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If a Federal agency does not act on an option period (one year) on a labor-hour ID/IQ task-order contract because the person responsible for initiating the exercise of the option year didn't, because she did not know she was responsible and, thus, she failed to act--did she act?  Can an agency not exercise an option simply because no one thought to do so?  

As a follow-on, does anybody know of any bases for NOT running through the considerations of FAR 17.207 in exercising (or not) an option period, even if the CO knows she will not be exercising it?  Doesn't the obligation to go through the checklist in 17.207 seem to indicate it should be gone through for each option to be exercised, even if the conclusion is to not exercise the option?

 

 

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11 minutes ago, uraniumgal said:

Can an agency not exercise an option simply because no one thought to do so?

Yes. It has happened many times. It is not a violation of regulation or a breach of contract. An option is, well, optional.

11 minutes ago, uraniumgal said:

As a follow-on, does anybody know of any bases for NOT running through the considerations of FAR 17.207 in exercising (or not) an option period, even if the CO knows she will not be exercising it?

I think that what you want to know is whether a CO must make a FAR 17.207 determination before NOT exercising an option. If so, the answer is no. FAR 17.207 clearly says that a CO must make a determination before exercising an option. It does not require a determination before NOT exercising an option.

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7 minutes ago, Vern Edwards said:

 

Yes. It has happened many times. It is not a violation of regulation or a breach of contract. An option is, well, optional.

I think that what you want to know is whether a CO must make a FAR 17.207 determination before NOT exercising an option. If so, the answer is no. FAR 17.207 clearly says that a CO must make a determination before exercising an option. It does not require a determination before NOT exercising an option.

I agree completely.

"(c) The contracting officer may exercise options only after determining that --"

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2 hours ago, uraniumgal said:

So there is no good-faith/non-arbitrariness/non-capricious behavior required for two task orders open at the option time and that end later (>six months)?

I'm sorry, but I can't read whatever language in which that was written. Would you try again in English?

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U - Agree your last question is confusing.  You might want to refer to your contract and see if contract clause 52.216-22 and its paragraph (d) are in it.   It might help you answer your own question and if not it might help you reframe your last question.

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Here is a fascinating and informative article on the use and exercise of options after the lapse of the underlying contract period: https://media2.mofo.com/documents/160803gaoallworld.pdf.

Here is an appetizer:

"For years, federal agencies have issued task and
delivery orders, under Federal Supply Schedule and
indefinite-delivery, indefinite-quantity contracts,
that include many years of options that extend well
beyond the underlying contracts’ ordering periods.
And for years, agencies have exercised those options
without regard to whether the time for placing new
orders under the underlying contracts had expired.
Earlier this year, however, the Government Accountability
Office threw sand in the gears of this
long-established practice. In AllWorld Language
Consultants, Inc., Comp. Gen. Dec. B-411481.3, Jan.
6, 2016, 2016 CPD ¶ 12; 58 GC ¶ 65, GAO came to
the surprising conclusion that an agency could not
exercise options included in an FSS order after the underlying
FSS contract’s ordering period had expired,
even if the FSS order containing the option was issued
during the FSS contract’s ordering period.
This unusual result has fostered concern among
some agency officials about their ability to exercise
FSS order options that the contracting parties necessarily
assumed would be available when the agency
awarded the order. Similarly, because of the logic of
GAO’s decision, some contracting officials have become
concerned that the exercise of task order options
under IDIQ contracts is similarly foreclosed after the
IDIQ contract’s ordering period ends, notwithstanding
the timeliness of the task order itself."

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Okay, okay, Vern:  In English, my question was:  Is there no requirement of good faith or that an action is not arbitrary and capricious after the contract expires naturally, with no option period elected?  Is that more clear?

I've been reading about the Verilease decision so I know that this forum generally agrees that once an agency pays out the minimum amount specified in the contract, there are not more obligations, such as an obligation of good faith or an obligation to not be arbitrary and capricious.  (Though it does seem to me that not acting on an option period is an action unto itself and it specifically is arbitrary and capricious.)  Does this no more obligations follow the task orders too?

Is that more clear, although I slipped another question in there!

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It appears that the contract ordering period expired during the performance period for two task orders.  I assume that the two orders are or have been proceeding to their completion; you haven't stated otherwise. The government has no inherent duty to extend the ordering period.  

 How is the government arbitrary and capricious or not acting in good faith? Enough generalities already - please be specific. What am I missing here?

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1 hour ago, uraniumgal said:

 Is there no requirement of good faith or that an action is not arbitrary and capricious after the contract expires naturally, with no option period elected?

Contracting parties must always act in good faith, and a contracting officer can never act arbitrarily and capriciously against the interests of the contractor. A CO's actions must be consistent with the terms of the contract.

