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Background for Question:

An IDIQ contract was awarded that includes a Base Year and two Option Years.  

Per contract stipulation A.5 MINIMUM/MAXIMUM CONTRACT AMOUNTS sub a.:
"During the ordering period specified in the Ordering Clause (FAR 52.216.18), the Government will place orders totaling a minimum of $20,000.00."

Per contract stipulation B.2.2     52.216.18 Ordering. (OCT 1995) (Applies to IDIQ CLIN ONLY)
(a) Supplies and services under this contract shall be ordered by issuance of delivery orders or task orders by the individuals or activities designated in the Schedule. Such orders may be issued from contract award through the end of the effective period.
(b) All delivery orders or task orders are subject to the terms and conditions of this contract. In the event of conflict between a delivery order or task order and this contract, the contract shall control.
(c) If mailed, a delivery order or task order is "issued" when the Government deposits the order in the mail. Orders may be issued orally, by facsimile, or by electronic commerce methods only if authorized in the Schedule.

Per A.6 PERIOD OF PERFORMANCE
The period of performance is from date of award through 12 consecutive months. The contract may be extended by exercising options for two additional twelve month periods.
Base Year: 9/10/2012-9/9/2013
Option Year 1: 9/10/2013-9/9/2014
Option Year 2: 9/10/2014-9/9/2015

Per Solicitation/Contract/Order for Commercial Items awarded 9/10/2012, Box 19 Item No. shows 1

Box 20 Schedule of Supplies/Services shows
TIN
DUNS
IDIQ Name
Period of Performance: 9/10/2012 to 9/9/2015
Item No. 1 - Line Item to Fund Task Orders: $500,000.00
The total amount of award: $500,000.00. The obligation for this award is shown in box 26.

Box 26 Total Award Amount: $0.00.

Per the modification of contract, effective date 9/14/2013, Box 13 D Other:
FAR 52.217-9, "Option to Extend the Term of the Contract"

Box 14 Description of Modification:
TIN
DUNS
The purpose of the unilateral modification is to 1) Exercise Option Year 1 under this Task Order. Accordingly:
1) The Government exercises its right to exercise an option in accordance with the contract's clause FAR 52.217-9, "Option to Extend the Term of the Contract", which thereforce updates the period of performance for this Task Order.
2) As a result of the exercise of this option, the total task order value is hereby increased:
From: $42,709.92
By: $43,564.12
To: $86,274.04
Monthly Payments - $3,630.34
The new task order period of performance has hereby been extended as follows:
From: 9/14/2012-9/13/2013
To: 9/14/2013-9/13/2014
Delivery: 8/15/2013
Delivery location
Payment
Add Item 2 as follows
Item No. 2 - Exercise Option Year for IDIQ Amount 43,564.12

During the Base Year, six orders were placed and invoiced against, totaling $17,795.80 (cumulative). During Option Year One (contract modified to exercise the option effective 9/14/2013), zero orders were placed and invoiced against, totaling $0 cumulative. Option Year Two was not exercised.

 

Question:

While all of the orders have been paid in full, they total less than the minimum delivery orders.  For IDIQ Base Year, ordering resulted in invoices totaling $17,795.80, which is $2,204.20 below the $20,000 minimum delivery order threshold. For IDIQ Option Year One, ordering resulted in invoices totaling $0, which is $20,000 below the $20,000 minimum delivery order threshold.

In order to close-out this contract per the fully executed terms, isn't the minimum delivery order applied to each CLIN (per 52.216.18)?  In other words, CLIN 1 establishes the Base Year as an ordering period and CLIN 2 establishes a second ordering period for Option Year One?

It seems there is an interpretation issue with the ordering period, the Schedule, the effective period, and the Period of Performance.  

 

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Because 52.216.18 says ordering applies to the IDIQ CLIN.   And there are two CLINs - one for the base year and another for the option year. 

In addition, there appears to be a point of interpretation in how 52.216.18 references "effective period", as it relates to the minimum delivery "ordering period" and the "period of performance".  Just because the period of performance can be extended through options, my interpretation is that that does not necessarily extend the ordering period (to the whole life of the contract); rather, extending the period of performance through options could also mean that the contract is establishing another ordering period (as assigned by the new CLIN).

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Yes, correct. "52.216.18 ORDERING. (OCT 1995) (APPLIES TO IDIQ CLIN ONLY)".  The contract established CLIN 1 to fund task orders.  The contract modification added CLIN 2 to exercise option year one for new IDIQ amount.

In this case, does the addition of a CLIN establish another/separate ordering period? 

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If I were you, I would be asking the customer what they think and why. Knowing that would help you frame your arguments. As indicated above, the regulatory details are massive and tricky. With respect to contract principles, I would argue that YR1 and YR2 options lack consideration without the $20,000 minimum being separately applicable to each. I was confused about the option CLIN. Was YR1 and YR2 option included in a single CLIN? If both option periods are included in a single CLIN, and the $20,000 minimum applies to that single CLIN (which is what it sounds to me you may have been saying), don't you need to wait until YR2 option period is exercised before your "complaint" that the $20,000 minimum was not met?? If YR1 and YR 2 options were each clearly separately included in the initial IDIQ contract, I would argue that unless the $20,000 minimum applies to each each option, exercise of each option lacks consideration and is unenforceable.    

