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rios0311

Option to Extend the Term not Exercised on Time - Now What?

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I recently transferred from a large agency, to a small, independent agency. I've encountered several instances of contracts structured with optional periods of performance, but the options were not exercised on time and now the contracts are "dead". A lot of effort went into awarding these contracts, even if some of them were relatively small. I've explained to the program offices that the contract has ended and since none of the terms and conditions of the contract are in effect, there is no provision or authority for me to exercise an option or extend the contract.

So the result is that although a contract term of up to 5 yeas was contemplated, the contract is lost after one year of performance because someone wasn't paying attention (contractor, COR, contract specialist, CO, etc.). I understand that the contract is expired, but is there anything that I can do short of recompeting the requirement? Let's assume that these are not 8(a) contractors and the services are not so unique that they couldn't be provided by any other contractor. Is there any legitimate way of extending the contract or issuing a new contract to the contractor without having to compete it? Would the original contemplation of time (5 years) be sufficient to justify a direct award?

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Generally, the Government must exercise options in strict compliance with the option clause in order for the exercise to be valid. However, there are cases where the contractor was found to have waived the "strict compliance" rule by performing without objection. If the "strict compliance" rule can be waived implicitly, then I presume it can be waived explicitly. As such, if you can get the contractor to agree to waive its right to strict compliance with the option clause, then I think you can exercise the option. However, if the contractor wants to enter into negotiations for the terms of the remaining options, then I think that would be a sole source negotiation requiring justification.

A risk that the Government runs with an invalid option exercise is that the contractor can claim that the exercise was a constructive change and, as such, request an equitable adjustment. This is why I suggest getting an explicit agreement releasing the Government from any such claims up front.

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Thanks Don. I've done that in the past. I've had the contractor waive their right to a preliminary notice, but in this case, the base period of performance has passed. It ended about 45 days ago. I don't think I could extend this contract because it has ended. I don't think the contractor's waiver will help with the period of performance that's ended already. Or will it?

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Rios0311,

Since in your original post you stated this is not a unique service and other contractors could provide the service, in order to comply with CICA, I think you are required to put out a new solicitation or process a J&A for the incumbent (which doesn't sound supportable based on your description).

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I understand that, but I'd like to know why, if we contemplated a performance period of up to 5 years, and all offerors were aware of that fact, why can't we correct the error (of not exercising an option on time) and award a contract to the same contractor for a period of time equivalent to the time remaining on the original award?

We wouldn't be adding any new work or giving the contractor any additional money. We're only buying the services we contemplated in the original award. How does making a direct award to correct an administrative error a violation of CICA? This doesn't seem like it would be unfair to contractors because had the error not been committed, no one would have the opportunity to bid on the contract until the last option period ended. Does this serve a purpose? It seems punitive at the least.

I would like to hear a solid rationale for why I can't make a direct award to the contractor, other than "because it's unfair" or other than "because you're required to".

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I assume that, if exercised, the option would have begun 45 days ago? And the contractor has not been performing for the last 45 days? If that's true, then it sounds like you would have to renegotiate the terms of the option.

I think that you have the wrong idea if you think that Congress had in mind the punishment of agencies for failure to exercise options on time when passing CICA. Think of it this way--an option is an offer that may or may not be accepted by the Government. If the Government fails to exercise an option in strict compliance with the option clause, then they have not accepted the offer. As such, the Government will have to solicit new offers if they still have a requirement for the supplies or services. CICA requires that these new offers be solicited using full and open competition unless an exception applies.

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...If the "strict compliance" rule can be waived implicitly, then I presume it can be waived explicitly. As such, if you can get the contractor to agree to waive its right to strict compliance with the option clause, then I think you can exercise the option. However, if the contractor wants to enter into negotiations for the terms of the remaining options, then I think that would be a sole source negotiation requiring justification.

A risk that the Government runs with an invalid option exercise is that the contractor can claim that the exercise was a constructive change and, as such, request an equitable adjustment. This is why I suggest getting an explicit agreement releasing the Government from any such claims up front.

Does the option state specific dates for performance?

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You have not answered Don's question whether the contractor is still performing the contract. Did the contractor stop work on May 6? If it did, have you been obtaining the covered services some way?

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I understand that, but I'd like to know why, if we contemplated a performance period of up to 5 years, and all offerors were aware of that fact, why can't we correct the error (of not exercising an option on time) and award a contract to the same contractor for a period of time equivalent to the time remaining on the original award?

