2 Purchase Planning
2.1 Policy
Effective purchase planning is essential to furthering the business and
competitive interests of the Postal Service. As such, it requires the
coordination and cooperation of a number of organizations and must address
a number of topics. As stated in 2.1.2, early involvement among all of the
stakeholders often proves critical to successful planning and successful
purchasing. The extent of the planning will depend on the nature of the
purchase and its effect on the business and competitive objectives of the
Postal Service. The success of major purchases, which are those with the
potential to impact these objectives, should be planned for by a purchase
team that fully reflects the strategic importance of the purchase, and should
involve the team's use of a wide range of supply chain business practices
(such as strategic sourcing, demand analysis, prequalification, supplier
selection strategy, and resource planning). The success of other purchases
will not require the same level of investment, but will require some degree of
planning. In all cases, the effectiveness of the purchase planning will directly
affect the success of the purchase.
Organizations normally plan their purchasing needs during the budget
process. Because purchase planning should involve everyone with a stake in
the outcome, coordination between internal postal business partners should
begin as early as possible. Planning for high-dollar purchases should begin in
the concept-development phase and consider best value in relation to
business strategy and total cost of ownership. The goal of this preliminary
planning is to define the Postal Service requirement to be purchased.
2.1.3.a The Process. Purchase planning is the process of establishing objectives
and tactics to obtain the best value in a specific purchase. It is done by a
purchase team made up of the Postal Service business partners with an
interest in the purchase, including the organization requesting the purchase,
the purchasing organization, and other organizations needed to help
determine best value. The contracting officer responsible for the purchase
is the business leader of the purchase team, and it is his or her responsibility
to ensure that the team concentrates on purchase planning as part of an
overall business strategy. As business leader, the contracting officer should
also ensure that the team takes advantage of the most effective supply chain
management business practices for a given purchase. Customer satisfaction
and business success should be the primary focus of purchase planning as
they will ultimately define best value in a purchase.
2.1.3.b Responsibilities. Purchase team members have specific roles in purchase
planning.
1. The organization requesting the purchase:
(a) Determines the supply or service required.
(b) Helps to identify potential suppliers.
(c) Ensures that funds are available and authorized.
(d) Provides a purchase description.
(e) Prepares a price or cost estimate.
(f) Defines the period of performance or delivery.
(g) Establishes any supplier reporting requirements.
(h) Assists in developing evaluation criteria.
2. The purchasing organization:
(a) Through the contracting officer, serves as business leader of the
purchase team.
(b) Gathers and analyzes relevant spend and demand data to
identify opportunities for strategic sourcing and consolidated
purchases.
(c) Provides advice and assistance.
(d) Identifies new or competitive sources, including small, minority,
and woman-owned businesses (see also Handbook P-1, General
Purchasing Concepts and Practices, section 2.3.5), and, when
appropriate, ensures that enough suppliers are available to
ensure adequate competition.
(e) Prequalifies suppliers and maintains source lists.
3. For many purchases, the materials organization may provide specific
expertise, including:
(a) Identifying the total cost of ownership related to logistics activities
(movement, storage, redistribution, and disposal).
(b) Providing alternatives and recommendations for the ordering and
delivery of supplies and services.
(c) Providing alternatives and recommendations regarding freight
transportation.
4. The purchase team may include other members whose specialized
support (for example, legal or technical) will ensure that business
considerations outside the purchasing process are included (for
example, maintenance or training).
2.1.4.a Importance. Market research is central to sound purchase planning. Market
research helps determine:
1. What supplies or services are available.
2. What suppliers are available.
3. How to best state requirements.
4. Whether price or cost estimates are realistic.
5. Commodity or industry trends.
2.1.4.b Methods. Market research methods include:
1. Assessing whether commercial products and services meet (or are
adaptable to) postal needs.
2. Surveying the state of technology, and the extent and success of
commercial applications.
3. Holding industry briefings or presolicitation conferences to discuss
postal needs and obtain recommendations.
4. Determining why potential suppliers did not respond to solicitations.
5. Attending conferences and researching commercially available
products, industry trends, product availability, reliability, and prices.
6. Testing and evaluating commercially available products in a postal
operating environment to collect reliable performance data, determine if
modifications are necessary, and develop operational cost information.
7. Analyzing the purchase history of an item or service to determine the
level of competition, prices, and performance results.
8. Publicizing new specifications and, when appropriate, issuing
solicitations for information or planning purposes (see 4.2.2.d)
far enough in advance to consider industry comments.
9. Publicizing through the Governmentwide Point of Entry (see
3.5.3.b.1) and other appropriate media, competitive purchasing
or prequalification opportunities valued at more than $100,000, except:
(a) Purchase or prequalification opportunities for commercially
available goods and services. If the purchase or prequalification
opportunity is valued at more than $1 million, it must be
publicized as discussed above;
(b) Purchase or prequalification opportunities for mail transportation
and related services (see 4.4.4.d); and
(c) Certain noncompetitive contract awards (see 3.5.3).
2.1.5 Individual Purchase Plans
2.1.5.a Responsibility. The contracting officer determines the extent of the planning
and leads the planning effort. For complex purchases, the purchasing
organization, guided by the purchase team, usually prepares the plan. Plans
are developed when the purchasing organization becomes aware of a
customer's requirement, or receives a purchase request, statement of work,
or other information sufficient to begin the planning process.
2.1.5.b Elements. Normally, a purchase plan should include:
1. The purpose of the purchase.
2. A statement of work that may include specifications or a product
description (see 2.3.1).
3. The history of purchasing similar supplies or services.
4. Special considerations such as compatibility with other equipment; cost,
schedule, or performance constraints; or environmental issues.
5. The cost estimate and availability of funds.
6. The estimated total cost of ownership.
7. Delivery schedule or period of performance requirements, including
considerations for shipping f.o.b. destination or origin (see 2.2.5).
8. Potential risks and any plans to reduce them, including contingency
plans and alternatives, and bonds.
9. The type of contract (see 2.4).
10. Supplier prequalification plans (see 3.5.2) or other approaches
to the purchase.
11. Any proposal-specific performance evaluation factors crucial to the
success of the purchase, and their order of importance (see 2.1.9 and
2.1.10).
12. A supplier-selection strategy, if proposal-evaluation performance
evaluation factors will be used (this strategy will become part of the
individual plan; see 2.1.7).
13. Sources (see Chapter 3).
14. A written description of the purchase method to be used, specifically,
whether the purchase will be competitive or noncompetitive. If the
purchase will be made noncompetitively, the business case for this
decision must be included in the plan (see 2.1.6).
15. Quality requirements, including warranties.
16. Supplier reporting requirements.
17. Requirements for supplier data and data rights, their estimated cost,
and how they will be used (see Chapter 8).
18. The potential for alternate agreements on intellectual property (see
Chapter 8).
19. Postal property or facilities that will be furnished to the supplier.
20. Possible conflicts of interest (see 1.6.8).
2.1.5.c Milestones. The purchase plan must include significant milestones critical to
the success of the purchase, including publicizing the purchase, issuing the
solicitation, receiving proposals, evaluation, discussions, and any reviews
and approvals needed. Once the purchase team has set the milestones, if
the contracting officer becomes aware that changes are necessary, he or she
must inform the rest of the purchase team.
2.1.6 Purchase Method
2.1.6.a General. The individual purchase plan must address the purchase method
that will be used. The purchase method is the manner in which the purchase
will be conducted, specifically, whether it will be competitive or
noncompetitive. This decision should be reached by consensus, but if the
team is unsuccessful in doing so, the contracting officer is responsible for
determining the purchase method.
2.1.6.b Competitive Purchase Method. In most cases, competition is the most
effective purchasing method because it brings market forces to bear and
helps purchase teams compare the relative value of competing proposals
and prices and thereby determine the best value.
2.1.6.c Noncompetitive Purchase Method.
1. General. In some cases, the business and competitive objectives of
the Postal Service may best be met through the noncompetitive
purchase method. The decision to use this method must be weighed
by the purchase team, and must be considered in light of the potential
benefits of competition and other worthwhile business practices.
2. Business Scenarios. Whether the noncompetitive method is
appropriate depends on the particular purchase. The following four
business scenarios are representative of instances in which the
noncompetitive method may prove the most effective:
(a) Compelling Business Interests. This scenario is used when the
purchase team determines that a specific supplier or source can
meet Postal Service needs quickly and efficiently and that the
benefits of doing so outweigh those that may be realized through
competition, as when the need is so urgent that the competitive
method cannot add value.
(b) Industry Structure or Practice. This scenario is used when the
industry producing or supplying the required goods or services is
structured in a manner that renders competition ineffective (for
example, when purchasing goods or services that are regulated,
such as many utilities, or when purchasing from nonprofit or
educational institutions that do not compete in the market place).
(c) Single Source. This scenario is used when only one supplier is
capable of providing the required goods or services (for example,
when only one supplier has proprietary knowledge, trade secrets, or
other proprietary interests in a necessary technology or when a
supplier, working in partnership with the Postal Service, has
developed exceptional expertise which has and will continue to
further the business and competitive objectives of the Postal
Service).
(d) Superior Performance. This scenario is used when a supplier's
superior performance, and its contributions to the Postal Service's
business and competitive objectives, merit award of a particular
purchase (for example, extending the term or expanding the
scope of a contract when a supplier has performed at such a high
level that the extension or expansion is well-deserved, or when a
supplier's superior performance has made such performance
beneficial to Postal Service operations).
3. Business Case. Purchase teams may decide to use the noncompetitive
purchasing method when noncompetitive purchasing is deemed the
most effective business practice for the given purchase. The rationale
for the decision must be documented in a business case and included
in the contract file. The extent and detail of the business case will
depend on the particular purchase, its complexity, and its potential
dollar value, but in all cases the following must be addressed:
(a) The business scenario justifying the decision, and why it is
appropriate.
(b) The extent and result of market research performed to ensure
that a noncompetitive purchase is the most effective business
practice.
(c) If applicable, whether the purchase team believes that future
purchases of the goods or services should be made
noncompetitively, and why.
(d) Any other issues that should be considered in the interest of
sound and effective purchasing (subcontracting plans, upcoming
changes in market conditions, etc.).
4. Reviews and Approvals
(a) The VP, P&M, has delegated noncompetitive review and approval
authority for contracts up to and including $10 million, by letter of
delegation, to the managers, Headquarters Purchasing, Field
Customer Support, Major Facilities Purchasing, and National Mail
Transportation Purchasing, who may, consistent with those
delegations, redelegate, by letter of delegation, some of that
authority to subordinate managers and contracting officers.
(b) If the estimated value of the noncompetitive purchase is expected
to exceed $10 million, the VP, P&M, must give prior review and
approval of either the purchase plan or proposed contract award.
