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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.

Termination for Convenience

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.

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Termination for Default

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.

Initiating Termination for Failure to Make Timely Delivery

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.

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Initiating Termination for 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, 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.

Demand for Adequate Assurance

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.

Steps for Termination for Default

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.

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Contracts Other than Fixed-Price

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.

Termination on Notice

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.

Termination Notices and Postal Service Actions

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.

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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.

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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.

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Other Topics Considered

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

Clauses & Provisions:

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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