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Supplying Principles and Practices > USPS Supplying Practices Process Process Step 5: Measure and Manage Supply > Terminate Contract
Terminate Contract
Contracts may be terminated, consistent with the termination provisions in
the contract. No contract priced at or with a potential termination liability
exceeding $1 million may be terminated unless the VP, SM, has approved
termination. In addition, no contract regardless of price which is considered
sensitive or highly visible may be terminated unless the VP, SM, has
approved termination.
A contract containing a term allowing it to be terminated for convenience
such as subparagraph l of Clause 4-1: General Terms and Condition,
subparagraph a. 2 of Clause B-12: Termination for Convenience or Default,
or Clause B-71: Termination for Convenience (Transportation), or similar
contract term, may be terminated for convenience when it is in the Postal
Service's best interest, for example, when the products or services supplied
under the contract are no longer required or the contract becomes
unnecessary for some other reason.
When a contract is terminated for convenience, the Supplier is entitled to a
percentage of the contract price, reflecting the percentage of work performed
prior to notice of the termination, as well as any reasonable charges that the
Supplier can demonstrate directly resulted from the termination, (or, in the
case of highway transportation contracts, liquidated damages calculated as
provided in the Changes (Transportation) clause of the contract). Therefore,
the Contracting Officer must consider the cost of a termination for
convenience when deciding whether to take such action. Similarly, when a
contract has been terminated for convenience, the need to obtain sufficient
documentation to support payment to the Supplier must be balanced against
the objective of accomplishing a simple and expeditious settlement.
The Contracting Officer may settle a contract terminated for convenience by:
• Negotiated agreement
• A Contracting Officer's determination (subject to the Supplier's
right, under Clause B-9: Claims and Disputes of its contract, to
seek review of that determination)
• A combination of the above methods
Termination for convenience may, in some instances, be to the advantage of
the Supplier. In these instances, the Supplier may be willing to waive
entitlement to charges or liquidated damages to which it may be entitled,
thereby making termination for convenience more attractive to the Postal
Service, as well. Any such waiver by the Supplier must be the subject of a
contract modification signed by the Supplier.
Termination for default may be appropriate when the Supplier fails to meet
satisfactorily the requirements set forth in the contract. The Purchase/SCM
Team, under the direction of the Contracting Officer, must take necessary
action to correct any problem caused by unsatisfactory and unsuccessful
Supplier contract performance. If the corrective action is unsuccessful in
correcting the unsatisfactory contract performance, termination for default
should be considered.
Paragraph m of Clause 4-1 and Clause B-12 address termination for default.
As to fixed-price contracts, the Postal Service has the right, subject to the
notification requirements of the termination for default clause, to terminate all
or any part of a contract 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.
When a default termination is being considered, the Contracting Officer must
ensure that termination for default, rather than convenience, is appropriate.
The Contracting Officer must consult with the purchase/SCM Team and Legal
Counsel, and, as appropriate, should seek the insights of other purchasing
personnel and technical specialists (see above for certain required reviews
and approvals). The following must be considered:
• The provisions of the contract, and applicable laws and
regulations;
• The specific failures of the Supplier and, unless time has not
permitted obtaining them, any offered excuses for failure;
• The availability of the supplies or services from other sources;
• 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;
• 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;
• The effect of a termination for default on the ability of the Supplier
to liquidate progress payments; and
• Any other pertinent facts and circumstances.
When a termination for default appears imminent on a contract subject to a
surety bond, 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. 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.
When a Supplier fails to make timely delivery, the Contracting Officer has a
reasonable time after the unmet delivery date to determine whether the
contract should be terminated for default. Delay beyond a reasonable time
may result in a waiver of the right of the Postal Service to terminate for
default. If the right to terminate has been waived by delay, a new delivery
date, which must be reasonable in light of the circumstances affecting
contract performance, must be established by bilateral or unilateral contract
modification. The Supplier's failure to meet the newly established date may
again give rise to the right to terminate for default.
When the Contracting Officer determines that termination for default for
failure to make timely delivery is proper, a termination notice may be issued
at once. No demand for adequate assurances should be issued, but the
Contracting Officer may allow the Supplier to assert any alleged excusable
delay.
