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Option Period on IDIQ was not exercised, but TO have been put issued


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Guest Vern Edwards

If the contractor will agree, prepare a supplemental agreement to the effect that the parties acknowledge that there was a "constructive" exercise of the option and that the contract continues just as if the option had been formally exercised in accordance with the terms of the contract. Document the file to forthrightly explain what happened. I doubt that you will have a problem. I suppose that a third party could protest, but that seems unlikely.

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  • 3 weeks later...

We have a similar situation where one of the three AE IDIQ options was inadvertently not exercised and a delivery order was issued. Would you mind citing the authority or your rationale for issuing a supplemental agreement in this instance? We have dissenting opinions in the office and although I shared this post, Legal questions the action because there is no authority cited. Thank you.

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Guest Vern Edwards

Authority for my rationale to "issue" a supplemental agreement? What are you talking about?

My rationale for entering into a supplemental agreement is to document the contractor's agreement to perform pursuant to the terms of the option. What authority do you think I need? Authority for what?

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The concern relayed is that the solution leaves out the part that a "supplemental agreement would be a noncompetitive creation of a new contractual relationship. All of the case law that I have found says this is a cardinal change and an improper de facto sole source award. If the option performance term has expired the agency no longer has an option to exercise, regardless of whether the contractor is willing to accept the late exercise. In my opinion, in this situation the option exercise would be a sole source procurement and would need to be justified under an exception to the requirement for full and open competition."

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hereiskim,

I might agree with you if there had been no action under the contract, but in this case the original poster said several task orders have been issued during the (unexercised) option period -- this seems to indicate that the intent of the parties was to exercise the option period, and the option period was effectively exercised by issuance of task orders -- the failure to formally exercise the option might be looked on as more of an oversight (that can be corrected) than a purposeful decision to let the contract die.

Yes, the option should have been exercised -- or else the task orders should not have been issued -- but the task orders were issued, so we have to deal with that fact.

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Guest Vern Edwards
The concern relayed is that the solution leaves out the part that a "supplemental agreement would be a noncompetitive creation of a new contractual relationship. All of the case law that I have found says this is a cardinal change and an improper de facto sole source award. If the option performance term has expired the agency no longer has an option to exercise, regardless of whether the contractor is willing to accept the late exercise. In my opinion, in this situation the option exercise would be a sole source procurement and would need to be justified under an exception to the requirement for full and open competition."

Cite your case law.

In the case raised by the original poster, based on the conduct of the contracting parties there appears to be no question that they believe that the option was exercised and have proceeded accordingly. The problem is that the paperwork was not completed in accordance with normal procedure. A supplemental agreement would not create a new relationship, it would merely acknowledge a relationship that has been in existence for several months.

When an issue arises over the exercise of an option it is usually raised by the contractor, who claims that the exercise was improper and that the Government has no right to require continued performance. That claim will fail if the contractor performed as if the option has been exercised. See e.g., Nash and Feldman, Government Contract Changes, Sec. 11:34:

Where the contractor does not object to an improperly exercised option and performs without any indication to the Government that it objects thereto, the contractor will be estopped, i.e., precluded, from challenging the original option exercise as being invalid and arguing for a right of extra compensation in performing it. This Government defense will be negated, however, where the contractor continues to perform along with its continued objection to the correctness of the original option exercise.

If you are worried about third-party protests, any such protests would be untimely at this point. This thread opened on February 12 and the original poster said then that the option exercise deadline was last August and that "several" task orders have been issued since then.

Sometimes a CO must take action, even when the regs do not specify an action to take. There are many things to be done for which there is no express authorization. However, COs are not limited to doing that which is expressly authorized. FAR 1.602-2 says that COs should be allowed "wide latitude" to exercise business judgment. You have a situation not contemplated by the regulations. You seem to think that the CO must do something. What should the CO do? What makes sense?

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If an option is not exercised, depending on the facts of your case and how the contract was written, you may have allowed a contract to expire. If the contract has expired, I have a hard time seeing that a cardinal change has occurred after the contract is over. However, the issuance of orders and performance by the contractor may have created an implied in fact contract. Further, performance by the contractor and acceptance of that performance by the government probably has given the contractor a right to be paid something for its efforts. So exactly what is the problem that needs to be addressed in this situation? Identification of the problem is the first step in problem solving.

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Guest Vern Edwards

I say that the option was exercised. The problem is that an important piece of documentary paperwork was not prepared. People are trying to figure out what the consequences might be and what they can do to avoid any negative consequences.

I say that the parties' failure to complete the paperwork was nothing but an inconsequential administrative error, as is demonstrated by their conduct, and that the error can be corrected now by supplemental agreement to complete the record.

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I say that the option was exercised. The problem is that an important piece of documentary paperwork was not prepared. People are trying to figure out what the consequences might be and what they can do to avoid any negative consequences.

I say that the parties' failure to complete the paperwork was nothing but an inconsequential administrative error, as is demonstrated by their conduct, and that the error can be corrected now by supplemental agreement to complete the record.

Agreed. The process for exercising an option is, essentially:

1. Is there an option to be exercised? Yes/No. If Yes, then

2. Does the government want to exercise it? Yes/No. See FAR 17.207©. If Yes, then

3. Government issues preliminary notice of intent to exercise the option, as specified in the option clause(s) of the contract. Then

4. Contract is modified to exercise option. Then

5. Contractor continues to perform under the terms of the option.

There was an option, which the government clearly wanted to exercise, as evidenced by the continued issuance of task orders. The contractor is clearly willing to continue to perform. What was skipped is the administrative paperwork. Go back, document, and fix. There is no "noncompetitive creation of a new contractual relationship." That's nonsense.

This case is yet another example of the many reasons not to use options in IDIQ contracts.

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Guest Vern Edwards

Have you really read the two threads? Have you thought about what you've read?

If you are a newbie, then I'll explain and sort it out for you. Are you a newbie?

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