Issue 3 of the Purchasing Manual; Incorporation by Reference

AGENCY:

Postal Service.

ACTION:

Final rule.

SUMMARY:

The Postal Service announces the publication of Issue 3 of the Postal Service Purchasing Manual. Issue 3 supersedes previous editions of the Purchasing Manual, and is incorporated by reference in the Code of Federal Regulations.

EFFECTIVE DATE:

This final rule is effective on August 19, 2004. The incorporation by reference of the Purchasing Manual, Issue 3 is approved by the Director of the Federal Register as of August 19, 2004.

FOR FURTHER INFORMATION CONTACT:

Michael J. Harris (202) 268-5653.

SUPPLEMENTARY INFORMATION:

Issue 1 of the Purchasing Manual was issued on January 31, 1997, as the successor to former USPS Publication 41, the U.S. Postal Service Procurement Manual. At that time, purchasing organizations were advised that, pending the updating of contract-writing systems, the purchasing organizations could determine, subject to specific limitations, when and to what extent they may adopt its policies and procedures. The Purchasing Manual then became fully effective on January 27, 2000.

Subsequently, updated editions of the Purchasing Manual were issued on January 31, 2002 (Issue 2), and December 25, 2003 (Issue 3). Pending the updating of purchasing support systems for consistency with the new policies contained in Issue 3, purchasing organizations were advised that they might adopt the policies and procedures contained in Issue 3 immediately, or might continue to follow the policies and procedures contained in Issue 2. If a purchasing organization adopted Issue 3 policies and procedures for any category or categories of purchases, it would be required to use those policies and procedures consistently for that category or categories, and not revert to previous policies and procedures. Contracting officers were required to ensure that solicitations and other purchasing documents made prospective offerors fully aware of the authority (Issue 3 or Issue 2, as revised through April 18, 2002) pursuant to which an individual purchase was made. Particular care was required that previous versions of provisions and clauses were not used in purchases made under the policies and procedures of Issue 3, and vice versa. To date, the Postal Service has not formally transitioned from PM Issue 2 to PM Issue 3 primarily because of problems in updating purchasing support systems for consistency with the new policies contained in Issue 3. The end of this transition period will be announced in the Federal Register.

The Purchasing Manual is published and available to all users on the World Wide Web at http://www.usps.com/business,, and contains the Postal Service's purchasing policy.

It will be noted that on March 24, 2004 (69 FR 13786), the Postal Service published a proposed rule in the Federal Register entitled “Purchasing of Property and Services”. In this document, the Postal Service proposed to amend its regulations in order to implement the acquisition portions of its Transformation Plan (April 2000) and the similar recommendations of the President's Commission on the United States Postal Service (July 2003) as they relate to the acquisition of property and services. That earlier, ongoing rulemaking is proceeding separately and independently, and should not be considered to be a part of this current notice.

On June 28, 2004 (69 FR 36018), the Postal Service published in the Federal Register a detailed discussion of the policy changes and other major features contained in Issue 1 of the Purchasing Manual. Subsequently, on July 29, 2004 (69 FR 45270) the Postal Service published a detailed discussion of the policy changes and other major features contained in Issue 2 of the Purchasing Manual. The following is a similar discussion of the most significant changes in Postal Service purchasing policy contained in Issue 3.

Purchasing Manual Issue 3—Major Policy Changes

Overview: Issue 3 of the Postal Service Purchasing Manual continues the efforts of the Postal Service (1) to reflect the best practices of the private and public sectors, (2) to streamline the purchasing process and ensure it concentrates on furthering the business and competitive interests of the Postal Service, and (3) to provide a policy structure that furthers the Postal Service's use of supply chain management business practices. Issue 3 also contains the cumulative changes made to Issue 2 of the Purchasing Manual between January 31, 2002, and December 25, 2003. A discussion of all significant changes contained in Issue 3 is available to all users on the World Wide Web at http://www.usps.com/business.

Organizational Changes: The restructuring of Purchasing and Materials into Supply Management has resulted in numerous changes in organization names (i.e., Purchasing and Materials is now called Supply Management) and managerial titles and authorities. These changes are reflected throughout Purchasing Manual Issue 3.

Purchasing Manual Issue 3—Other Significant Changes

Chapter 1, Authority, Responsibility and Policy: 1.1.2.b Supply Management Policy Committee. The Supply Management Policy Committee (SMPC) replaces the Purchasing Policy Committee. SMPC membership has changed to reflect the SM organization.

