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Base Period Active, Future Option Expired- Can it be 'revived' by bi-lateral modification??

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If the contract already provides for a price redetermination for Phase 2 production in Phase 1 , then it would seem that this is within the terms of the contract and could still be done. 

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This is a great example where a little bit of thinking could have avoided wasting time and effort (and paperwork)...why not specify the option period for Phase II as "X days/months post completion of Phase I (or some other milestone)" given that delays on projects involving producing first articles and testing are a possibility?

 

 

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14 minutes ago, Contractor123 said:

The fill in language in the clause states the govt had to provide written notice to the contractor to exercise its option 24 months after award.

No preliminary notice was required. The 24 months passed.

The CO wants to modify the 24 months to 48 months.

They have met the 24 month requirement, right? (e.g., the option was unavailable months 1-23, but could be exercised >24 months)

The exact phrasing is important.

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Guest Vern Edwards
58 minutes ago, Contractor123 said:

The fill in language in the clause states the govt had to provide written notice to the contractor to exercise its option 24 months after award. No preliminary notice was required. The 24 months passed. The CO wants to modify the 24 months to 48 months.  Question is can he do so if both parties agree? If an option has to be exercised in strict compliance with its terms, can the terms be changed after the period to exercise has passed.  

Okay, for everybody's benefit, here is FAR 52.217-7:

Quote

The Government may require the delivery of the numbered line item, identified in the Schedule as an option item, in the quantity and at the price stated in the Schedule. The Contracting Officer may exercise the option by written notice to the Contractor within [insert in the clause the period of time in which the Contracting Officer has to exercise the option]. Delivery of added items shall continue at the same rate that like items are called for under the contract, unless the parties otherwise agree.

I don't know of any GAO case which deals with your problem, untimely exercise of an option, in terms of CICA. However, in Ceredo Mortuary Chapel, Inc. B-232373, 89-1 CPD ¶ 12, January 9, 1989, decided five years after the enactment of CICA, the GAO decided that a contractor could waive untimely notice of the government's intent to exercise an option, which is not the same as the actual exercise. Here is the pertinent text of the decision:

Quote

Ceredo Mortuary Chapel, Inc. protests the exercise of an option to extend contract No. V581P–1526, issued by the Veterans Administration Medical Center, Huntington, West Virginia for ambulance services... We dismiss the protest.

Ceredo argues that because the contracting officer failed to give the required 60 days notice of the government's intent to exercise the option to the incumbent contractor, the option exercise was ineffective, requiring resolicitation of the services.

We do not agree. The notice requirement included in the contract protects the contractor and may be waived either expressly or by conduct. See 3A Corbin, Contracts § 759 (1960). When the condition of notice is waived, a valid contract results. See generally Burroughs Corp., DOTCAB No. 1327, 83–1 BCA ¶ 16,427 (1983); Fourth Street Estates, Inc., GSBCA No. 5813, 81–2 BCA ¶15, 299 (1981). Therefore, as the incumbent contractor apparently accepted the option exercise, the contract is valid for the extended term.

See also Independent Metal Strap Co., Inc., B-231756, 89-2 bCPD ¶ 147, August 17, 1989.

My thinking is that the GAO's reasoning---that the notice deadline protects the contractor and that the contractor thus can waive it---also applies to the deadline for exercising the option, as long as the period of performance has not expired.

If I were the CO, and I was ready to exercise the option, I would not process a supplemental agreement to change the deadline. I would send you a letter or an email asking you to waive it and asking for confirmation of the waiver in writing signed by an authorized representative of your company. Upon receipt of written confirmation I would then issue a unilateral modification exercising the option. I see no CICA or other legal problem with that approach.

As for changing the deadline from 24 months to 48 months, I am not sure whether the CO is ready to exercise now or if the 48th month would be at some time in the future. if the latter, I would change my procedure. I would do a supplemental agreement.

However, you cannot renegotiate the terms of the option without an approved sole source justification in accordance with FAR Part 6. Renegotiation would be treated as a new procurement for which the CO must obtain full and open competition unless an exception applies.

As for price redetermination, I think that contract term would still apply.

 

 

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Guest Vern Edwards

For the purposes of review, here are the original questions asked:

  1. Can the contract option period for Phase II be modified to change it's notice period to retroactively make it appear to not have expired? It expired almost a year ago.
  2. In the alternative, can the parties negotiate a new option and add it to the contract via a bilateral modification?
  3. Would either of these actions violate/require an exemption from CICA? 

In light of the fact that the period of performance has not expired, my answers are:

  1. Yes, in my opinion. You can waive the deadline or the parties can modify it by supplemental agreement even after the fact. However, you don't want to "make it appear." (That doesn't sound good.) You want to change the deadline for exercising the option.
  2. Only if the CO complies with FAR 6.302-1.
  3. Yes. See 2 above.

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Contractor123, in your original post, you stated that the contract is an IDIQ contract.  That indicates that work is done under task or delivery orders.  If that is the case, is there something in the contract that would prevent the government from issuing an order for the Phase II work now before the base period of the contract expires?  By base period, I presume you mean the initial period within which orders may be placed. If that is not the case, please clarify.

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1 hour ago, Retreadfed said:

Contractor123, in your original post, you stated that the contract is an IDIQ contract.  That indicates that work is done under task or delivery orders.  If that is the case, is there something in the contract that would prevent the government from issuing an order for the Phase II work now before the base period of the contract expires?  By base period, I presume you mean the initial period within which orders may be placed. If that is not the case, please clarify.