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8 hours ago, Vern Edwards said:

Contracting parties must always act in good faith, and a contracting officer can never act arbitrarily and capriciously against the interests of the contractor. A CO's actions must be consistent with the terms of the contract.

That's a good general answer to the general question.  The uranium gal adds:

9 hours ago, uraniumgal said:

(...though it seems to me that not acting on an option period is an action unto itself and it specifically is arbitrary and capricious.)  [She then asks:] Does this no [sic] more obligations follow the task orders too?

O.k., then she is entitled to her opinion. She would be required to establish how not acting to exercise the option was an arbitrary and capricious act and/or that the government acted in bad faith, in order for her firm to obtain some relief.  As for the follow on question, I don't know what specific obligations or actions she is referring to. Of course, you provided the appropriate general answer. 

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The government often fails to act in a timely manner to exercise options and/or to make timely notifications of its intent to exercise options. As such, those common instances might be classified as "inactions".  I don't think those inactions are necessarily arbitrary and capricious or failures to act in good faith.  Under the terms of the contract, the government never promised that it would exercise the option(s).

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12 hours ago, uraniumgal said:

It does seem to me that not acting on an option period is an action unto itself and it specifically is arbitrary and capricious.

According to Black's Law Dictionary, 10th ed., arbitrary, in the context of this thread, means: "Depending on individual discretion; of, relating to, or involving a determination made without consideration of or regard for facts, circumstances, fixed rules, or procedures."

According to Black's, capricious, in this context, means: "characterized by or guided by unpredictable or impulsive behavior; likely to change one's mind suddenly or to behave in unexpected ways."

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Uraniumgal, if you can find somewhere in the FAR that states agencies have a positive obligation/responsibility to consider whether or not to exercise options maybe you could get some traction behind your position, but I don't think you'll be able to do so because, to my knowledge, such a requirement does not exist - as Vern pointed out in his first response "An option is, well, optional."

This wouldn't be the first time an agency has forgotten to exercise on option and it won't be the last - forgetting or failing to exercise an option does not entitle an agency (or customers relying on that agency, in this case uraniumgal) to a mulligan under some standard of "arbitrary and capricious" behavior or failing to act in good faith.  As you can see from the definitions posted by Vern (and others if you look up the definitions for those terms), each requires some action, exercise of discretion, or decision and in this case of not exercising an option, you have the absence of behavior/discretion/decision entirely.

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Attached is a link to a short article by Ross Crown, titled "Legal insights: Government Decision Not to Exercise Contract Option.”  In it the author states that short of proving bad faith on the part of the CO, even satisfactory performance by a contractor does not impair the Government’s right to refuse to exercise an option (Vehicle Maintenance Services v. General Services Administration, GSBCA No. 11663).  It also includes references to cases that deal with the government’s obligation to deal in good faith and the burden of proof a contractor has in overcoming the presumption that government officials act in good faith.  http://www.lrrc.com/legal-insights-government-decision-not-to-exercise-contract-option-06-01-2008

 

Also see Sword & Shield Enter. Sec., Inc. v. Gen. Servs. Admin., CBCA No. 2118, 12-1 BCA ¶ 34,922 (the Government’s decision not to exercise an option is within its discretion and will not be disturbed absent a showing of bad faith or that the decision was so arbitrary or capricious as to constitute an abuse of discretion).

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Okay--thanks for all the thoughts.  Very gracious.

A couple of things:  The Contract's COR is responsible for starting the ball rolling (according to another CO--CO "A") for the election an option period by making a recommendation yea or nay.  The Contract was exercised the first option year primarily because a thorough and contemplative CO (CO "B") emailed the COR certain forms that you can get on the Internet (i.e., e.g. is it a good deal for the government? etc.) to guide her an analysis and fulfill her responsibility to make a recommendation one way or the other to the contracts department.  (Also, as stated in the agency's COR Guidebook).  However, although she has been "trained" through several classes as a COR, she did not know that it was actually, at this particular agency, her responsibility to first recommend yea or nay for the second option year in the contract.  She admitted later that, if she had known it was her responsibility (to conduct an analysis [as in FAR 17.207] and recommend a yea or nay on the second option year to CO "A"), the COR WOULD HAVE RECOMMENDED the exercise of the option.  She was just waiting on the forms from the contracts department and, because the thorough CO "B" had left the agency, no one sent her the forms.  So she waited and didn't contact the CO "A" nor the Contract Specialist--CS "C."  Similarly, neither CO "A" nor CS "C" contacted her (the COR) to determine her recommendation despite the fact that both knew the Contract was going to expire without the option.  (I completely, fully, and robustly know that contract options are at the sole discretion of the agency, unless there is bad faith, arbitrariness, and/or capriciousness.)  I am trying to figure out if this story supports a call of "arbitrary": if you look at the definitions Vern listed, then it does seem to be arbitrary (i.e., "a determination made without consideration of or regard for facts, circumstances, fixed rules, or procedures") that the Contract ended without exercise of the second option year.