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Unless the contract language specifically provides otherwise, there is not a recurring minimum every time an option is exercised.

See Varilease Technology Group, Inc. v. United States, 289 F.3d 795 (Fed. Cir. 2002) (emphasis added). 

Quote

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; (ii) Specify the total minimum and maximum quantity of supplies or services the Government will acquire under the contract;...

48 C.F.R. § 16.504(4) (i)-(ii); see also 48 C.F.R. § 17.202(b) (2) (permitting ID/IQ contracts with options). Minimum quantities are not required to be associated with each option period. On the contrary, according to subsection (ii), the "minimum... quantity ... under the contract" must be specified; according to subsection (i), any option periods are part of the contract itself. The regulation refers to "extend [ing] the contract," indicating that any option periods chosen are part of the original and only contract. The contract in this case is consistent with these regulations, referring to "this ... contract" in the singular, with parenthetical reference to option periods. We therefore conclude that Varilease's interpretation of the contract is not supported by the relevant regulatory or contractual language.

While not binding on us, the Armed Services Board of Contract Appeals has reached the same conclusion that an option period in an ID/IQ contract does not require a separate minimum quantity. In In re Five Star Elec., Inc., No. 44984, 1996 WL 391458, 1996 ASBCA LEXIS 135 (July 10, 1996), the Board granted summary judgment in favor of the government, rejecting the same argument Varilease now makes:

We also see no basis for appellant's contention that, "by exercising the options, the Air Force became obligated to order at least a minimum amount of work during the option period." The only minimum quantity requirement specified in the contract is that [covering the initial period of the contract]; there are no minimum quantities specified for any of the option periods. This consideration differentiates the cases that appellant relies upon, where there were minimum requirements for the option periods.

Id. at *9-10. We agree with the Board's analysis.

 

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Neil, to clarify your last post, are you saying that an option needs to be supported by adequate consideration separate from the consideration that was given to form the original contract?

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Here is how Benjamin stated the first part of hjs problem:

21 hours ago, Benjamin said:

While all of the orders have been paid in full, they total less than the minimum delivery orders.  For IDIQ Base Year, ordering resulted in invoices totaling $17,795.80, which is $2,204.20 below the $20,000 minimum delivery order threshold. For IDIQ Option Year One, ordering resulted in invoices totaling $0, which is $20,000 below the $20,000 minimum delivery order threshold.

He says that he has an IDIQ contract. He quotes the Government's ordering obligation as follows: "During the ordering period specified in the Ordering Clause (FAR 52.216.18), the Government will place orders totaling a minimum of $20,000.00." I assume that the agency thinks that the minimum for the base year was consideration for that year and also for any extension options exercised, and that no one told Benjamin.

The language that he has quoted indicates that the contract is for commercial items and that it is a combination delivery order and task order contract, i.e., for supplies and foe services. I say that because he quotes references to both kinds of orders. Thus, orders could be fixed-price, T&M, or both.

The amount invoiced was $17,795.80. Benjamin is bothered by the fact that the amount invoiced is less than what he calls "the minimum delivery orders," but what I assume he means the minimum quantity.

I have a question: What does the amount invoiced have to do with anything? Did I miss something?

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Not sure, Retread. Have not read the cases cited by Lionel Hutz (thank you) and have not done any research about cases law or the regulations  Also, not sure about the exact contract language, whether it is ambiguous or whether the regulations clearly answer the question. It is a suggested argument based on general contract principles without knowing what the Government argument is. If the Government responds to such an argument with rationale as provided by Lionel Hutz, and the contract language is clear, it may be that in the end, the $20,000 does not apply to each option. Benjamin should present his concern,obtain Government response and go from there. I was Just trying to offer something for Benjamin to get going with that would supplement his existing focus. In general I would argue that an option is a separate contract that is formed after proper exercise, and should have included consideration to begin with in order for the option to be enforceable. If clearly indicated in the contract and the intent of the parties are not permitted to be examined, in my view, $1.00 could possibly be valid consideration for both the basic and options.   

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4 hours ago, Retreadfed said:

Neil, to clarify your last post, are you saying that an option needs to be supported by adequate consideration separate from the consideration that was given to form the original contract?

Options do not constitute separate contracts, thus separate consideration is not required for options, and thus options do not require separate minimums.  The Federal Circuit settled that in the Varilease decision 15 years ago. See also Five Star Elec., Inc., ASBCA 44984, 96-2 BCA ¶ 2842 (1994), in which the government argued that separate minimums were not required. Varilease was decided not only on the basis of common law, but also on the basis of the language in FAR:

Quote

The FAR requires that an ID/IQ contract state minimum and maximum quantities to be ordered by the government; it also permits the contract to include option periods:

"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;

(ii) Specify the total minimum and maximum quantity of supplies or services the Government will acquire under the contract; ..."