This K is a mess and should not have been structured as an IDIQ, but it is. There are conditions in the contract language that must occur prior to the Gov'ts exercise of Option II: first article delivery and acceptance, milestone decision authority (to determine if we are ready to enter into production), and price redetermination. Phase 1 was design to spec. That period is about to end once we complete the production readiness review coming up. By 'base period' I really mean Phase I.

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3 hours ago, Vern Edwards said:

For the purposes of review, here are the original questions asked:

  1. Can the contract option period for Phase II be modified to change it's notice period to retroactively make it appear to not have expired? It expired almost a year ago.
  2. In the alternative, can the parties negotiate a new option and add it to the contract via a bilateral modification?
  3. Would either of these actions violate/require an exemption from CICA? 

In light of the fact that the period of performance has not expired, my answers are:

  1. Yes, in my opinion. You can waive the deadline or the parties can modify it by supplemental agreement even after the fact. However, you don't want to "make it appear." (That doesn't sound good.) You want to change the deadline for exercising the option.
  2. Only if the CO complies with FAR 6.302-1.
  3. Yes. See 2 above.

Thanks Vern.

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3 hours ago, Vern Edwards said:

Okay, for everybody's benefit, here is FAR 52.217-7:

I don't know of any GAO case which deals with your problem, untimely exercise of an option, in terms of CICA. However, in Ceredo Mortuary Chapel, Inc. B-232373, 89-1 CPD ¶ 12, January 9, 1989, decided five years after the enactment of CICA, the GAO decided that a contractor could waive untimely notice of the government's intent to exercise an option, which is not the same as the actual exercise. Here is the pertinent text of the decision:

See also Independent Metal Strap Co., Inc., B-231756, 89-2 bCPD ¶ 147, August 17, 1989.

My thinking is that the GAO's reasoning---that the notice deadline protects the contractor and that the contractor thus can waive it---also applies to the deadline for exercising the option, as long as the period of performance has not expired.

If I were the CO, and I was ready to exercise the option, I would not process a supplemental agreement to change the deadline. I would send you a letter or an email asking you to waive it and asking for confirmation of the waiver in writing signed by an authorized representative of your company. Upon receipt of written confirmation I would then issue a unilateral modification exercising the option. I see no CICA or other legal problem with that approach.

As for changing the deadline from 24 months to 48 months, I am not sure whether the CO is ready to exercise now or if the 48th month would be at some time in the future. if the latter, I would change my procedure. I would do a supplemental agreement.

However, you cannot renegotiate the terms of the option without an approved sole source justification in accordance with FAR Part 6. Renegotiation would be treated as a new procurement for which the CO must obtain full and open competition unless an exception applies.

As for price redetermination, I think that contract term would still apply.

 

 

This is helpful. Thanks!

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4 hours ago, Jamaal Valentine said:

They have met the 24 month requirement, right? (e.g., the option was unavailable months 1-23, but could be exercised >24 months)

The exact phrasing is important.

The language states: "The Contracting Officer may exercise the option by written notice to the Contractor within 24 months of the award...".  The contract was awarded in Sept 2015 so the gov't has missed the date to exercise.

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Guest Vern Edwards

If I were the CO I would change the option exercise deadline from a number of months to a specific date.

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20 hours ago, Vern Edwards said:

If I were the CO I would change the option exercise deadline from a number of months to a specific date.

Aside from changing the grammar of the 52.217-7 clause (which, I agree, is still movement in the right direction), I don't see how that solution is any different from a risk of delays perspective.  It merely eliminates the need for someone to do math or call the grammar police to determine what the date is for the option deadline.

Is there any issue you're aware of with my previously proposed solution to use an option exercise deadline of X days/months after Phase I completion (or some other milestone)?

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Guest Vern Edwards
15 minutes ago, Matthew Fleharty said:

Aside from changing the grammar of the 52.217-7 clause...

See 52.217-7:

Quote

52.217-7 Option for Increased Quantity-Separately Priced Line Item.

As prescribed in 17.208(e), insert a clause substantially the same as the following...

Emphasis added.

15 minutes ago, Matthew Fleharty said:

I don't see how that solution is any different from a risk of delays perspective.  It merely eliminates the need for someone to do math or call the grammar police to determine what the date is for the option deadline.

Stating a date instead of a number of days does not solve the problem of delays. Eliminating the need to do math is nothing to sneeze at. Stating a number of days can lead to disagreement about the proper counting procedure and the resultant deadline.

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I agree with everything you just said Vern, that's why I used the words "which, I agree, is still movement in the right direction"  in my previous response.

However, there seems to be another issue here with that no one has talked about.  Presumably, the Government does not want to exercise an option for production of whatever this is until they get the first article and test results (that makes sense) - but we all know delays happen.  So why not specify a period post-completion of Phase I (with better grammar than the 52.217-7 language) rather than hoping everything goes according to plan from the outset when establishing the option?  Or would you rather include a specific date and modify the contract's option if/when a delay occurs?

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Guest Vern Edwards

@Matthew Fleharty

1 hour ago, Matthew Fleharty said:

So why not specify a period post-completion of Phase I (with better grammar than the 52.217-7 language) rather than hoping everything goes according to plan from the outset when establishing the option? 

Makes perfect sense to me.

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