(This agency does NOT, btw, follow its own policies, the FAR, and/or the CFR in many ways.  There is no Contract file, no COR file [e.g., FAR 4.801].  [I'm not sure if the files listed are for the benefit of the contractor, but with NO files, it is difficult to see how the the requirement for "additional documents on which action was taken or that reflect actions by the contracting office pertinent to the contract" is satisfied.]  There had been NO contractor evaluations [except one for the first base year], until six months after the Contract expired when two evaluations suddenly showed up in my Inbox; no other types of determination were made/documented--this agency is not managed well in my humble opinion.) (All three evaluations performed were "Very Good"s mixed with "Excellent"s.)

Another thing, to answer your questions above, the agency ultimately let the two outstanding task orders expire with no action (even though there were options in the task orders) and then three months later hired a new consultant for each and, in one case, all of the work we accomplished was re-done by the new contractor.  No consideration of FAR 17.207(e)(1) and (2).  (e)(1) suggests that continuity in work can be considered when electing an option as well as the impacts to a small business, which I am.  Talk to my mortgage company about the impacts--I am losing my house due to all of this going on. :(

5 hours ago, joel hoffman said:

(...though it seems to me that not acting on an option period is an action unto itself and it specifically is arbitrary and capricious.)

BTW:  I meant either way--that the analysis required in FAR 17.207 should be accomplished for an option's election, but maybe a "Memo to File" for when the option is not elected.  Or at least SOMEONE should be able to stand up and say "I decided this one"--no one has done that thus far.

Finally, to Matthew F. above:  There isn't such a thing, except for the fact that the prices for the two options are codified in the Contract itself, so as I understand it, that occurs "when it has been determined prior to soliciting offers that the Government is likely to exercise the options"  (FAR 17.206).

Thanks for all you help and thoughtfulness.

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1 hour ago, uraniumgal said:

Finally, to Matthew F. above:  There isn't such a thing, except for the fact that the prices for the two options are codified in the Contract itself, so as I understand it, that occurs "when it has been determined prior to soliciting offers that the Government is likely to exercise the options"  (FAR 17.206).

The presence of an option in a contract does not impose an obligation on the contracting activity to consider exercising the option - if it did, that would seem antithetical to the concept of an option.

Moreover, there is ample case law stating that options must be exercised in a timely manner and in exact compliance with the option terms, Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d 319 (Fed. Cir. 1997) - and there is good reason for that strict compliance.  What you're essentially advocating is that in cases of contract mismanagement (which may or may not be the case), the Government should be able to ignore the strict compliance standard and retroactively exercise an option...that sounds more arbitrary and capricious (and lacking good faith) to me than the scenario you've detailed here.

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1 hour ago, Matthew Fleharty said:

The presence of an option in a contract does not impose an obligation on the contracting activity to consider exercising the option - if it did, that would seem antithetical to the concept of an option.

Moreover, there is ample case law stating that options must be exercised in a timely manner and in exact compliance with the option terms, Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d 319 (Fed. Cir. 1997) - and there is good reason for that strict compliance.  What you're essentially advocating is that in cases of contract mismanagement (which may or may not be the case), the Government should be able to ignore the strict compliance standard and retroactively exercise an option...that sounds more arbitrary and capricious (and lacking good faith) to me than the scenario you've detailed here.

Whoa!  Yes, as I said above, I do understand that options are optional.  I get that (see above, "...completely, fully, and robustly").

And, yes, I also know of the requirements for option timeliness as well as Contract compliance, what does that have to do with what I wrote about?  I don't understand?  And, what is it that you think I'm advocating, because in my mind I haven't advocated anything?

Believe me, after being out of work for a year, I certainly know a retroactive option-exercising is not going to happen.  I do appreciate your time.

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Uraniumgal, you said that the government didn't exercise options within the two task orders that extend beyond the ordering period in the base ID/IQ contract. A Google Search of "failure to exercise option in a timely manner" will yield GAO and Court of Federal Claims decisions that clearly indicate that an agency isn't allowed to properly exercise options in open task orders after the base contract ordering period has expired, that would extend the task order periods of performance or add services .

You also indicate that the agency frequently exercised options late, and wonder 'why not now' , to support your feeling that they are acting in bad faith. In other words, you are wondering, why are they now constrained by the rules? 

I can understand your frustration but that doesn't establish bad faith or arbitrary and capricious behavior. Sorry for your frustration about the seeming incompetence and inconsistent behavior by the agency. 