48 C.F.R. § 16.504(4)(i)-(ii); see also 48 C.F.R. § 17.202(b)(2) (permitting ID/IQ contracts with options). Minimum quantities are not required to be associated with each option period. On the contrary, according to subsection (ii), the “minimum ... quantity ... under the contract” must be specified; according to subsection (i), any option periods are part of the contract itself. The regulation refers to “extend[ing] the contract,” indicating that any option periods chosen are part of the original and only contract. The contract in this case is consistent with these regulations, referring to “this ... contract” in the singular, with parenthetical reference to option periods.

It is permissible to write a contract to include separate minimums for each option if you wish, but it is not necessary as a matter of regulation or contract law.

See "IDIQ Contracts And Options: Varied Guaranteed Minimums," The Nash & Cibinic Report, September 2002.

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Thank you, Vern- the amount invoiced is being cited as relevant to the contract stipulation "A.5 MINIMUM/MAXIMUM CONTRACT AMOUNTS...the Government will place orders totaling a minimum of $20,000.00."

The number of orders is not what is at issue, because each order was not priced the same, and a variable number of orders could reach minimum/maximum contract amounts. 

The thread Don linked to speaks more to what I'm concerned with:

1) the contract references a minimum amount ($20,000) during the ordering period specified in the Ordering Clause (FAR 52.216.18)
2) the ordering period is not explicitly specified in 52.216.18 Ordering, providing dates for orders that may be issued; instead it states that "orders may be issued from contract award through the end of the effective period"
3) The effective period is not explicitly specified anywhere in the contract or in the subsequent modification to exercise the option
4) Curiously, 52.216.18 Ordering adds a parenthetical to its header "(APPLIES TO IDIQ CLIN ONLY)"; however, there is one CLIN for the Base Year and when the mod came forward to exercise Option Year One, a second CLIN was added to the IDIQ.  Presumably a third CLIN would have been added to the IDIQ if Option Year Two was exercised.

Notwithstanding Vern's citations of both regulation and case law affirming that options are part of the overall contract, for this contract, what exactly is the ordering period, and what exactly is the effective period?  Isn't this subject to interpretation if dates are not provided in 52.216.18?  Given that the contract appears to be written in such a way that they are treated as one and the same, is it enough to imply that the ordering period and effective period cover the full Period of Performance on a Base + Options IDIQ?  If it is, why have option years at all - why not let a 3-year IDIQ and just stop ordering when satisfied and when reaching the minimum for the single 3-year ordering period?  Wouldn't it be fair to imply that including options on this IDIQ was in part to exercise new ordering periods?  Especially if applying a new CLIN to the IDIQ in the mod (recalling that the ordering period references CLIN)?

 

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Benjamin:

As Don explained, it is impossible for us to say anything that you can rely upon, because you must interpret a contract as a whole and we don't have the contract in front of us. You ask:

27 minutes ago, Benjamin said:

what exactly is the ordering period, and what exactly is the effective period? 

I don't know and I won't speculate. I'd have to see the contract itself, not just excerpts, before I would offer an opinion. If you have it before you and don't know, it's not fair of you to ask others who don't have the contract before them and don't have the background that you do. The fact is that when I first read your post I dismissed it, because your inquiry was (and is) unreasonable. I only chimed in because I noticed you were basing the government's compliance with the requirement to buy a minimum on the amounts invoiced, which might not be a sound approach.

The government's compliance with the minimum is measured on the basis of the total amount of the orders issued, not on the amount invoiced, which might be different depending on how the orders were written and what happened during performance. Were all of the orders firm-fixed-price? Were any time-and-material or labor-hour? Did anything occur during performance that would have affected the order prices?

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All the orders were FFP, not T&M or labor-hour. 

No performance issues occurred that affected the order prices.

The total amount ordered (and invoiced against) was 10 units, which amount to $17,795.80. 

Sorry, I thought it was reasonable to cite dollar figures because that is what the ordering clause explicitly references re: minimum/maximum - not min/max units. "The Government will place orders totaling a minimum of $20,000.00."

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Benjamin, note that the language you quote only relates to the value of orders the government will place, not what the contractor may invoice or the government actually pay against an invoice.  A simple example would be that the contract contains a prompt payment discount provision where the government places an order for $20K, but makes a prompt payment entitling it to the discount so that the contractor receives less than the $20K.  

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Benjamin, it's a matter of semantics. You based your question on the "amount invoiced", not on what was ordered. You created your own ambiguity in your attempt to describe an ambiguity in the contract. 

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Unless you can find evidence of discussion between the contracting office and the requirements people that there was an intention to re-award the minimum with each Option Year then (as others have said)  you can't assume it was the intention at the time of the basic contract award to include a guaranteed minimum each year.  My guess is that the addition of Option Years to this IDIQ has more to do with the local Procurement Policy than any logic related to the actual requirement.     

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Just FYI in the future, if a contract dispute goes to court, focus would usually be on the actual contract language, not discussions or evidence of discussions about the contract language...the contract reads the way it reads, and the court will decide what it means.

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