1.4.1.b.4 Required Approvals has been revised to state that the Vice President (VP), Supply Management's (SM) approval of a proposed contract award or modification serves as the delegation of authority required by PM 1.4.2.d Actions Exceeding a Contracting Officer's Delegated Authority.

1.4.2.c Delegations of Authority has been revised to state that, unless specifically limited in his or her letter of delegation, a contracting officer may award a contract regardless of commodity group.

1.4.4.a.2 Appointment Authority has been revised to state that contracting officer appointment officials must keep a record of all letters of delegation, certificates of appointment, and documentation concerning a contracting officer's education, experience and training related to the individual CO's level.

1.4.4.b.3 Qualifications has been revised in a number of areas to (1) specify that a certification as a certified purchase manager from the Institute of Supply Management meets the certification requirement for level I contracting officer; and (2) establish new training requirements.

Chapter 2, Purchase Planning: 2.1.3.b.2 Responsibilities (Purchase Planning) has been revised to state that the purchase team has the responsibility to maintain and apply the cost and pricing models in order to optimize the total cost of ownership, and in 2.1.3.b.3, transportation planning matters have been added as areas in which materials professionals may offer expertise.

2.1.5.b Elements (Individual Purchase Plans) has been revised to add two elements (subparagraphs 7 and 21) that a purchase plan should include.

2.1.6.c.4 Reviews and Approvals (Noncompetitive Purchase Method) has been revised to clarify approval authority for noncompetitive purchases.

2.1.7.b.3 Developing Strategies (Supplier Selection Strategy) has been revised to state that purchase teams should take care to ensure that solicitations do not include unnecessary minimum standards, mandatory feature call outs or other inappropriate limitations on supplier selection.

2.2.1.c Clauses (Quality Requirements). This paragraph has been revised to discuss the use of new Clauses 2-1, Inspection and Acceptance and 2-2, Quality Management System. These clauses replace previous Clauses 2-1, Inspection and Acceptance—Supplies, 2-2, Quality Assurance I—Supplies, 2-3, Quality Assurance II—Supplies, 2-24, Inspection and Acceptance—Supplies—Nonfixed Price, 2-48, Inspection and Acceptance—Services, and 2-49, Quality Assurance—Services, all of which have been deleted.

2.2.5.f F.O.B. Points (Delivery and Acceptance). Subparagraph 1 has been revised to state that solicitations should require offerors to include both f.o.b. origin and destination prices for transportation analysis and that such analysis is available from field material management specialists and Headquarters. Subparagraph 3 has been revised to add shipment base points to the areas that may be specified as f.o.b. destination.

2.2.10.c Sharing Savings (Value Engineering). This paragraph has been revised to change the sharing scheme to one that is based on a negotiated arrangement contained in the contract. Paragraph 2.2.10.e Evaluation has been revised to for clarity, and Clause 2-22, Value Engineering, has been revised to reflect these changes.

2.2.11 Price Reduction. This new section states that when they plan to award strategically-sourced or long-term contracts, purchase teams must consider the inclusion of new Clauses 2-48, Most Favored Customer Pricing and 2-49, Cost/Price Reduction. The new clauses are included in Appendix B.

2.2.12 Investment Recovery. This new section states that an effective and efficient investment recovery plan can further the Postal Service's supply chain management goals, and directs purchase teams to include new Provision 2-8, Investment Recovery, in solicitations when it is determined that investment recovery will play a significant role in the overall success of the purchase. The new provision is included in Appendix A.

2.4.4.h Provision (Cost-Reimbursement Contracts). This new paragraph requires purchase teams to include new Provision 2-9, Accounting System Guidelines—Cost Type Contracts, in all solicitations for cost-type contracts the estimated value of which is $100,000 or more. The provision requires pre-award review and approval of the potential supplier's cost accounting system by the Postal Service's Inspector General or representative, and delineates the elements required in such accounting systems. The new provision is included in Appendix A.

Chapter 3, Supplier Relations: 3.3.3.b Procurement Lists (Workshops for People who are Blind or Severely Disabled) has been revised to state that additions and deletions to the Procurement List are published in the Federal Register as they occur.

3.4.5 Department of Veterans Affairs has been revised to provide the proper name of this department.

3.7 Debarment, Suspension and Ineligibility. This subchapter has been revised extensively. Some of the highlights of the revision are:

3.7.1.a Definitions contains a new set of relevant definitions.