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Joel:  Thanks for your thoughts.  But I'm not sure about ...

41 minutes ago, joel hoffman said:

You also indicate that the agency frequently exercised options late, and wonder 'why not now' , to support your feeling that they are acting in bad faith. In other words, you are wondering, why are they now constrained by the rules? 

 Where did I suggest the agency frequently exercised options late?  And where do I wonder "why not now"?  The first isn't true to my knowledge and the second, I know I don't wonder why!?  

Regarding your first paragraph, what I was told was that the task orders could be extended so long they were issued, with options, in the base period + any exercised option periods.  However, they can only be extended six months where we were required to perform whatever the scope of work and produce corresponding deliverables (unilaterally).  And, I was also told, that they (the task orders) could be extended "quite a lot," but with such an extension (after the six months), we were not compelled to continue work, but we could agree if we wanted the work (it becomes a bilateral agreement).

Thank you.

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I'm sorry for my misstatement concerning past practices, uranium gal. 

In addition, my statement concerning the government not being allowed to exercise options within task orders after the ordering period of the underlying ID/IQ contract wasn't necessarily correct. There was a January 2016 GAO bid protest decision to that effect.

However, it concerned a task order on a Federal Supply Schedule contract. AllWorld Language Consultants, Inc.,Comp. Gen. Dec. B-411481, Jan. 6, 2016, 2016 CPD 12; 58 GC 65

http://www.gao.gov/assets/680/674912.pdf

This decision has been discussed in some WIFCON threads this year with speculation as to whether the GAO would apply its reasoning to non-FSS Contract orders.  Plus, some agencies might now be adopting policies for non-GSA schedule ID/IQ contracts consistent with that decision. 

Here is another, recent view concerning the AllWorld Decision:

http://thecgp.org/gao-out-of-order-options-on-orders-and-the-impact-of-the-allworld-bid-protest-decision.html

It's possible that your contracting office might have been recently told that they couldn't exercise options after your ID/IQ ordering period expired, despite what you said they told you (earlier?). 

Some other discussions and Blogs have focused on what language is in the underlying ID/IQ contracts for task orders that extend beyond the ordering period. 

At any rate, I'm sorry about your situation and resulting business and financial impacts. 

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I have reviewed the WIFCON legal pages, where Bob lists GAO protests and Court decisions,  looking for anything since January 2016. The AllWorld protest was listed but for other issues. I also checked the index listed by issue (e.g, options, ordering, etc.).  I didn't find anything that would identify other decisions or more current coverage. 

Im not a paralegal and don't have currently access to Westlaw or other legal search tools. There could be some more current case law or regulatory updates.  I'll leave that to the more experienced researchers here.  

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23 hours ago, uraniumgal said:

Another thing, to answer your questions above, the agency ultimately let the two outstanding task orders expire with no action (even though there were options in the task orders) and then three months later hired a new consultant for each and, in one case, all of the work we accomplished was re-done by the new contractor.  No consideration of FAR 17.207(e)(1) and (2).  (e)(1) suggests that continuity in work can be considered when electing an option as well as the impacts to a small business, which I am.  Talk to my mortgage company about the impacts--I am losing my house due to all of this going on. :(

You are misreading and misinterpreting FAR 17.207(e)(2). First, it has nothing to do with the loss of personal property or real estate. FAR 17.207(e)(2) states that when exercising an option, and considering whether the exercise of the option is the most advantageous method of fulfilling the Government's need, the contracting officer may consider the effect on small business.    

You are also misreading and misinterpreting FAR 17.207(c). It states the contracting officer may exercise an option only after determining XYZ. It does not state that determining XYZ is required if the option is not exercised.

20 hours ago, uraniumgal said:

I do understand that options are optional.

12 hours ago, uraniumgal said:

what I was told was

 

12 hours ago, uraniumgal said:

And, I was also told,

PepeTheFrog thinks you learned a harsh but valuable lesson about contracts and options. 

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Thanks Joel (I'll look at the case you mention) and Pepe for your contemplative answers.  Pepe, no, I DO know  that my foreclosure has no role in these proceedings!!!  My point was that we worked on two task orders for three years and then all that work was trashed and a new consultant repeated the whole project 3 months later.  I was just remarking on the project-continuity issue.  Also, believe me--I know that the list in 17.207 needs to be addressed only when an a priori decision to exercise the option has been made.  It's just that NO ONE made that a priori decision, or at least no one who wants to admit it!  

This was my very first Federal contract and I did learn a harsh lesson:  Never to bid on Federal contracts again.  Small businesses just cannot manage the weight of all the regulation.  Our $6 million contract was not worth the havoc played out in my professional life as well as my personal life!!!

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