5. Publicizing. See 3.5.3.
2.1.7 Supplier-Selection Strategy
2.1.7.a General. To obtain the best value, the purchase team should develop a
supplier-selection strategy. The strategy should form the general framework
for establishing the aspects of value sought in the purchase and the
performance evaluation factors to be used. Purchase teams should
remember that supplier-specific factors (past performance and supplier
capability, see 2.1.9.c) should always be evaluated even when price may
serve as the most important factor (for example, when suppliers have been
prequalified). The supplier selection should be reached through the
consensus of the purchase team. If consensus cannot be reached, the
contracting officer, as business leader of the purchase team, has final
responsibility and authority for the selection decision.
1. Before developing a supplier-selection strategy, see 3.3 to
make sure the purchase does not require using mandatory sources.
2. The supplier-selection strategy is developed by the purchase team,
under the general direction of the contracting officer or purchasing
organization. The evaluation team (see 2.1.8) may assist, as well as
any other advisors needed.
3. The supplier-selection strategy must list the performance evaluation
factors, their relative significance, and the performance evaluation
method and procedures that will be used for supplier selection. Factors
must be tailored to the purchase, and must address all areas that will
be considered in determining best value.
4. The strategy must also address how price will be compared with the
performance evaluation factors to determine which supplier (or
suppliers) offers the best value.
5. Unless suppliers have been or will be prequalified, or the noncompetitive
purchase method will be used, purchase teams should remember that it is
good business practice to develop strategies that invite new and emerging
suppliers to compete for Postal Service purchases.
2.1.8 Evaluation Teams
2.1.8.a General. When a supplier-selection strategy is needed, the purchase team
must establish an evaluation team (which may include members of the
purchase team). Its membership depends upon the scope and complexity of
the purchase, and the complexity of the performance evaluation factors that
will be evaluated. When necessary, people from outside the Postal Service
may be named to the evaluation team or as advisors. Caution must be
exercised when appointing people outside the Postal Service to evaluation
teams in order to prevent conflicts of interest (see 1.6.8).
2.1.8.b Reports. The evaluation team must present its findings to the purchase team
in a written report with narrative statements identifying the major strengths
and weaknesses of the various proposals. The report will be used to help the
purchase team conduct discussions with suppliers and to select the supplier
or suppliers offering the best value to the Postal Service.
2.1.9 Performance Evaluation Factors
1. Performance evaluation factors provide vital information to both the
purchase team and the supplier: to the first by requiring the supplier to
describe its approach to the purchase and its past record of
performance in the specific area; to the second by informing suppliers
what particular aspects of value are sought by the Postal Service in
relation to the purchase. There are two types of performance evaluation
factors: proposal-specific, which address aspects of a particular
purchase; and supplier-specific, which address aspects central to the
supplier being evaluated. The purchase team determines which
performance evaluation factors will be used in any one particular
purchase. For information regarding the role of price or cost see 2.1.10;
information regarding performance evaluations is in 4.2.5.
2. Risk of successful performance should almost always be considered as
a performance evaluation factor. It may be included as a separate
factor, or as an element of other factors.
3. There may be overlaps between supplier-specific and proposal-specific
factors. This usually happens when proposal-specific factors cover
areas which are also considered in evaluating a supplier's capability,
such as production capacity.
4. Suppliers should be evaluated for prequalification in the same manner
as for any other purchase.
1. The appropriateness and proper weighting of proposal-specific factors
are essential to effective performance evaluation. The proposal-specific
factors should represent the elements of the purchase critical to its
success and should be designed to achieve it. Using too many factors
should be avoided, as it can unintentionally level evaluation scores (as
when high scores for less significant factors offset low scores in more
important factors).
2. Proposal-specific factors used in a purchase must be tailored to and
consistent with the purchase. Examples of proposal-specific factors
include:
(a) The supplier's understanding of the requirement.
(b) The supplier's management plan (including, where appropriate,
its subcontractor plans).
(c) The qualifications and experience of the supplier's key personnel.
(d) The superiority of the supplier's technical approach.
(e) The supplier's offered delivery terms (see 2.2.5).
3. Subfactors may be established under any evaluation factor; for
example, under "management plan," there could be subfactors for
"organization" and "operational concepts."
2.1.9.c Supplier-Specific Factors
1. There are two supplier-specific factors: past performance and supplier
capability. Unless price will serve as the deciding factor (see 2.1.10e),
they must be evaluated during the purchasing process regardless of
the purchasing method being used.
2. Past Performance
(a) A company or individual that has performed well on previous
contracts and has shown proven results in using supply-chain
management business practices is likely to do the same on
similar contracts in the future. Including past performance as an
evaluation factor helps ensure quality suppliers.
(b) All past performance evaluations must include the following factors:
(1) Quality (a record of conformance to contract requirements
and standards of good workmanship).
(2) Timeliness of performance (adherence to contract
schedules, including the administrative aspects of
performance).
(3) Business relations (a history of being reasonable and
cooperative with customers; commitment to customer
satisfaction; integrity and ethics).
(4) Cost control (a record of forecasting and containing costs
on changes and cost-reimbursement contracts).
(c) When evaluating past performance, emphasis should be placed
on similar contracts with the Postal Service. Overall performance
for private and public sector customers should also be reviewed.
If a newly established supplier cannot provide past performance
information, the past performance of the supplier's key personnel
on similar projects may be evaluated.
(d) The review of past performance should generally be limited to
contracts completed within the last 3 years. However, longer
periods may be reviewed when the purchase team deems they
are appropriate.
3. Supplier Capability
(a) Supplier capability is evaluated in order to determine a supplier's
ability to perform upon award of a contract. It should be used as a
snapshot of the quality and reliability of that performance. The
supplier must demonstrate its current capability. For joint
ventures, each party must be deemed capable.
(b) Certain key areas must be considered when determining a
supplier's capability. To be deemed capable, the supplier must:
(1) Have, or have the ability to obtain, resources (financial,
technical, etc.) adequate to perform the work.
(2) Be able to meet the required or proposed delivery schedule,
considering all existing commitments, including awards pending.
(3) Have a sound record of integrity and business ethics.
(4) Have a sound quality control program that complies with
solicitation requirements.
(5) Have the necessary organization, experience, accounting
and operational controls, technical skills, and production
and property controls.
(6) Have, or have the ability to obtain, the necessary
production, construction, and technical equipment and
facilities.
(7) Be otherwise qualified and eligible to receive an award
under applicable laws and regulations. That a supplier is
suspended, debarred or otherwise declared ineligible (see
3.7.1), is a bar to award without regard to the
weight assigned to capability as an evaluation factor.
(c) Certain business information must be obtained in order to determine
that a supplier is capable. Sources of this information include:
(1) The Postal Service list of debarred and suspended
suppliers, and GSA's consolidated list of suppliers
debarred, suspended or declared ineligible (see
3.7.1).
(2) Records and experience data, including the knowledge of other
contracting officers, purchasing specialists, and audit personnel.
(3) The supplier's proposal information, business profile,
financial data, information on production equipment,
production data, questionnaire replies and personnel
information.
(4) Subcontractors, customers, financial institutions, and
government agencies who have done business with the
supplier.
(5) Business and trade associations.
(d) If the required information and discussions (see 4.2.5.c)
do not provide an adequate basis for determining capability,
purchase teams may conduct a preaward survey, with the
assistance of any needed specialists. The extent of the survey
must be consistent with the dollar-value, complexity or sensitivity
of the purchase, and may include any of the following:
(1) Data on hand or from other government or commercial
sources.
(2) Examination of financial statements and records.
(3) On-site assessment of plant, facilities, work force,
subcontractors and other resources to be used in contract
performance.
(e) Results of the preaward survey must be in writing and included with
the capability determination, and the report included in the contract
file. Information obtained for a determination of capability must not
be disclosed outside of the Postal Service, unless disclosure is
required by the Freedom of Information Act (see 1.6.5).
(f) Generally, suppliers are responsible for determining the capability
of their subcontractors (but see 3.7 regarding debarred,
ineligible or suspended firms), and may be required to provide
evidence of a subcontractor's capability. Subcontractor capability
considerations may affect whether the prime supplier is deemed
capable. When necessary, subcontractor capability may be
determined using the same criteria used to determine prime
supplier capability.
2.1.10 Performance Evaluation and Cost/Price Factors
2.1.10.a Decision Logic. Using sound decision logic helps ensure that the contract is
awarded to the supplier offering the best value. In establishing this logic, the
relative importance of the evaluation factors and their interrelationships in
various combinations must be determined.
2.1.10.b Significance of Performance Evaluation Factors and Cost/Price Factors.
Solicitations must indicate the relative significance of the identified
performance evaluation factors and the relationship of those factors to the
solicitation's cost/price factors. All evaluation factors must be clearly stated in
enough detail to give suppliers a reasonable opportunity to understand the
aspects of value important to the Postal Service.
2.1.10.c Scoring Systems for Performance Evaluation. Many forms of scoring systems
are suitable for performance evaluation, from adjective ratings to numerical
systems, and some are more suitable than others depending on the situation.
However, the scoring system should be simple and practical.
2.1.10.d Relationship of Cost or Price Factors to Performance Evaluation Factors.
Cost or price factors (including, when appropriate, cost-related factors such
as life-cycle costs and the like) are treated separately from performance
evaluation factors. The relationship of cost/price factors should be stated in
general terms (for example, that cost/price will be considered to be more
important, less important, or as important as the performance evaluation
factors, or that cost/price will be the determining factor in choosing among all
offers which meet the minimum acceptable performance evaluation factors),
and no solicitation should establish a strict mechanical relationship between
the cost/price factors and any other factors.
2.1.10.e Price as the Determining Factor. When there are known sources capable of
meeting the postal requirements with products of sufficient quality, or when
suppliers have been prequalified, price may be the determining factor. In
these cases, however, past performance and supplier capability should be
reexamined before awarding the contract.
2.1.10.f Determining Factors in Addition to Price. When performance evaluation
factors other than price are used, the decision logic must compare price
differences with the value of other differences to determine which proposal
offers the best value. The relative significance of the price and non-price
factors should correspond to their value to the Postal Service. For example,
when factors must be established to ensure minimal technical acceptability,
but technical superiority at additional cost would be of no benefit, the
selection should be based on price from among the proposals evaluated as
minimally acceptable.
2.2 Planning Considerations
2.2.1 Quality Requirements
1. The supplier is responsible for providing supplies or services in
conformance with the purchase requirements, and for providing
reasonable assurance that requirements are met. The Postal Service
retains the right to verify conformance through process audits,
inspections and testing.
2. The purchase team must determine what quality requirements are
needed, and the contracting officer must put them in all solicitations and
contracts.
2.2.1.b Quality Assurance Requirements. In most cases, the supplier performs all
necessary inspection and testing for conformance before delivery. The Postal
Service may opt to test or inspect supplies or services before delivery.