...I would like to hear a solid rationale for why I can't make a direct award to the contractor, other than "because it's unfair" or other than "because you're required to".

...I don't think I could extend this contract because it has ended. I don't think the contractor's waiver will help with the period of performance that's ended already.

The contract ended on May 6th (over 7 weeks ago). You said that you don't think you can make "direct award" to the firm. You indicated that you would have to negotiate changes to all remaining performance periods. (EDIT: You would also have to negotiate no cost changes to all the remaing option periods that you want to retain.) It would seem that those are solid rationales for not being able to simply make "direct award" . I assume that you meant bilaterally , not unilaterally.

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I am a Contractor and recently experienced this same question on a contract with a Government Agency (I won't name names). The Government exercsed our option 7 days after the base contract expired and then exercisded the 2nd option period on time. Their legal staff said that since the first option was exercised late, the 2nd option should not have been awarded and the contract should be considered to be dead. They cited FAR 17.207 (a) and (f).

FAR 17.207(a) states When exercising an option, the contracting officer shall provide written notice to the contractor within the time period specified in the contract.

and

17.207 (f) states 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.

Since we were not notified withion the time limit specified in the contract and in accordance with the terms of the options clause, we were basically out of luck and the contract was not renewed and new task orders were not allowed to be issued!

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You have not answered Don's question whether the contractor is still performing the contract. Did the contractor stop work on May 6? If it did, have you been obtaining the covered services some way?

Retreadfed, I didn't see where Don asked whether or not the contractor was still performing the contract. But no, the contractor is not currently working.

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I am a Contractor and recently experienced this same question on a contract with a Government Agency (I won't name names). The Government exercsed our option 7 days after the base contract expired and then exercisded the 2nd option period on time. Their legal staff said that since the first option was exercised late, the 2nd option should not have been awarded and the contract should be considered to be dead. They cited FAR 17.207 (a) and (f).

FAR 17.207(a) states When exercising an option, the contracting officer shall provide written notice to the contractor within the time period specified in the contract.

and

17.207 (f) states 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.

Since we were not notified withion the time limit specified in the contract and in accordance with the terms of the options clause, we were basically out of luck and the contract was not renewed and new task orders were not allowed to be issued!

Loul, you're referring to two different issues. Option 2 was not a valid exercise of an option because option 1 wasn't exercised while the contract was in effect. So both options are invalid. The issue regarding the required notices could have been worked around as long as you, the contractor, agreed to waive your right to the notice.

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The contract ended on May 6th (over 7 weeks ago). You said that you don't think you can make "direct award" to the firm. You indicated that you would have to negotiate changes to all remaining performance periods. (EDIT: You would also have to negotiate no cost changes to all the remaing option periods that you want to retain.) It would seem that those are solid rationales for not being able to simply make "direct award" . I assume that you meant bilaterally , not unilaterally.

I don't believe I indicated that "I don't think I can make a direct award". I was asking why I couldn't make a direct award. And I don't think I mentioned negotiating changes to all remaining performance periods. Maybe my use of terminology is incorrect when I stated "make a direct award". What I meant was an award of a contract without competition.

I think the difficulty I'm having with this is that maybe I've placed too much weight on what the original intent of the parties was. The public had knowledge that the Government wanted a contract lasting up to 5 years. The public was given the opportunity to bid on it. Once a selection was made, Both parties intended to engage in a contract with a 5-year period (including options). An administrative error now seems to override the original intent. I just wanted to know why an error can't be corrected.

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I don't believe I indicated that "I don't think I can make a direct award".

rios, please see your post #3, quoted in part below:

...I don't think I could extend this contract because it has ended. I don't think the contractor's waiver will help with the period of performance that's ended already. Or will it?

... I don't think I mentioned negotiating changes to all remaining performance periods.

You said that each option was to be performed May 7 through May 6 of the following year. That can't occur if you started the next period 7 or 8 weeks later, right? Therefore, in order to award the option in question, you would have to negotiate a new performance period. I assumed that if you want to retain the remaining options you would also have to change those periods.

Assuming that the contract had not expired, in order to avoid competition to award remaining option or options, as applicable, I think that the prices for the revised periods would also have to remain the same as they would have for the original period(s).

And you also menmtioned that the public was aware of a contract lasting up to five years. Well, you are now looking at a contract that could last up to 5 years and 2 months.

