other purchasing personnel,
technical specialists, and counsel, and consider:
(a) The provisions of the contract, and applicable laws and
regulations.
(b) The specific failure of the supplier and, unless time does not
permit, 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 whether
or not they can be obtained sooner from sources other than the
delinquent supplier.
(e) The degree to which the supplier is essential to the Postal
Service, and the effect of a termination for default on the
supplier's capability as a supplier under other contracts.
(f) The effect of a termination for default on the ability of the supplier
to liquidate progress payments.
(g) Any other pertinent facts and circumstances.
3. Surety Notification and Arrangements
(a) When a termination for default appears imminent, the contracting
officer must send a written notification of that fact (not an actual
notice 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 any
assignees, arrangements may be made to have future checks
mailed to the supplier in care of the surety. In this case, the
supplier must forward a written request to the designated
disbursing officer, specifically directing a change in address for
mailing of checks.
4. Initiating Termination - Failure to Make Timely Delivery
(a) When a supplier fails to make timely delivery, the contracting
officer has a reasonable time after the delivery date to determine
whether the contract should be terminated for default. When the
supplier is continuing performance of the contract, a reasonable
time for the contracting officer to make a decision is 30 working
days. Delay beyond that period may result in a waiver of the right
of the Postal Service to terminate for default.
(b) When the contracting officer determines that termination for
default is proper, the contracting officer should issue a termination
notice at once, following the procedures in b.7. No demand for
adequate assurances should be issued. However, the contracting
officer may allow the supplier to assert any alleged excusable
delay.
(c) If a contracting officer's delay in issuing a notice of termination for
default results in a waiver of that right, a new delivery date must
be established by bilateral or unilateral modification of the
contract. The new delivery date must be reasonable considering
all the circumstances of contract performance. When the new
date is established, the right to terminate for default is reinstated.
5. Notice of Impending Termination - Causes Other Than Failure to
Make Timely Delivery. When the contracting officer makes a preliminary
determination that termination for default is appropriate in cases other
than failure to make timely delivery, the contracting officer should, if
practicable, 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 the
contract is terminated for default;
(b) Request that the supplier show cause why the contract should not
be terminated for default;
(c) State that failure of the supplier to explain why the contract
should not be terminated may be taken as an admission that no
valid explanation exists;
(d) When appropriate, invite the supplier to discuss the matter at a
conference.
6. Demand for Adequate Assurance - Causes Other Than Failure to
Make Timely Delivery
(a) A written notice must be issued when the contracting officer
determines that the supplier is failing to make satisfactory
progress to a degree it endangers contract performance, or
determines that some other failure, under the contract or
otherwise (other than failure to make timely delivery), is cause for
concern. However, no demand is required when there is
anticipatory repudiation of the contract, that is, when the supplier
positively states, by work or action, that it will not or cannot
perform its contractual obligations (see 6.2.6).
(b) The demand must specify the failure and give the supplier
10 days (or longer, if necessary) to assure the Postal Service of
steps that will be taken to cure the failure.
(c) When the time remaining in the contract delivery schedule does
not permit a response period of 10 days or longer, a demand may
be made part of the notice described in b.5.
7. Termination Notice
(a) Immediately upon determining that termination is proper under
b.4, or upon expiration of the 10-day or longer period allowed by
a notice under b.6, the contracting officer may issue a notice of
termination for default, unless it is determined that
nonperformance will be cured.
(b) When a demand for adequate assurance has been issued, the
notice of termination must be coordinated with counsel before
issuance.
(c) The notice of termination for default must meet all the general
requirements 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 performance
of the contract (or a specified portion of the contract) is
terminated;
(4) State that the supplies or services terminated may be
procured against the supplier's account, and that the
supplier will be held liable for any excess repurchase costs;
(5) State that the Postal Service reserves all rights and
remedies provided by law or under contract, in addition to
charging excess costs; and
(6) Inform the supplier that the termination is subject to Clause
B-9, Claims and Disputes.
(d) When the contracting officer has determined that the failure to
perform is not excusable, the termination notice must also state
that it reflects that decision, and that the supplier has the right to
appeal as specified in Clause B-9, Claims and Disputes.
(e) The contracting officer must make the same distribution of the
termination notice as was made of the contract, and any surety
must be furnished a copy and asked to advise whether it desires
to arrange for completion of the work.
(f) The contracting officer must notify the information service center
to withhold further payments under the terminated contract.
8. Procedure in Lieu of Termination. When the contracting officer
determines that the supplier's failure to perform arose from causes
beyond its control and without its fault or negligence, the contracting
officer may not terminate the contract for default. When it is in the
interest of the Postal Service, the contracting officer may, instead of
terminating the contract for default:
(a) Terminate the contract for convenience;
(b) Permit the supplier, its surety, or its guarantor to continue
performance under a revised delivery schedule;
(c) Permit the supplier to continue performance by means of a
subcontract or other arrangement with an acceptable third party, if
the rights of the Postal Service are adequately preserved; or
(d) Execute a no-cost termination settlement agreement (or terminate
on notice if allowed under the contract) if the requirement for the
supplies and services specified in the contract no longer exists
and the supplier is not liable to the Postal Service for damages,
as provided below.