1. General. Paragraph a of Clause 4-1, General Terms and
Conditions, addresses the basic inspection and acceptance
requirements for Postal Service contracts. As appropriate, the
purchase team may replace or supplement these requirements by the
following inspection and quality assurance clauses which:
(a) Require the supplier to maintain a quality system acceptable to
the Postal Service and make documentation available.
(b) Give the Postal Service the right to test and inspect while work is
in process.
(c) Require the supplier to keep complete records of inspections and
make them available to the Postal Service.
2. Use
(a) Clause 2-1, Inspection and Acceptance - Supplies, may
be included in supply contracts.
(b) Clause 2-24, Inspection and Acceptance - Supplies -
Nonfixed Price, may be included in supply contracts that are not
fixed price.
(c) Clause 2-48, Inspection and Acceptance - Services,
may be included in service contracts, except when the service
contract will include Clause 2-49, Quality Assurance -
Services.
(d) Clause 2-49, Quality Assurance - Services, should be
included in service contracts where the supplier maintains a
quality system and the service is extensive, complex, or unique.
(e) Clause 2-2, Quality Assurance I - Supplies, or Clause
2-3, Quality Assurance II - Supplies, may be included in
supply contracts where the supplier maintains a quality system.
(1) Clause 2-2 covers the production aspects of a
supplier's operation.
(2) Clause 2-3 is suitable if the Postal Service needs to
supervise the supplier's design and production controls.
For example, this clause would be used for automation
purchases that require the supplier to develop, design,
produce, install, and test the equipment.
(f) Contracts for Both Supplies and Services. When a contract calls
for delivery of both supplies and services, the appropriate Quality
Assurance clause for the predominant portion of the contract may
be used. Or, where appropriate, contracts encompassing both
supplies and services may include separate Quality Assurance
clauses for the supplies and services portions of the work.
(g) Clause 2-23, Reimbursement - Postal Service Testing,
must be included when Clauses 2-2 or 2-3 are
included in the contract.
2.2.1.d Inspection at Destination. Inspection performed at destination is generally
limited to inspecting the supplies or services.
2.2.2 First-Article Approval
2.2.2.a Uses. The purpose of first-article approval is to validate the capability of a
supplier's production process. Approval is the testing and evaluation of the
first article for conformance with contract requirements at the initial stage of
production. The first article should be manufactured using the contract
drawings and specifications, the production drawings developed from them
and production tooling. The approved first article then serves as the
manufacturing baseline for production units.
1. First-article approval is particularly appropriate when the first article will
serve as a manufacturing standard or is described by a performance
specification. In deciding whether first-article approval should be
required, the purchase team should consider the increased costs and
time of delivery resulting from first-article tests, the risk of foregoing the
tests, and the availability of other, less costly, methods of achieving the
desired quality.
2. Normally, first-article approval should not be required for:
(a) Research or development.
(b) Prequalified products.
(c) Commercially available products.
1. When the supplier is responsible for first-article testing, the solicitation
and contract must contain or reference the performance factors or other
characteristics that must be met, including the data that must be
submitted in the first-article approval test report, and Clause
2-4, First-Article Approval - Supplier Testing.
2. When the Postal Service is responsible for first-article testing, the
solicitation and contract must contain or reference:
(a) The performance factors or other characteristics that must be met;
(b) The tests to which the first article will be subjected; and
(c) Clause 2-5, First Article Approval - Postal Service
Testing.
2.2.3 Acceptance
2.2.3.a Place of Acceptance. The solicitation and contract must specify where
acceptance will take place.
2.2.3.b Delayed Acceptance.The purchase team may consider using a special
testing requirement after delivery and before acceptance (such as a
preacceptance test) for purchases of complex equipment (such as
mail-handling systems, telecommunications equipment, computers, and
building systems). Requirements should be thoroughly described in the
solicitation. When a preacceptance test program is specified, the contract
must include Clause 2-6, Delayed Acceptance.
2.2.4 Warranties
2.2.4.a Generally, it is Postal Service policy to take advantage of commercially available
warranties to the extent practical. Paragraph o of Clause 4-1 requires
the supplier to warrant that items purchased are merchantable and fit for use. In
most cases, this should suffice to meet Postal Service needs. However,
purchase teams should also consider the following during purchase planning.
2.2.4.b Warranty clauses should be used when it is in the Postal Service's interest to
reserve the right to assert claims regarding defective supplies or services
after acceptance. A warranty clause gives the Postal Service additional time
after acceptance to require correction of deficiencies or defects,
reperformance, an equitable adjustment in the contract price, or other
remedies. Warranty coverage may begin with delivery, or when a specific
event occurs. This coverage may continue for a given number of days or
months, or until the occurrence of another specific event. The value of a
warranty clause depends on the supplies or services purchased. The clause,
its use, terms, and conditions are influenced by many factors and should be
tailored to fit the purchase or a specific type of purchase. Warranty clauses
usually increase the purchase price and this should be carefully weighed
before deciding to use one (see 2.2.4.c).
2.2.4.c Considerations. A warranty clause or provision may be used for either
individual purchases or classes of purchases. Before making this decision,
the purchase team should consider, for example, such matters as the cost of
the warranty, potential damage to the Postal Service resulting from defective
performance, and the ability of the Postal Service to enforce the warranty.
2.2.4.d Cost. Offerors usually include a price estimate for warranty work in their
proposals. Because the cost of warranty work might not equal the benefits,
the purchase team should carefully evaluate the cost of a warranty by
requiring alternate price proposals with and without a warranty; comparing
the cost of a separate service contract that provides similar protection; or
requiring separate pricing for warranties, when feasible.
2.2.4.e Marking and Notices. When a warranty clause is used, the purchase team
should consider requiring the warranted items to be marked or having a
warranty notice furnished with the items. This tells people who store, stock,
and use the items that they are warranted and encourages them to advise
the contracting officer of any defects. The marking or notice need not state
the complete warranty; a short statement that a warranty exists, its duration,
and whom to notify if an item is defective is usually sufficient. In deciding
whether to require marking or a notice, the purchase team should consider
the feasibility of marking the items and the added cost of the marking or the
notice in relation to its benefits.
2.2.4.f Terms. The terms of a warranty clause vary with the item or service being
purchased, but factors such as the following should be considered:
1. The schedule must state the warranty's duration. It may provide that the
supplier will be liable for defects or nonconformance that either exist at
the time of delivery or that develop within a specified period or before
the occurrence of a specified event.
2. The schedule must state the specific period during which a notice of
defects or nonconformance may be given to the supplier. Generally, the
Postal Service will be protected if this "warranty period" starts "at the
time of delivery" or "upon acceptance of the service." However, in some
cases, it may be necessary to start the warranty period later. For
example, if it cannot be determined that supplies conform until they are
used, the warranty period should not begin until the items are actually
used; or if supplies are purchased in lots inspected by sampling and
delivered in increments for storage, the warranty period may begin
when the supplies are actually used or from the date of the last delivery.
3. If the Postal Service specifies the item's design and precise
measurements, tolerances, materials, test requirements, or inspection
requirements, the supplier's liability for defects or nonconformance is
usually limited to those that exist at the time of delivery.
4. If a contract contains performance specifications, and design is of minor
importance, a supplier's liability may extend to defects that arise after
delivery of the supplies or acceptance. When appropriate, the warranty
may be limited to defects or nonconformance existing at the time of
delivery or acceptance.
5. The right to return nonconforming supplies for correction or
replacement generally satisfies the Postal Service's need under a
warranty. However, when correction or replacement will not be possible
(for example, perishable items), the clause should provide that:
(a) The Postal Service may return the supplies to the supplier,
dispose of them in a reasonable manner, or replace them with
similar supplies; and
(b) The supplier is liable for any costs incurred by the Postal Service.
6. When it is foreseen that, due to the nature of its use, or the cost of
return, it would be impracticable to return an item for correction or
replacement, the clause should provide that the Postal Service, at the
supplier's expense, may correct or require the supplier to correct the
article in its place.
7. A warranty may be required only for a particular aspect of an item that
may need special protection (for example, components, accessories,
parts, or packaging).
2.2.4.g Clause 2-8, Warranty. When the terms of Paragraph o of Clause
4-1 are insufficient to protect the interests of the Postal Service,
solicitations and contracts should include Clause 2-8, Warranty,
modified as needed.
2.2.5 Delivery or Performance Schedule
2.2.5.a General. A realistic delivery or performance schedule is an essential element
of a contract and must be stated clearly in the solicitation. Schedules that are
unreasonably short or difficult to attain may restrict competition and result in
higher contract prices.
2.2.5.b Use. Except when clearly unnecessary, solicitations must inform suppliers of
the basis of which their proposals will be evaluated in terms of time of
delivery or performance. For example, delivery schedules may be identified
as "required" or "desired." If the delivery schedule is expressed as "desired,"
the solicitation's performance evaluation factors must indicate the extent to
which proposals offering more or less favorable delivery terms will be
considered and the relationship of that consideration to the other
performance evaluation factors.
1. Supplies and Services. When developing delivery or performance
schedules for supplies and services, purchase teams must consider
applicable matters such as urgency of need, industry practices, market
conditions, administrative time needed for evaluating offers and
awarding contracts, and the sufficient time for suppliers to comply with
conditions affecting performance, such as the furnishing of Postal
Service property.
2. Construction. When scheduling the time for completion of a
construction contract, purchase teams must consider applicable
matters such as the nature and complexity of the project, the
construction seasons involved, the required completion date, availability
of materials and equipment, and the supplier's capacity to perform.
3. Separable Items and Dates. Separable completion dates may be
established for separable items of work in any contract. When multiple
completion dates are used, requests for extension of time must be
evaluated for each item, and the affected completion dates modified as
appropriate.
1. Supplies and Services. Contract delivery or performance schedules
may be expressed in terms of:
(a) Specific calendar dates;
(b) Specific periods from the date of the purchase (i.e., date of award
or acceptance by the Postal Service, or date shown on the
contractual documentation as the effective date of the purchase);
(c) Specified periods from the date of receipt by the supplier of the
notice of award or acceptance by the Postal Service (including
notice by receipt of contract document executed by the Postal
Service); or
(d) Specific time for delivery after receipt by the supplier of each
individual order issued under the contract, as in indefinite delivery
type contracts.
2. Notice
(a) The time specified for contract performance should not be
curtailed to the prejudice of the supplier because of delay in the
Postal Service's giving notice of award.
(b) If the delivery schedule is based on the date of the contract, the
contracting officer must mail or otherwise furnish the supplier the
contract, notice of award, acceptance of proposal, or other
contract document not later than the date of the contract.
(c) If the delivery schedule is based on the date the supplier receives
the notice of award, or if the delivery schedule is expressed in
terms of specific calendar dates on the assumption that the notice
of award will be received by a specific date, the contracting officer
must send the contract, notice of award, acceptance of proposal,
or other contract document by certified mail, return receipt
requested, or by any other method that will provide evidence of
the date of receipt. In the event that the notice of award is not
timely received by the specified date, the delivery schedule must
provide that the schedule will be extended by the number of days
after the date that the supplier actually received notice of award.
