At what price are options performed?

[Retreadfed]

Contractor has a multiple year contract subject to the SCA. The contractd does incorporate 52.222-43. The contract is coming to an end, but contains FAR 52.217-9. Under this clause, the contract can be extended for six months. The contract does not state a price for work done in this six month period. The contract does not contain 52.217-8. If the option under 52.217-9 is exercised, I see three possibilities as to what the contractor can be paid for work in the option period: (1) the contractor continues to be paid at the rate specified in the contract before expiration; (2) the contractor is paid at the current contract rates as adjusted IAW 52.222-43; or (3) the government and contractor negotiate a separate price for the six month period.

I have searched for definitive guidance on this question (ASBCA, COFC, CAFC decisions and the FAR), but have not been able to find any. Maybe I don't know where to look but I am striking out on this. Any words of wisdom on this?

[Don Mansfield]

Why wouldn't it be (2)? In other words, doesn't FAR 52.222-43 already cover this?

[Retreadfed]

Don, while I respect your opinion, do you have anything other than your opinion to support your position? From my experience with this contract, the resolution of this question is going to depend on much more that textual analysis of FAR provisions. Instead, it will require being able to point to, in the words of al Gore, controling precedent on this question.

[C Culham]

Did not see mention of the the CFR, has 29 CFR 4 been read in whole with regard to the question?

[Guest Vern Edwards]

Retread, you said the contract contains the 52.217-9 option, and you said that the contract can be extended for six months under the -9 option. You said the contract does not contain the -8 option. But it's usually under the -8 option that the contract is extended for six months. The -9 option is ordinarily used to extend a contract for one year. Please clarify. Which clause are you talking about?

If you're talking about the -8 clause, then if a year has passed since the beginning of the last performance period the CO must get a new wage determination in accordance with FAR 22.1007( c)(1). According to the -8 clause, the rates applicable to the six month option period are "the rates specified in the contract" as adjusted for the new wage determination pursuant to FAR 52.222-43. If the contract does not specify rates for a six month extension, then the rates will be those in effect when the option was exercised, as adjusted for the new wage determination pursuant to FAR 52.222-43.

[Retreadfed]

Vern, I am talking about 217-9. The contract has a period of performance specified, but 217-9© says (paraphrased) that the duration of the contract will not exceed the period of performance plus six months.

The contract does not include 217-8.

[Don Mansfield]

Don, while I respect your opinion, do you have anything other than your opinion to support your position? From my experience with this contract, the resolution of this question is going to depend on much more that textual analysis of FAR provisions. Instead, it will require being able to point to, in the words of al Gore, controling precedent on this question.

I misunderstood your original post. Now I get it. The option is unpriced. It would have been nice to have FAR 52.217-8 in the contract, but you have FAR 52.217-9.

There is a discussion in Formation of Government Contracts, Fourth Edition, Chapter 9, on "soft options.". It refers to a number of cases dealing with performance under unpriced options, including Electronic Sys. USA, Inc., ASBCA 26063, 82-1 BCA P 15,521, where the board held that performance of work in accordance with the Government's exercise of an unpriced option is compensable as a constructive change. I did not read the case. You may want to start your research there.

[Retreadfed]

Don, thanks for the tip. I do not have westlaw or lexus, but do have access to a public law library with the BCA decisions. I will start with that decision.

[Regor]

Vern, I am talking about 217-9. The contract has a period of performance specified, but 217-9© says (paraphrased) that the duration of the contract will not exceed the period of performance plus six months.

The contract does not include 217-8.

The clause 52.217-9, Option to Extend the Term of the Contract at paragraph c should only reflect options under that clause, not under Option to Extend Services. How is it that you have 52.217-9 with a fill in of 6 months but no option CLINs? How were the options evaluated at the time of award? Sounds to me like there was an error in the fill-in. Some people include the 6 month extension under 52.217-8 in the fill-in for 217-9 even though in 52.217-9 it clearly says "The total duration of this contract, including the exercise of any options under this clause. Sounds like you may not even have any option available.

[FAR Fetched]

The clause 52.217-9, Option to Extend the Term of the Contract at paragraph c should only reflect options under that clause, not under Option to Extend Services. How is it that you have 52.217-9 with a fill in of 6 months but no option CLINs? How were the options evaluated at the time of award? Sounds to me like there was an error in the fill-in. Some people include the 6 month extension under 52.217-8 in the fill-in for 217-9 even though in 52.217-9 it clearly says "The total duration of this contract, including the exercise of any options under this clause. Sounds like you may not even have any option available.

I read Retred's post as the Contract had a base year and X amount of options which have all been executed.

Also - why wouldn't -8 be read into the contract? It sounds like it should have always been there in the first place.

Is it safe to assume the contractor is looking for a rate increase in line with the last few years of escalations (e.g. 3%)?

