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Exercising Options during shutdown

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Lionel's case law citation may be inapt.  Instead, the citation actually seems to support the doctrine of waiver and the notion that the contractor may waive the informality or defect of an imperfect (or late) option exercise, but in doing so cannot demand an adjustment in terms -- indeed, the court ruled that the imperfect option exercise, once accepted by the contractor, is fully enforceable.  If the option exercise was invalid ab initio, the court would have said so and the decision would have been different.

All the talk about CICA only applies if the option exercise changes terms, such as by increasing price, quantity, or scope.  If terms and scope are unchanged, then CICA is not implicated.  A simple late option exercise caused by a funding lapse need not implicate CICA.

We need to be practical, reasonable, and realistic -- funding lapses have occurred more or less regularly for many, many years, and for many of those circumstances, contracting officers exercised options late with effective dates back to the start of the funding lapse.  If the agency and contractor are happy (and there is no change in terms or scope), then no one else matters.  I disagree with Lionel's certainty that the GAO will uphold a third-party protest in such a case.

A contracting officer who exercises an option as we are discussing acts honorably and within the law, provided he or she does what the FAR and agency regulations require for an option exercise.  Of course, the contracting officer may be the least important and most irrelevant person on the Government side.  If the contracting officer's managers, reviewers, attorneys, finance officials, or others object to the option exercise, then the contracting officer will never issue the option exercise -- those persons and organizations are free to be afraid of the imaginary boogeyman.  A contracting officer must follow his or her agency's rules, whether reasonable or not.

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ji, I agree with you.  

Let me add - if the naysayers in the organization object, they need to solve it and get the job done.

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2 hours ago, ji20874 said:

the contractor may waive the informality or defect of an imperfect (or late) option exercise, but in doing so cannot demand an adjustment in terms -- indeed, the court ruled that the imperfect option exercise, once accepted by the contractor, is fully enforceable.

I agree.  But, here, the issue is not whether the contract will be enforceable if the contractor does not object.  The issue is whether a late exercise of the option is permitted under applicable statutes, regulations, and contract provisions.

The OP specifically asked if a third party could protest an invalid option exercise.  The answer is yes.

You can have an enforceable contract even when you have violated a procurement law to create those contractual obligations. 

For example, let’s say a contracting officer solicits services on an LPTA basis with 2 technical evaluation criteria.  Under those criteria Offeror A is the lowest priced technically acceptable offeror.  However, in conducting the evaluation, the contracting officer relies on an unstated 3rd evaluation factor, which results in the selection of Offeror B.  Award is then made to Offeror B.

-Is there a contract?  Yes.

-Did the contracting officer comply with applicable laws and regulations concerning how to solicit and award a contract?  No.

-If Offeror A protests, will they succeed in overturning the award to Offeror B?  Yes, absolutely.

-If Offeror A does not protest and Offeror B performs, can Offeror B later succeed on a claim alleging there is no contract because it was improperly awarded?  No, it has waived its right to object to the contract award.

It's the same situation here.  If the contractor does not object, and performs, you can create a contractual obligation by proceeding with a late option exercise.  However, you will not be in compliance with statute and regulation when doing so.

2 hours ago, ji20874 said:

If the option exercise was invalid ab initio, the court would have said so and the decision would have been different.

While that’s an interesting theory, the Federal Circuit disagrees with you, stating, “When a contract or a provision thereof is in violation of law but has been fully performed, the courts have variously sustained the contract, reformed it to correct the illegal term, or allowed recovery under an implied contract theory; the courts have not, however, simply declared the contract void ab initio."  American Tel. & Tel. Co. v. United States, 177 F.3d 1368, 1376 (Fed. Cir. 1999).

In contrast to your assertion, courts will not rule the exercise void ab initio.  They will give effect to the terms DESPITE the fact that the contracting officer violated the law.  For another example, see the case of E. Walters & Co. v. United States, which stated, "Granted that this use of the 'option' provision was clearly prohibited by the procurement regulations, and for good and sufficient policy reasons, the fact that a procurement practice is prohibited does not necessarily mean that it is therefore actionable.  The discipline to be administered in such cases is a responsibility of the cognizant procurement officials within the agency in which the violation took place.  It is not a type of discipline to be administered by this court, in the form of judgment for the party allegedly aggrieved by the violation of the procurement regulation."  E. Walters & Co. v. United States, 217 Ct. Cl. 254, 263-64, 576 F.2d 362, 366-67 (1978) (emphasis added.)

