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Exercising Options during shutdown

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The current option period of a contract is set to expire, we have previous year funds to exercise the next option period and we sent out the intent letter before the shutdown, but due to the shutdown, there is no staff available to obligate the funds. I am looking for any legal precedent or GAO decisions that will allow us to revive the contract, assuming this shutdown will not be over until after the current period expires. Thank you.

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I don't think you need any precedent cases -- if both parties (Government and contractor) are okay with a belated option exercise, well, no one else matters, right?

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54 minutes ago, ji20874 said:

I don't think you need any precedent cases -- if both parties (Government and contractor) are okay with a belated option exercise, well, no one else matters, right?

Do you mean that it's not proper, because an option must be exercised in strict accordance, but who cares if it's not challenged or audited?

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Jamaal,

You mustn't mischaracterize what I said.

Do you have any good advice for the original poster?  I suppose the original poster is trying to do what is good for his or her agency by keeping a needed contractor's services.  Please offer some constructive help.  It's okay with me if your advice differs from mine -- the more people that try to be helpful, the better.

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12 hours ago, MAY-D-FAR-B-WIT-U said:

I am looking for any legal precedent or GAO decisions that will allow us to revive the contract, assuming this shutdown will not be over until after the current period expires.

If the current POP expires before you get funds obligated for the option, do you expect the contractor to continue working? 

ji is generally correct in what he has stated, however, if the option is not exercised in accordance with the terms of the contract, the contractor is entitled to an equitable adjustment to the contract.  Thus, you may get the option, but not at the price you thought.

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My concern is a third party (possiblly one of the offerors during the award) would be happy to see the contract die and have another opportunity at the requirement in a recompete. I am thinking if I was a third party, I would argue that failure of the government to exercise the option means the contract is dead and should be recompeted regardless of the intent letter. The intent letter itself says the letter is not an obligation and does not commit the government in anyway. Maybe am just trying to anticipate a solution for a problem that does not exist.

ji20874,

Can a third party challenge the belated option exercise?

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3 minutes ago, Retreadfed said:

If the current POP expires before you get funds obligated for the option, do you expect the contractor to continue working?

There are government employees on the program who are working and they expect the support to continue because they have the funds. I am also considering the possibility of someone simply sending an ATP to the contractor saying funds are available and proceed with the terms of the option period. With the exception of finding someone with a warrant who isn't furloughed, does anyone foresee a problem with this?

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This is a common occurrence.  How many times has it happened over history where option exercise funds were not available on Oct. 1, and yet the contractor continued working at its own risk for a few days and the option exercise (when it happened) was made with an effective date back to Oct. 1?  This is not new.  Matters like this are best handled without fanfare, with a focus on practicality rather than ivory tower sophistries.

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If you do not have confirmation from an authorized budget person that the funds are available, then you can not tell the contractor that funds are available.

You can exercise the option without funding if the proper clauses are in the contract (Availability of Funds).  The contractor has the right to not perform if no funding is provided.

It is a double edged sword - you can exercise without funds and the contractor may or may not perform or you let the contract die and you risk the chance that you will have to reprocure.

I recommend you consult with your contracting officer and policy branch.  

 

 

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Consideration of the fact that this is a beginners forum let me attempt to offer the practicality along with references.

Exercise of an option requires specific determinations to be made - FAR 17.207.  GAO case law on this is fairly clear and can be found here http://www.wifcon.com/pd17_207.htm

Continuing a contract absent the timely exercise of an option brings up questions with regard to CICA, as well as  the same considerations that are to be made when the option is exercised, and can be appropriately addressed through single source or sole source processes, especially in such unique circumstances as a longer than ever lapse of budget situation.  This in my view relates to ji's previous post with regard a bi-lateral agreement to continue the contract as if the option was exercised unilaterally. 

I echo that as suggested by leo to contact a CO prior to any action you might take.  While dealing with the unusual situations created by budget lapse contractors determine how to best address the risks they are faced with regarding continued contract performance just as the "someones" in government are in handling the same matters but realize the matter of unauthorized commitments is a standard that does not go away. 

So  work with the tools that are at your disposal and work through the situation as in the end there are fixes that will work  that are not only are practicable but follow the guiding principles of the FAR.  And a little of both as ingredients to your fix will either narrow or completely eliminate the risk of others questioning your approach to the fix. 

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2 hours ago, Retreadfed said:

If the current POP expires before you get funds obligated for the option, do you expect the contractor to continue working? 

ji is generally correct in what he has stated, however, if the option is not exercised in accordance with the terms of the contract, the contractor is entitled to an equitable adjustment to the contract.  Thus, you may get the option, but not at the price you thought.