1. Supplies and Services
(a) General. Provision 2-2, Time of Delivery, and its
alternatives may be used as provided or adapted as necessary
for solicitations and contracts other than those for construction
and architect/engineering services. Because the actual delivery
schedule is set out in Part 1 of the contract and not in the
provision, particular care must be taken that the terms of the
delivery provision are consistent with the delivery schedule.
(b) Required or Desired Delivery. Paragraph (a) of Provision
2-2 assumes that the solicitation contains a schedule by
which delivery is required and that no additional consideration will
be given for accelerated delivery. Alternate paragraph (a)(1) may
be substituted for paragraph (a) if the schedule includes a desired
delivery schedule as well as a required schedule, and if suppliers
will not be penalized for their inability to meet the required
delivery date.
(c) Alternative Calculations of Performance Time
(1) Paragraph (b) of Provision 2-2 assumes that the
delivery schedule will be based on the date of contract award.
If the delivery schedule is expressed in terms of specific
calendar dates or specific periods and is based on assumed
date of award, substitute alternate paragraph (b)(1) for
paragraph (b).
(2) If the delivery schedule is expressed in terms of specific
calendar dates or specific periods and is based on an
assumed date the supplier will receive notice of award,
substitute alternate paragraph (b)(2) for paragraph (b).
(3) If the delivery schedule will be based on the actual date the
supplier receives a written notice of award, delete
paragraph (b).
2. Construction. See 4.3.3.a.9 and Clause B-7.
1. Delivery instructions for supplies must specify an f.o.b. (free on board)
point, which is determined on the basis of overall costs, including rates,
delivery terms, redirection in transit costs, and other factors. Generally,
f.o.b. origin will produce lower costs for large scale and consolidated
purchases, or when the Postal Service may benefit from determining
and managing the transportation provider. Assistance in determining
transportation costs, claims resolution, and management support is
available from materials management specialists at District and Area
offices, and Materials Distribution at Headquarters.
2. F.o.b. destination means delivery, free of expense to the Postal Service,
to a destination specified in the purchase document. Title to the
supplies passes to the Postal Service when they arrive at the stated
destination. The supplier pays the carrier and assumes the risk for loss
or damage until delivery to the specified destination.
3. F.o.b. origin means that the Postal Service makes the arrangements for
the pickup, transportation and delivery to the required destination. Title
passes to the Postal Service when delivery is made to the carrier. The
supplier's risk is limited to loss or damage caused by improper marking
or packing of the goods, while the transportation carrier is accountable
to the Postal Service for loss or damage to the shipment. This payment
for transportation services is separate from the price of the purchased
supplies.
2.2.5.g Acceptance. When goods are being accepted at destination, delivery terms in
the purchase document must specify f.o.b. destination.
1. Unless delivery will be made by the supplier's own personnel or
equipment, delivery of mailable items (according to the Domestic Mail
Manual) to postal facilities must be made by the Postal Service. This
requirement may be waived by the contracting officer if in the best
interest of the Postal Service.
2. Large mailings that exceed 500 pieces must be coordinated with the
area distribution network office. This must be done by the contracting
officer or contracting officer's representative at least 30 days before
shipment to minimize problems during receipt and processing.
3. When the weight of a consolidated mailing to a single destination
exceeds 300 pounds, the contracting officer should consult a material
management specialist for cost analysis. If freight deliveries will result
in lower costs, the material management specialist will arrange for a
carrier.
2.2.5.i Packing and Packaging. All supplies require some form of protection to
ensure that they are useable upon receipt. Generally, suppliers are expected
to use packing and packaging practices standard for the supplies being
purchased. However, depending on the nature of the purchase, purchase
teams may require specialized packing and packaging.
2.2.5.j Clause. Contracts specifying an f.o.b. point must include Clause 2-9,
Definition of Delivery Terms and Supplier's Responsibilities.
2.2.6 Liquidated Damages
2.2.6.a General. Liquidated damages are a contractual remedy the Postal Service
may use when there are delays in delivery or performance. Liquidated
damages are based on an estimate of daily losses that would result directly
from a delay in delivery or performance. It is important to remember that
providing for liquidated damages usually increases the contract price;
therefore, their use should be carefully considered.
1. Generally, liquidated damages are included in all construction
contracts, and may be included in other contracts when:
(a) The Postal Service may suffer disruption of mail service or
substantial financial loss due to a delay in delivery or
performance;
(b) Delivery or performance is so critical that the probable increase in
contract price is warranted; and
(c) The amount of actual damages would be difficult or impossible to
prove.2.
2. Liquidated damages may not be used as a penalty for failure to deliver
or perform on time.
2.2.6.c Rate. The rate of liquidated damages must represent the best estimate of the
daily damages that will result from delay in delivery or performance. A rate
lower than the actual estimated rate may be used to avoid excessive price
contingencies in proposals. The contracting officer must determine and
document in each case that the rate is reasonable and not punitive. The rate
should, at the minimum, cover the estimated cost of inspection and
supervision for each day of delay. Whenever the Postal Service will suffer
other specific damages due to a supplier's delay, the rate should also include
an amount for these damages. Examples of specific damages are:
1. The cost of substitute facilities.
2. The cost of lost workhours/productivity.
3. Rental of buildings or equipment.
4. The cost of additional inspection.
2.2.6.d Assessment. If appropriate to reflect the probable damages, considering that
the Postal Service may terminate for default or take other action, the
assessment of liquidated damages may be in two or more increments with a
declining rate as the delay continues. To prevent an unreasonable
assessment of liquidated damages, the contract may also include an overall
maximum dollar amount, a period of time during which liquidated damages
may be assessed, or both.
2.2.6.e Clause. Whenever liquidated damages will be assessed for a supplier's
delay, the contract must include Clause 2-10, Liquidated Damages,
modified as necessary.
2.2.7 Postal Service Property
2.2.7.a Policy. The Postal Service may provide materials or other property to
suppliers when it will result in significant economies, standardization,
expedited production, or when it is otherwise in the Postal Service's interest.
2.2.7.b Solicitations. The property to be furnished must be specified in the solicitation
in sufficient detail (including requisitioning procedures) to enable offerors to
evaluate it accurately.
1. The purchase team may decide to provide Postal Service special
tooling and test equipment to suppliers for use in contract work, if doing
so will not disrupt programs of equal or higher priority, or it is in the
Postal Service's best interests.
2. Contracts authorizing the furnishing of special tooling or test equipment
must contain:
(a) A complete description of the tooling or equipment;
(b) The terms and conditions of shipment; and
(c) The terms covering the cost of adaptation and installation.
3. In competitive purchases when Postal Service special tooling or test
equipment is not available, suppliers ordinarily provide and retain title to
special tooling and test equipment required for contract performance.
Competition usually results in fair charges for amortizing the costs of
such tooling and equipment. In noncompetitive situations, the Postal
Service should obtain the special tooling or test equipment, or the rights
to it, because it may facilitate future competition.
4. When special tooling or equipment is provided by the supplier, the
purchase team should decide whether to purchase the tooling or
equipment, or rights to it, by considering:
(a) Future needs for the items (including in-house use);
(b) The estimated residual value of the items;
(c) The added administrative burden of reporting, record-keeping,
preparation, handling, transportation, and storage;
(d) The feasibility and probable cost of making the items available to
other offerors in future purchases;
(e) The amount, if any, offered by the supplier for the right to keep
the items; and
(f) The effect on future competition and prices.
5. When the Postal Service obtains identifiable special tooling or test
equipment under a contract, the solicitation must specify each item or
category as a contract line item. A category of items costing less than
$1,000 may be grouped as a single line item.
6. When there is a possibility of future purchases of the same item and the
purchase team has decided not to obtain rights or title, the solicitation
must indicate current estimates of the future requirements, in the
interest of reducing amortization charges. Offerors must be cautioned
that these are only estimates and not a guarantee to purchase future
quantities.
1. When the Postal Service will furnish property, include one of the
following clauses in the contract:
(a) Clause 2-11, Postal Service Property - Fixed-Price,
when a fixed-price contract will be awarded and the total value of
Postal Service property is $50,000 or more. If the contract
provides for reimbursement of costs for certain materials, use the
clause with its alternate paragraph c.
(b) Clause 2-12, Postal Service Property - Short Form, when a
fixed-price, time-and-materials, or labor-hour contract will be awarded
and the total value of Postal Service property is less than $50,000.
(c) Clause 2-13, Postal Service Property -
Non-Fixed-Price, when a cost-reimbursement,
time-and-materials, or labor-hour contract will be awarded with
Postal Service property valued at $50,000 or more. If the contract
is for basic or applied research at a nonprofit institution of higher
education or nonprofit organization whose primary purpose is to
conduct scientific research, use the clause with its alternate
paragraph c.
2. When Postal Service property will be furnished "as is," the contract must
also include Clause 2-14, Postal Service Property Furnished
"As Is."
3. Clause 2-15, Special Tooling, or Clause 2-16, Special
Test Equipment, must be included in solicitations for fixed-price
contracts when the rights or title to special tooling or test equipment will
be required but cannot be identified as a specific line item. Rights or
title to special tooling or test equipment in a cost-reimbursement
contract are obtained using Clause 2-13, Postal Service
Property - Non-Fixed-Price.
4. When a contract is for repair of Postal Service property, and the property
is valued under $10,000, no Postal Service property clause is required.
1. Option clauses may be included in contracts when increased
requirements are foreseeable during the contract period, or when
continuing performance past the original period is in the best interest of
the Postal Service. Option clauses may require that additional quantities
be priced the same as the basic quantities or at a different price. The
clauses may also allow for unpriced options at the time of award. The
price for these options is subject to discussions when the option is
exercised. Priced options may require suppliers to guarantee prices for
definite time periods, with no guarantee that the option will be exercised.
Their improper use may result in unfair prices to the Postal Service or an
unfair financial burden on the supplier. When additional requirements are
foreseeable and subsequent competition would be impracticable
because of factors such as production lead time and delivery
requirements, the use of priced options may be preferable to negotiating
a price later when the supplier is the only practicable source.
2. Contracts containing priced options that exceed 5 years must include
an economic price adjustment clause (see 2.4.3.c and 2.4.3.d).
3. Option provisions and clauses may not be included in contracts when:
(a) The supplier would be required to incur undue risks (as when the
price or availability of necessary materials or labor is not
reasonably foreseeable);
(b) An indefinite quantity or requirements contract is appropriate,
except that options for continuing performance may be used;
(c) Market prices for the supplies or services involved are likely to
change substantially; or
(d) The option quantities represent known firm requirements for
which funds have been budgeted and approved, unless (1) the
basic quantity is a learning or testing quantity and there is some
uncertainty as to supplier or equipment performance, and (2)
realistic competition for the option quantity is impracticable once
the initial contract is awarded.
