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Commerical Supply IDIQ: Multiyear or Multiple-Year? Options Required?

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I'm working on preparing a multiple-award IDIQ for FFP commercial supplies, and there has been some discussion in my office about multi-year vs. multiple year and the inclusion of options for ordering periods. Each multiple-award IDIQ is intended to have a single five-year ordering period without options. Each delivery order would be funded using single-year appropriations. Each IDIQ would also have a minimum obligation that we reasonably expect will be fulfilled almost immediately after award.

However, these IDIQ's raise two very important questions:

1. Would the IDIQ's be considered multiyear or multiple-year?

2. If they are multiple-year, are options required?

Here's a summary of our discussion, and the general consensus we've reached. Any other insight is welcomed, regardless of whether it's conflicting or supporting.

Multiyear vs. Multiple-year.
Based on the definition of multiyear in FAR, a multiyear contract is for the purchase of supplies for more than one year. Further, "The key distinguishing difference between multi-year contracts and multiple year contracts is that multi-year contracts, defined in the statutes cited at 17.101, buy more than 1 year’s requirement (of a product or service) without establishing and having to exercise an option for each program year after the first."

Under FAR 17.104(a), "Multi-year contracting is a special contracting method to acquire known requirements in quantities and total cost not over planned requirements for up to 5 years unless otherwise authorized by statute, even though the total funds ultimately to be obligated may not be available at the time of contract award. "

Our discussion leads us to believe the IDIQ contracts we're preparing are not multiyear. First, they're IDIQs, and by virtue of an IDIQ, the quantity is unknown, and fails part of the criteria at FAR 17.104(a). However, the use of a minimum obligation could encroach on the multiyear definition. If we specified the minimum obligation were to be met sometime throughout the contract term, and delivery orders were funded using single year appropriations, we'd essentially be committed to spending money in future years that we don't have yet. An availability of funds clause could handle that situation, but it seems if we specified the minimum obligation would be met before the fiscal year end after contract award, we'd very clearly be out of multiyear territory.

Options in a Multiple-Year Contract

Our second topic of debate is the inclusion of options in a multiple-year contract. Our logic follows that if a contract exceeds one year in duration, and is not a multiyear contract, then it must be a multiple-year contract. Some of us argue against the necessity of options in a multiple-year contract, but others insist they are required. However, I cannot find any requirement in the FAR to affirmatively support either case. We all understand that anything is permitted unless it's prohibited in the FAR, but the idea of a multiple-year contract without options makes some people uncomfortable.

We've reviewed FAR 17.202( B)(2), "Inclusion of an option is normally not in the Government’s interest when, in the judgment of the contracting officer -- An indefinite quantity or requirements contract would be more appropriate than a contract with options.", and this would seem to be a smoking gun to resolve this question. However, others have argued this statement demonstrates some other intent, such as an IDIQ should be multiyear (which we've already argued amongst ourselves that an IDIQ is not). My sentiment is that although options may present some advantages and disadvantages, they are not explicitly required in a multiple-year contract. Can anyone back me up?

To summarize my questions:
1. Is our logic correct in classifying this IDIQ as a multiple-year contract?
2. Is there anything out there that requires the use of options to extend the ordering period of a multiple-year IDIQ?

Thanks in advance to everyone who offers us some meaningful insight.

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You can award a parent IDIQ contract with a three year ordering period, for example, with no options, just straight three years -- the parent contract obligates no appropriated funds -- each of your task orders will have to comply with whatever funding rules apply.

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When you award the IDIQ contract you will not obligate the government to buy more than a single year's requirements. Right? You will not include a cancellation clause. Right? You will have the right to order quantities up to the maximum, but you will not be required to buy anything over the minimum. I presume that will use annual appropriations to place orders and they you will be obligated to buy the minimum in the first contract year.

If my suppositions are correct, then game over. It's multiple year, not multi-year. It is highly unlikely, I think, that you would get authority for a multi-year procurement in order to buy commercial items.

Nothing requires that you use annual extension options with an IDIQ contract.

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You can award a parent IDIQ contract with a three year ordering period, for example, with no options, just straight three years -- the parent contract obligates no appropriated funds -- each of your task orders will have to comply with whatever funding rules apply.

This is excellent information. but it still leaves the question of whether or not options are "required".

To add to the debate, another person asked if we had reviewed the definition of a multiyear contract at FAR 17.103 and applied it to our scenario. We have. FAR 17.103 states that a multi-year contract is for the purchase of supplies or services for more than 1, but not more than 5, program years. A multiyear contract amy provide that performance under the contract during the second and subsequent years of the contract is contingent upon the appropriation of funds, and (if it does so provide) may provide for a cancellation payment to be made to teh contractor if appropriations are not made. The key distinguishing difference between multiyear and multipke-year contracts is that multiyear contacts defined in the statutes at 17.101, buy more than 1 year's requirement without establishing and having to exercise an option for each program year after the first.

