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Option not Exercised on Time - Now What? Does BAA change the response?

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Here is a question and some thoughts hopefully to gain a better understanding.

Possible Scenario: An agency failed to exercise an option to extend the period of performance and the contract expired in January, in June the contractor and the Agency agree bilaterally to a modification to re-establish and continue originally planned work under the contract to the original option period of performance completion date of December of the year.  The contract was initially award as valid contract against a Broad Agency Announcement and is for Basic Research (Budget Activity 1/2/3).

Thoughts: When a competitively awarded contract is awarded using FAR part 15 solicitation procedures, and the contracting officer fails to exercise an option and allows a contract period of performance to expire such that the contract has expired either a justification in accordance with FAR part 6 is necessary or a new competition is required. Either to establish a new contract vehicle or execute a bi-lateral modification to extend/reactivate the period of performance.  See Washington National Arena Limited Partnership, B-219136, OCT 22, 1985, 65 COMP.GEN. 25.    [Relevant text below and credit to Vern under http://www.wifcon.com/discussion/index.php?/topic/2164-option-to-extend-the-term-not-exercised-on-time-now-what/&page=2].

Relevant text from CICA relating to a BAA (FAR 35.016) “The term 'competitive procedures' means procedures under which an executive agency enters into a contract pursuant to full and open competition. Such term also includes ….(2) the competitive selection of basic research proposals resulting from a general solicitation and the peer review or scientific review (as appropriate) of such proposals.”

Here is an example where the issue was worked by DAU/Ask A Professor (https://www.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=3&cgiQuestionID=114379).  I note  the response does not address the basis for the original award.

My position is should the fact pattern presented in B-21913 be modified to switch the award authority the conclusion would change.   In the possible scenario above should an Agency fail for any reason to exercise an option under a contract properly awarded against a BAA a bi-lateral modification to continue the original performance be agreed to by the parties then performance may continue absent the need for a FAR 6 J&A.   Is such a modification an abuse of the Agency's authority and outside the regulations?

Relevant Text from Washington National Arena Limited Partnership.

“WE AGREE WITH TICKETCENTER THAT THIS ATTEMPT WAS IMPROPER. UPON EXPIRATION OF TICKETRON'S CONTRACT, NEITHER THE GOVERNMENT NOR TICKETRON WAS OBLIGATED BY ANY OF THE CONTRACT TERMS; TICKETRON NO LONGER WAS BOUND TO PROVIDE VISITOR RESERVATION SERVICES, AND THE GOVERNMENT NO LONGER WAS BOUND TO PAY TICKETRON COMMISSIONS FOR SUCH SERVICES. THE UNEXERCISED OPTION PROVISIONS WERE PART OF THE CONTRACT AND, THUS, NECESSARILY EXPIRED WHEN THE CONTRACTUAL RELATIONSHIP WAS TERMINATED. THUS, THE ATTEMPTED RETROACTIVE EXTENSION OF TICKETRON'S CONTRACT WAS NOT AN EXTENSION AT ALL- - THERE WAS NO CONTRACT TO EXTEND- BUT THE NONCOMPETITIVE CREATION OF A NEW CONTRACTUAL RELATIONSHIP WITH TICKETRON.

UNDER CICA, AGENCIES ARE REQUIRED TO "OBTAIN FULL AND OPEN COMPETITION THROUGH THE USE OF COMPETITIVE PROCEDURES" IN PROCURING PROPERTY OR SERVICES. 41 U.S.C. SEC. 253. CERTAIN EXEMPTIONS FROM THE COMPETITION REQUIREMENT ARE LISTED, BUT IT DOES NOT APPEAR FROM THE RECORD, AND NPS DOES NOT ARGUE, THAT ANY OF THESE EXEMPTIONS WOULD APPLY TO JUSTIFY A NONCOMPETITIVE AWARD TO TICKETRON UNDER THE CIRCUMSTANCES HERE. CONSEQUENTLY, WE SUSTAIN THE PROTEST ON THE GROUND THAT NPS SHOULD HAVE CONDUCTED A COMPETITIVE PROCUREMENT FOR THESE VISITOR RESERVATION SERVICES.” Washington National Arena Limited Partnership, B-219136, OCT 22, 1985, 65 COMP.GEN. 25 (https://www.gao.gov/products/461444#mt=e-report)

Hoping for a good discussion, not based on a current fact set.

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25 minutes ago, CharterParty said:

Here is a question and some thoughts hopefully to gain a better understanding.