1. Options need not be evaluated to award a contract when:
(a) The option would have no effect on the outcome of the evaluation
(when the option quantity must be offered at the same price as
the basic quantity, the option is for a time extension only, or the
option is unpriced); or
(b) When there is a reasonable certainty that funds will not be
available to exercise the option.
2. When options will not be evaluated, the contract file must contain the
rationale for the decision. When the purchase team decides before
issuing the solicitation that options will not be evaluated, the solicitation
must include Provision 2-4, Evaluation Exclusive of Options, or
Provision 2-5, Evaluation Exclusive of Unpriced Options. In all
other cases, purchase teams must follow the instructions in paragraph
b of Provision 4-2, Evaluation, or include Provision
2-3, Evaluation of Options, in the solicitation.
2.2.8.c Setting Limits. The contract must limit the additional quantities of supplies or
services that may be purchased or the duration of the period for which
performance of the contract may be extended under the option, and must fix
the period within which the option may be exercised. This period should be
set to give the supplier adequate notice for performance under the option. In
fixing the period, consider the lead time needed to ensure continuous
production and the time required for additional funding and other approvals.
The period for exercising the option should always be kept to a minimum.
When a solicitation contains an option for additional quantities of supplies at
prices no higher than those for the initial quantities, care should be taken to
ensure that the option quantities are reasonable and do not cause the
supplier financial hardship. The quantities or the period under option and the
period during which the option may be exercised must be justified and
documented in the contract file by the contracting officer.
2.2.8.d Prices. The solicitation may allow varying prices to be offered for the option
quantities depending on the quantities actually ordered and the dates when
ordered. If so, the solicitation must specify the price at which the options will
be evaluated (for example, highest option price offered or option price for
specified quantities or dates).
2.2.8.e Expressing Options in a Contract. An option for increased quantities may be
expressed as (1) a percentage of specific line items; (2) a number of
additional units of specific line items; or (3) additional numbered line items
(identified as the option quantity) with the same name as the items initially
included in the contract. An option for increased services (including
construction) may similarly be expressed in terms of (1) percentages; (2)
increases in specific line items; or (3) additional numbered line items
expressed in the units of work initially used in the contract (for example, labor
hours, square feet, or pounds or tons handled). When exercising the option
would result in extending the duration of the contract, the option may be
expressed in terms of an extended completion date or an additional time
period.
2.2.8.f Clauses. When a priced option will be used, purchase teams must follow the
instructions in paragraph b of Provision 4-2, or the solicitation must
include either Provision 2-3, Evaluation of Options, or Provision
2-4, Evaluation Exclusive of Options. When an unpriced option will
be used, the solicitation must include Provision 2-5, Evaluation
Exclusive of Unpriced Options. In addition, the contract must include one of
the following clauses:
1. Clause 2-17, Option for Increased Quantity, must be used
when the contract gives the option quantity as a percentage of the
basic contract quantity or as an additional quantity of a specific line
item.
2. Clause 2-18, Option Item, must be used when the contract
identifies the option quantity as a separately priced line item having the
same name as a corresponding basic-contract line item.
3. Clause 2-19, Option to Extend (Service Contract), must be
used when it is intended to extend the services to be performed and
written notice of intent to extend the contract is not required (see
2.2.8.f.4).
4. Clause 2-20, Option to Renew (With Preliminary Notice), must
be used to provide for continuing performance of the contract beyond
its original term and it is necessary to include in the contract a
requirement that the Postal Service will give the supplier a preliminary
written notice of its intent to extend the contract.
5. Clause 2-25, Unpriced Options, must be used when the
contract provides for unpriced options.
6. Care must be exercised to ensure that the schedule of any contract
which contains one of the above option clauses includes the
information relating to the option which the clause requires, i.e., notice
of intent to renew.
2.2.8.g Exercising Options. See 6.5.1.f.
2.2.9.a General. The purchase team should analyze the marketplace and recurring
needs to determine whether there are benefits to contracting beyond 1 year.
Longer term contracts tend to benefit the Postal Service by developing and
sustaining supplier relationships and reducing administrative effort and cost. In
addition, savings may be obtained if the supplier can reduce overall prices by
spreading startup costs over more than 1 year or making similar commitments
with major subcontractors. There is no limit on the term of a multiyear contract,
except that it must reasonably reflect foreseeable requirements.
2.2.9.b Solicitations. When the purchase team determines that multiyear savings are
possible and recurring needs are reasonably certain, the solicitation should include
both a single and a multiyear quantity to see which price is most advantageous.
However, award must be made to the offeror proposing the best value.
2.2.9.c Types. See 2.4.
2.2.10 Value Engineering
2.2.10.a General. Value engineering is a method of encouraging suppliers to
independently develop and propose changes to improve an end item, the
way it is produced, or the way a contract is performed. The change must
reduce the contract's cost and not impair the essential characteristics or
functions of the product or service. Savings are shared by both parties, and
the supplier is paid allowable development and implementation costs.
2.2.10.b Definition. A value-engineering change proposal (VECP) is a proposal that:
1. Requires a change to a current contract;
2. Results in savings to the contract; and
3. Does not involve a change in:
(a) Deliverable end items only;
(b) Test quantities due solely to the results of previous testing under
the contract; or
(c) Contract type only.
2.2.10.c Sharing Savings. If the Postal Service accepts a value-engineering change
proposal, the supplier shares in the contract savings based on a negotiated
agreement contained in Clause 2-22, Value Engineering Incentive.
The savings are calculated by subtracting from the price of the current
contract (1) the estimated cost of performing the contract with the change, (2)
the Postal Service costs to develop and implement the proposal, and (3) the
supplier's allowable development and implementation costs. "Postal Service
costs" include the cost of testing, operations, maintenance, logistics support,
and furnished property. They do not include the normal administrative costs
of administering the change. The supplier's "development and
implementation costs" include the costs of developing, testing, preparing, and
submitting the proposal. They include the supplier's cost of making changes
to the contract resulting from the Postal Service's acceptance of the proposal.
If the current contract included options, option prices are adjusted according
to the calculation. Profit is excluded when calculating contract savings.
1. The contracting officer may negotiate a noncompetitive contract or
contract modification for an additional quantity incorporating a change
proposal when:
(a) An otherwise acceptable value-engineering change proposal is
received too late during performance to provide a significant
benefit under the current contract; or
(b) If additional quantities are required that are not provided for under
the contract.
2. When a proposer who does not have a current contract submits an
unsolicited proposal in the form of a value-engineering change proposal
and it meets the requirements of Clause 2-22, the purchase
team may decide to have the contracting officer negotiate a
noncompetitive contract incorporating the value-engineering change
proposal.
3. Sharing contract savings is done in accordance with 2.2.10.c.
1. Generally the purchase team will evaluate a value-engineering change
proposal and either accept it or reject it, in whole or in part, within 45
days of its submission to the contracting officer. To expedite the
evaluation, suppliers may give oral presentations to the purchase team
(or an evaluation team created by the purchase team).
2. If evaluating the proposal will take more than 45 days, the contracting
officer must notify the proposer of the expected decision date.
3. If a proposal is rejected, the contracting officer must notify the proposer
and explain the rejection.
2.2.10.f Withdrawal. The supplier may withdraw all or part of a value-engineering
change proposal any time before it is accepted by the Postal Service.
1. Acceptance of all or part of a value-engineering change proposal and
determination of the savings requires the agreement of both parties.
Acceptance is accomplished by a supplemental agreement to the
contract. If agreement on price is reserved for a later supplemental
agreement, but agreement cannot be reached, the matter must be
treated as a dispute under Clause B-9, Claims and Disputes.
2. The supplier must perform according to the existing contract until a
value-engineering change proposal is accepted.
3. The contracting officer's decision to accept or reject all or part of a
value-engineering change proposal is final and not subject to Clause
B-9, or to litigation under the Contract Disputes Act of 1978 (41
U.S.C. 601-613).
2.2.10.h Subcontracts. If the purchase team foresees a potential cost reduction
through value engineering under subcontracts, additional paragraph j should
be added to Clause 2-22.
2.2.10.i Clause. If there is a potential for savings through value engineering, Clause
2-22 should be included in firm fixed-price contracts of $100,000 or
more, at any time during the term of the contract. However, the clause may
not be used in:
1. Fixed-price incentive contracts (see 2.4.3.b).
2. Research and development contracts.
3. Contracts with nonprofit or educational organizations.
4. Contracts for professional or consultant services (see 4.5.3
and 4.5.4).
5. Contracts for product or component improvement.
6. Contracts for commercially available goods and services.
2.3.1.a Specifications
1. Specifications are generally used when purchasing an end item rather
than a service. Specifications must state the Postal Service's needs
completely, considering the nature of the commodities being
purchased.
2. Specifications may be stated in terms of:
(a) Function, so that a variety of commodities may be considered;
(b) Performance, including the range of acceptable characteristics or
the minimum acceptable standards; or
(c) Design requirements, providing exact dimensions, materials or
characteristics.
3. In order to enhance competition and invite innovation, specifications
and statements of work should be written in as non-restrictive a manner
as possible.
1. Statements of work (SOWs) are generally used when purchasing a
service rather than an end product. SOWs may include specifications or
product descriptions. SOWs must describe the work as precisely as
practicable and in enough detail to allow a best value decision.
2. After award, SOWs are the standard for measuring performance, and
are used by both parties to determine rights and obligations under the
contract.
1. Whenever standard or modified commercial products will meet Postal
Service requirements, product descriptions must be used instead of
specifications.
2. Product descriptions should include:
(a) A common generic identification of the item.
(b) Known acceptable brand-name products, identified by model or
catalog number, and the commercial catalogs in which they
appear.
(c) The name and address of the manufacturer or distributor of each
brand-name product referenced.
(d) The application or use of the product.
(e) A description of any required modification.
3. If at least three acceptable brand names are specified, the solicitation
may provide that only those specified will be considered.
4. Except for construction specifications, if fewer than three acceptable
brand name products are specified, or if proposals for equivalent
products other than those specified will be considered:
(a) The product description must include a description of the item's
essential characteristics, such as material, size or capacity, the
equipment with which the item will be used, and any restrictive
operating environment conditions.
(b) The brand name in the product description must be followed by
the words "or equal."
(c) Space must be provided for suppliers to identify the
manufacturer's brand names and models or catalog numbers
proposed (see A.2.3.b.6).
(d) The solicitation must include Provision 2-7, Brand Name
or Equal.
2.3.2 Technical Data Packages
2.3.2.a General. A Technical Data Package (TDP) is a complete set of
documentation which may include specifications, engineering drawings, or
associated lists required to build and support an end item. Every TDP is
under the control of a design-responsible organization (such as Engineering,
Research and Development, or the Mail Equipment Shops) which maintains
the integrity of the end-item's design.