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Joel, I had distinguished between extending the contract and making a direct award. I know I can't extend the present contract because it ended. I wanted to know if there is any way of awarding a new contract to the same vendor without holding a new competition. For example, could it be sufficient to follow a procedure similar to the procedure at 49.102(d) reinstatement of terminated contracts - and determine in writing that awarding the contract without competition is advantageous to the Government?

The period of performance would have to be realigned, but they would not exceed the length of the original contract. For example, base POP would be date of award through May 6 and so on.

The point is, I understand clearly why we must compete new requirements or new work. What I don't understand is why we can't correct an administrative error by awarding a contract to the same contractor without being subjected to a new competition. It's seems like a silly requirement. There is no new work involved. How is it unfair to anyone? Like I stated previously, it seems punitive. If the services are required, the contractor has been performing satisfactorily, program had the money to pay for the option, but someone dropped the ball and failed to realize that the end date had passed and the option hadn’t been exercised, then why can't the error be corrected?

Why should the Government be required to spend the resources involved in competing a new requirement due to what amounts to an administrative error? I don’t see the sense in it. In fact, is it expressly prohibited somewhere? Or is it an over-interpretation? I would argue that it could be reasonable to award such a contract and that doing so would be within the spirit of the law.

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rios0311,

In order to obtain the required services at this point, you will have to solicit a new offer from the contractor, correct?

Yes Don, but I would make the direct award conditional upon the original pricing. If the contractor felt compelled to change its pricing, then I wholeheartedly agree that a new competition should be held. I'm discussing a case in which nothing would change from the original award. The new contract would pick up where the old contract left off.

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I'm not going to keep beating this subject, but I find it difficult to accept that we would have a process in place for ratifying unauthorized committments, but there isn't a process in place for correcting this type of an administrative error.

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rios0311,

The pricing may stay the same, but the performance period would not. If you're talking about awarding a new contract that would be subject to CICA (not an order under an existing contract), then I am out of ideas.

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Rios0311,

You stated that the effort in question is relatively small. Perhaps you could award a single option bilaterally as a new contract if it is under SAT and use the reasoning that you have been discussing throughout the thread as your justification for doing so (See FAR 13.106(B)(1)(ii)). I would go further to quantify the costs of conducting a new competition and demonstrate the benefit of awarding a sole source contract to the Government. Of course before you decided to pursue this path you would need to do adequate market research in order to determine that a new solicitation would result in a more optimal situation for the Government (i.e. better performance, better T&C’s, better price). Once you have the contract in place for a year go out and conduct a new competition. All of this babbling could be for not if a single option is not less than SAT but your reaching so I thought I would reach as well.

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I think the difficulty I'm having with this is that maybe I've placed too much weight on what the original intent of the parties was.

I could not find any GAO or Court of Federal Claims protest decision that addresses this issue. So why not go ahead and bilaterally extend the contract through May 6 of next year, as originally intended, document the file to explain what happened and why you decided to extend the contract through bilateral modification, and wait to see what, if anything, happens? That's what I would do. If I got a protest, how I would handle it would depend upon the protester's argument.

Wouldn't that be better than letting yourself be frozen into inaction by speculation about how a protest might be decided?

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What about any price difference for the expired 45 days? Could the 45 days worth of services be "de-scoped" after co-execution of the bilateral extension, or is that too risky for the Government?

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Sure. Why not? The risk here is that there would be a protest and that the protest would be sustained. Rios would be no worse off if that happened than he is now. If the GAO decided it, perhaps a courageous agency head would disagree and tell it to get lost.

But if Rios is going to do such a thing, he'd better do it right away. The fact that the contractor stopped performing 45 days ago might be the biggest factor working against him. If the agency takes too long to get off its butt and do something, it could put the last nail in its coffin for this matter.

My bet is that Rios' agency won't have the guts to do it or will take forever to get it done.

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Exactly. My question is why is it subject to CICA? It was already competed once. What value is obtained by holding an additional competition for the same exact services that, were it not for an administrative error, would be provided by the original awardee? The only period of performance that would change would be the period that should be in effect. It would be shortenend. The contract end date would not change, hence the contractor would not obtain additional work.

Thanks for trying Don. I think I'm just digging for the original intent of the Act. Was it meant to apply to situations such as the one I described? No answer required. Thanks!

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