So, it is clearly settled that you can violate the law by improperly exercising an option, and yet still have enforceable contractual rights if the contractor waives its objections through performance.

2 hours ago, ji20874 said:

All the talk about CICA only applies if the option exercise changes terms, such as by increasing price, quantity, or scope.

I disagree.  When the period of performance is over and the period to exercise the option lapses, the contracting officer lacks authority to extend the period of performance using that option.  Under what authority is the contracting officer authorizing the contractor to do the work?  One contract has ended, and now he has awarded the work to the contractor without competition and in violation of FAR Parts 6 and/or 13.

2 hours ago, ji20874 said:

funding lapses have occurred more or less regularly for many, many years, and for many of those circumstances, contracting officers exercised options late with effective dates back to the start of the funding lapse.

I disagree.  In most years, there is no funding lapse because there is a continuing resolution.  Further, in this case, there is no funding lapse.  The OP stated that prior year funds are available for this contract.  The issue hangs on whether the option will be exercised in time.

2 hours ago, ji20874 said:

A contracting officer who exercises an option as we are discussing acts honorably and within the law, provided he or she does what the FAR and agency regulations require for an option exercise.

Except, of course, the law requires the contracting officer to exercise the option in accordance with the terms of the option clause, which the contracting officer cannot do if the period to exercise the option has lapsed. 

 

Anyway, this has been an interesting discussion.  But, at the end of the day, this is a beginners forum, and MAY-D-FAR-B-WIT-U asked for "legal precedent or GAO decisions that will allow us to revive the contract," and whether "a third party challenge the belated option exercise?"

My answers are:

(1) There is plenty of authority stating that a late option exercise can be enforced against the contractor if the contractor performs and does not object.  We've already cited some of those.

(2) You will not find any legal precedent that says a "late" option exercise that does not comply with the terms of the option clause is authorized.

(3) A third party can challenge a belated option exercise on the grounds that the original contract expired, and the invalid option exercise was an improper sole source award.

 

If folks want to "get the job done" regardless of legal authority, that is their prerogative.  But to suggest such a course of action in a beginners forum without adequately explaining the potential downsides is, in my opinion, doing MAY-D-FAR-B-WIT-U a disservice.

 

 

 

 

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To clarify, I did not say to exercise an option inproperly. With the government shut down, the original poster has no means to “exercise” anything unilaterally.The suggestion has been made to bilaterally modify the contract. For the amount of time that this discussion is been going on, they could’ve started that process.

If this is a DOD contract, there are a couple of different exceptions to full and open competition that could be used to support a bilateral modification to add the option

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@Lionel Hutz's explanation was very well stated. Most importantly, it distinguished between the "validity" of the contract regarding the signatories, courts, GAO, and potential protesters.

 

It's one thing for a signatory to waive its right to complain about an improperly exercised option. It's another issue to consider that others can protest and that the improperly exercised option violates CICA. This point has been hammered home several times in this thread and others.

 

Other posters don't seem to be able to make this distinction in their heads.

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2 hours ago, Lionel Hutz said:

Did the contracting officer comply with applicable laws and regulations concerning how to solicit and award a contract?  No.

Do you know of any cases where:

1) Government did not exercise option on time

2) Contractor kept working/Government kept overseeing

3) Government sent notice of option exercise late

4) No change to contract terms and conditions

5) Third party protests that Government violated CICA

6) Third party won case?

If what your saying is true, I would expect there to be such a case. 

 

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Wifcon has become like the ancient Sodom and Gomorrah.

All of this sinful confusion, conflation of terms, unjustified answers, and poorly defined questions.

It's just begging Vern to re-ignite his posting career, throw lightning bolts on the sinners, and set the forum ablaze with cleansing fire. 

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10 minutes ago, Don Mansfield said:

Do you know of any cases where:

1) Government did not exercise option on time

2) Contractor kept working/Government kept overseeing

3) Government sent notice of option exercise late

4) No change to contract terms and conditions

5) Third party protests that Government violated CICA

6) Third party won case?