2.3.2.b Responsibilities. When a purchase will be made using a TDP, the purchase
team must use the most current version. Any modifications to a TDP before
or during solicitation or after award must, before implementation, be
coordinated with and approved by the design-responsible organization as
well as with the requesting organization.
2.3.2.c Deliverables. When a TDP will be purchased, the contracting officer must
ensure that the design-responsible organization reviews all supplier
submittals to ensure that the final product is in accordance with Postal
Service standards and the terms and conditions contained in the contract.
Once the purchase team determines TDP requirements, they should not be
negotiated without the purchase team's concurrence.
2.3.3 Component Parts
When component parts in a deliverable contract line item are described in the
specifications by a brand or manufacturer's name, the contract must include
Clause 2-21, Component Parts.
The supplier may seek approval to substitute equal products or processes
for those specified by brand name (see Clause B-63, Materials and
Workmanship). Accordingly, the solicitation should identify any products
or processes that may not be substituted after award.
2.4 Types of Contracts
2.4.1.a Planning. Selecting the most effective contract type for a purchase is an
important element of purchase planning and must be considered together
with the issues of price, risk, uncertainty, and responsibility for costs.
2.4.1.b Risk and Responsibility. The type of contract used should reflect the cost risk
and responsibility assumed by the supplier. Full cost responsibility is
assumed under a firm fixed-price contract, while there is minimal cost
responsibility under a cost-reimbursement contract. The profit or fee
arrangement should also reflect the cost responsibility assumed.
2.4.1.c Flexibility. Any type of contract described in this section may be used, as
appropriate to the purchase. The contract types discussed in this section are
those used most frequently for Postal Service purchasing. The contracting
officer, working with the purchase team, may decide to use a type of contract
not described in this section, subject to the approval of the manager of
Headquarters Purchasing, Field Customer Support, Major Facilities
Purchasing, or National Mail Transportation Purchasing. This decision must
be based on the particular requirements of the purchase or the practices of a
particular industry, trade, or profession.
2.4.2.a Responsibilities. The contracting officer, working with the purchase team, is
responsible for selecting and negotiating the most advantageous contract
type appropriate to the purchase.
2.4.2.b Provision and Clause. Although contract type may be a matter for
negotiation, the solicitation should specify a particular type of contract in
order to provide a basis for comparing proposals (see paragraph f of
Provision 4-1). If appropriate, the solicitation may allow suppliers to
provide alternate proposals containing a different contract type. Clause
B-3, Contract Type, must be included in all contracts awarded
without issuing a written solicitation. A cost plus a percentage-of-cost contract
may not be used.
1. A firm fixed-price contract makes the supplier fully responsible for cost
control and minimizes the need to monitor performance. But if no
reasonable basis for firm pricing exists, requiring a firm fixed-price
contract may reduce competition and lead to higher prices (suppliers
add allowances for contingencies to protect them from risks). Whenever
the probable cost of contract performance cannot be realistically
estimated, a firm fixed-price contract should not be used.
2. When a firm fixed-price contract cannot be used, costs can still be
controlled by using incentives. Efficient performance can be promoted by
relating the profit or fee to effective cost management by the supplier.
3. Cost-reimbursement contracts are suitable when uncertainties do not
permit costs to be estimated with sufficient accuracy to use any type of
fixed-price contract.
4. Factors to be considered in deciding contract type include the:
(a) Realism of the cost estimate.
(b) Extent of competition.
(c) Risks and uncertainties.
(d) Complexity of the requirement.
(e) Adequacy and firmness of specifications.
(f) Likelihood of changes.
(g) Past experience (pricing and production).
(h) Extent of subcontracting.
(i) Adequacy of the supplier's estimating and accounting system.
(j) Urgency of the requirement.
(k) Volatility of cost factors.
2.4.3 Fixed-Price Contracts
1. Description. A firm fixed-price contract establishes a price that will not
be adjusted based on performance costs. It places full responsibility on
the supplier for all costs and the resulting profit and loss, maximizing
the incentive to control costs and perform effectively. It is the least
burdensome type of contract to administer (if requirements are stable;
but if frequent changes are likely, administration will be difficult).
2. Use. A firm fixed-price contract is suitable for purchasing commercially
available products, or services with reasonably definitive specifications
or statements of work, and whenever fair and reasonable prices can be
established at the outset, such as when:
(a) There is adequate price competition (see 5.1.2.b).
(b) Price analysis (see 5.1.2.a) indicates price
reasonableness.
(c) In noncompetitive situations, cost or pricing data are adequate to
permit realistic estimates of the costs of performance.
(d) The cost impact of performance uncertainties can be estimated
closely enough to reach agreement on a reasonable price that
represents the risks involved.
2.4.3.b Fixed-Price Incentive Contract
1. Description. A fixed-price incentive contract is a fixed-price contract that
provides for adjusting profit and establishing the final price by applying
a formula based on the relationship between the total final negotiated
cost and total target cost. The contract specifies a target cost, a target
profit, a target price, a price ceiling, and a profit-adjustment formula for
each item subject to incentive price revision. The price ceiling is the
maximum that may be paid to the supplier, except for adjustments
specifically provided for under contract clauses. When performance is
completed, the final cost is negotiated and the final price is established
by applying the formula. When the final cost is less than the target cost,
applying the formula results in a profit greater than the target profit;
when the final cost is more than the target cost, applying the formula
results in a profit less than the target profit. If the final negotiated cost
exceeds the ceiling, the supplier absorbs the difference. Because the
profit varies inversely with the cost, this type of contract provides a
positive, calculable profit incentive for the supplier to control costs.
Billing prices are established as an interim basis for payment. The
billing prices may be adjusted if it becomes apparent that the final
negotiated cost will be substantially different from the target cost.
2. Use. A fixed-price incentive contract is appropriate when the parties
can establish an initial target cost, target profit, and profit-adjustment
formula that will provide a fair and reasonable incentive, and a ceiling
that provides for the supplier to assume an appropriate share of the
risk. When the supplier assumes a considerable or major share of cost
responsibility under the adjustment formula, the target profit should
reflect that responsibility. For the profit adjustment formula, the
supplier's share will usually be in the range of 20-40 percent. The price
ceiling is usually established by calculating an amount in the range of
15-30 percent of target cost and adding that result to the target cost.
3. Limitations. Fixed-price incentive contracts should be used when:
(a) The Postal Service wishes to incentivize performance.
(b) A firm fixed-price contract is not suitable.
(c) There is an adequate basis for establishing reasonable firm
targets at the time of initial contract negotiations.
(d) The supplier's accounting system is adequate for providing data
to support negotiation of final cost and incentive price revision.
2.4.3.c Fixed-Price Contract with Economic Price Adjustment
1. Description. A fixed-price contract with economic price adjustment
provides for up and down revision of the price when material prices or
labor rates that are defined in the contract are subject to fluctuation.
This type of contract establishes a basis for measuring fluctuations so
that price adjustments are limited to contingencies beyond the
supplier's control and reflect actual market fluctuations. Upward
adjustments are limited by establishing a reasonable ceiling, and
provisions are included for downward adjustments when prices or rates
fall below base levels established in the contract. In establishing the
base levels, the contracting officer must ensure that the base does not
allow for any contingencies that are also included in the adjustment
requested by the supplier under the economic price adjustment clause.
Contingency allowances for inflation must be eliminated from the base
costs when pricing the contract. There are two types of economic price
adjustments:
(a) Adjustments Based on Actual Costs of Labor or Materials. These
price adjustments are based on actual increases or decreases in
the costs of specified labor or materials during performance.
(b) Adjustments Based on Cost Indexes of Labor or Materials. These
price adjustments are based on increases or decreases in labor
or material cost standards or indexes specifically identified in the
contract.
2. Use
(a) General. Fixed-price with economic adjustment contracts are
appropriate when there is serious doubt about the stability of
market or labor conditions during an extended period of
performance, and when contingencies that would otherwise be
included in a firm fixed-price contract are identifiable and can be
covered separately in the contract. Their usefulness is limited by
the difficulties of administering them.
(b) Adjustments Based on Actual Costs of Labor or Material
(1) A contract may provide for adjustments based on actual
costs of labor or material when:
(i) The contract is for longer than 6 months;
(ii) There is no major element of design, engineering, or
developmental work involved;
(iii) One or more identifiable labor or material costs are
subject to change; and
(iv) Adjustments will be limited to contingencies beyond
the supplier's control.
(2) The schedule must describe, in detail, the types of labor
and material subject to adjustment, the labor rates
(including fringe benefits) and unit prices of materials that
may be adjusted, and the quantities of labor and specified
materials allocated to each unit of supplies to be delivered.
The ceiling on upward adjustments should not exceed the
original unit price by more than 10 percent annually for the
total of increases to each unit-price adjusted. The supplier
must notify the contracting officer within a stated number
of days after a change in rates of pay or unit prices for
specified materials and propose an adjustment. The
contracting officer will negotiate the price adjustment and its
effective date. In negotiating adjustments under the clause,
the contracting officer must consider work in progress and
materials-on-hand at the time of changes in labor rates or
materials prices, since these may have a significant impact
on equitable price adjustments. Negotiated adjustments
must not include any indirect costs, except fringe benefits
included in the labor rates subject to adjustment.
(c) Adjustments Based on Cost Indexes of Labor or Material
(1) A contract may provide for adjustments based on cost
indexes of labor or material when:
(i) The contract involves an extended period of
performance and significant costs will be incurred
beyond the first year;
(ii) The amount subject to adjustment is substantial; and
(iii) The economic variables for labor and materials are
too unstable to permit a reasonable division of risk
between the Postal Service and the supplier without
providing for adjustments.
(2) The contracting officer must develop a clause tailored to the
purchase, with the assistance of counsel.
2.4.3.d Clauses - Supplies and Services Contracts
1. Paragraph I of Clause 4-1, General Terms and Conditions,
discusses standard Postal Service payment terms. When necessary,
purchase teams may replace paragraph I with Clause 2-26,
Payment - Fixed-Price. All fixed-price incentive contracts must also
include Clause 2-27, Incentive Price Revision, filled in.
2. Fixed-price contracts providing for economic price adjustments based
on actual costs of labor or materials (see 2.4.3.c.2(b)) must include
Clause 2-28, Economic Price Adjustment - Labor and
Materials.
3. Fixed-price contracts providing for economic price adjustments based
on cost indexes of labor or materials (see 2.4.3.c.2(c)) must include
Clause 2-29, Economic Price Adjustment (Index Method), and
an adjustment formula.
2.4.4 Cost-Reimbursement Contracts
2.4.4.a General. Cost-reimbursement contracts provide for paying allowable,
incurred costs. They establish an estimate of total cost so that funds may be
committed and establish a ceiling that the supplier may not exceed (except at
its own risk) without the approval of the contracting officer.
