|
Supplying Principles and Practices > USPS Supplying Practices Process Step 2: Evaluate Sources > Consider Use of Renewals and Options
Consider Use of Renewals and Options
When contract performance has met or exceeded requirements, and the
Purchase/SCM Team anticipates a future need, the Purchase/SCM Team
should consider renewing the contract or exercising options to ensure a
supplier's continued performance. Renewing a contract and exercising an
option are not the same thing. Renewing a contract takes place by mutual
agreement between the Postal Service and the supplier; exercising an option
can be a unilateral action on the part of the Postal Service or through mutual
agreement. For a contract to be renewed or an option to be exercised, the
contract must include the applicable clauses.
The Purchase/SCM Team should consider the use of renewals and exercise
of options for the following reasons:
• Preservation of operational continuity
• Supplier will have already developed knowledge of product or
service
• Realization of time efficiency from the Postal Service's
perspective, because the activities associated with the Perform
Solicitation-Related Activities and Evaluate Proposals tasks of
Process Step 2: Evaluate Sources will be avoided
• Realization of time efficiency from the potential supplier's
perspective, because the learning curve will be reduced
• Switching costs and risks will be avoided
• Successful contract performance will be more stable
• Supplier will be rewarded for successful, high-quality performance
levels
• Technical support capabilities will have already been established
Option provisions and clauses should not be included in contracts, and
should not be exercised, when:
• The supplier would be required to incur undue risks (as when the
price or availability of necessary materials or labor is not
reasonably foreseeable) which endanger performance and lead
to unfair prices
• An indefinite-quantity or requirements contract is appropriate,
except that options for continuing performance may be used
• Market prices for the supplies or services involved are likely to
change substantially
• The option quantities represent known firm requirements for
which funds have been budgeted and approved, unless:
- the basic quantity is a learning or testing quantity
- there is some uncertainty as to supplier or equipment
performance
- realistic competition for the option quantity is impracticable
once the initial contract is awarded
Renewals of mail transportation highway contracts are discussed in the Mail
Transportation Purchasing commodity specific practice.
The renewal of a contract is the extension of contract performance by the
mutual agreement of the parties for a specific period beyond that of the
original contract term. When the Purchase/SCM Team foresees the potential
need for such an extension, for example, when there is a continuing need for
a service (e.g. cleaning, technical) or an ongoing need for a certain type of
supply, renewals should be considered and Clause B-78: Renewal should be
included in the contract. If, within a reasonable time before the contract
expires (six months, for example), the Purchase/SCM Team decides that an
extension is needed, discussions and negotiations should be opened with the
supplier to determine whether both parties can agree upon the renewal.
During these discussions, the scope of the original contract should not be
significantly changed; if the Postal Service's needs have changed, a new
contract should be solicited. The renewal price must be negotiated and
adjusted as necessary during the discussions to reflect current market
pricing. If the parties agree upon the renewal, the contract is modified to
reflect the new agreement. The term of any renewal may not exceed four (4)
years, and no contract may be renewed more than once.
The exercise of an option is the Postal Service's decision to use the clauses
present in the current contract to continue the supplier's performance.
Options allow the Purchase/SCM Team to purchase additional amounts of
items or services than those required initially or to extend contract
performance past the original period. Options are either priced or unpriced at
the time of contract award. If they are unpriced, price must be agreed to via
discussions and negotiations before the option can be exercised.
Options need not be evaluated to award a contract when:
• 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
• When there is a reasonable certainty that funds will not be
available to exercise the option
When options will not be evaluated, the contract file must contain the
rationale for the decision. When the Purchase/SCM 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, the
Purchase/SCM Team must follow the instructions in paragraph b of Provision
4-2: Evaluation, or include Provision 2-3: Evaluation of Options, in the
request for proposals (RFP).
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 and negotiations 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. Contracts containing priced options that exceed five years
must include an economic price adjustment clause (such as 2-28: Economic
Price Adjustment Labor and Materials or 2-29: Economic Price Adjustment
Index Method).
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 it 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.
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 (e.g., highest option price offered or option price for specified
quantities or dates).
An option for increased quantities may be expressed as a percentage of
specific line items, a number of additional units of specific line items, or
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 percentages, increases in specific line items, or additional numbered
line items expressed in the units of work initially used in the contract (e.g.,
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.
Perform Switching-Cost Analysis topic, Develop Sourcing Strategy task,
Process Step 2: Evaluate Sources
Evaluate Contract Effectiveness topic, Manage Delivery and Contract
Performance task, Process Step 5: Measure and Manage Supply
Decide to Renew a Contract or Exercise Options topic, Manage Delivery and
Contract Performance task, Process Step 5: Measure and Manage Supply
|
