Concurrent Exercise of Contract Options

[ji20874]

It is not necessary to treat multi-year money like one-year money, but many organizations do it -- and because they do it, they lose the ability to tell the difference and they lose the flexibility that multi-year money affords.  Everyone becomes dumbed-down.  Then, when someone wants to use the flexibility that multi-year money affords, everyone else says it can't be done and will break the rules.  This isn't just your office -- this is pervasive throughout the federal government.

The concerns you raise are valid concerns.  But there are legitimate workarounds.

For example, in exchange for the very early exercise of the option, the might ask the contract to agree to a homemade clause that changes the 75% figure at which an overrun notice is required under the Limitation of Cost or Limitation of Funds clause in your contract -- maybe change it to 50% during the first year of the two-year option period.  And require the contractor to have a burn plan and to stick to it, and record it in CPARS if they don't. 

Is it a done deal?  Has the option exercise modification been done already?  If not, you have time to talk about these things across your program management, contracting, and budget organizations.  The contracting office can stop the process by refusing to prepare or sign the modification.  The budget office can stop the process by refusing to certify availability of funds.  I commend you for learning, but warn you that knowledge of correct principles does not guarantee a good outcome -- office tradition and organizational culture can squash correct principles.

I once worked in an organization with no-year money -- two organizations in wholly separate departments, actually.  I can promise you that budget people don't like for a contracting person to tell them the flexibilities with no-year (or multi-year) money -- even if they are wrong (based on a lack of understanding of correct principles) and even if you can quote from GAO reports and the Red Book, they can still win because of their organizational power.  But any discussion in your office about bona fide needs rule and so forth is likely to be in error because your interlocutors will be applying the bona fide needs rule as if your multi-year money is one-year money, which it isn't, and they might be unable to tell the difference.

[BigBirdContracting81]

@ji20874 Man, this is really good stuff. I'm learning so much at the old age of 37, lol. But seriously, thank you all so much for the invaluable information.

No, it is not yet a done deal as the option-exercise modification has not yet been executed, and I'm very apprehensive about discussing with the team the legitimate workarounds you have suggested. My budget analyst will probably want to hug and kiss you when I show her the suggested workarounds you provided. Essentially, she's been saying the same thing you said in terms of the workaround, just in different, more colorful, office-inappropriate language, if you will. She said it creates more work for the budget community when contracting makes such haste decisions, which are basically driven by our internal customers/stakeholders, AKA - Programmatic Folks, without consulting the others that will be impacted and affected by such decisions.

I am apprehensive about discussing the workarounds because I work with a very smart, yet very mercurial PCO. In all fairness to him, my tone hasn't always been the best in the past, (which you saw in a previous message) but my intention is to always do what is in the best interest of the Agency by successfully executing its mission - with integrity and professionalism - of course. I have been reminded on more than one occasion that I am not a PCO and that when I become a PCO then I can sign contract actions when I want to and make decisions. I've said all that to say that I don't know if all of what I have gleaned from posing this question will be well received. It will just depend on the energy and the mood of the person receiving it at that moment. After all, I'm just a lowly NH-II Contract Specialist, LOL!

I like learning and posing these types of questions to the contracting audience because I want to be well-equipped...as best I can...when my promotion leads me to quasi-greener pastures, lol! Thanks again. I appreciate this more than you'll ever know. I'll keep you posted on the outcome. Later.

[Retreadfed]

3 hours ago, BigBirdContracting81 said:

because the program office has made the decision to roll the CLIN values and the Period of Performance of both Option-CLIN  periods into the base-CLIN period, the concerns are that we could potentially be antideficient since we don’t use our RDT&E money as 2-year money. Another concern from our budget community is that because we are rolling both option periods into the base period, including the CLIN values, what is the incentive to the contractor to not overrun

I don't understand the ADA concerns.  Can you elaborate on that.

As for contractors having an incentive not to overrun, there are several.  First, there is an unfavorable CPARS rating.  Second, and more importantly from a contractor's perspective is a reduced profit on the contract.  Remember, fee does not equate to profit.  A fixed fee of 7% on a contract may equate to only a 5% profit.  If a contractor incurs an overrun, even if it is funded, it does not receive increased fee, thus the profit rate on the contract goes down.  Instead of receiving 5% profit, the contractor only receives a 3 or 4% profit.

Finally, are you under the impression that an option, as you use the term here, is a separate contract?

[Regor]

On ‎5‎/‎6‎/‎2019 at 7:03 PM, BigBirdContracting81 said:

@ji20874 Based on my understanding of everything, the earliest possible date the Government can exercise Option 2 is June 22, 2020 to June 21, 2021. Thanks for your help. 

 

 

That is the PoP of Option 2 and does not relate to the exercise of the option.  It all depends on what the fill in for the -9 says.  If just numbers are entered, i.e. 30 for first fill-in and 60 for second, and as long as the required preliminary notice is given, the option exercise should be valid.  The courts have ruled that "within" means prior to (don't have the case off top of my head to site it) when ruling on option exercises under -9 clause.  What I don't know is if the intended result which is to access the ceiling provided by Option 2 is effective at exercise or aligns with the PoP.  I haven't done CR type contracts in over 15 years and lots has changed since then but I don't see a problem with exercising it up to a year early provided the notices are timely per the -9.

[Jamaal Valentine]

@BigBirdContracting81

7 minutes ago, Regor said:

The courts have ruled that "within" means prior to (don't have the case off top of my head to site it) when ruling on option exercises under -9 clause.

Please find and cite that case.

7 minutes ago, Regor said:

What I don't know is if the intended result which is to access the ceiling provided by Option 2 is effective at exercise or aligns with the PoP.

The option PoP remains unchanged, right? Doesn't the option (offer) have to be exercised (accepted) in strict accordance with its terms? The terms include the PoP, right?

[ji20874]

If the options are separate CLINs, one modification can exercise both options.  The PoP, estimated cost, and fixed fee for each CLIN would remain unchanged.  Both options would be funded from the same pot of RDT&E money.

After exercising the option as two CLINs as written with back-to-back PoPs, I suppose you could renegotiate the CLIN structure and merge those two CLINs into a single CLIN in the interest of efficiency, if both parties were agreeable.  You could probably negotiate it before exercising the options, as you are not affecting scope in any way.  But when you do exercise an option, it is a unilateral action based on the option terms as previously agreed by the parties.