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Preliminary and Written Notice Under 52.217-9

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52.217-9(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];…” 

 

Examples of fill-ins and their proper interpretations:

 

“the contract’s ordering period” – the option could be exercised as long as the contract’s ordering period had not expired.

 

“the contract’s performance period” – the option could be exercised as long as the contract’s period of performance had not passed.

 

“one month following the final performance period” – the option could be exercised up to one month following the contract’s final performance period.

 

“one year”  the option could be exercised within one year of the date the 52.217-9 clause was included in the contract.

 

“five years” – the option could be exercised within five years of the date the 52.217-9 clause was included in the contract.

 

“five days” – the option could be exercised within 5 days of the date the 52.217-9 clause was included in the contract. 

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On ‎7‎/‎19‎/‎2019 at 2:34 PM, Retreadfed said:

The clause is so poorly worded

The clause isn't poorly worded.  COs just don't know how to interpret it properly.

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6 hours ago, joel hoffman said:

The FAR isn’t ambiguous!...The spec writer has to define the period,  not just state a number of days!!!

Exactly.  I was taught to put "90 days" in the first fill-in and did so for years.  I trusted the initial guidance but, in hind sight, should have questioned it.  I suspect I'm not alone.

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15 minutes ago, jwomack said:

Exactly.  I was taught to put "90 days" in the first fill-in and did so for years.  I trusted the initial guidance but, in hind sight, should have questioned it.  I suspect I'm not alone.

90 days before, during or after what? 

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38 minutes ago, jwomack said:

52.217-9(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];…” 

 

Examples of fill-ins and their proper interpretations:

 

“the contract’s ordering period” – the option could be exercised as long as the contract’s ordering period had not expired.

 

“the contract’s performance period” – the option could be exercised as long as the contract’s period of performance had not passed.

 

“one month following the final performance period” – the option could be exercised up to one month following the contract’s final performance period.

 

“one year”  the option could be exercised within one year of the date the 52.217-9 clause was included in the contract.

 

“five years” – the option could be exercised within five years of the date the 52.217-9 clause was included in the contract.

 

“five days” – the option could be exercised within 5 days of the date the 52.217-9 clause was included in the contract. 

17.204 (c) says:” The period shall be set so as to provide the contractor adequate lead time to ensure continuous production.” 

One can’t simply write anything they want, without considering how to provide the contractor adequate lead time to ensure continuous production .  

One shouldn’t simply insert a number of days, without providing context to those days and without providing adequate lead time. 

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25 minutes ago, joel hoffman said:

17.204 (c) says:” The period shall be set so as to provide the contractor adequate lead time to ensure continuous production.” 

One can’t simply write anything they want, without considering how to provide the contractor adequate lead time to ensure continuous production .  

One shouldn’t simply insert a number of days, without providing context to those days and without providing adequate lead time. 

In government employees’ zeal to provide maximum flexibility to the government to exercise an option, they need to remember to consider how the contractor can plan for continuation and how to price their proposal to cover themselves if the government waits til it affects the contractors’ cost or employee retention to exercise an option. 

Contractor employees have needs too, for you to consider. 

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48 minutes ago, jwomack said:

The clause isn't poorly worded.  COs just don't know how to interpret it properly.

The clause quoted by Sunstrider is poorly worded as demonstrated by this discussion.  The poor wording may be a consequence of contracting officers not knowing how to complete the clause or pure ineptitude.

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2 hours ago, joel hoffman said:

In government employees’ zeal to provide maximum flexibility to the government to exercise an option, they need to remember to consider how the contractor can plan for continuation and how to price their proposal to cover themselves if the government waits til it affects the contractors’ cost or employee retention to exercise an option. 

Contractor employees have needs too, for you to consider. 

I think FAR 17.207 gets overlooked too!

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5 hours ago, Retreadfed said:

The clause quoted by Sunstrider is poorly worded as demonstrated by this discussion.  The poor wording may be a consequence of contracting officers not knowing how to complete the clause or pure ineptitude.

Yes , a lack of knowledge of business practices. I thought that KO’s are supposed to have a business education background . Sheesh. 

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Given the definition of Option at FAR 2.1:

"Option” means a unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract."

Who here thinks an option can be exercised bilaterally? 

If so, what is your reasoning?

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."Please define “exercise”. Thanks. 

EDIT:

An “option” provides the government a unilateral right, for a specified time, to elect to [or elect not to] purchase additional supplies or servicecalled for by the contract, or [an option may provide the government a unilateral right to elect to or elect not] to extend the term of the contract.

However, if there has been a change or economic price adjustment applies, or some other factor requires a “”change” to the price or the work, etc. the parties may or should bilaterally agree to the change or adjustment. See for instance, FAR 17.207(b). 

