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Is it ever too late to exercise an option?


govt2310

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Is it ever too late to exercise an option? For example, say a contract's base period was scheduled to expire on August 31, 2011. The option period covers September 1, 2011 to August 31, 2012. What happens if the agency delays the decision on whether to exercise the option for so long that the expiration date comes and passes? What if the contracting officer decides on Septembe 15, 2011, that he would like to finally exercise the option? Can he do that? And can he make the effective date of the start of performance of the work "retroactive" to September 1, 2011?

I don't believe this is possible, but I have been told by several experienced 1102s at different agencies that this is common practice. Can anyone shed light on this?

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Options which the Government has a unilateral right to exercise must be exercised per the option clauses included in the contract. If the option is expired, it?s really no longer an option available for the Government to exercise. Contractor?s may hold their option prices and in some instances gladly accept such a modification as a supplemental agreement (whether or not that?s right or wrong), but when it?s expired, it?s expired and there?s no more option available for the Government to exercise.

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Options which the Government has a unilateral right to exercise must be exercised per the option clauses included in the contract. If the option is expired, it?s really no longer an option available for the Government to exercise. Contractor?s may hold their option prices and in some instances gladly accept such a modification as a supplemental agreement (whether or not that?s right or wrong), but when it?s expired, it?s expired and there?s no more option available for the Government to exercise.

Posted in wrong location.

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Is it ever too late to exercise an option? For example, say a contract's base period was scheduled to expire on August 31, 2011. The option period covers September 1, 2011 to August 31, 2012. What happens if the agency delays the decision on whether to exercise the option for so long that the expiration date comes and passes? What if the contracting officer decides on Septembe 15, 2011, that he would like to finally exercise the option? Can he do that? And can he make the effective date of the start of performance of the work "retroactive" to September 1, 2011?

I don't believe this is possible, but I have been told by several experienced 1102s at different agencies that this is common practice. Can anyone shed light on this?

The authority of the options clause allows you to extend the period of performance unilaterally. While the contractor may agree to sign a bilateral contract modification "restoring" the option, if the period during which you may exercise the option has expired, you do not have authority under the FAR to continue to contract with the contractor. In this regard, take a look at FAR 17.207(f):

Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6.

Assuming that the option prices were evaluated as part of the award of the contract containing the option, that the option is exercisable at an amount specified in or reasonably determinable from the terms of the basic contract and that the period during which the option may be exercised has not expired, you have authority to continue your contract with the contractor to perform the services described in the option. If the option has lapsed, you do not have the authority of the option clause to continue dealing with the contractor. Absent that authority, you can neither direct unilaterally the contractor to perform the services nor can you contract with the contractor absent another competition or a sole source J&A.

Even if you prepare a sole source J&A to serve as a basis for extending the contract with the incumbent, you would be in a vulnerable position should another contractor protest the sole source award to the GAO. The protestor may argue successfully that the sole source award to the incumbent contractor was necessitated due to a lack of the government?s advance planning. The protest may very well succeed.

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This question perhaps poses two questions--one relating to the scope of the contract and one relating to the scope of the competition. The comments thus far have focused on the relationship between the contractor and the government, and correctly point out that options have to be exercised in strict accordance with contract terms in order to bind the contractor.

I suspect another part of the OP's question relates to scope of the competition. Napolik uses the phrase, "sole source" above, but I'm not sure his discussion is complete. The government only violates CICA in the manner in which it exercises an option if it doesn't meet the requirements of FAR 17.207(f) and can't meet the terms of FAR 6.001©. Most of the focus of FAR 17.207(f) is on having evaluated the price of the option. Assuming that requirement is met, what would prevent the parties from bilaterally changing the terms under which an option is exercised consistent with the scope of the competition (and the government later exercising the option)?

I may be reading too much into DRS Precision Echo, Inc., B-284080; B-284080.2, Feb. 14, 2000, 2000 CPD ? 26, admittedly a case about the Federal Supply Schedule, but that decision seems to suggest that had the contracting officer signed the bilateral modification extending the otherwise expired "option" before the order was placed, CICA would not have been violated.

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This question perhaps poses two questions--one relating to the scope of the contract and one relating to the scope of the competition. The comments thus far have focused on the relationship between the contractor and the government, and correctly point out that options have to be exercised in strict accordance with contract terms in order to bind the contractor.

I suspect another part of the OP's question relates to scope of the competition. Napolik uses the phrase, "sole source" above, but I'm not sure his discussion is complete. The government only violates CICA in the manner in which it exercises an option if it doesn't meet the requirements of FAR 17.207(f) and can't meet the terms of FAR 6.001?. Most of the focus of FAR 17.207(f) is on having evaluated the price of the option. Assuming that requirement is met, what would prevent the parties from bilaterally changing the terms under which an option is exercised consistent with the scope of the competition (and the government later exercising the option)?

I may be reading too much into DRS Precision Echo, Inc., B-284080; B-284080.2, Feb. 14, 2000, 2000 CPD ? 26, admittedly a case about the Federal Supply Schedule, but that decision seems to suggest that had the contracting officer signed the bilateral modification extending the otherwise expired "option" before the order was placed, CICA would not have been violated.

Take a look at an oldie-but-goodie identified by Signore Bob A about 10 years ago:

Where a contract for visitor reservation services has expired, the contractual relationship which existed is terminated and the issuance of an amendment 4 months after the expiration date to retroactively extend and modify the contract as if it had not expired amounts to a contract award without competition, contrary to the requirements of the Competition in Contracting Act. A protest challenging the amendment is sustained, therefore, and GAO recommends that a competitive procurement for the requirement be conducted.

The quote is from Washington National Arena Limited Partnership, B-219136, Oct. 22 , 1985.

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Napolik, thanks for the citation to Washington Nat'l. It makes clear that, notwithstanding that the competition expected a contract length (inclusive of all options) of five years, the agency violated CICA when it attempted to revive an expired option where the contractual relationship had terminated. However, I do wonder if the result would have been the same if either (1) a bilateral modification had preceded the purported exercise; and/or (2) performance on the contract had not been complete, i.e., the "contractual relationship" had not "terminated."

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