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Use of Options in an IAA... Priced or not priced? Does FAR 17.202(c)(1) & (2) Apply to IAA's?

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I have a procurement that I am working as the Contract Specialist under DOI that is an IAA for services in which the selling agency (another agency within DOI) provided the draft Statement of Work for us to use in preparing the IAA documents.  My agency is the requesting agency.  In the draft SOW they provided to me they have included a five year period of performance consisting of a base year and four option years, however they have included the following language regarding the pricing:

"3.  PERIOD OF PERFORMANCE -

The overall period of performance is estimated to be five year period of time.  This agreement is structured as one base year and four option years requiring mutual and annual agreement of the involved agencies, as well as notification and acceptance of potential price changes. 

 

4.  COST

The cost for the Base Year... is Firm Fixed Price at $XX,XXX.  Option periods will be priced closer to the start of the specified option date. "

 

Since one year money is being used we are only able to fund a single year at a time.  It is a firm fixed price contract type for non-severable annual services (they perform surveys for us on an annual basis).

My question is: is this 'pricing to be provided later' a legitimate approach?  I've been under the impression that in accordance with 17.202(c)(1) &(2) that options should be pre-priced at the time of the initial award.  The other agency is claiming that 17.2 is only in reference to Contracts and not IAA's.  I am not finding anything (within FAR nor DOI policy) that shows that IAA's would be excluded from this part of the FAR.  Am I missing something?  Either way we would have to issue either a mod or a new IAA each year, but my concern is more about whether or not we can include non priced options in an IAA.

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From an industry view, if you are contemplating that a contractor furnish the services, there is no enforceable option unless there is a price for each option...it is just a contract to maybe make a contract. Accordingly,  it does not seem as attractive as it should be to potential bidders or in the Government's interest in getting the best prices.  Suggest you obtain bids for a base contract with priced options, include a standard option exercise clause, and check with the other agency when it is time to exercise the option. It is up to them if they want to exercise it. If not exercised, there is no commitment.To clarify, if you intend to purchase these services from another Government Agency, it seems to me my suggested approach may be applied unless it is not compatible with the practice among agencies.

Edited by Neil Roberts
last sentence added

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If I understand the post correctly, the statement of work is for the interagency agreement and not the federal contract. If so, I don't see a problem. The agreement can be for a total of 5 years with a firm commitment on price and funding for future years to be agreed upon each year. Each year, if both agencies agree upon price and funding is available, the agreement can then be amended and additional funds obligated under the agreement. There is no requirement for the interagency agreement to have firm pricing for future years nor are funds for future years being obligated under the agreement up front.  If the agencies cannot agree on the amount or funding is not available, the agreement can then be cancelled.

Separately, I believe the contract would need to have priced option periods.  Others in this form may have guidance on whether unpriced options are ever permitted.  Some agencies specifically address the issue of unpriced options on contracts. For example, my agency specifically prohibits unpriced options. 

You would want to structure the interagency agreement so that a decision on amending the agreement to agree on the amount and add funds for the next year is done in advance of having to exercise the option on the related contract and so that funds are in hand when exercising the option. This may also require structuring the contract option to permit it to be exercised after the end of the period of performance end date or into the beginning of the next fiscal year if funding will not be made available until then (FAR 17.204(d)).  Assuming the interagency agreement is amended to specify the amount and funds obligated, the option on the related contract would then be exercised.  If funding is not available or the agencies cannot agree on the amount then the option on the related contract would not be exercised and the interagency agreement would then be canceled. There is no obligation for the government to exercise the option under the contract.

Subpart 17.2 does not apply to interagency agreements, only to contracts.  The FAR only applies to acquiring things by contract (FAR 1.104) and does not generally apply to interagency agreements. Only Subpart 17.5 deals with the issue of interagency agreements for the purpose of acquiring goods or services.

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