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Velhammer

GAO's latest MCS Decision

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Vbus,

No, that is the case. I just re-read FAR 17.206 and I think I had it wrong in my earlier post--( b ) is an exception to ( a ).

Regardless, I see nothing in FAR 17.206 that prohibits a contracting officer from evaluating options even if it is unlikely that the options will be exercised.

I could see a situation where if a contract contained many options that the Government did not intend to exercise, that including them all in the evaluation might make an offeror's overall evaluated price less meaningful and would less accurately reflect the expected value of the contract.

For example, if Offeror A proposes high prices for the base requirement and low prices for the unlikely optional items, while Offeror B proposes low prices for the base requirement and high prices for the unlikely optional items, the two offerors may end up having overall evaluated prices that are closer together than what would have been had the unlikely option prices not been evaluated. In fact, Offeror A may end up winning the contract based in part of their overall price, when Offeror B may in fact be a better value for the "real" requirement.

If you include the prices for a 6-month option for each contract year in your price evaluation, you are essentially evaluating 7.5 years of contract performance that is only anticipated to run 5 years. Since not only is it unlikely to exercise a 6-month option period five times during the life of the contract, it's downright impossible, I believe its improper to include that many potential options in your overall price evaluation.

It just doesn't seem right to do it that way.

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For example, if Offeror A proposes high prices for the base requirement and low prices for the unlikely optional items, while Offeror B proposes low prices for the base requirement and high prices for the unlikely optional items, the two offerors may end up having overall evaluated prices that are closer together than what would have been had the unlikely option prices not been evaluated. In fact, Offeror A may end up winning the contract based in part of their overall price, when Offeror B may in fact be a better value for the "real" requirement.

FAR 15.404-1( g ) requires that price analysis be performed for each separately priced line item--presumably to avoid the situation you described.

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If you include the prices for a 6-month option for each contract year in your price evaluation, you are essentially evaluating 7.5 years of contract performance that is only anticipated to run 5 years. Since not only is it unlikely to exercise a 6-month option period five times during the life of the contract, it's downright impossible, I believe its improper to include that many potential options in your overall price evaluation.

It just doesn't seem right to do it that way.

Totally agree that it's impossible. Think our CO Council has been tasked with coming up with a procedure for documenting this consistently so say if Option 2 is not exercised and order is recompeted early for some reason but then we wind up using 52.217-8, we don't get caught in the MCS situation and someone says we never evaluated it. Sometimes it seems we spend more time figuring out how to "protest-proof" the documentation than doing the evaluation itself. :D Sry - just frustration talking.....

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Don, thanks - I'm glad you posted this, because, while I agree now, I had read too much into 17.206(a) myself before now. This is a great example of a case where it's easy to read too much into the FAR. I just had a discussion with some of my colleagues where they thought FAR 42.1503(e) limited use of information in PPIRS to 3 yrs. (6 for construction and A/E) of completion, and I said that it doesn't state that, that they were reading too much into the FAR, because it says you SHALL use that information when it is within the 3/6 yr. period, it doesn't say you cannot use information that is older than that. (They may have been influenced too much by the old FAR language re: PPIRS, but that's for another thread - not trying to thread-jack this one.)

Mike, FAR 42.1503(e) was rewritten after the July 2006 version of FAR to be consistent with GAO Decisions and position that FAR 42.1503(e) did not limit past performance evaluation periods in source selections to 3 years. That section related to collection and maintenance of the info. It used to read that agencies could not retained to provide source selection information for longer than three years after completion of contract performance. I had a copy of a decision from sometime in 2006 or 2007 which nixed the limitation, because I was involved in a debate with some Contracting Officers who mistakenly cited 42.1503(e) as a prohibition on evaluating PP for construction past three years but I cant find it offhand. Not only did the GAO disagree, but FAR 36201© requires retainage of pp ratings for 6 years for responsibility determinations. I did a GOOGLE search under GAO FAR 42.1503(e) and found numerous articles or cites. One GAO paper indicated that the info must be kept for at least 3 years after end of performance, not that the government is limited to evaluating performance to 3 years. Dont have the time to look at every link and copy the info tonite, but you can do a GOOGLE Search and read for yourself