What is the question?

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3 hours ago, CharterParty said:

My position is should the fact pattern presented in B-21913 be modified to switch the award authority the conclusion would change.   In the possible scenario above should an Agency fail for any reason to exercise an option under a contract properly awarded against a BAA a bi-lateral modification to continue the original performance be agreed to by the parties then performance may continue absent the need for a FAR 6 J&A.   Is such a modification an abuse of the Agency's authority and outside the regulations?

The BAA is covered by FAR Part 6:

6.102 -- Use of Competitive Procedures.

The competitive procedures available for use in fulfilling the requirement for full and open competition are as follows:

(a) Sealed bids. 

(b) Competitive proposals. 

(c) Combination of competitive procedures. 

(d) Other competitive procedures.

(1) Selection of sources for architect-engineer contracts in accordance with the provisions of 40 U.S.C. 1102 et seq. is a competitive procedure (see Subpart 36.6 for procedures).

(2) Competitive selection of basic and applied research and that part of development not related to the development of a specific system or hardware procurement is a competitive procedure if award results from --

(i) A broad agency announcement that is general in nature identifying areas of research interest, including criteria for selecting proposals, and soliciting the participation of all offerors capable of satisfying the Government’s needs; and

(ii) A peer or scientific review.

(3) Use of multiple award schedules issued under the procedures established by the Administrator of General Services consistent with the requirement of 41 U.S.C. 152(3)(A) for the multiple award schedule program of the General Services Administration is a competitive procedure.

______________________________________________________________________________________________________________________________________________

FAR Part 6 Competition requirements do not apply to contract modifications, including the exercise of priced options that were evaluated as part of the initial competition:

 

FAR -- Part 6 
Competition Requirements

6.000 -- Scope of Part.

This part prescribes policies and procedures to promote full and open competition in the acquisition process and to provide for full and open competition, full and open competition after exclusion of sources, other than full and open competition, and advocates for competition. This part does not deal with the results of competition (e.g., adequate price competition), which are addressed in other parts (e.g., Part 15).

6.001 -- Applicability.

This part applies to all acquisitions except --

(a) Contracts awarded using the simplified acquisition procedures of Part 13 (but see 13.501 for requirements pertaining to sole source acquisitions of commercial items under Subpart 13.5);

(b) Contracts awarded using contracting procedures (other than those addressed in this part) that are expressly authorized by statute;

(c) Contract modifications, including the exercise of priced options that were evaluated as part of the initial competition (see 17.207(f)), that are within the scope and under the terms of an existing contract;

_________________________________________________________________________________________________________________________

Since the BAA is covered by FAR Part 6 and since the option was not exercised, you are not providing for Full and Open Competition if you create a mod to extend the period of performance. The principle set forth in Vern Edwards’ GAO case cite remains valid - Washington National Arena Limited Partnership, B-219136, OCT 22, 1985, and it applies to BAAs. Thus, you must comply with FAR Subpart 6.3 and must write a J&A.

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3 hours ago, CharterParty said:

My position is should the fact pattern presented in B-21913 be modified to switch the award authority the conclusion would change.   In the possible scenario above should an Agency fail for any reason to exercise an option under a contract properly awarded against a BAA a bi-lateral modification to continue the original performance be agreed to by the parties then performance may continue absent the need for a FAR 6 J&A.

What is your reasoning?

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PepeTheFrog agrees with @napolik's analysis.

A more pressing question is:

If an agency violates CICA by awarding "new work" without full and open competition under the guise of a bilateral modification, can they get away with it? Who will find out about it? Who will care enough to actually protest?

In large source selections under FAR Part 15, there is usually a well-defined pool of potential contractors. Some of them are keenly aware of and closely monitor their competitors. In that scenario, it's more difficult for agency to get away with it. The competitors will find out about the improper modification through publicized award notices, FPDS, or loose-lipped gossipers or braggarts at the local drinking hole. Such competitors will care enough to actually protest.

However, in the BAA research and development environment, things are quite different. Although the companies can be considered to be competing against each other, they do not compete directly. The companies are not evaluated against a common statement of work and are not specifically "traded off" against one another. The pool of potential contractors is not well-defined and often numerous and unorganized, consisting of many unrelated companies or research organizations. They don't pay as much attention to each other. Even if they find out about the improper modification, would they care enough to actually protest? For what end? It's not like a FAR Part 15, distinct service requirement where a competitor can swoop in and perform the work instead. In research and development, each approach is unique and it's not feasible to substitute one contractor for another. 