Are you sure that a contractor is entitled to an equitable adjustment?  If the Government exercises an option not in accordance with the terms of the contract and the contractor begins performing, can that contractor come back at a later date (but within 30 days) and request an equitable adjustment to the contract?  If so, according to what clause?

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Matthew, see CTA, Inc. 00-2 BCA 30,947 and White Sands Construction, Inc.  ASBCA Nos. 51875 and 54029.  Also, see Glascow Investigative Solutions, Inc. ASBCA No. 58111 (9 April 2013).

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My agency considers the contract "dead" if an option is not exercised timely.  I don't necessarily agree, but I don't have any legal decisions that I know of to cite to convince our OGC otherwise.  There is going to be a lot of problems if this goes a couple of weeks longer and we have to do a bunch of bridge or sole-source contracts.

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14 hours ago, ji20874 said:

Jamaal,

You mustn't mischaracterize what I said.

Sorry. That wasn't my intention. I simply asked a clarifying question - that you artfully dodged. (the OP asked you a specific question too: Can a third party challenge the belated option exercise?)

Nonetheless, the OP was looking for something very specific...something I cannot provide:

"any legal precedent or GAO decisions that will allow us to revive the contract"

Since the OP was looking for something very specific, why not focus on that first? Then add any additional commentary. As-is, your comment seems to suggest skirting the rules.

Since this is a beginners forum,  I think it would be fair to explain the options rules and then potential courses of action (e.g., FAR deviation or sole source approval - should be easy given the circumstances; or award what amounts to a sole source contract via so-called exercising the option).

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I think the best you can do is exercise the option late and request that the contractor waive its right to object to an improper exercise. If the right to object to an improper option exercise can be waived implicitly through performance, then it can be waived expressly. Here are some cases where the contractor waived its right:

Quote

 

Objection to improper exercise waived by performance

Walters & Co., Inc. v. U.S. (CtCl 1978) 24 CCF ¶81,806, 576 F2d 362; aff'g (1976) ASBCA No. 19335, 76-1 BCA ¶11,767.

Continued performance without objection waived defective exercise

Contract Automotive Repair and Management v, GSA (1999) GSBCA Nos. 12773, 12774, 13627, 99-2 BCA ¶30,530.

Performance of option without objection caused waiver of right to object

USD Technologies, Inc. (1987) ASBCA No. 31305, 87-2 BCA ¶19,680.

 

If the contractor objects to the improper exercise and wants to renegotiate terms, then I think you would have a CICA issue (i.e., you would have to justify negotiating on a sole source basis).

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Don - I read those decisions I have a question that I couldn't find the answer to in any of those cases.  When does a contract "expire"?  Clause 52.217-9 reads:

Option to Extend the Term of the Contract (Mar 2000)

(a) The Government may extend the term of this contract by written notice to the Contractor within _____ [insert the period of time within which the Contracting Officer may exercise the option]; provided that the Government gives the Contractor a preliminary written notice of its intent to extend at least ___ days [60 days unless a different number of days is inserted] before the contract expires. The preliminary notice does not commit the Government to an extension.

(b) If the Government exercises this option, the extended contract shall be considered to include this option clause.

(c) The total duration of this contract, including the exercise of any options under this clause, shall not exceed ___________ (months)(years)

(End of Clause)

 

So when does the contract "expire" as referenced in ( a )?  Is it when the contract is closed out?  Is it when the period of performance ends? As this shutdown goes longer and longer and COs are not able to exercise options because the contracts are excepted, this will become more and more of an issue.  Are there any cases (I couldn't find any) that would set a precedent on the legality (or lack thereof) of exercising an option after the PoP ends?

 

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I don't think you need any precedent cases -- if both parties (Government and contractor) are okay with a belated (or defective) option exercise, well, no one else matters, right?

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34 minutes ago, ji20874 said:

I don't think you need any precedent cases -- if both parties (Government and contractor) are okay with a belated (or defective) option exercise, well, no one else matters, right?

Sadly, not correct.  Our OGC and Office of Acquisition Management matter...  and right now they are of the opinion that when the PoP ends, the contract is dead (their words).  I was looking for some cases that I could use to point out that may not necessarily be true (unless of course, it is)

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2 hours ago, Desparado said:

Don - I read those decisions I have a question that I couldn't find the answer to in any of those cases.  When does a contract "expire"? 

For purposes of interpreting FAR 52.217-9, I think the contract expires when the period of performance is over. That seems to be what the Board assumed in American Contract Servs., Inc., ASBCA 46788, 94-2 BCA ¶ 26,855, recons. denied, 94-3 BCA ¶ 27,025, aff'd, 53 F.3d 348 (Fed. Cir. 1995).