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Mike, FAR 42.1503(e) was rewritten after the July 2006 version of FAR to be consistent with GAO Decisions and position that FAR 42.1503(e) did not limit past performance evaluation periods in source selections to 3 years. That section related to collection and maintenance of the info. It used to read that agencies could not retained to provide source selection information for longer than three years after completion of contract performance. I had a copy of a decision from sometime in 2006 or 2007 which nixed the limitation, because I was involved in a debate with some Contracting Officers who mistakenly cited 42.1503(e) as a prohibition on evaluating PP for construction past three years but I cant find it offhand. Not only did the GAO disagree, but FAR 36201? requires retainage of pp ratings for 6 years for responsibility determinations. I did a GOOGLE search under GAO FAR 42.1503(e) and found numerous articles or cites. One GAO paper indicated that the info must be kept for at least 3 years after end of performance, not that the government is limited to evaluating performance to 3 years. Dont have the time to look at every link and copy the info tonite, but you can do a GOOGLE Search and read for yourself

Thanks Joel - I believe I had read that decision, or at least some decision which included PP info older than 3 years. I had the same arguments with 1102s in my office re: the old language, and told them just because it said the system could not retain info older than 3 years didn't mean we could obtain and use info older than that.

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If you include the prices for a 6-month option for each contract year in your price evaluation, you are essentially evaluating 7.5 years of contract performance that is only anticipated to run 5 years. Since not only is it unlikely to exercise a 6-month option period five times during the life of the contract, it's downright impossible, I believe its improper to include that many potential options in your overall price evaluation.

It just doesn't seem right to do it that way.

Vbus,

I sense that you think that there is something inherently wrong with structuring a contract with options that account for two possible futures, only one of which can happen. Consider the following scenario.

You have a requirement for services for one year and at least six months of the following year. Circumstance A has not arisen, but there's a possibility that it could arise any time during the first year. If Circumstance A arises, then you will only need services for the first six months of the second year. If Circumstance A does not arise, then you will need services for the entire second year.

What would be wrong with structuring a contract with one line item for the base year, one optional line item for the first six months of the second year (which you would exercise if Circumstance A arose), and one optional line item for the entire second year (which you would exercise if Circumstance A did not arise)?

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Vbus,

I sense that you think that there is something inherently wrong with structuring a contract with options that account for two possible futures, only one of which can happen. Consider the following scenario.

You have a requirement for services for one year and at least six months of the following year. Circumstance A has not arisen, but there's a possibility that it could arise any time during the first year. If Circumstance A arises, then you will only need services for the first six months of the second year. If Circumstance A does not arise, then you will need services for the entire second year.

What would be wrong with structuring a contract with one line item for the base year, one optional line item for the first six months of the second year (which you would exercise if Circumstance A arose), and one optional line item for the entire second year (which you would exercise if Circumstance A did not arise)?

What would be wrong with it? Because having to go to such overly complex lengths to implement a GAO decision shows how ridiculous that decision is.

Why can't you just evaluate the possibility that any of the line item services might be extended for up to six months and assure that prices are still fair and reasonable,as part of the price analysis. Then during the tradeoff analysis evaluate to ensure that the value (both technical and price) would still provide the best value if the temporary extension(s) are needed. After all, the extension is purportedly designed to cover delays in awarding replacement contracts. Why get so elaborate?

Chances are good that if the prices were reasonable and provided the best combination of price technical value, a six month extension wouldn't change the relative value of the winning proposal, would it? The only scenario I can think of where it might be questionable is if the best value was a lot more expensive than another proposal and you'd want to ensure that it still made sense and provided the best value for a longer period (including the extension.

If price is the most important factor (best value tradeoff with price most important factor or LPTA), a six month extension wouldn't change the relative order of value of the proposals.

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Why can't you just evaluate the possibility that any of the line item services might be extended for up to six months and assure that prices are still fair and reasonable, then during the tradeoff analysis evaluate to ensure that the value (both technical and price) would still provide the best value if the temporary extension(s) are needed. After all, the extension is purportedly designed to cover delays in awarding replacement contracts. Why get so elaborate.

So you are advocating two tradeoff analyses--one excluding the price of the optional extension periods and one including them?

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So you are advocating two tradeoff analyses--one excluding the price of the optional extension periods and one including them?

Nope, it's included in the same trade-off analysis. There is a separate price analysis of the proposals and a trade-off comparison analysis, like normally done..