Therefore, there is less practical risk in cheating the CICA system via improper modification within the BAA research and development scenario.

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Don Mansfield:

Here is my reasoning.   The sample scenario stated "An agency failed to exercise an option to extend the period of performance and the contract expired in January, in June the contractor and the Agency agree bilaterally to a modification to re-establish and continue originally planned work under the contract to the original option period of performance completion date of December of the year.  The contract was initially award as valid contract against a Broad Agency Announcement and is for Basic Research (Budget Activity 1/2/3)."

Here is the relevant text from B 288969.4 "Once a contract is awarded, our Office will generally not consider protests against modifications to that contract, because such matters are related to contract administration and are beyond the scope of our bid protest function 4 C.F.R. § 21.5(a) (2002); Stoehner Sec. Servs., Inc., B-248077.3, Oct. 27, 1992, 92-2 CPD ¶ 285 at 4. The exception to this general rule is where, as here, a protester alleges that a contract modification is beyond the scope of the original contract, because, absent a valid sole-source determination, the work covered by the modification would otherwise be subject to the statutory requirements for competition. Neil R. Gross & Co., Inc., B-237434, Feb. 23, 1990, 90-1 CPD ¶ 212 at 2, aff’d, Department of Labor--- Recon., B-237434.2, May 22, 1990, 90-1 CPD ¶ 491.

In determining whether a modification triggers the competition requirements in the Competition in Contracting Act of 1984, 10 U.S.C. § 2304(a)(1)(A) (2000), we look to whether there is a material difference between the modified contract and the contract that was originally awarded. Evidence of a material difference between the modification and the original contract is found by examining any changes in the type of work, performance period and costs between the contract as awarded and as modified."

The work does not fall into the category of "the work covered by the modification would otherwise be subject to the statutory requirements for competition".  As pointed out by Pepe " It's not like a FAR Part 15, distinct service requirement where a competitor can swoop in and perform the work instead. In research and development, each approach is unique and it's not feasible to substitute one contractor for another."  Under the GAO test an out of scope modification has not occurred, no material difference between the modified contract and the contract as original awarded, the contractor is continuing the same "type of work" (as Pepe pointed out unique to the firm).  The performance period continues to its original planned end date (The original contract contemplated continuing through December, it was Agency failure to exercise. The contractor agreed to continue through execution of the bi-lateral modification),  let's assume cost is unchanged.  Therefore, their is no one the Agency should/could have offered the work to perform, no statutory requirement to compete the work.

 

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1 hour ago, CharterParty said:

The work does not fall into the category of "the work covered by the modification would otherwise be subject to the statutory requirements for competition". 

Is the work described in the option you failed to exercise?

Also, FYI, see this DAU Ask A Professor discussion of failure to exercise BAA option: https://www.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=28&cgiQuestionID=113891https://www.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=28&cgiQuestionID=113891

 

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@CharterParty, What matters is whether the work being added by the modification is "within the scope and under the terms of an existing contract." The method used to place the original contract (FAR part 15 v. BAA) is not determinative. 

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17 hours ago, napolik said:

Is the work described in the option you failed to exercise?

Also, FYI, see this DAU Ask A Professor discussion of failure to exercise BAA option: https://www.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=28&cgiQuestionID=113891https://www.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=28&cgiQuestionID=113891

 

I wouldnt bet my career on what Ask a Professor says. Yesterday I scanned back through the past 11 years of questions and answers in a certain contracting area and was thoroughly unimpressed. A number of the answers are incorrect or only partially correct. 

The referenced AAP question specifically addressed whether the government could “exercise the option” late. Exercising an option is a unilateral right of the government. It didn’t address the possibility of a bilateral agreement to award the “option” at the stated price. 

The answer said that the government can’t “exercise the option” late, which answered the question. It also mentioned extending the period of performance for “no other reason than waiting for funding”, in order to avoid another source selection, to which it was stated would be an attempt to circumvent CICA.  It wasn’t clear whether that meant bilaterally or unilaterally. 

Since other readers will review and may try to apply AAP answers to their specific needs and questions, the answer should provide specific context and should properly frame the question, for context.

 

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I agree with your observations on Ask A Professor. I answered the question raised by the Sig. CP, and I provided the reference as an aside because he cited Ask a Prof in his initial post and because it addressed a BAA.

