Exercising an Option early

[Velhammer]

I have a service contract that is funded with ARRA funds (Post Construction Award Services type work). The Dodd-Frank Wall Street Reform and Consumer protection Act has a little blurb about all unobligated Recovery Act funds. It states the funds will be rescinded on 31 Dec 2012 and used to pay down the deficit. I'm still waiting to see how this is going to be implemented, but presumably I won't have funds after 31 Dec 2012, if not sooner.

My service contract is currently in option year #1, which expires at the end of April 2013. There is still a remaining option year, and the services will still be required. Some of the positions are SCA covered, but even if a change in WD occurs, the rates being paid are well above the SCA minimums, so no adjustment would be due. Since I don't have a bona-fide needs rule problem due to the five year funding (4 1/4 now), and I won't see an SCA adjustment; I cannot think of any reason that I cannot exercise the option about 5 months early. Am I missing anything else?

[dcarver]

So you want to exercise the option early, even though you know at the time the work starts the funding will have already been rescinded? I'm not sure how appropriate that would be, since you already know in advance that a law that has went into place will rescind your funding before you actually need the work to start.

I'm not asking this as a rhetorical question, more waiting for Vern or someone with more knowledge to answer it. What would the difference be between what you are attempting to do and me trying to take say...3 year money that is going to expire (or be rescinded, whichever) on 30 September, and exercise an option for December 30th? You have a bona fide need, but you have a bona fide need after the appropriation has already expired (If I have a bona fide need in FY13 but have FY12 1 year money, I can't use that to pay for the bona fide need in FY13).

Again, could be wrong, but I'd rather have discussion so I understand it fully rather than not ask at all.

[Velhammer]

I appreciate your point of view, which is why I'm asking for other opinions. To respond to your points in the hope of advancing the conversation: 1) Unobligated funds are being rescinded. In my opinion, that is not the same as saying the funds are no longer available for new obligations. Stated another way, the funds won't be expired, they just won't be available. 2) If I had written a 2 1/2 year contract (the full term) with no options, and this turn of events occurred, there would be no issue.

[dcarver]

I appreciate your point of view, which is why I'm asking for other opinions. To respond to your points in the hope of advancing the conversation: 1) Unobligated funds are being rescinded. In my opinion, that is not the same as saying the funds are no longer available for new obligations. Stated another way, the funds won't be expired, they just won't be available. 2) If I had written a 2 1/2 year contract (the full term) with no options, and this turn of events occurred, there would be no issue.

Ah, good point, I overread the "unobligated" portion of that statement. That changes how I look at it.

[Guest Vern Edwards]

Assuming that funds are available for the obligation, there is no bona fide need issue, and and you have a reasonable expectation of needing the service, then I see no legal problem with exercising the option "early." (Actually, there is no such thing as exercising it early. Unless the contract says otherwise, you can exercise an option at any time prior to the deadline for doing so as long as you have funds.) Whether that would be a good business decision or politically correct is another matter.