Our objective was to determine whether U.S. Postal Service contracting officers (COs) are properly extending contracts.
The Postal Service may use options or renewals to extend contracts beyond the original agreement when doing so would represent the best value for the organization.
As of July 2017, the Postal Service had 313 open contracts over eight years old, with invoice activity within the last two years. The Postal Service paid over $3.4 billion on these contracts. We judgmentally selected 62 contracts to review, for which the Postal Service paid over $520 million.
What the OIG Found
COs were not consistently extending contracts in adherence with policies and procedures. Specifically, of the 62 contracts reviewed, COs:
- Added options after contract award that continuously extend 14 contracts.
- Inconsistently used option clauses when exercising options for 39 contracts.
- Improperly extended 33 contracts by repeatedly using one-time renewal clauses.
- Failed to incorporate required contract extension clauses into the contract language for 46 contracts.
Additionally, the Postal Service’s Supplying Principles & Practices include conflicting language compared with actual contract clauses regarding written notice requirements for extending contracts. Furthermore, COs did not close out 35 contracts properly.
These issues occurred because guidance on the use of option clauses is unclear, and the review and approval process does not ensure that COs use and adhere to option and renewal requirements. In addition, conflicting contract language went unnoticed by management, and COs stated that closing contracts is a low priority and a time-consuming task.
Without adequate processes over contract administration there is an increased risk of noncompliance with policy, and contracts can be improperly extended. This hinders competition, reducing the opportunity to obtain best value, and may impact the continuity of goods and services. Also, contracts that are not closed properly may still have funds obligated to them that the Postal Service could use for other purchases. For the 33 contracts improperly renewed, the annualized payments over a two-year period totaled $4.5 million.
What the OIG Recommended
We recommended management revise policy and reiterate through formal communication and refresher training: the proper use of option and renewal clauses and the inclusion of required clauses in the contract language. We also recommended management revise the review and approval process to promote adherence and consistency for contracting officers when using options and required clauses when extending contracts. Lastly, we recommended management close out the remaining open contracts and reiterate the importance of proper contract closeout.