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 CO, 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: General Terms and Conditions and Clause B-12: Termination for Convenience or Default 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 CO must ensure that termination for default, rather than convenience, is appropriate. The CO 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:
When a termination for default appears imminent on a contract subject to a surety bond, the CO 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 CO 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 CO 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 CO may allow the supplier to assert any alleged excusable delay.
When the CO 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 CO 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 10 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 10 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 CO 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 CO 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 CO 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 CO must take one or more of the following measures before making the payment referred to above:
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: Termination for Convenience or Default (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 CO 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.