The thing is, we're not committing to buying anything beyond the guaranteed minimum, which will be obligated at the time of contract award. Therefore, we don't know if we're buying more than 1 year's worth of a supply. I believe that's where the additional information I previously specified at FAR 17.104(a) comes in. FAR 17.104(a) goes on to express that multiyear contracts are a "special contracting method to acquire known requirements in quantities and total cost not over planned requirements for up to 5 years..."

Also, someone asked if we had considered FAR 16.504. To be specific, FAR 16.504(a)(4)(i) states that "A solicitation and contract for an indefinite quantity must -- (i) Specify the period of the contract, including the number of options and the period for which the Government may extend the contract under each option". We have considered this in our debate, but it divides us even deeper. FAR 16.504 makes it sound like options should be included in an IDIQ by stating that the Government is required to state the number of options included in the contract. However, it stops short of stating options are "required".

Assuming the intent of FAR 16.504(a)(4)(i) is that IDIQ's must include options, how can we resolve the apparent conflict generated by FAR 17.202(B )(2) where it states "Inclusion of an option is normally not in the Government's best interests when, in the judgement of the contracting officer -- An indefinite quantity or requirements contract would be more appropriate than a contract with options. However, this does not preclude thye use of an indefinite quantity or requirements contract with options."?

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When you award the IDIQ contract you will not obligate the government to buy more than a single year's requirements. Right? You will not include a cancellation clause. Right? You will have the right to order quantities up to the maximum, but you will not be required to buy anything over the minimum. I presume that will use annual appropriations to place orders and they you will be obligated to buy the minimum in the first contract year.

If my suppositions are correct, then game over. It's multiple year, not multi-year. It is highly unlikely, I think, that you would get authority for a multi-year procurement in order to buy commercial items.

Nothing requires that you use annual extension options with an IDIQ contract.

Thank you, Vern. Your reputation precedes you.

We all generally agreed that this is not multiyear, and I do appreciate your insight as well. The inclusion of options is what was preventing us from reaching a unanimous desicion. I can't find anything, anywhere that states options are required for an IDIQ contract to establish the ordering periods. But, this pushes some people out of their comfort zones when it deviates from how they were taught. I volunteered to undertake the impossible and demonstrate that beyond the absence of regulation mandating the use of options, options are not required.

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jb208,

Are you in DoD? If so, see DFARS 217.204( e )( i )( A ).

I'm in VA. I've checked our agency supplement, but haven't found anything that forces us to use options.

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Why would you need options in an IDIQ contract, other than to extend the ordering period?

The usual reasons for using options on a supply contract is that you have only enough money for a certain quantity, but think that you might need more than that, or know that you will, so you include an option to buy more if you get more money, either in this fiscal year or the next. But if you enter into an IDIQ contract for supplies it's like having a contract with options, the issuance of an order being the same as the exercise of an option. You need an option only to extend the ordering period.

The only limit on the duration of an IDIQ ordering period is in FAR 17.204(e). Five years. You can award an IDIQ with a five year ordering period. You only need an option if you want to be able to extend the ordering period. On the other hand, if you can get approval for an ordering period of more than five years, you don't need an extension option to go beyond the five years.

If anybody says you have to have options, tell them to show you where it says that.

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jb208,

The issue is whether you must have options in an IDIQ contract with an ordering period that exceeds one year. There's no need to classify such a contract as a multiple-year contract to make your case. If others want to argue that multiple-year contracts must have options, then I would say fine--then this contract doesn't meet your definition of multiple-year contract. However, that would be irrelevant as to whether an IDIQ contract with an ordering period exceeding one year must contain options.

There is no requirement in the FAR or VAAR that IDIQ contracts contain options if the ordering period is to exceed one year. As you have already found, the FAR even advises against including options in an IDIQ contract. Here's an excerpt from an old Nash & Cibinic article on the subject (see IDIQ Contracts and Options: Varied Guaranteed Minimums, 16 NC&R 9, September 2002):

We have never been advocates of the use of options in indefinite delivery, indefinite quantity (IDIQ) contracts. A multiple-year IDIQ contract contains all of the advantages of an option with none of the disadvantages. One of the major disadvantages of options is that if they were not evaluated at the time of initial award, they must be competed. See FAR 17.207(f). Even the FAR has a lukewarm caveat against the use of options in IDIQ contracts. See the instruction to Contracting Officers in FAR 17.202(B):
"Inclusion of an option is normally not in the Government's interest when, in the judgment of the contracting officer--
* * *
(2) An indefinite quantity or requirements contract would be more appropriate than a contract with options. However, this does not preclude the use of an indefinite quantity contract or requirements contract with options."
In short, the CO is authorized to do a dumb thing. Unfortunately, many contracting agencies choose to include options in IDIQ contracts.

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