Contract renewal decisions are guided by the following:
The decision to renew a contract is based on the Postal Service’s continuing need for the good or service, the supplier’s successful completion of a contract, and the supplier’s proposed price. The CO must leverage the findings generated during the Evaluate Contract Effectiveness topic of the Manage Delivery and Contract Performance task of USPS Supplying Practices Process Step 5: Measure and Manage Supply. The information from this topic is an assessment of whether the contract met the identified needs and expectations of the Postal Service. It also addresses whether project objectives were met, and determines what corrective action needs to be taken.
Suppliers that successfully meet the terms and conditions of a contract, and are positively evaluated by the performance evaluation team (which is often the purchase/SCM team with a new function as discussed in Section 5-7, Evaluate Contract Effectiveness, should be considered for contract renewal. While contracts should not be renewed if the supplier has performed unsatisfactorily, a minor or temporary deviation from target measures and performance indicators should not automatically lead to a decision not to renew. The CO, in conjunction with the entire purchase/SCM team, must review any such deviations and consider them when engaging in discussions and negotiations with the supplier.
Purchase histories contribute to a clear understanding of the existing purchasing process while providing an opportunity to determine whether any steps require modification or elimination. Some benefits of reviewing purchase histories include:
Renewals with an existing supplier should only be made when the purchase/SCM team determines that doing so will be the best business decision. To make this determination, the purchase/SCM team must examine the marketplace to ensure that the incumbent supplier provides the best value in relation to other potential suppliers.
The CO is responsible for holding discussions and negotiations with the supplier to determine the contract terms and conditions that will be established upon contract renewal. If the new terms and conditions are so different from those of the original contract that they are outside the scope of the original contract, then renewal should be abandoned and the new requirement solicited. Before the renewal can be awarded, the entire purchase/SCM team is responsible for determining whether the supplier is still capable of offering best value.
Depending on the outcome of the discussions, the CO consults the purchase/SCM team and decides whether renewal is the best business solution. However, before renewing the contract, the CO must also verify that the current contract type still reflects the appropriate risk and responsibility assumed by the supplier, as explained in Section 2-18, Select Contract Type. If the contract type is no longer favorable, a more appropriate contract type should be selected. All discussions and negotiations must be documented and included in the contract file.
Switching cost considerations associated with changing suppliers should influence the overall contract renewal decision. In certain cases (e.g., when other suppliers can meet Postal Service demand more efficiently and less expensively than the current supplier), the extent of competition in the marketplace mitigates the investigation and development of new relationships with other suppliers. However, changing suppliers has the consequence of procedural, financial, and relational switching costs. Because switching costs can become quite substantial, it can be in the Postal Service’s best interest to resist changing suppliers and instead renew the contract, unless the cost savings from the alternative supplier(s) are greater than the cost of switching. The CO is responsible for leveraging the results of the switching cost analysis when deciding whether to renew the current supplier’s contract. This analysis is discussed in Section 2-9, Perform Switching-Cost Analysis.
The purchase/SCM team should renew a contract only when doing so reflects the best value to the Postal Service. When making this decision, the purchase/SCM team must consider whether the performance and administrative benefits of the renewal outweigh the potential benefits of competition and other business considerations. If the purchase/SCM team decides to renew a contract, the CO provides written notice of renewal to the supplier. This notification must be provided 60 days before contract expiration (preliminary notice will not be deemed to commit the Postal Service to a renewal). The contract file should be documented with the rationale for the renewal decision. Contracts may be renewed only once, and the term of the renewal may not exceed 4 years.
