Fillable Printable State Procurement Manual
Fillable Printable State Procurement Manual
State Procurement Manual
State Procurement Manual
Number
PRO-E-21
DOA-3449 N(R06/94) Formerly AD-P-12
Effective
5-1-97
Section
CONTRACTING, ORDERING, RECEIVING AND
PAYMENT
Agencies Affected
ALL
Replaces
11-1-88
Title
CONTRACT CANCELLATION AND TERMINATION PROCEDURES
Page
1
of
7
Authorized:
Director
State Bureau of Procurement
AUTHORITY: Wis. Stats. 402.106(1) & (7)
SCOPE: - to establish guidelines to be used in determining when a contract
may be ended before its scheduled time
- to establish a procedure to follow in cancelling or terminating a
contract
DEFINITIONS: I. A "contract" is any agreement between two or more parties which
creates an obligation to perform or refrain from performing some
act. Acceptance of a purchase order constitutes a contract.
II. "Cancellation" occurs when either party ends a contract for breach
by the other. The cancelling party retains any remedy for breach
of the whole contract or any unperformed balance.
When one party violates the terms and conditions of a contract, the
other party has the right to cancel. The entire contract may be
rolled back, payments previously made may be refunded, and any
remaining obligations are immediately ended.
III. “Termination” occurs when either party ends a contract other than
for a breach. Any parts of a contract that already have been
completed will be left alone, but obligations for the future, not
yet performed, will cease.
CONTENT: I. Types of cancellations:
A. Cancelling for cause/breach of contract
1. An actual breach occurs because of the failure of one
of the parties to perform at the time and in the manner
required by the terms and conditions of the contract.
B. Cancelling for an anticipated breach
1. A situation may arise where there has not as yet been a
failure of performance. However, there is strong
reason to believe that one of the parties to the
contract
will not be fulfilling their obligations. The
burden of proof is upon the party potentially
being
harmed who must show convincing evidence of the
State Procurement Manual
Number
PRO-E-21
DOA-3449 N(R06/94) Formerly AD-P-12
Effective
5-1-97
Section
CONTRACTING, ORDERING, RECEIVING AND
PAYMENT
Agencies Affected
ALL
Replaces
11-1-88
Title
CONTRACT CANCELLATION AND TERMINATION PROCEDURES
Page
2
of
7
Authorized:
Director
State Bureau of Procurement
anticipated breach and good reasons why they must go
elsewhere to seek performance or take some other course
of action. If any damages are involved, usually they
are limited to the costs in excess of the contract
price, when alternate procurement is necessary.
II. Examples of the type of violations that may cause a breach of
contract include, but are not limited to :
A. Nondelivery or late delivery of a product or service. NOTE:
Caution must be exercised because if the failure to deliver
or late delivery was caused by factors beyond the
contractor’s control (e.g., labor strike, fire, floods, act
of God, etc.), the contractor usually is protected. Also, if
there is a history of acceptance of late deliveries, the
buyer’s right to cancel may be challenged.
B. Failure to supply a product or service meeting the agreed
upon specification or in the quantities ordered.
C. Improper invoicing--charging prices or imposing terms
different from those agreed upon.
D. Seller unable to maintain or to provide parts and repair
services, or to honor warranty on equipment or products sold.
E. Unwillingness of seller to submit an acceptable affirmative
action plan.
F. The disclosure of collusion or price-fixing involving the
successful bidder, after the contract has been awarded.
G. Failure of the contractor to comply with insurance and/or
surety requirements.
H. Violation of state statutes (e.g., failure to supply
information concerning hazardous materials or substances).
I. Federal debarment where federal funds are involved.
State Procurement Manual
Number
PRO-E-21
DOA-3449 N(R06/94) Formerly AD-P-12
Effective
5-1-97
Section
CONTRACTING, ORDERING, RECEIVING AND
PAYMENT
Agencies Affected
ALL
Replaces
11-1-88
Title
CONTRACT CANCELLATION AND TERMINATION PROCEDURES
Page
3
of
7
Authorized:
Director
State Bureau of Procurement
III. Liquidated damages:
A. When it is difficult to determine exact reimbursement costs
in advance, liquidated damages may be used as a method of
assessing damages for failure of performance. It is an
effort by both parties to agree on a reasonable estimate of
otherwise hard-to-determine damages at the inception of the
contract in the event that performance is not forthcoming.
Liquidated damages are not a penalty. They must be written
in detail into the bid language, contract or other written
agreement.
IV. Types of terminations:
A. Termination for convenience
1. Some contracts allow either party to terminate for any
reason (or for no reason), under certain conditions or
facts. Terms of the contract govern such terminations
and usually specify that if either party suffers any
hardship because of actions of the other, they will be
reimbursed with a satisfactory, documented adjustment.
If the amount of the compensation cannot be determined
by mutual agreement, it may be necessary to submit to
the courts for a final decision.
2. An example of a termination for the convenience of the
state is found in a phrase usually inserted into
contracts extending over more than one biennium period;
“the state may terminate the contract without penalty
if subsequent legislatures (or the funding agency) fail
to appropriate the funds necessary to carry on the
contract.”
B. Termination by mutual consent
1. Termination is not necessarily a cause for legal
action. There may be a mutual agreement for
termination with a satisfactory adjustment worked out
between contracting parties.
