Option term and Requirements Contract

[Ham]

We’re in the acquisition planning stage for a 10 year, R&D, single award Requirements contract as described in FAR 16.503. I’ve read the archived discussion on the inclusion of FAR 52.217-9 Option to Extend the Term of the Contract and how nothing is gained by including it in an IDIQ contract. But I’m thinking 52.217-9 might be worth including in a Requirements contract. Since award will be made to a single source and should anything go awry over a ten year performance period I could end the contract by not exercising an upcoming option term without having to worry about a possible Part 49 termination. Also, the marketplace might change and new, attractive companies could emerge that I might want to consider but I'd still be tied to a single source. Any thoughts?

Also, FAR 16.503(a)(1) requires that the CO “state a realistic estimated total quantity in the solicitation and resulting contract. This estimate is not a representation to an offeror or contractor that the estimated quantity will be required or ordered, or that conditions affecting requirements will be stable or normal”. Given the 10 year performance period, over time ordering may increase above what I had originally anticipated. If that happens, may I exceed the “estimated total quantity” without a mod to the contract or a non-competitive justification since it is just an estimate and not a maximum ceiling?

[ji20874]

Using options, instead of a straight ten-year period, may make sense for the reasons you describe.

A requirements contract need not have a contract minimum and contract maximum, but it may. See FAR 16.503(a)(2).

[Ham]

Thanks, however I read FAR 16.503(a)(2) to pertain to the maximum amount of an order. I don't think it applies to any intended maximum amount of the umbrella contract.

[ji20874]

The first sentence applies to the entire contract. The second sentence is for individual orders.

[Guest Vern Edwards]

FAR 16.503(a)(1) requires that the CO “state a realistic estimated total quantity in the solicitation and resulting contract. This estimate is not a representation to an offeror or contractor that the estimated quantity will be required or ordered, or that conditions affecting requirements will be stable or normal”. Given the 10 year performance period, over time ordering may increase above what I had originally anticipated. If that happens, may I exceed the “estimated total quantity” without a mod to the contract or a non-competitive justification since it is just an estimate and not a maximum ceiling?

The answer to your question is: Yes. The estimated quantity of a requirements contract is not the same as a maximum, and exceeding the estimated quantity or increasing it by modification does not necessarily violate CICA. However, the estimated quantity is a consideration in the determination of the scope of the contract. The GAO addressed this issue most extensively in Caltech Service Corp., GAO Dec. B-240726, 92-1 CPD ¶ 94 (Jan. 22, 1992), in which the protester contended that a modification that increased the estimated quantity by 20 percent in the base year and 49 percent in the option years, but did not change prices or the base and option periods, was beyond the scope of the contract. The GAO disagreed and denied the protest:

We do not find that DLA's modification materially changed the nature or purpose of the original contract. The contract performance period is unchanged; Tate has the same responsibilities and is to be paid the same unit price per short ton of cargo. The only change is in the estimated number of short tons of SEAVAN cargo to be consolidated during the life of the basic contract and options. Caltech argues that this increase in SEAVAN cargo constitutes a material change in the scope of the contract since it amounts to a more than 60 percent increase over the actual tonnage processed prior to the modification. Caltech also states that Tate has acquired six additional forklifts, ostensibly for use on its CCP contract.

While the procurement history is relevant, where, as here, the modification concerns a requirements contract, the appropriate benchmark for reviewing whether that modification is beyond the scope of the contract as competed is the estimated quantities rather than the actual quantities handled to date. Here, the increase in tonnage under the modification represents a 20 percent increase over the estimated quantities for the base year and a 49 percent increase in each of the option periods. Assuming both options are exercised, the total increase at issue would be 30 percent. We do not find this increase to be significant since functions under the original contract and those represented by the modification are the same. See Marine Logistics Corp., B-218150, May 30, 1985, 85-1 CPD ¶ 614. The additional tonnage applies only to a single, albeit large line item, is well within the limits of the contractual maximum, and will continue for a relatively short period of time. That Tate might acquire additional equipment to handle the increase is not germane. The firm could have required the same additional equipment apart from the modification. The acquisition of additional equipment by the contractor does not establish that the modification is beyond the scope of the contract. Similarly, while the increase in quantities will result in Tate's receipt of some additional revenue, we do not find that this establishes that the modification is beyond the scope of the original contract.

See also Marine Logistics Corp. GAO Dec. B- 218150, 85-1 CPD P 614 (May 30, 1985). As far as I know, the Court of Federal Claims has not addressed the question of whether orders in excess of the estimated quantity of a requirements contract would require a J&A, but I very much doubt that the court would do so.

Presumably, an increase could be big enough to prompt the GAO to find it to be out of scope, but to the best of my knowledge is has never made such a finding.

[wvanpup]

A requirements contract is a promise from the government to order all its requirements from the contractor, and a promise from the contractor to fill all orders, subject to maximum order limitations (which may be a limit on a single order, a limit on a combination of orders within a specified period, and/or a limit on the total orders under the contract). These mutual promises provide the consideration for the contract, even though the Government does not promise to order anything. It seems to me, therefore, that despite the language in the GAO decision, the scope of the contract is the maximum order limitation, not the estimated quantities. As the contractor, I would argue that the failure of the Government to place orders within the maximum order limitation (regardless of how much in excess of the estimate) would be a breach of the Government's promise. (All of this is premised, of course, on the assumption of a properly prepared estimate.)

[Guest Vern Edwards]

It seems to me, therefore, that despite the language in the GAO decision, the scope of the contract is the maximum order limitation, not the estimated quantities.

It makes no sense whatsoever so say that the scope of the contract is the maximum order limitation.

As the contractor, I would argue that the failure of the Government to place orders within the maximum order limitation (regardless of how much in excess of the estimate) would be a breach of the Government's promise.

Try reading FAR 52.216-19, Order Limitations (OCT1995). Issuing an order in excess of the maximum order limitation would be a breach of contract only if the contractor rejects the order and the Government insists that it comply. Otherwise, it's nothing but an offer to buy something, which the offeror could accept or reject.