If what your saying is true, I would expect there to be such a case. 

 

I don't, although I have not searched for one. 

Why would you expect there to be a case?  I would expect there would not be a case.  A published protest would require the third party to know that an option was exercised late, which they are unlikely to know.  And, even if they do know it was exercised late, it would require that party to know it was a protestable issue.  So, the litigation risk is relatively small.  But maybe it is more likely in a situation where other contractors know the option cannot be exercised due to a shutdown? I don't know.

In any event, the likelihood of a protest may make someone feel "safer" about a course of action, but it has no impact on the propriety of that action

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If a third party knew they could force a competition by protesting such an issue, I would expect to see someone try. 

You are misrepresenting your conclusion--that the proposed course of action is a violation of CICA--as a matter of fact. You've made a convincing argument in support of your conclusion, but we don't really know whether the GAO or COFC would go along if they haven't been presented with the same facts. Maybe they would see a reasonable distinction between prior cases dealing with improper option exercises and cases where all parties acted as if the option were exercised and the late notice was just an "oops!" 

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I don't think an imperfect (such as merely late because of a funding lapse) option exercise is a violation of CICA.

Some posters here insist that it is, and raise the CICA protest boogeyman cry.  They have not persuaded me (and a few others also remain unpersuaded).  I believe that the GAO and COFC would also not be persuaded.  If there was such a protest, the agency or the interventor (the contractor who accepted the option) could make a very strong case and would likely prevail, in my opinion.

For those raising the CICA protest boogeyman cry, please be prepared to order your still-working contractors (whose contract periods ended during the shutdown) off the premises and to stop the work because the contracts are dead IMMEDIATELY when you return to work, even though the contracts may be important for agency mission success, because you have concluded that you have no authority to allow them to continue work while you draft and route your J&As to award sole-source replacement contracts.  In a few weeks, after your J&A processes are complete, you can allow them to return to work so that your agency can again meet its mission.

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Pepe, 

Vern addressed the issue of a late option exercise back in 2013--

"I could not find any GAO or Court of Federal Claims protest decision that addresses this issue. So why not go ahead and bilaterally extend the contract through May 6 of next year, as originally intended, document the file to explain what happened and why you decided to extend the contract through bilateral modification, and wait to see what, if anything, happens? That's what I would do. If I got a protest, how I would handle it would depend upon the protester's argument.

Wouldn't that be better than letting yourself be frozen into inaction by speculation about how a protest might be decided?"

 

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10 hours ago, ji20874 said:

A contracting officer who exercises an option as we are discussing acts honorably and within the law, provided he or she does what the FAR and agency regulations require for an option exercise

 

10 hours ago, ji20874 said:

 A contracting officer must follow his or her agency's rules, whether reasonable or not.

 

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Jamaal,

Right.  If the decision-maker according to agency rules or culture is someone other than the contracting officer, then so be it.  But if the contracting officer has some decision-making space (I realize that very few do), he or she will find good counsel here for his or her consideration.

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A defective extension is nothing more than an improper sole source contract (see Vern's sixth post here). GAO will consider protests alleging that an agency's determination to exercise an option in an existing contract, rather than conduct a new procurement, is unreasonable or violates law or regulation. (Test Sys. Assocs., Inc., B‑244007.6, Mar. 29, 1993, 93-1 CPD para. 274 at 4-5.)

The Agency Head, Senior Procurement Executive and their delegates know of the shutdown and can provide agency guidance, class deviations, and pretty much any other approval required in this scenario (for expiring contracts).

However, in the absence of guidance, contracting officers who are left to make their own way should simply 1) communicate their defective option plan and associated risks with their leadership; 2) execute accordingly.

Nonetheless, always try to leverage the tools to do things right (waivers, deviations, and approvals in advance)...but remember, the doctrine of implied ratification is still at work everyday...make a decision, document the reasoning, get supervisor buy-in, and execute accordingly.

(I know there is a lack of awareness regarding the number of defective 52.217-8 & -9 options) 

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19 hours ago, ji20874 said:

Wouldn't that be better than letting yourself be frozen into inaction by speculation about how a protest might be decided?"

Yes. That's practical advice.

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