3.7.1.c Treatment of Suppliers on the Postal Service and GSA List has been rewritten and now states that suppliers proposed for debarment are treated the same as those which are debarred or suspended and excluded from receiving contracts unless other treatment is approved by the Vice President, Supply Management. In addition, the VP, SM, may direct the termination for default of any contracts with a supplier which has been debarred, suspended or made ineligible.

3.7.1.d Causes for Debarment has been rewritten to add to the causes for which a supplier may be debarred, and to state that the existence for several of the causes for debarment will be established by a preponderance of the evidence.

3.7.1.e Mitigating Factors is a new section, and contains a series of factors the VP, SM, should consider when deciding whether debarment is warranted.

3.7.1.f Period of Debarment has been revised in paragraph 2., to state that the VP, SM, may refer requests for removal from debarment or a reduction of the period of debarment to the Judicial Officer for a hearing and findings of fact which the VP will then consider.

3.7.1.g Procedural Requirements for Debarment has been revised to state that debarment decisions are made based on the preponderance of the evidence, and that, if there are questions regarding material facts, that the VP, SM, may (1) seek additional information or (2) request the Judicial Officer to hold fact-finding hearings on the matter. The VP, SM, may reject findings when they are deemed arbitrary or capricious or clearly erroneous.

3.7.1.m Solicitation Provision is a new section that requires that offerors complete a new paragraph e. of Provision 4-3, Representations and Certifications, when the contract value is expected to exceed $100,000.

Chapter 4, Purchasing: 4.2.2.e Solicitation Provisions. This paragraph has been revised to state (1) that when a purchase team decides to modify, supplement or add to Provision 4-1, Standard Solicitation Provisions, or paragraphs b. and c. of Provision 4-2, Evaluation, counsel need not be consulted if a provision already contained in Appendix A, Solicitations, will replace similar subject matter in Provision 4-1 or b. and c. of Provision 4-2; and (2) that counsel should be consulted when the evaluation scheme to be used in Provision 4-2 is unusual, particularly complex, or there are other circumstances under which such consultation is advisable. Similar changes are reflected in A.2.1, Solicitation Contents in Appendix A, Solicitations.

4.2.5.d.3 Documentation (Best Value Determinations) has been revised to state that this documentation should include the extent and result of any discussions with the supplier awarded the contract and any other offerors.

4.2.7.a Clause 4-1 General Terms and Conditions has been revised to state that replacing subject matter contained in this clause with the text of a PM clause addressing the same subject matter does not require consultation with counsel. Similar changes are reflected in B.2.1 in Appendix B, Contract Clauses.

4.2.7.b Clause 4-2 Contract Terms and Conditions Required To Implement Policies, Statutes, or Executive Orders has been revised to state (1) that neither this clause nor any of the clauses added by reference may be modified unless a deviation has been reviewed and approved by an individual at a higher level than the contracting officer who holds deviation approval authority; and (2) that any changes to paragraph b of this clause (Examination of Records) must be reviewed by assigned counsel and the Office of the Inspector General before a related deviation request is submitted.

4.2.7.d Modifying Clauses has been revised to agree with the revision to 4.2.7.a and 4.2.7.b, above.

4.5.5.a.6 Definitions (Information Technology) has been revised to provide a new definition of this term.

4.5.5.b.6 Security Considerations (Information Technology) has been revised to state that purchase teams ensure that specifications or statements of work for IT purchases address the security aspects of the Business Impact Assessment (BIA).

Chapter 5, Contract Pricing: 5.2.12.d Educational Institutions has been revised to reference the new Office of Management and Budget Circular (OMB Circular A-21) that establishes the indirect cost rates for cost-reimbursement contracts with educational institutions and to provide a new source for the Directory of Federal Contract Audit Offices.

Chapter 6, Contract Administration: 6.1.2.a.7 Contracting Officer Responsibilities (Contract Administration Functions) has been revised to state that, when appropriate, the contracting officer is responsible for including in the contract file the business reason for a particular action.

Chapter 7, Bonds, Insurance and Taxes: 7.1.8.g.1 Contract Modifications (Execution of Bonds) has been revised to state that, when a contract modification increases the contract price, the supplier and the surety must execute a consent of surety and increase the penal amount, and submit it to the contracting officer.

Chapter 8, Patents and Data Rights: No significant changes have been made in this Chapter.

Chapter 9, Labor Policies: 9.4.5.l Liquidated Damages has been revised to state that, under certain circumstances, when the VP, SM, finds that an assessment of liquidated damages is incorrect, the VP may adjust the damages, or release the supplier, lessor or subcontractor from liability when the amount of damages is $500 or less.