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FAR 17.206(a) only refers to option periods and option quantities, not all options. One might opine that the 52.217-8 clause provides for neither an option period nor an option quantity, but a different kind of option. The 52.217-8 clause provides for an option to extend services, not an option to extend the term of the contract, as 52.217-9 does.

1) Is the TERM of the contract extended when you exercise the 52.217-8 clause or are the services only extended? Is there any difference to you? Can I extend services without extending the term at the same time? Do you think it proper to refer to the time period covered by the 52.217-8 clause as an "option period?"

2) If you are not incorporating the price of exercising the 52.217-8 clause in your Government Estimate of Contract Price, how are you reconciling that nonaction against the FAR convention at 1.108©, which clearly states "all options," not just option periods and option quantities, as 17.206(a) states?

3) If you are considering the 52.217-8 clause for 1.108© purposes before award, how are you reporting the maximum value of the contract correctly after award if you are not including the price of the option to extend services at the outset in your report?

Most of the time, the exercise of these options should fail the safeguard at FAR 17.207(f) that the option be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract.

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Vbus,

I sense that you think that there is something inherently wrong with structuring a contract with options that account for two possible futures, only one of which can happen. Consider the following scenario.

You have a requirement for services for one year and at least six months of the following year. Circumstance A has not arisen, but there's a possibility that it could arise any time during the first year. If Circumstance A arises, then you will only need services for the first six months of the second year. If Circumstance A does not arise, then you will need services for the entire second year.

What would be wrong with structuring a contract with one line item for the base year, one optional line item for the first six months of the second year (which you would exercise if Circumstance A arose), and one optional line item for the entire second year (which you would exercise if Circumstance A did not arise)?

Don,

Sorry for the late reply... I enjoy your scenarios! To your point, no, I don't think there is anything inherently wrong with structuring a contract with options that could exist in mutually exclusive situations. I think under the right circumstances, adding multiple optional arrangements may be very advantageous and may offer the Government a wide range of possibilities and flexibility under a contract that could account for future uncertainties such as changes in technology or changes to the program budget.

To your scenario question, I see nothing wrong with structuring a contract that way to best cover the Government's need in an uncertain situation. In fact, it sounds totally reasonable. I think the problem arises when you try to perform a price evaluation inclusive of all options. I don't believe you can combine the price for Base CLIN 001 with Option CLIN 002 and Option CLIN 003 to reach a total price to be evaluated knowing the Government has no intention of exercising both Option CLINs 002 and 003. I believe that based on FAR 17.206(a ), the CO would need to determine which of the two Option CLINs he/she anticipated that the Government would most likely exercise (e.g. based on the odds of Circumstance A occuring) and perform his/her price evaluation based on that. So if the CO determines that Circumstance A is not likely to happen and that the Government is more likely to exercise Option CLIN 003, then the total price evaluation should include CLINs 001 and 003 only, and Option CLIN 002 should not be evaluated. If Circumstance A does occur and the Government wants to exercise Option CLIN 002, then the CO must follow the procedures for contracting without providing for full and open competition in accordance with FAR 6.3 (assuming the contract was awarded pursuant to FAR Part 14 or 15). I think this is what the FAR says and what GAO would say.

Bringing this back to the discussion of how to evaluate the option at 52.217-8, I think COs would be wise to include the potential 6-month option in their total price evaluation assuming that it is likely that the Government will exercise the option at the end of the contract (which is what I see most often in my office). The CO should also require offerors to submit price information for that 6-month span, possibly in increments if the CO did not want to commit to a full 6-months. So when it comes time at the end of the contract and the Government requires additional performance up to 6 months, the CO may exercise the option. If the Government does not want to continue the contract to the end by exercising more option periods and wants to exercise the option at -8 for up to 6 months at any time before the end of the contract, then the CO may exercise the option only after complying with the procedures of FAR 6.3.

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I am working on a contract right now with a CLIN for technical data that will be in the base and also in each option year. We intend, and have notified the contractor, that we do not intend to award that CLIN in either the base or an option year until the FINAL period of the contract, whenever that is. We have added the price for each CLIN into the Government Estimate, and expect the contractor to price each TD CLIN as well, so it will be a set FFP no matter when we need the data.

I see adding the extension clause at 52.217-8 as the same thing, we just have to think a little differently to make the adjustment.

With that said, I agree that the GAO seems to have left its common sense hat at home for some time now on this issue, and should run home and get it soon.

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