9. Determination Following Termination Notice. When the contracting
officer is unable to determine, before issuing the notice of termination,
whether the supplier's failure to perform arose from causes beyond its
control and without its fault or negligence, the contracting officer must
make a written decision on that point as soon as practicable after
issuing the notice. This decision must be delivered promptly to the
supplier, with a notification of the right to appeal as specified in Clause
B-9, Claims and Disputes.
10. Contracting Officer Memorandum. When a contract is terminated for
default, or when a procedure authorized by b.8 is followed, the
contracting officer must prepare a memorandum for the contract file
that 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 contract
that is not fixed-price for default is provided under Clause B-12,
Termination for Convenience or Default. In the event of termination, the
supplier must be reimbursed costs allowed under the clause (the costs
of preparing the supplier's settlement proposal are not allowable). Any
fee payable under the contract must be reduced as directed by the
clause. The clause does not give the Postal Service the right to recover
excess repurchase costs, but it does give the Postal Service continuing
rights when the supplier fails to replace or correct defective supplies.
2. Determination and Notice. The contracting officer must consider the
factors in b.2 in determining whether termination for default is
appropriate. Under Clause B-12, Termination for Convenience
or Default, the supplier must be given the notice or notices required by
b.5 and b.6, before terminating for default.
6.9.4 Termination on Notice
6.9.4.a General. Termination on notice is the exercise of a right to terminate a
contract without further obligation. Such a right is frequently provided in
certain structured contracts (see 4.6.8), particularly those requiring
the performance of services or those of indefinite length. If appropriate to the
particular purchase, contracting officers, with the assistance of assigned
counsel, may draft and include contract clauses which provide only the Postal
Service or both parties the right to terminate on notice. The clause should
provide that the notice to terminate will be provided to the other party a
certain number of days before the termination will occur.
6.9.4.b Written Notice. If the contract contains a termination on notice clause, the
Postal Service may terminate the contract by sending the supplier a written
notice consistent with the clause. Compliance with the clause is required; a
supplier 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 contains
a clause allowing for termination for default or for cause which calls for less
notice than that required by the termination on notice clause, and it is
subsequently established that the termination for default or cause was
improper, the supplier's damages entitled will be limited to the additional
amount to which the supplier would have been entitled had the termination
for default or cause been a termination on notice.
6.10 Remedies and Damages
6.10.1.a Postal Service's Security Interest. On rightful rejection or justifiable revocation
of acceptance, the Postal Service has a security interest in supplies delivered
under the contract for any payments and expenses reasonably incurred in
inspection, receipt, transportation, care, and custody (in other words, they
can 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 or
services against the supplier's account as soon as practicable. The
repurchase price must be reasonable considering the quality and time
requirements. Whenever practicable, the contracting officer should
make the decision to repurchase before issuing a termination notice.
2. The contracting officer may repurchase a larger quantity than the
quantity terminated for default when needed, but the defaulting supplier
may be charged for no more than the terminated quantity (including any
variations 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 methods
appropriate for the repurchase, following normal approval or deviation
procedures. If the repurchase is for a larger quantity than the
terminated quantity, the entire quantity must be treated as a new
purchase.
4. If the repurchase price is higher than the price of the terminated
supplies or services, the contracting officer must, after final payment on
the repurchase contract, demand the excess amount from the supplier,
in writing, taking into account any increases or decreases in cost due to
transportation charges, discounts, and other factors.
6.10.2.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 demand
any damages to which the Postal Service may be entitled. These damages
are 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 under
6.3.1.b.5, the Postal Service may recover, as damages for any
nonconformity, the loss under usual circumstances resulting from the
supplier's breach. This may be determined in any reasonable manner.
2. Damages for breach of warranty are the difference, at the time and
place of acceptance, between the value of the supplies or services
accepted and the value they would have had if they had been as
warranted, unless special circumstances show there are proximate
damages (damages resulting directly from the breach of warranty) of a
different amount.
3. Normally, incidental and consequential damages may also be
recovered.
(a) Incidental damages include expenses reasonably incurred in the
inspection, receipt, transportation, and care and custody of
supplies rightfully rejected; any commercially reasonable charges;
expenses in connection with repurchase; and any other
reasonable expense incidental to the delay or other breach.
(b) Consequential damages include:
(1) Any loss resulting from contract requirements and needs
which the supplier should have been aware of when the
contract was signed and which could not be reasonably
prevented; and
(2) Injury to people or property resulting directly from a breach
of warranty.
6.10.2.c Deduction of Damages from the Price. The contracting officer, on notifying
the supplier, may deduct all or any part of the damages resulting from any
breach of the contract, or from late delivery or delay not subject to liquidated
damages (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 when
repurchase is not possible are the difference between the market price
at the time when the contracting officer learned of the breach and the
contract 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 of
rejection after arrival or revocation of acceptance, at the place of
arrival.
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