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Contract Modifications

There are two types of contract modifications:

1. Bilateral modifications (supplemental agreements) that are signed by both the Supplier and the Contracting Officer. Bilateral modifications include modifications to:

- Make equitable adjustments under Paragraph C of Clause 4-1: General Terms and Conditions, Clause B-37: Changes (Construction), or other clauses providing for equitable adjustment

- 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. Unilateral modifications include modifications to:

- 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)

- Issue change orders

- Make changes authorized by specific clauses or contract provisions (such as exercising an option or suspending work)

- Issue termination notices

Except for certain mail transportation contracts, only Contracting Officers are authorized to sign contract modifications for the Postal Service. Other Postal Service personnel may not:

Act in a manner that causes the Supplier to believe they have authority to bind the Postal Service

Direct or encourage the Supplier to perform work that should be covered under a contract modification

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.

Effective Dates

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. The effective date of a bilateral modification (such as a supplemental agreement) 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).

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. 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.

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Notification of Contract Changes

Under Paragraph C of Clause 4-1, or Clause B-37, Changes (Construction), when the 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/SCM 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

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

Availability of Funds

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/SCM Team and obtained a certification of funds availability, except for modifications to contracts that:

1. Are conditioned on availability of funds

2. Contain a limitation of cost or funds clause

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.

Exercise of Options

The exercise of options and associated thoughts, considerations, and concerns are discussed in detail in the Consider of Use of Renewals and Options topic of the Develop Sourcing Strategy task of Process Step 2: Evaluate Sources, as well as in Decide to Renew a Contract or Exercise Options topic of the Manage Delivery and Contract Performance task of Process Step 5: Measure and Manage Supply.

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Correcting Mistakes

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

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

A Supplier's mistake so obvious that it was or should have been apparent to the Contracting Officer

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

A claim of mistake that is asserted after contract award, and a decision to deny a claim of mistake asserted after contract award, in whole or in part, is handled under the procedures of Clause B-9: Claims and Disputes.

Change Orders

Paragraph C of Clause 4-1: General Terms and Conditions and Clause B-37: Changes (Construction) allow the Contracting Officer to make unilateral changes, as specified in the clause, within the general scope of the contract. These changes are accomplished by issuing written change orders.

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.

The Postal Service uses the established accounting procedures when analyzing the price or cost of changed work.

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Administration of Change Orders

When change orders are not priced before performance, they usually require two documents: (1) the change order and (2) 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.

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. 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.

To avoid controversies that may result from a supplemental agreement making an equitable adjustment, the Contracting Officer should:

Ensure that all elements of the equitable adjustment have been presented and resolved

Include a release of claims in the supplemental agreement

Equitable Adjustments for Delays

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

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Excusable Delays

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

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

Causes beyond the control and without the negligence of the Supplier - including the following:

- Acts of God or the public enemy

- Acts of the government in its sovereign capacity or the Postal Service in its contractual capacity

- Fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather

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

Compensable Delays

A Supplier may be granted an extension of the contract delivery or performance schedule, a price adjustment, or both, as the Purchase/SCM 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:

Delay in issuing the notice to proceed

Delay in availability of the site

Differing site conditions

Actual or constructive changes or delays

Delay in providing funding

Delay in inspections

Delay in issuing changes

Delay in providing Postal Service-furnished equipment

Failure to perform by other Postal Service suppliers

The Supplier has the burden of proof in establishing the basis for the equitable adjustment required to overcome the delay. 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. However, damages may not be assessed against the Supplier in these situations.

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Acceleration of Performance

The Postal Service has the right to require accelerated performance under Paragraph C of Clause 4-1. This right should be exercised only when required to maintain the operational capability of the Postal Service. 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. 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. It is important to note that constructive acceleration may result in a claim for a price increase.

Novation Agreements

Novation agreements are agreements signed by the Supplier (the "transferor"), the successor in interest (the "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. The Postal Service generally prohibits contract novation (see Paragraph B of Clause 4-1). 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:

All the Supplier's assets

The entire portion of the assets involved in performing the contract

Situations in which novation may be permitted include, but are not limited to the following:

Sale of the Supplier's assets with a provision for assuming liabilities

Transfer of assets as part of a merger or corporate consolidation

Incorporation of a proprietorship or partnership, or formation of a partnership

The Contracting Officer is responsible for determining, in consultation with Legal Counsel, whether to permit contract novation. Before concurring in a contract novation, the Contracting Officer must determine the capability of the successor in interest. If 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. In the case that 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 agreement.

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Assignment of Claims

The 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 Paragraph B of Clause 4-1). Any other attempted assignment may be treated as a breach of contract. Contracting Officers may approve any authorized assignment that does not jeopardize contract performance. The assignment of claims discussed in this topic does not pertain to assignments ordered by a court or law. The Contracting Officer should consult with Legal Counsel in such cases.

Change-of-Name Agreements

Change-of-name agreements are agreements signed by the Supplier and the Postal Service that recognize a legal change of the Supplier without otherwise altering the original contract. 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.

Other Topics Considered

Consider of Use of Renewals and Options topic, Develop Sourcing Strategy task, Process Step 2: Evaluate Sources,

Decide to Renew a Contract or Exercise Options topic, Manage Delivery and Contract Performance task, Process Step 5: Measure and Manage Supply

Clauses & Provisions

Clause B-9: Claims and Disputes

Clause B-15: Notice of Delay

Clause B-16: Suspensions and Delays

Clause B-19: Excusable Delays

Clause B-37: Changes (Construction)

Clause 2-31: Limitation of Cost

Clause 2-32: Limitation of Funds.

Clause 4-1: General Terms and Conditions (specifically Paragraphs B, C, and S)

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