State Procurement Manual
Number
PRO-E-21
DOA-3449 N(R06/94) Formerly AD-P-12
Effective
5-1-97
Section
CONTRACTING, ORDERING, RECEIVING AND
PAYMENT
Agencies Affected
ALL
Replaces
11-1-88
Title
CONTRACT CANCELLATION AND TERMINATION PROCEDURES
Page
4
of
7
Authorized:
Director
State Bureau of Procurement
2. Change orders which are common purchasing practice
technically constitute a termination of a part of, or
the whole original contract, and a substitution of a
new contractual agreement. These generally are
accepted by the buyers and sellers as a natural
condition of doing business, and carry no implication
of a breach of faith or contract.
>
V. Contract administration procedure:
A. Since a great deal of time and effort have been invested in a
contract, usually it is in the best interests of all parties
to work together to resolve differences and save the
contract
.
1. When a problem arises, the purchasing department should
immediately notify the contractor. If verbal
communication is made, written confirmation should
always follow.
2. All costs should be evaluated; if it is determined that
the contract cannot be salvaged, or that it is more
cost effective to bring it to a conclusion, termination
or cancellation proceedings should be initiated. It is
a good precautionary procedure to incorporate
termination/cancellation procedures into the special
conditions at the time bids are solicited. Depending
upon the type of product or service under contract, and
its relative importance to the state operations,
conditions may vary. When writing the bid, the type of
cancellation language in the bid document should be
considered. Products such as food, hospital and
medical supplies, heating fuels, etc., are so necessary
and vital to human needs that a single violation may be
cause for immediate cancellation and a search for a new
source. Sample language to include may be: “late
delivery of required medical supplies by more than 24
hours shall result in immediate termination of this
contract.” Or, in the instance where insurance is
vital the language may read: “lack of insurance by the
bus company shall result in immediate termination
State Procurement Manual
Number
PRO-E-21
DOA-3449 N(R06/94) Formerly AD-P-12
Effective
5-1-97
Section
CONTRACTING, ORDERING, RECEIVING AND
PAYMENT
Agencies Affected
ALL
Replaces
11-1-88
Title
CONTRACT CANCELLATION AND TERMINATION PROCEDURES
Page
5
of
7
Authorized:
Director
State Bureau of Procurement
of this contract.” Other products or services that
merely cause inconvenience to the state if not
delivered in a timely manner may allow for more
leniency and one, two, or even three warnings may be
allowed before cancellation/termination proceedings
begin. If any procedures were written into the
original contract, they should be followed closely.
3. If a definite time period for notification is not
explained in the original contract
, specific
circumstances usually will dictate the time interval to
be used. In most situations, 30 days notice should be
the minimum period allowed. The exception to this rule
is the example of a seller making a late delivery of a
purchase order where time is an important element of
the contract. Unless it is desirable to extend the
delivery date, the order should be cancelled
immediately and placed elsewhere. In those situations
where new bids will have to be solicited, but where it
is impossible to do without a product or service in the
interim period, a weak or even a bad contract may be
the better alternative than none. In this instance, 60
or even 90 days notice may be required to keep the old
contract in place while a new one is being developed.
4. Documentation of all events is the most important
aspect of good contract administration. If verbal
warnings are issued, they always should be confirmed in
writing as soon as possible. A complete historical
record is the best policy to minimize the state’s
liability and to support evidence in damage claims.
5. All bids should include elements that will result in
cancellation should they occur. Each bid must be
customized to reflect the appropriate criteria. The
following example is from a bid for bituminous coal.
Causes for Rejection of Shipments or Cancellation of
Contract:
State Procurement Manual
Number
PRO-E-21
DOA-3449 N(R06/94) Formerly AD-P-12
Effective
5-1-97
Section
CONTRACTING, ORDERING, RECEIVING AND
PAYMENT
Agencies Affected
ALL
Replaces
11-1-88
Title
CONTRACT CANCELLATION AND TERMINATION PROCEDURES
Page
6
of
7
Authorized:
Director
State Bureau of Procurement
A. Performance of the coal in the furnaces is not
satisfactory.
B. Excessive clinkering or destruction of grates or
other parts of the furnace or boiler due to
overall quality or coal performance.
C. Spontaneous combustion of the coal in bunkers or
outside storage piles, despite good engineering
or operating practices by the purchaser in the
handling or storage of the coal.
D. Coal shipments repeatedly exceeding the maximum
limits or falling below the minimum limits set
forth in the specifications.
E. Repeated shipments of coal varying widely in
chemical analysis.
F. Repeated shipments of coal in damaged or
unsuitable rail cars or trucks.
G. Repeated shipments containing pieces of wood,
metal, stone, straw or hay, ice, snow, or other
foreign matter.
H. Repeated deliveries of frozen coal.
I. Persistent failure to make deliveries or
shipments as ordered.
J. Repeated delivery of coal containing a higher
percentage of fines than specified, or a top size
larger than specified.
K. The repeated delivery of coal:
- Exceeding guaranteed as-received ash by
more than 2%.
- Falling short of the guaranteed as-received
Btu by more than 300.
State Procurement Manual
Number
PRO-E-21
DOA-3449 N(R06/94) Formerly AD-P-12
Effective
5-1-97
Section
CONTRACTING, ORDERING, RECEIVING AND
PAYMENT
Agencies Affected
ALL
Replaces
11-1-88
Title
CONTRACT CANCELLATION AND TERMINATION PROCEDURES
Page
7
of
7
Authorized:
Director
State Bureau of Procurement
- Exceeding calculated S02 emission rate of
1.5 lbs./mm Btu.
- Having an ash-fusion temperature lower than
that specified.
L. Delivery of coal having a calculated sulfur
dioxide emission rate exceeding 2.0 lbs./mm Btu
is cause for cancellation of contract.
M. Failure of the contractor to comply with all the
terms and conditions of this contract.