I believe the Professor did address the issue of using a bilateral mod to provide the support contained in the unexercised option:

Quote

I sympathize with your frustration with the slow funding process and the inability to award an option on timeUnfortunately, you can not award an option after the contract period of performance has expired. CLIN 001 has expired and CLIN 002 is no longer available because the Gov't could not exercise it without needed funding.  Your references are at FAR 17.204 Contracts (b) The contract shall state the period within which the option may be exercised  You did this with your CLINs/Section F and 52.217-9 "Option to Extend the Term of the Contract" According to this clause and fill-in, the Gov't had the capablity to exercise the option within 10 days of the end of CLIN 001.  

Unquote

Quote 

Starting all over again with a source selection or a sole source justification is very resource intensive and of course it is likely that we will not get the same employees.

Unquote

What is your response to his question - "Is such a modification an abuse of the Agency's authority and outside the regulations?"?

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My response is that I don’t think that it is an abuse of authority or outside of the law. 

I believe the poster indicated that the period of performance would not exceed the originally intended period. At any rate, it appears that the scope of work in the pre-priced (competed) option was originally contemplated by the parties, if both parties are in agreement and if the government goes through the steps that are normally required in FAR 17.2 before exercising an option, then go for a bilateral modification. 

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@Don Mansfield I think the method used to place the original contract is incredibly important, in this fact set.  I understand it is not a determinative factor in determining an in-scope change, an Agency can't just say any modification to contract originally awarded under a BAA is in-scope.  I am saying CICA dictates that the Contracting Officer is to compete known requirements or to justify in writing consistent with the exceptions.  It also acknowledged the Government may not be omniscient and allows for the BAA process in Basic Research (Again BA 1,2,3).  

 I have not found any cases only opinions, and I believe that the typical Government Contracting Officer response to the scenario is changed by that key fact, the original award was properly executed against a BAA.   

 Contracting Officers have been bound to compete or Justify a failed to exercise option under a requirement otherwise subject to competitive procedures, when a PoP has lapsed since CICA and the case B-219136.  I believe the key piece of information is the work performed was otherwise known to the Government, in other words otherwise subject to statuary requirements for competition.  

@joel hoffman, you are correct my goal in the question was to lay out a fact pattern at the most basic level.  A Contracting Officer failed to timely exercise an Option in a contract properly awarded against a BAA.  The option was originally contemplated and placed in the contract, and the previous period of performance under the contract has since past. The parties agree to continue performance originally contemplated at award.  

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Ah, did the parties agree to continue performance in time to avoid a signifant break in performance?  Was there continuity of performance?  I may be missing something key here. 

If  they are continuing performance has there already been a mod to add the services in the option? It isn’t clear to me if or how that actually occurred. 

 

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If you are adding to the contract via a mod the work described in the unexercised option, you will be thwarted if you don't do a J&A and if a firm protests your actions.

But, PepeTheFrog may be able to dissuade the R&D competitors from protesting! 

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@joel hoffman Let's keep the facts as close to B-219136 as possible.  January was the option date, and the modification is executed in June.  Again not a current item, it is just to flush out does the nuance of a BAA award change the normal J&A position. 

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Ok thx. 

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Charter,

Assuming, arguendo, that the unexercised option becomes "new work" if the Government subsequently decides to purchase it, I am not convinced that a J&A is needed to turn on the option CLIN by contract modification -- I understand what others are saying, and I agree with them so long as the original contract was based on FAR 6.102(a), (b), or (c).  However, your contract was based on (d)(2) (BAA).  

For contracts covered by FAR Part 6, we may add "new work" to an existing contract as long as we comply with the competition requirements of FAR Part 6 -- competitive proposals are not required for work resulting from a BAA, so as long as your proposed modification (to turn on an option) is covered by FAR 6.102(d)(2), you don't need a J&A to justify not being covered by (a), (b), or (c).

In a normal, non-BAA contract, the "new work" would have to be covered by FAR 6.102(a), (b), or (c), or you would need a J&A.  But you're under (d)(2), not (a), (b), or (c).

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1 hour ago, CharterParty said:

 I have not found any cases only opinions, and I believe that the typical Government Contracting Officer response to the scenario is changed by that key fact, the original award was properly executed against a BAA.

So what? Do you think the GAO or Court uses the "typical Government Contracting Officer response" standard to decide whether a given modification is within scope?

The determination of whether a given modification is within the scope of the contract has nothing to do with the specific solicitation technique used to form the original contract.