When the Contracting Officer makes a preliminary determination that
termination for default is appropriate in cases other than failure to make
timely delivery, he or she should, if practical, notify the Supplier in writing of
the possibility of termination. This notice may call the Supplier's attention to
its liability in the event that the contract is terminated for default; request that
the Supplier show cause why the contract should not be terminated for
default; 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; and, when appropriate, invite the Supplier to discuss the matter.
When the Contracting Officer determines that the Supplier is failing to make
satisfactory progress to a degree that 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, a written demand
for adequate assurance must be issued. The demand must specify the failure
and give the Supplier ten days (or longer, if necessary) to assure the Postal
Service of steps that will be taken to cure the failure. When the time
remaining in the contract delivery schedule does not permit a response
period of ten days or longer, a demand may be made part of the notice
described in the paragraph above. No demand for adequate assurance is
required when the Supplier has anticipatorily repudiated the contract, that is,
when the Supplier has affirmatively demonstrated, by words or action, that it
will not or cannot perform its contractual obligations.
In the event of a termination for default, the Contracting Officer may have the
Supplier transfer title and deliver the completed supplies or 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.
Except to the extent that funds are withheld from the amount otherwise due
for the supplies or materials in an amount the Contracting Officer determines
necessary to protect the Postal Service's interest, 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. (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.)
To assure that the Postal Service is protected from the Supplier's 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
above:
• 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;
• Require the Supplier to furnish statements from laborers and
material suppliers disclaiming any lien rights they may have in the
supplies and materials;
• 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;
• Take any other action that is appropriate in view of the Supplier's
degree of solvency and other circumstances.
Clause B-12: Termination for Convenience or Default, applies to terminations
of non-fixed price contracts. In the event of the termination of a contract other
than fixed-price, the Supplier must be reimbursed costs allowed under
Clause B-12 (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.
As discussed above, the Contracting Officer must consider whether
termination for default is appropriate and the Supplier must be given any
required notice of impending termination or demand for adequate assurance
before terminating for default.
If a contract provides for its termination on notice by the Postal Service, the
Postal Service may terminate the contract by sending the Supplier a written
notice consistent with the contract's provisions for termination on notice. A
contract containing a termination on notice clause may also contain a clause
allowing for termination for default and providing less notice than that in the
termination on notice clause. In such cases, if the contract is terminated for
default or for cause and it is subsequently established that that termination
was improper, the Supplier's damages will be limited to any amount to which
it would have been entitled had the termination for default or cause been a
termination on notice.
If the Supplier can establish that its failure to perform arose out of causes
beyond its control and without its fault or negligence, 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.
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. Notice must be by:
• Certified Mail, Return Receipt requested
• Telegraphic notice
• Hand delivery with written acknowledgment by the Supplier
• E-mail and Fax
The notice must state:
• The type of termination and the contract clause authorizing the
termination
• The date the Supplier is required to stop performance
• The extent of the termination and, if a partial termination, the
portion of the contract to be continued
• Special instructions
When the termination notice is sent to the Supplier, the Contracting Officer
must simultaneously send a copy to the applicable information service center
and to any known assignee, guarantor, or surety of the Supplier.
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).
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.
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). 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. 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.
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.
When the Contracting Officer has accepted defective supplies, 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. 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.
Normally, incidental and consequential damages may also be recovered.
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
• any other reasonable expense incidental to the delay or other
breach
Consequential damages include:
• 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
• Injury to people or property resulting directly from a breach of
warranty
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, from any part of the price
still due.
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. 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.
Acceptance topic, Complete Delivery task, Process Step 4: Deliver and
Receive Requirements
Evaluate Contract Performance topic, Manage Delivery and Contract
Performance task, Process Step 5: Measure and Manage Supply
Share Lessons Learned topic, Manage Delivery and Contract Performance
task, Process Step 5: Measure and Manage Supply
Process Invoices topic, Make Payment task, Process Step 5: Measure and
Manage Supply
Make Payment topic, Make Payment task, Process Step 5: Measure and
Manage Supply
Clause 4-1: General Terms and Conditions
Clause B-9: Claims and Disputes
Clause B-12: Termination for Convenience or Default
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