[Retreadfed]

FF, the major issue is whether the contractor would be limited only to the adjustment described in FAR 52.222-43, or whether the contractor could price out the unpriced option, as Don accurately labeled it, with increased indirect costs and profit.

[Navy_Contracting_4]

...

Also - why wouldn't -8 be read into the contract? It sounds like it should have always been there in the first place.

...

Why would you think -8 could be read into the contract? It's not a required clause.

[Don Mansfield]

FF, the major issue is whether the contractor would be limited only to the adjustment described in FAR 52.222-43, or whether the contractor could price out the unpriced option, as Don accurately labeled it, with increased indirect costs and profit.

I just finished reading the Electronic Sys. USA, Inc., decision. In that case, the Government mistakenly put the equivalent of FAR 52.222-44 in a contract with options and was trying to argue that the equivalent of FAR 52.222-43 should be read in and used to price the unpriced option. If that had happened, the contractor would not have been due an increase. The board said that it wouldn't have made a difference if the correct clause were used:

The issue presented is whether appellant is entitled to a revised unit price under its contract which was renewed for a one year period by the Government's exercise of its option. The contract does not specifically set out the amount of the unit price if the option is exercised (findings 8, 10). Appellant contends that its interpretation that the unit price for the option period was unpriced and would be negotiated (finding 12), is reasonable and thus should be accepted. The Government argues essentially that appellant should have known that the wrong escalation clause was included for wages and fringe benefits (findings 3, 10), and that inclusion of the proper clause for a fixed price service contract with an option to renew would show unequivocably that the contract price would be increased for the option periods only for such specifically allowable costs as increases in wages and fringe benefits and the like. Further the Government contends that its position is proven by the parties' past dealings during a prior contract under which appellant furnished essentially the same services as performed under the present contract.

We cannot agree with the Government's position that incorporating the proper provision for escalation of wages and fringe benefits would have defined conclusively that the unit price would remain unchanged throughout the option period(s), with the exception of the escalation provided for by this clause. Both the clause omitted and that included refer specifically to the amount permitted for the cost of wage and fringe benefits and do not deal with appellant's contention that the total unit price should be negotiated.

Further, on this record the Government has failed in its burden of showing a prior course of dealings on the earlier contract which would establish that the parties at the time of contracting agreed on the price of the option.

Rather in this instance, the Government exercised its option to renew a contract which does not include an agreed upon price for the option period. Under these circumstances, appellant's performance is compensable as a constructive change. See General Dynamics Corporation, ASBCA No. 12504, 77–1 BCA ¶12,504 at 60,623 and cases cited.

[Guest Vern Edwards]

I first wrote this on Saturday, Feb. 23, but edited it extensively the next morning.

Retread wrote:

The contract is coming to an end, but contains FAR 52.217-9. Under this clause, the contract can be extended for six months. The contract does not state a price for work done in this six month period.

He then asks how the contractor should be compensated. He later wrote:

[T]he major issue is whether the contractor would be limited only to the adjustment described in FAR 52.222-43, or whether the contractor could price out the unpriced option, as Don accurately labeled it, with increased indirect costs and profit.

How to price Retread's option? I choose Retread's "possibility" No. 2, as stated in his opening post.

[T]he contractor is paid at the current contract rates as adjusted IAW 52.222-43[.]

I think that the government should get a new wage determination, if required, and that the only price adjustment should be pursuant to FAR 52.222-43, if that is a term of the existing contract. I don't think any other adjustment or negotiation is required, unless some clause says so.

The clause says that the government may extend the term (duration) of "this contract," that it must give notice and preliminary notice within certain deadlines, and that the maximum length of the contract is X. I believe that means that the CO can extend the contract then in existence, at its then-existing price, or at specific option terms, if any. I think the CO can exercise that option as many times as he wants and for any lengths of time he wants within the maximum period, and he can extend it at the price then in effect, unless the contract stipulates other option terms. So unless the contract stipulates more definite terms for an extension option, the CO's right to extend at the price in effect is pretty broad. I know that the usual practice is to establish priced option CLINs, but FAR does not require option CLINS. Most of us have just always done it that way.

I cannot cite any case in support of this interpretation. I am basing it on the plain language of the clause. FAR 52.217-9 is mentioned in 77 board and Court of Federal Claims decisions. I did not find any that dealt with this issue. But I found no case that contradicts my position, probably because the usual practice is to establish separately price option line items, so the issue hasn't come up. But the clause does not refer to or require, expressly or by implication, separately priced option line items, and FAR 17.207(f) does not require the stipulation of a specific option dollar amount. See 17.207(f)(1) and (2).

I'm addressing only the pricing issue between government and a contractor and not a bid protest by a third party that the government would be exercising an unpriced option.

OK. everybody, tell me why I'm wrong.