 

2 hours ago, Desparado said:

Are there any cases (I couldn't find any) that would set a precedent on the legality (or lack thereof) of exercising an option after the PoP ends?

I don't think it's illegal, it's just not in compliance with the contract. The contractor can waive Government noncompliance, just like the Government can waive contractor noncompliance.

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Desparado,

If your agency superiors want those contracts to die, then you let them die.  

Or, if they want to act prudently and in the agency’s best interests with regard to those contracts, they can choose the path that I and Don recommended for your and the original poster’s consideration.  

It’s a choice.

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MAY-D-FAR-B-WIT-U, can you clarify one point for me?  In your first post you stated,

On 1/17/2019 at 4:34 AM, MAY-D-FAR-B-WIT-U said:

we have previous year funds to exercise the next option period and we sent out the intent letter before the shutdown, but due to the shutdown, there is no staff available to obligate the funds.

It was unclear to me whether you mean there are no contracting officers available to exercise the option (which obligates the funds), or there are no financial management folks available to record the obligation. 

However, later you stated,

On 1/17/2019 at 5:40 PM, MAY-D-FAR-B-WIT-U said:

With the exception of finding someone with a warrant who isn't furloughed, does anyone foresee a problem with this?

This makes me think that, in fact, there are no warranted contracting officers that can exercise the option.  Can you confirm whether that is correct or not?

Edited by Lionel Hutz
Removed some (not well thought out) speculation on my part.

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On 1/17/2019 at 5:34 PM, MAY-D-FAR-B-WIT-U said:

Can a third party challenge the belated option exercise?

Yes. 

It is well settled that an option must be exercised exactly in accordance with the terms of the option clause.  Failure to do so renders the exercise invalid.  When you invalidly exercise a “late option,” you have in effect awarded a sole source contract for that option work.  Unless you have a J&A or Memo Limiting Competition supporting that action, that invalid option exercise is a violation of statutory requirements for competition as implemented through FAR Parts 6 and 13.

It is true that if you exercise the option late and the contractor agrees to perform, either expressly in the modification or by performing without objection, then the contractor has waived it’s right to later object to the option exercise.  But, that does not mean that the exercise of the option complied with law, regulation, or the terms of the contract.

Board of contract appeals cases addressing the issue of an invalid option exercise rely on the doctrine of waiver. (E. Walters & Co. v. United States, 217 Ct. Cl. 254, 256, 576 F.2d 362, 363 (1978)) (“plaintiff's silence constituted a waiver of its rights to an equitable adjustment because of the exercise of the option for increased quantities of the procured item.”) 

The doctrine of waiver “precludes a contractor from challenging the validity of a contract … where it fails to raise the problem prior to execution, or even prior to litigation, on which it later bases its challenge.”  Whittaker Elec. Sys. v. Dalton, 124 F.3d 1443, 1446 (Fed. Cir. 1997) (citing United Int'l Investigative Servs. v. United States, 109 F.3d 734, 738 (Fed. Cir. 1997); E. Walters & Co., 576 F.2d at 367-68).  In other words, if a company accepts an option extension and performs, the company cannot later argue that it is not subject to the terms of the contract simply because it was not exercised in accordance with option clause or applicable law.  It is an equitable principle used to prevent an unjust result after the fact.  However, it does not give the parties the authority to waive the application of law merely because both parties mutually agree.

Would you say that it’s okay for a contracting officer to award a sole source contract without adequate justification, as long as both parties agree to “waive” any violations?  Would it matter to you that after performance the contractor would not be able to object to the terms of the contract on the grounds that the award violated CICA?  No, of course not.  A different contractor, auditor, IG inspector, or any other third party would be well within their right to object to such an award, and the GAO would not hesitate to uphold such a protest.  It is the same situation here.  If you cannot get a contracting officer to exercise the option, then perhaps you can support a “late” option exercise with a valid J&A or Memo Limiting Competition.  This would be very fact specific, however, it might be a possibility.

The bottom line is that when there is a lapse in funding and the government shuts down, bad things are going to happen and it is not within your power to fix everything.  If someone takes the position that he is going to “get things done” regardless of the law because he "knows what’s right” and “no one will know about it or complain,” then there is nothing really to discuss.  My recommendation would be to do what you can to minimize the impact, but stay within the bounds of applicable law and regulation.

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I’d say, get it done. If someone protests, they protest. So what? The government is shut down for an unprecedented period. Get the job done.

And while at it, discuss your proposed course of action with your contractor, who likely wants and needs the work. 

Go forth and do good things.  

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