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In THE MYSTERIES OF THE FAR: The “Option To Extend The Term Of The Contract” Clause, 32 Nash & Cibinic Rep. NL ¶ 25, Ralph Nash points out that, despite the widespread belief among agencies that inclusion of 52.217-9 is mandatory when option periods are included in a contract, the prescription at FAR 17.208(g) actually makes use of the clause optional under most circumstances. To have valid option periods, the Government can simply state the end date for exercising each option within the optional line items. In this scenario, Mr. Nash continues, since the inclusion of 52.217-9 can only limit and harm the Government's rights, the clause serves no real purpose to the Government. In conclusion, Mr. Nash states the following:

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We have two recommendations. First, the FAR Council should remove the clause from the FAR. Second, no CO should ever use the clause (just put clearly stated options in the contract schedule). It's as simple as that.

While I thought the article was interesting, and I was very surprised to learn that the clause is not required when using options, I don't think I agree with the conclusion. I have always seen the clause as a show of good faith on the part of the Government toward the contractor, particularly in the case of service contracts. It's our way of saying, "Look, we know you and your personnel need some certainty to plan for the future, so we will give you heads-up by X date as to whether we'll still need your services on Y date." Given the Government's propensity for poor planning, last-second decisions, and disregard for the welfare of contractors, this seems like an equitable solution to me. And though it's true that the Government can simply write in similar terms when appropriate in lieu of including a clause, that's a distinction without a difference. It could create even more work and confusion, in fact.

I would prefer a more moderate solution: keep the clause in the FAR, but with a prescription that makes clear its discretionary nature, and that describes when and how it should be used.

I'm interested in hearing others' perspectives.

 

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The FAR requires the use of an option clause:

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(g) Insert a clause substantially the same as the clause at 52.217-9, Option to Extend the Term of the Contract, in solicitations and contracts when the inclusion of an option is appropriate (see 17.200 and 17.202) and it is necessary to include in the contract any or all of the following:

(1) A requirement that the Government must give the contractor a preliminary written notice of its intent to extend the contract.

(2) A statement that an extension of the contract includes an extension of the option.

(3) A specified limitation on the total duration of the contract.

52.217-9 is brief, simple and clear. I fear the results if each CO creates his or her own clause.

Keep using 52.217-9.

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32 minutes ago, napolik said:

and it is necessary to include in the contract any or all of the following:

(1) A requirement that the Government must give the contractor a preliminary written notice of its intent to extend the contract.

(2) A statement that an extension of the contract includes an extension of the option.

(3) A specified limitation on the total duration of the contract.

@napolik When is it "necessary to include" #s 1 - 3 in a contract? Per FAR 17.204, I think only #3 is a requirement. Mr. Nash would say that that can be handled at the CLIN level. 

Your fear I share.

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8 minutes ago, FrankJon said:

@napolik When is it "necessary to include" #s 1 - 3 in a contract? If those are at the CO's discretion, then the clause is optional.

Your fear I share.

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17.204 -- Contracts.

(a) The contract shall specify limits on the purchase of additional supplies or services, or the overall duration of the term of the contract, including any extension.

(b) The contract shall state the period within which the option may be exercised.

(c) The period shall be set so as to provide the contractor adequate lead time to ensure continuous production.

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17.205 -- Documentation.

(a) The contracting officer shall justify in writing the quantities or the term under option, the notification period for exercising the option, and any limitation on option price under 17.203(g); and shall include the justification document in the contract file.

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(g) Insert a clause substantially the same as the clause at 52.217-9, Option to Extend the Term of the Contract, in solicitations and contracts when the inclusion of an option is appropriate (see 17.200 and 17.202) and it is necessary to include in the contract any or all of the following:

I believe the FAR is clear that there must be an option clause and that its substance must mirror 52.217-9.

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I agree that the connection between FAR 17.204(a) and the clause prescription appears unambiguous. This point is not addressed in the article.

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Is locking up ("institutionalizing") derelicts a good idea, so they don't end up in prison or relieving themselves on sidewalks and shouting at productive citizens? Probably.

Is handcuffing contracting officers into using standard, cookie-cutter clauses a good idea? Probably. 

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My former agency insisted on including clause 52.217-9 in every contract with options.  Back then I thought that it was a required clause for multiple year contracts.  Reading the prescription found in paragraph 17.208(g), it is clear that the contracting officer is provided a level of discretion in deciding whether to incorporate this clause.  The question in my mind is not whether its inclusion is always a bad idea.  Instead, the better question is whether the CO based his decision to include the clause on any or all of the three conditions provided in the prescription.  It seems that more often than not, COs are putting this clause in their contracts not having considered these conditions and whether they have been met.  Possibly, use of the clause becomes a thoughtless exercise or justified on the basis of “that is the way we have always done it.” 