Cost-reimbursement contracts are suitable when uncertainties about contract
performance do not permit costs to be estimated with sufficient accuracy to
use a fixed-price contract.
2.4.4.b Limitations. A cost-reimbursement contract may be used only when:
1. The supplier's accounting system can determine the costs that apply to
the contract; and
2. Postal Service monitoring during performance will assure that efficient
methods and effective cost controls are used.
2.4.4.c Cost Contract. A cost contract is a cost-reimbursement contract under which
the supplier receives no fee. A cost contract may be appropriate for research
and development, particularly with nonprofit educational institutions or other
nonprofit organizations.
2.4.4.d Cost-Sharing Contract. A cost-sharing contract is a cost-reimbursement
contract under which the supplier receives no fee and is reimbursed only a
portion of its allowable costs as stated in the contract. It is suitable when
there is a high probability that the supplier will receive substantial commercial
benefits as a result of performance.
1. Description. A cost plus incentive-fee contract is a cost-reimbursement
contract that provides for the fee initially negotiated to be adjusted later
by a formula based on the relationship of total allowable costs to target
cost. This type of contract specifies a target cost, a target fee, minimum
and maximum fees, and a fee-adjustment formula. After performance,
the fee is determined by the formula. The formula provides, within
limits, for increases in the fee above the target when total allowable
costs are less than target cost, and decreases in the fee below the
target when total allowable costs exceed the target cost. This increase
or decrease provides an incentive for the supplier to manage the
contract effectively. When total allowable costs are greater than or less
than the range of costs in the fee-adjustment formula, the supplier is
paid total allowable costs, plus the minimum or maximum fee.
2. Use. A cost plus incentive-fee contract is suitable when a
cost-reimbursement contract is appropriate and a target cost and
fee-adjustment formula can be negotiated which will motivate the
supplier to manage the contract effectively. The fee-adjustment formula
should provide an incentive that covers the full range of reasonably
foreseeable variations from the target cost. The supplier's share of the
difference between target cost and actual cost will usually be in the
range of 15-30 percent. If a high maximum fee is negotiated, the
contract must provide for a low minimum fee - or even a zero or
negative fee. The maximum fee will usually not exceed 10 percent of
the contract's target cost, or 15 percent for research and development.
1. Description. A cost plus fixed-fee contract is a cost-reimbursement
contract that provides for paying the supplier a negotiated, fixed fee.
The fixed fee does not vary with actual costs, but may be adjusted as a
result of changes to the contract. This type of contract type gives the
supplier only a minimal incentive to control costs.
2. Use. A cost plus fixed-fee contract is suitable when a cost-
reimbursement contract is necessary but the uncertainties and risks
for the supplier are too great to permit negotiating a reasonable
cost plus incentive-fee arrangement.
3. Completion or Level-of-Effort Form. There are two forms of cost plus
fixed-fee contracts:
(a) Types
(1) Completion Form. The completion form describes the scope of
work by stating a definite goal or target and specifying an end
product. This form generally requires the supplier to complete
and deliver the end product within the estimated cost, if
possible, as a condition for paying the entire fixed fee. If the
work cannot be completed within the estimated cost, the Postal
Service may require more effort without increasing the fee, but
the estimated cost must be increased.
(2) Level-of-Effort Form. The level-of-effort form describes the
scope of work in general terms and requires the supplier to
devote a specified level of effort for a stated period. Under
this form, if performance is satisfactory, the fixed fee is
payable when the period ends and the supplier certifies that
the level of effort specified in the contract has been
expended. Renewal for further periods of performance
requires new cost and fee arrangements, and is treated as
a new purchase.
(b) Preference. Because of the greater obligation assumed by the
supplier, the completion form is preferred over the level-of-effort
form whenever the work can be defined well enough to permit a
reasonable cost estimate within which the supplier can complete
the work.
1. Description. A cost plus award-fee contract is a cost-reimbursement
contract that provides for a fee consisting of a base amount fixed at the
beginning of the contract and an award amount that the supplier may
earn in whole or in part during performance. The award amount must
be sufficient to motivate excellence in areas such as quality, timeliness,
technical ingenuity, and cost-effective management. The amount of the
award fee is determined by the Postal Service's evaluation of the
supplier's performance according to criteria stated in the contract. This
determination is made unilaterally by the Postal Service and is not
subject to the Disputes clause.
2. Use. The cost plus award-fee contract is particularly suitable for buying
services. The likelihood of meeting purchasing objectives and achieving
exceptional performance is enhanced under this type of contract. It
provides the flexibility to evaluate subjectively, at defined intervals, both
actual performance and the conditions under which performance was
achieved. The additional administrative effort, contract amount,
performance period, and cost required to monitor and evaluate
performance must be justified by the expected benefits to warrant using
this type of contract.
3. Performance Evaluation. Cost plus award-fee contracts provide for
evaluation at stated intervals during performance, so that the supplier is
periodically informed of the quality of performance and areas for
improvement. Evaluation criteria and a rating plan should be prepared
for each purchase to motivate the supplier to improve in areas
important enough to be rated, but not to the detriment of overall
performance. Requirements will vary widely among contracts, so
contracting officers must customize the evaluation criteria, rating plan,
and even the Award Fee clause, seeking advice from the purchase
team and counsel, as needed. The partial payment of the award fee will
usually correspond to the evaluation periods to provide incentive. If a
high award fee is negotiated, the contract may provide for a low base
fee, or even a zero base. The maximum fee, comprising the base fee
plus the highest potential award fee, will usually not exceed 10 percent,
or 15 percent for research and development.
1. All cost-reimbursement contracts must include the following clauses:
(a) Clause 2-30, Allowable Cost and Payment.
(b) Either Clause 2-31, Limitation of Cost (if the contract is
fully funded), or Clause 2-32, Limitation of Funds (if the
contract is funded in increments).
2. Cost contracts must include Clause 2-33, Cost Contract - No
Fee.
3. Cost-sharing contracts must include Clause 2-34, Cost-Sharing
Contract - No Fee.
4. Cost plus incentive-fee contracts must include Clause 2-35,
Incentive Fee.
5. Cost plus fixed-fee contracts must include Clause 2-36, Fixed
Fee.
6. Cost plus award-fee contracts must include Clause 2-37,
Award Fee.
2.4.5 Time-and-Materials and Labor-Hour Contracts
1. Description. A time-and-materials contract provides for purchasing
supplies or services on the basis of:
(a) Direct labor hours at specified, fixed hourly rates (which include
wages, overhead, general and administrative expenses, and
profit); and
(b) Material at cost and, when appropriate, material-handling costs
as a part of material costs. Material-handling costs may include
all indirect costs, including general and administrative expense
allocated to direct materials according to the supplier's usual
accounting practices. The material-handling costs may only
include costs clearly excluded from the labor-hour rate.
2. Use. A time-and-materials contract is only used when it is impossible to
estimate the extent or duration of the work or anticipate costs with
reasonable confidence. Because it does not encourage effective control
by the supplier, it may only be used when provision is made for
adequate monitoring by postal personnel during performance, to
reasonably assure that inefficient or wasteful methods are not being
used. Examples of situations where this type of contract might be
appropriate are:
(a) Repair, maintenance, and overhaul work;
(b) Work to be done in emergency situations; and
(c) Engineering and design services in connection with the
production of supplies.
3. Limitation. Time-and-materials contracts may only be used if no other
type of contract will do. The contract must establish a ceiling price
which the supplier exceeds at its own risk. The contracting officer must
document the contract file to show the basis for any change in the
ceiling.
4. Optional Method of Pricing Material. When the work to be performed
requires the supplier to furnish material that is regularly sold to the general
public by the supplier in the normal course of business, the contract may
provide for charging material on a basis other than at cost if:
(a) The total estimated contract price does not exceed $50,000 or the
estimated price of material does not exceed 20 percent of the
estimated contract price;
(b) The material is identified in the contract;
(c) No profit on material is included in the profit in the fixed hourly
labor rates; and
(d) The contract provides that the price to be paid for the material
must be the established catalog or list price in effect when
material is furnished, less all applicable discounts, and not
exceeding the supplier's sales price to its most favored customer
for the same item in like quantity or the current market price,
whichever is lower.
2.4.5.b Labor-Hour Contracts. A labor-hour contract is a variant of the
time-and-materials contract, differing only in that materials are not supplied
by the supplier. All the requirements of paragraph a above, except those
dealing with materials, apply to labor-hour contracts.
2.4.5.c Clause. Time-and-materials and labor-hour contracts must include Clause
2-38, Payment (Time-and-Materials and Labor-Hour Contracts).
2.4.6 Indefinite-Delivery Contracts
1. Indefinite-delivery contracts are used when the desired period of
performance is known, but the exact time of delivery is unknown at the
time of award. They establish the supplies or scope of services that can
be ordered, terms and conditions, the maximum liability of the Postal
Service, and prices. Orders placed against indefinite-delivery contracts
are not subject to the noncompetitive procedures discussed in 2.1.6.
2. Indefinite-delivery contracts may provide for delivery of a definite
quantity, an indefinite quantity within a minimum and maximum, or the
Postal Service's requirements. During the contract term, delivery orders
are issued by purchasing organizations or users.
3. The pricing structure of any normal contract type can be used for orders
against indefinite-delivery contracts. Fixed-price orders are preferred
unless the orders cannot be accurately priced before issuing each order.
In that case, time-and-materials or labor-hour orders are preferred. The
pricing mechanism may even be left to the judgment of the contracting
officer at the time of issuing each order. The contracting officer, in that
case, must ensure that the contract clearly provides for each type of
pricing. In addition, if so desired by the purchase team, the contract may
provide for alternative pricing for each order (for example, an order may
be placed at a fixed price, or at a time and materials rate).
2.4.6.b Definite-Quantity Contracts. A definite-quantity contract provides for a definite
quantity of specific supplies or services during the contract period, with
deliveries to designated locations when ordered.
1. An indefinite-quantity contract provides for an indefinite quantity of
specific supplies or services, within a stated minimum and maximum, to
be delivered during the contract period to designated locations when
ordered. It is used when precise requirements for supplies or services
ordered over the term of the contract, above known minimums, cannot
be determined. The minimum and maximum are provided to limit the
pricing risk to the supplier.
2. The contract must require the Postal Service to order, and the supplier
to deliver, a minimum quantity of supplies or services over the term of
the contract, and requires the supplier to deliver any additional
quantities ordered, not to exceed a maximum amount.
3. The minimum quantity must not exceed known requirements, and the
maximum quantity must be realistic. The contract may specify minimum
or maximum quantities for individual delivery orders, and a maximum
that may be ordered during a specified time.
4. Contract maximums may be exceeded upon the mutual agreement of
the Postal Service and the supplier.