9.7.2.e Contracts With a Religious Corporation, Association, or Educational Institution or Society (Exempt Contracts) is a new paragraph that states that, when contracting with these types of organizations, it is not a violation of Section 202 of Executive Order 11246 to employ individuals of a certain religion to perform work connected with the carrying-on of such an entity. Previous paragraphs 9.7.2.e and 9.7.2.f are renumbered as 9.7.2.f and 9.7.2.g.

9.10 Veterans has been revised as a result of the passage of the Veterans' Employment Opportunities Act and the Secretary of Labor's related implementing regulations. Clause 9-14 Affirmative Action for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans has been similarly revised.

Appendix A, Solicitations: A.2.1 Solicitation Contents has been revised along the lines discussed in 4.2.2.e, above.

Provision 2-8 Investment Recovery is a new provision and has been added as discussed in 2.2.12 above.

Provision 2-9 Accounting System Guidelines—Cost Type Contracts is a new provision that has been added as discussed in 2.4.4.h above.

Provision 4-1 Standard Solicitation Provisions paragraph b., Period for Acceptance of Offers, has been deleted.

Provision 4-3 Representations and Certifications has been revised to include a new paragraph e (Certification Regarding Debarment, Proposed Debarment, and Other Matters) as discussed in 3.7 above.

Appendix B, Contract Clauses: B.2.1 Clause 4-1 General Terms and Conditions has been revised along the lines discussed in 4.2.7.d, above.

B.2.2 Clause 4-2 Contract Terms and Conditions Required To Implement Policies, Statutes, or Executive Orders has been revised along the lines discussed in 4.2.7.a and d, above.

Clauses 2-1 Inspection and Acceptance and 2-2 Quality Management System. As discussed in 2.2.1.c, above, this clause and Clause 2-2 replace previous Clauses 2-1, 2-2, 2-3, 2-24, 2-48 and 2-49.

Clause 2-9 Definition of Delivery Terms and Supplier's Responsibilities has been revised for clarity.

Clause 2-22 Value Engineering Incentive has been revised along the lines of 2.2.10.c above.

Clauses 2-48 Most Favored Customer Pricing and 2-49, Cost/Price Reduction are two new clauses as discussed in 2.2.11 above.

Clause 3-2 Participation of Small, Minority and Woman-Owned Businesses has been revised in b.(1) by stating that showing the amount of money paid to subcontractors during the reporting period is one of the methods by which suppliers report subcontracting activity.

Clause 4-1 General Terms and Conditions has been revised by adding new c.1.(e) which states that the delivery or performance schedule is one of the contractual elements the contracting officer may change under the Changes paragraph of this clause. Paragraph m. has also been revised to state that the debarment, suspension, or ineligibility of a supplier, its partners, officers, or principal owners may constitute an act of default under the contract, and that act will not be subject to notice and cure pursuant to any termination of default provision of the contract.

Clause 4-2 Contract Terms and Conditions Required To Implement Policies, Statutes, or Executive Orders. Paragraph b., Examination of Records, has been revised. In addition, no changes may be made to this paragraph before (1) consultation with assigned counsel and the Office of the Inspector General and (2) a deviation has been reviewed and approved by a higher level than the contracting officer who holds deviation approval authority.

Clause 4-5 Inspection of Professional Services has been revised by deleting the final sentence.

Clause 4-14 Software Development Warranty has been revised for clarity.

Clause 7-5 Errors and Omissions has been revised for clarity.

Clause 8-1 Patent Rights has been revised by removing the reference to Form 7398, Report of Inventions and Subcontracts (this form is obsolete) and by stating that the reports required under this clause must be in a form acceptable to the contracting officer.

Clause 9-14 Affirmative Action for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans has been revised to reflect the changes discussed in 9.10 above.

Appendices D Rules of Practice in Proceedings Relative to Debarment and Suspension From Contracting and E, Rules of Practice Before the Postal Service Board of Contract Appeals: These appendices have been revised to correct obsolete mailing addresses.

List of Subjects in 39 CFR Part 601

• Government procurement
• Postal Service
• Incorporation by reference

In view of the considerations discussed above, the Postal Service hereby amends 39 CFR as follows:

1. The authority citation for part 601 continues to read as follows:

Authority: 5 U.S.C. 552(a); 39 U.S.C. 401, 404, 410, 411, 2008, 5001-5605.

2. Section 601.100 is revised to read as follows:

3. Section 601.101 is revised to read as follows: