2-19 Consider Use of Renewals and Options

When contract performance has met or exceeded requirements, and the purchase/SCM team anticipates a future need, the purchase/SCM team should consider renewing the contract or exercising options to ensure a supplier’s continued performance. Renewing a contract and exercising an option are not the same thing. Renewing a contract takes place by mutual agreement between the Postal Service and the supplier; exercising an option can be a unilateral action on the part of the Postal Service or through mutual agreement. For a contract to be renewed or an option to be exercised, the contract must include the applicable clauses.

The purchase/SCM team should consider the use of renewals and exercise of options for the following reasons:

• Preservation of operational continuity.
• Supplier will have already developed knowledge of product or service.
• Realization of time efficiency from the Postal Service’s perspective, because the activities associated with the Perform Solicitation-Related Activities and Evaluate Proposals tasks of USPS Supplying Practices Process Step 2: Evaluate Sources will be avoided.
• Realization of time efficiency from the potential supplier’s perspective, because the learning curve will be reduced.
• Switching costs and risks will be avoided.
• Successful contract performance will be more stable.
• Supplier will be rewarded for successful, high-quality performance levels.
• Technical support capabilities will have already been established.

Option provisions and clauses should not be included in contracts, and should not be exercised, when:

• The supplier would be required to incur undue risks (as when the price or availability of necessary materials or labor is not reasonably foreseeable) which endanger performance and lead to unfair prices.
• An indefinite-quantity or requirements contract is appropriate, except that options for continuing performance may be used.
• Market prices for the supplies or services involved are likely to change substantially.
• The option quantities represent known firm requirements for which funds have been budgeted and approved, unless:
• the basic quantity is a learning or testing quantity.
• there is some uncertainty as to supplier or equipment performance.
• realistic competition for the option quantity is impracticable once the initial contract is awarded.

Renewals of mail transportation highway contracts are discussed in the Mail Transportation Purchasing commodity specific practice.