It has been my experience that senior specialists and COs tend to convince the novices and journeymen that 52.217-9 is required any time you are functioning under Part 17 with option periods.  They used to convince me of as much before I became a more careful reader.  It became a big “to-do” marking our Outlook calendars with reminders to send out preliminary notices of intent 30 to 60-days prior to contract expiration.  We had one senior CO who insisted on committing the Government to 60-days advanced notice to the contractor in every contract with options.  I am not sure why that would be seen as a sound business decision.  Most of these contracts were for relatively routine supplies and services for which the contract needed little if any notice for logistical preparation.  I have seen the “Option to Extend the Term of the Contract” clause put in countless contracts for “software maintenance,” purchased as a subscription, which entitled us to little more than access to a generic helpline. 

The condition most likely to trigger the need for the clause is the notification requirement.  I could see this becoming a concern when we are procuring complex services.  The other two, as FrankJon alluded to, could simply be written into any other part of the contract, i.e., [a] statement that an extension of the contract includes an extension of the option and [a] specified limitation on the total duration of the contract [do we not already list a period of performance for each option period described in the schedule of supplies/services?].   

Once I forgot to send out the notice of intent 30-days prior to expiration as required by the terms we had filled in and to which we had thereby committed ourselves.  The section head was in a huff because of it.  Now we need to have them sign the SF30 (exercising the option to extend the term of the contract), she insisted, they could increase their prices, which we would likely be bound to, lacking sufficient time to re-solicit.  The contracting office had made this commitment to notify them in advance by their own discretion, short of any statutory requirement.  The net result seemed to add another layer of work, another deadline potentially to miss.   

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On ‎5‎/‎22‎/‎2018 at 3:39 PM, Guardian said:

The contracting office had made this commitment to notify them in advance by their own discretion, short of any statutory requirement.  The net result seemed to add another layer of work, another deadline potentially to miss.   

I am almost never in favor of adding administrative "to-do"s in the Government contracting process because (1) the additional time they take (even when short) is rarely worth the additional effort, and/or (2) there is often a more efficient way to achieve the same result (if the result is even necessary in the first place). But I don't see a 30-day notice period (at a minimum) as unreasonable for a service contract. In my opinion, preparing a simple notice is a small burden relative to treating a business partner fairly. Even when the Government misses the notification deadline, which happens regularly, there's rarely an impact to the Government. Personally, I've never seen a contractor not agree to abide by the original terms.

I would be interested in hearing from contractors (@here_2_help?) what they consider to be a reasonable "preliminary notification period" for a given contract size and scope. From the perspective of a contractor, what period appropriately balances the interests of Government and contractor?

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FrankJon,

When a contract has options, the contractor is almost always praying that those options will be exercised. Same thing for a contract extension. Please, proceed. (A rare exception would be if the contract was in a loss position and extending it would exacerbate the loss.)

From my perspective, providing advance notice helps the contractor retain staff. Otherwise, as the end of the PoP nears, we are polishing resumes and going on interviews and trying to keep the paychecks flowing on another contract. To your point, there's not a lot of value to be had other than that, because why wouldn't the contractor keep the gravy train chugging along? But please do consider that retention is a real concern and the government can help the contractor by providing advance notice that there is no reason for the staff to start looking for new jobs.

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I’m not a contractor and I agree with @here_2_help‘s remarks on the value of advance notice.  I don’t think advance notices merely constitute another administrative to-do: such notices have real value for contractors (and their employees) so they can plan for either continued performance or new work.

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@here_2_help, thanks for the feedback.

Is there a specific period for preliminary notice that you think is generally reasonable for a service contract (e.g., 30 days, 60 days, etc.)? What are some primary indicators that a CO should look at when considering whether to push the notice period higher or lower?

 

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Guest Vern Edwards
1 hour ago, FrankJon said:

What are some primary indicators that a CO should look at when considering whether to push the notice period higher or lower?

The CO should consider the effort and time that will be required for the incumbent to demobilize, including, for example:

  • Completion, termination, or transfer of ongoing work.
  • Disposition of government records in the contractor's possession.
  • Disposition of GFP.
  • Departure from government facilities.
  • Identification and disposition of employees that will be retained or released.
  • Notification and/or termination of suppliers and subcontractors and disposition of shipments in transit or work in progress.

Et cetera.

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1 hour ago, FrankJon said:

Is there a specific period for preliminary notice that you think is generally reasonable for a service contract (e.g., 30 days, 60 days, etc.)? What are some primary indicators that a CO should look at when considering whether to push the notice period higher or lower?

 

Earlier is better, especially if the customer knows the funds are (or will be) available. Why play coy? Just let the contractor know so that the workforce can be notified. Vern listed other considerations.

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22 minutes ago, Vern Edwards said:

The CO should consider the effort and time that will be required for the incumbent to demobilize, including, for example:

  • Completion, termination, or transfer of ongoing work.
  • Disposition of government records in the contractor's possession.
  • Disposition of GFP.
  • Departure from government facilities.
  • Identification and disposition of employees that will be retained or released.
  • Notification and/or termination of suppliers and subcontractors and disposition of shipments in transit or work in progress.

Et cetera.

Security clearances and associated procedures.

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