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Adding Options to a Contract


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Question: Does the FAR allow contracting officials to add options to a contract prior to its completion?

Scenario: I am administering a contract that was sole sourced directly to an 8(a) firm for Program Management Support Services. The period of performance is from 10/01/11 - 09/30/12. Due to the need for continued support, the program office requested that these services continue thru FY14. The former specialist contacted SBA and requested approval to extend the contract by adding 2 option periods and increase the contract value from $3M to $4M. Since SBA authorized the inclusion of additional option periods to be placed in the contract, the C/O requested that I modify the contract to include options.

IAW FAR 17.202,

(a) Solicitations shall include appropriate option provisions and clauses when resulting contracts will provide for the exercise of options.

(B) Solicitations containing option provisions shall state the basis of evaluation, either exclusive or inclusive of the option and, when appropriate, shall inform offerors that it is anticipated that the Government may exercise the option at time of award.

Based on the FAR Clause cited above, I do not agree with the C/O; however, the FAR states that it is at their discretion.....

Please advise.

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You can always add options, you just need to have the proper authority to do so. In a normal case, that generally would entail a J&A justifying why you are increasing the PoP or scope of the contract.

However, you are dealing with an 8(a). I suggest you read FAR 19.8 and what FAR 6.3 has to say regarding 8(a) sole source contracts.

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ACQ_4: Adding an option to extend the term of the contract, when no such option was included at the time the contract was negotiated seems a bit odd. If the contract had resulted from a synopsized solicitation, would you be making such a change to the performance period?

Have you considered SBA approval for a replacement contract with the 8(a) firm? It might be more work, but you could then include your option to extend in the initial solicitation and award documents.

Also, I note you stated that by adding your options, you will be increasing your overall award to $4 Million. Is it $4 Million even, or will the modified contract exceed $4 Million? You might want to review FAR 19.805-1 as it relates to competitive 8(a).

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MBrown,

I have considered issuing an offering letter to SBA for a replacement contract. I just wanted to get some clarification from other contracting professionals whether the FAR allows options to be added to an existing contract.

The modified contract will not exceed $4M. The estimated value increased to $3.9M.

MBrown and dcarver,

Thanks for your response.

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My experience has been that, when it comes to 8(a)'s, the SBA usually has no objections to increasing contracts even if that means surpassing scope, or adding contract time. They want 8(a)'s to get contracts and dollars, period. Even if you went out with a new contract (versus two option years), you'd probably do a sole source to an 8(a) (likely even the same 8(a)), so they're agreeing you can take the path of least resistance and just add the options.

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This may help:

13 CFR § 124.514 Exercise of 8(a) options and modifications.

(a) Unpriced options. The exercise of an unpriced option is considered to be a new contracting action.

(1) If a concern has graduated or been terminated from the 8(a) BD program or is no longer small under the size standard corresponding to the NAICS code for the requirement, negotiations to price the option cannot be entered into and the option cannot be exercised.

(2) If the concern is still a Participant and otherwise eligible for the requirement on a sole source basis, the procuring activity contracting officer may negotiate price and exercise the option provided the option, considered a new contracting action, meets all regulatory requirements, including the procuring activity's offering and SBA's acceptance of the requirement for the 8(a) BD program.

(3) If the estimated fair market price of the option exceeds the applicable threshold amount set forth in §124.506, the requirement must be competed as a new contract among eligible Participants.

(B)Priced options. The procuring activity contracting officer may exercise a priced option to an 8(a) contract whether the concern that received the award has graduated or been terminated from the 8(a) BD program or is no longer eligible if to do so is in the best interests of the Government.

© Modifications beyond the scope. A modification beyond the scope of the initial 8(a) contract award is considered to be a new contracting action. It will be treated the same as an unpriced option as described in paragraph (a) of this section.

(d) Modifications within the scope. The procuring activity contracting officer may exercise a modification within the scope of the initial 8(a) contract whether the concern that received the award has graduated or been terminated from the 8(a) BD program or is no longer eligible if to do so is in the best interests of the Government.

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Guest Vern Edwards

Question: Does the FAR allow contracting officials to add options to a contract prior to its completion?

The answer is yes, but it is not just a matter of SBA approval or agreement.

Such an action would be a "new work" modification, i.e., a new acquisition, and you must conduct it as such. You can add an option through the conduct of a competition or on a sole source basis. If any new policies have taken effect since the award of the original contract, you must include them as applicable to the new option period, including new contract clauses. In order for the new option to be binding on the contractor there must be consideration in exchange for the contractor's agreement to incorporate the option (an offer that is irrevocable before expiration) into the existing contract.

See MCI Telecommunications Corp., B-276659, 97-2 CPD para. 90.

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Could you expand on what would constitute consideration in exchange for the contracractor's agreement in the context of Acq_4_life's stated circumstances?

In order for the new option to be binding on the contractor there must be consideration in exchange for the contractor's agreement to incorporate the option (an offer that is irrevocable before expiration) into the existing contract.

Thank you!

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Guest Vern Edwards

Perhaps if the contractor offered the government another option, and if the government accepted the offer, the consideration could be a modification adding the option to the existing contract. The contractor would be offeror, the government would be the offeree, and the consideration would be the COs execution of a supplemental agreement to add the option to the contract. The value of the option to the contractor would be the opportunity to get additional business.

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