1. A requirements contract provides for filling all or specified portions of
actual purchase requirements of designated activities for specific
supplies and services to be delivered as ordered over the term of the
contract. It is used for recurring requirements anticipated during the
contract period, where precise quantities cannot be determined. It may
also be used to obtain supplies and services in excess of quantities that
activities themselves can furnish within their own capabilities. A
requirements contract is preferred when the purchase team decides to
award a requirements contract to only one source and requirements
can be estimated with reasonable accuracy.
2. The solicitation and contract must state an estimated total quantity, and,
if feasible, the maximum limit of the supplier's obligation to deliver and
the Postal Service's obligation to order. The total-quantity estimate
must be as realistic as possible, based on records of previous
requirements and current information. The contract may specify
minimum or maximum quantities for individual delivery orders, and a
maximum that may be ordered during a specified time.
3. When a requirements contract is for repair, modification, or overhaul of
Postal Service property, the solicitation must state that failure of the
Postal Service to furnish such items in the amounts described as
"estimated" or "maximum" will not entitle the supplier to any price
adjustment under the Postal Service Property clause.
1. The period for placing orders and the activities authorized to place
orders must be identified in the contract.
2. Delivery orders or task orders are used to order against an indefinite
delivery contract. A delivery order is used principally for supplies and a
task order for services.
3. Ordinarily, orders should be placed:
(a) In writing;
(b) By authorized Postal Service credit card;
(c) By written telecommunication;
(d) By electronic data interchange (EDI); or
(e) Orally.
4. Orders must contain:
(a) The date of the order, contract number, and order number.
(b) Item number and description, quantity, and unit and total price or
a ceiling price limiting the Postal Service's liability if the price
cannot be negotiated before issuing an order.
(c) Place and date of delivery or performance.
(d) Packaging, packing, and shipping instructions, if any.
(e) Accounting and fiscal data.
(f) Any other pertinent information, including a statement of work that
describes the services to be performed.
1. The contracting officer may consider making multiple awards of
indefinite-quantity contracts under a single solicitation for the same or
similar supplies or services to two or more sources. The decision to
make multiple awards and to compete individual orders should not be
made if:
(a) The supplies or services are unique or highly specialized and only
one supplier is capable of performing at the required level of
quality.
(b) A single award will result in more favorable terms and conditions,
including pricing.
(c) The cost of administering multiple contracts may outweigh the
benefits.
(d) Tasks likely to be ordered are so integrated that only a single
supplier can reasonably perform the work.
(e) The order is a logical follow-on to an order already issued under
the contract.
(f) It is necessary to place an order to satisfy a minimum guarantee.
(g) The contracting officer determines that multiple contract awards
or competition for a particular order are not in the Postal Service's
best interest.
2. Competitive delivery and task orders should be awarded based on price
and past performance on previous orders and, in some cases, an oral
presentation covering how the task will be performed and resumes of
key personnel. Participation by suppliers in the competition for orders is
optional, so contracting officers must ensure that a sufficient number of
suppliers can be expected to compete.2.4.6.g
2.4.6.g Provisions. For contracts where orders will be placed by authorized Postal
Service credit card, the solicitation must include Provision 2-6, Credit
Card Order Acceptance Requirement.
1. All delivery order, task order and definite order contracts must include
the following clauses:
(a) Clause 2-39, Ordering.
(b) Clause 2-40, Delivery-Order Limitations.
2. All definite-quantity contracts must include Clause 2-41,
Definite Quantity.
3. All indefinite-quantity contracts must include Clause 2-42,
Indefinite-Quantity.
4. All requirements contracts must include Clause 2-43,
Requirements. When purchasing requirements in excess of the
quantities that the activities can furnish within their own capabilities or
only specified portions of requirements (see paragraph d), use the
clause with its alternate paragraph c.
1. An ordering agreement is not itself a contract. It is a written agreement
negotiated between a purchasing activity and a supplier that contains
terms and conditions applying to future contracts between the parties.
The contracts are established when orders are issued and accepted by
the parties. Ordering agreements include Basic Pricing Agreements
(BPAs) (see 2.4.8). Although there is a price ceiling for individual
orders, there is no limit on the aggregate value of orders and no
commitment to purchase. This distinguishes ordering agreements from
indefinite-delivery contracts.
2. An ordering agreement is useful for expediting contracting for uncertain
requirements of supplies or services when specific quantities and prices
are not known at the time the agreement is signed, but substantial
quantities of the supplies or services are expected to be purchased.
Ordering agreements reduce administrative lead time and inventory
investment.
1. An ordering agreement may not state or imply any obligation or
agreement by the Postal Service to place future contracts or orders with
the supplier.
2. An ordering agreement may only be changed by modifying the
agreement itself and not by individual orders issued against it.
Modifying an ordering agreement does not retroactively affect orders
previously issued against it.
3. An ordering agreement extending for more than 1 year must be
reviewed periodically to determine whether it should be continued.
2.4.7.c Content of the Agreement. An ordering agreement must:
1. Describe the supplies and services to be provided.
2. Describe the method for determining prices.
3. Include delivery terms and conditions or specify how they will be
determined.
4. List the activities authorized to issue orders.
5. Specify the point at which each order becomes a binding contract (for
example, issuance of the order, acceptance of the order in a specified
manner, or failure to reject the order within a specified number of days).
6. Provide that failure to reach agreement on the price of any one order
issued before a price is established (see 2.4.7.e) is a dispute under
Clause B-9, Claims and Disputes.
7. Contain the clauses prescribed for the type of contract represented by
the orders to be placed. (For clauses prescribed according to contract
dollar amount, the aggregate value of orders expected to be placed
must be estimated.)
2.4.7.d Ordering. A contracting officer representing any activity listed in an ordering
agreement may issue orders for supplies or services covered by that
agreement. Except for orders under mandatory ordering agreements,
competition must be obtained before placing an order, unless precluded by
compelling urgency or other good reason in the Postal Service's interest.
Competition may be by oral or written solicitation among firms holding
ordering agreements for the same supplies or services, or on the open
market. If an order is placed without obtaining competition, the file must be
documented to show the reason.
2.4.7.e Pricing. The contracting officer may not authorize the supplier to begin work
on an order under an ordering agreement until prices have been established,
unless urgency precludes advance pricing and the order establishes a ceiling
price limiting the Postal Service's obligation. Pricing must be accomplished as
soon as possible after issuance of an unpriced order.
2.4.8 Basic Pricing Agreements (BPAs)
2.4.8.a General. A basic pricing agreement (BPA) is an ordering agreement which
permits individuals designated by name or title to place orders by telephone,
over-the-counter or in writing. BPAs permit consolidated invoicing (usually
monthly) for all purchases made. Establishing BPAs with suppliers from which
frequent, repetitive purchases are made can significantly reduce paperwork
and administrative costs. Although there is a ceiling for individual orders (see
2.4.8.d.4), there is no aggregate value of orders under a BPA. When the BPA
is limited to specific items on a price list, only those items may be ordered.
Suppliers may revise their prices at any time.
2.4.8.b Use. BPAs are used when:
1. A wide variety of items in a broad class of supplies (hardware, electrical
supplies, etc.) may be available from suppliers but quantities and
delivery requirements are not known and may vary considerably. BPAs
may also be used for services.
2. The preparation of numerous written orders and processing of invoices
can be avoided.
3. There is a need to provide supply sources for offices that do not have
purchasing authority.
4. A purchase or series of purchases from a particular supplier may not be
made using local buying procedures.
2.4.8.c Sources. BPAs should be established with suppliers from which numerous
individual purchases will likely be made in a given period. For example, if
experience shows that a supplier is dependable and consistently lower in
price than other suppliers, and if numerous small purchases are made from it,
it would be advantageous to establish a BPA with the supplier.
2.4.8.d Restrictions. The following restrictions apply to BPAs:
1. BPAs may not be made for supplies or services which must be
purchased from mandatory sources (see 3.3).
2. BPAs may not be made for construction on Postal Service premises.
3. The term of a BPA may not exceed 5 years.
4. Individual orders may not exceed $10,000 (except for fuel, where the
ordering limit is tank capacity).
2.4.8.e Ordering. When orders are placed under a BPA established for specific items
on a price list, only the items on the list may be ordered.
2.4.9 Letter Contracts
2.4.9.a Description. A letter contract is a written preliminary contractual instrument
that authorizes the supplier to begin work immediately, before a definitive
contract is negotiated.
1. A letter contract is used when:
(a) The requirement demands that the supplier be given a binding
commitment so that work can begin immediately.
(b) Negotiating a definitive contract in time to satisfy the requirement
is impossible.
2. Each letter contract must be as complete and definitive as possible
under the circumstances.
3. Each letter contract must contain a negotiated definitization schedule
including:
(a) A date for submission of the supplier's price proposal.
(b) A date for the start of negotiation.
(c) A target date for definitization, which must be the earliest date
practicable.
4. Each letter contract must state the maximum liability of the Postal
Service. This is the amount estimated to be needed to cover
performance before definitization. It may not exceed 50 percent of the
total estimated cost of the contract.
5. The definitization schedule must provide for definitizing the contract
within 180 days after the date of the letter contract or before completion
of 40 percent of the work, whichever occurs first. However, the
contracting officer may, in extreme cases, authorize an additional
period. Because an undefinitized letter contract is, in effect, a
cost-reimbursement contract, it is not in the Postal Service's interest to
allow it to continue longer than necessary. Therefore, if after exhausting
all reasonable efforts, the contracting officer and the supplier fail to
reach an agreement on price or fee, Clause 2-44, Contract
Definitization (see 2.4.9.d), requires the supplier to proceed with the
work and provides that the contracting officer may determine a
reasonable price or fee, subject to appeal as provided in Clause
B-9, Claims and Disputes.
1. A letter contract may only be used if no other type of contract is
suitable. Its use must be approved by the manager of Materials,
Headquarters Purchasing, Field Customer Support, National Mail
Transportation Purchasing, or Major Facilities Purchasing.
2. A letter contract may not commit the Postal Service to a definitive
contract in excess of the funds available at the time the letter contract is
executed.
3. A letter contract may not be modified to add work unless the added
work is inseparable from the work being performed under the letter
contract.
1. A letter contract must include clauses required for the type of definitive
contract contemplated, and any additional clauses known to be
appropriate.
2. All letter contracts must include the following clauses:
(a) Clause 2-45, Execution and Commencement of Work.
(b) Clause 2-46, Limitation of Postal Service Liability. Insert
as the maximum liability, the amount necessary to cover the
supplier's performance before definitization. The maximum
liability may not exceed 50 percent of the estimated cost of the
definitive contract unless approved by the manager of Materials,
Headquarters Purchasing, Field Customer Support, National Mail
Transportation Purchasing, or Major Facilities Purchasing.
(c) Clause 2-44, Contract Definitization, with the
definitization schedule established in accordance with
subparagraphs 2.4.9.b.3 and 2.4.9.b.5.
(d) Clause 2-47, Payment of Allowable Costs Before
Definitization, if a cost-reimbursement definitive contract is
contemplated.
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