See Neil R. Gross & Co., 69 Comp. Gen. 247 (B-237434), 90-1 CPD ¶212:

Quote

In weighing [whether a modification is beyond the scope of the competition], we look to whether there is a material difference between the modified contract and the prime contract that was originally competed…. In determining the materiality of a modification, we consider factors such as the extent of any changes in the type of work, performance period and costs between the contract as awarded and as modified…. We also consider whether the solicitation for the original contract adequately advised offerors of the potential for the type of changes during the course of the contract that in fact occurred … or whether the modification is of a nature which potential offerors would reasonably have anticipated under the changes clause.

 That's the test. However, you seem to want to infer an exception to the general rule--

On 10/25/2018 at 8:17 AM, CharterParty said:

...should an Agency fail for any reason to exercise an option under a contract properly awarded against a BAA a bi-lateral modification to continue the original performance be agreed to by the parties then performance may continue absent the need for a FAR 6 J&A.

While the nature of R&D work is uncertain and the scope is comparatively less defined than for other contracts, your claim goes too far. Taken to its extreme, you would have to say that it's impossible for the work covered by the unexercised option to be out of scope. It may or may not be within scope. 

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21 minutes ago, ji20874 said:

For contracts covered by FAR Part 6, we may add "new work" to an existing contract as long as we comply with the competition requirements of FAR Part 6 -- competitive proposals are not required for work resulting from a BAA, so as long as your proposed modification (to turn on an option) is covered by FAR 6.102(d)(2), you don't need a J&A to justify not being covered by (a), (b), or (c).

In the OP's scenario, the Government lost its right to exercise the option. The proposed bilateral modification would be to add the work originally contemplated by the option that was included in a contract awarded under a BAA.

Having said that, what proof do you have for your assertion that a J&A would not be required for such a modification?

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Would it be any cleaner if the bilateral mod was only an agreement to extend the period for exercising the option?  Same work. Same price. 

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1 hour ago, joel hoffman said:

Would it be any cleaner if the bilateral mod was only an agreement to extend the period for exercising the option?

Joel, are you contending that the time for exercising the option could be changed after the period for exercise of the option had passed (expired)?

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Every contract awarded under a BAA is sole-source for purposes of negotiating terms and conditions, including price -- but we treat it as a competitive procedure, and I understand why we do.

It is permissible to add "new work" to a contract by bilateral contract modification.  Sometimes, a J&A will be needed.

If I don't need a J&A for an initial contract award that is based on a BAA, then I don't need a J&A to add "new work" to a contract by contract modification if that "new work" is also based on a BAA.

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32 minutes ago, ji20874 said:

If I don't need a J&A for an initial contract award that is based on a BAA, then I don't need a J&A to add "new work" to a contract by contract modification if that "new work" is also based on a BAA.

What proof do you have for your assertion that a J&A would not be required for such a modification?

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37 minutes ago, ji20874 said:

If I don't need a J&A for an initial contract award that is based on a BAA, then I don't need a J&A to add "new work" to a contract by contract modification if that "new work" is also based on a BAA.

Translated:

If I don't need [to show that I departed from CICA but received the required, statutory approval, AKA "J&A"] for an initial contract [that satisfies CICA], then I don't need [to show that I departed from CICA but received the required, statutory approval, AKA "J&A"] to add "new work" [that does not satisfy CICA].

This doesn't make sense and doesn't follow logically. Consider the following.

Yes, the award of the contract pursuant to the BAA for R&D satisfies CICA. Everyone agrees. But you're saying that gives the contracting officer a free pass to tack on an indefinite amount of "new work" in the form of "modifications" that was not evaluated as part of the original BAA solicitation process.

Sure, the contracting officer can make a new award, against the BAA, using the BAA procedures. That new award can fulfill whatever you wanted to accomplish using the "modification." That would be doing this "the hard way." Is that what you're driving at?

But if you want to do this the "easy way," by skipping the full BAA procedures, and instead awarding the "new work" in the form of a "modification," the purpose of the J&A (justification for the use of other than full and open competition) is essentially to confess that you skipped the BAA procedures (which would satisfy CICA). 

Put more simply:

The words "based on a BAA" are not magic words that satisfy CICA. When you use those words to describe the contract award, it means you followed the BAA procedures. The BAA procedures are not likely to include language that says "The Government is free to add unlimited work via bilateral modification following initial awards." So, when you say the "new work" is "based on a BAA," you have done nothing to satisfy CICA or the procedures of the BAA. Does that make sense?

 

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