See, for example:

”52.217-6   Option for Increased Quantity.

As prescribed in 17.208(d), insert a clause substantially the same as the following:

Option for Increased Quantity (MAR 1989)

The Government may increase the quantity of supplies called for in the Schedule at the unit price specified. 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 the added items shall continue at the same rate as the like items called for under the contract, unless the parties otherwise agree.

(End of clause)”

See, for example:

“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:

Option for Increased Quantity—Separately Priced Line Item (MAR 1989)

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.

(End of clause)”

 

 

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 Thanks Joel...

Let's try this definition of exercise: "choose to implement".

So... my takeaway is that the government may exercise it's option (unilateral right) to extend at the stated terms,  or may enter into a bilateral agreement according to (a) new term(s)...We kind of knew that latitude already, didn't we? Well, in this firmat it may provide cover under Competition in Contracting Act.

So, Joel, please remember you didn't yet answer the question...can an option be exercised bilaterally?

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26 minutes ago, FAR-flung 1102 said:

can an option be exercised bilaterally?

Yes.  In order for an option to be exercised unilaterally, it must be exercised in precise conformity with the terms of the option.  If the government fails to exercise an option in that way, it is in material breach of the contract relieving the contractor from any further obligation to perform.  However, the contractor can waive this material breach and perform the option.  However, in this case, the contractor can receive consideration (an equitable adjustment) as compensation for waiving the material breach.  This waiver and adjustment are evidenced by a bilateral modification to the contract.

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I have seen in 52.217- 6 and -7:

-".......within no less than 60 days of the end of the period of performance...."

-"........within one year after contract award......."

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2 hours ago, Retreadfed said:

Yes.  In order for an option to be exercised unilaterally, it must be exercised in precise conformity with the terms of the option.  If the government fails to exercise an option in that way, it is in material breach of the contract relieving the contractor from any further obligation to perform.  However, the contractor can waive this material breach and perform the option.  However, in this case, the contractor can receive consideration (an equitable adjustment) as compensation for waiving the material breach.  This waiver and adjustment are evidenced by a bilateral modification to the contract.

Yes, I also agree. In addition, the government can choose to implement it bilaterally as I described above, with changes as needed. But not reprice it for market conditions, etc.*

* Can the contractor offer a voluntary price reduction for say, supplies that the government can purchase elsewhere for less, in order not to lose the option?  

Edited by joel hoffman

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2 hours ago, Retreadfed said:

If the government fails to exercise an option in that way, it is in material breach of the contract

Failing to exercise an option is not a material breach of the contract.

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16 minutes ago, jwomack said:

Failing to exercise an option is not a material breach of the contract.

Let me be clear.  If the government attempts to exercise an option in a way that is not in strict compliance with the terms of the contract, that is a material breach.

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What you're describing is not a breach of contract nor material breach.  Both of those terms, as defined by Black's Law, imply there was a violation of a contractual obligation.

"Exercising an option in a way that is not in strict compliance with the terms of the contract" is not, in fact, exercising an option; it's a non-binding offer to change the terms of the contract.  That offer can be ignored/rejected, accepted, or counter-offered.

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1 hour ago, jwomack said:

What you're describing is not a breach of contract nor material breach.

See, CTA, Inc., ASBCA No. 47062 00-2BCA 30,947 and White Sands Construction, Inc., ASBCA No. 51875,54029 (16 April 2004).

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7 hours ago, joel hoffman said:

Can the contractor offer a voluntary price reduction for say, supplies that the government can purchase elsewhere for less, in order not to lose the option?  

Yes.

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Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d at 323 “option exercise must be unconditional and in exact accord with terms of contract being renewed”

 

Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999) “attempt to exercise an option outside its terms does not constitute a valid exercise of option”)

 

Black’s Law 10th.  Breach of contract.  Violation of a contractual obligation by failing to perform one’s own promise, by repudiating it, or by interfering with another party’s performance”

 

Black’s Law 10th.  Material breach.  A breach of contract that is significant enough to permit the aggrieved party to elect to treat the breach as total (rather than partial), thus excusing that party from further performance and affording it the right to sue for damages”

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13 hours ago, ji20874 said:

Yes.

Even when it is a unilateral exercise of the option?   If bilateral would it not be a renegotiation of the contract terms and therefore not a exercise of option?  Reference please to support the "Yes" as I am very interested in how it could happen.

From FAR subpart 17.207(f)....."Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6. To satisfy requirements of Part 6 regarding full and open competition, the option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract, e.g. --

(1) A specific dollar amount;

(2) An amount to be determined by applying provisions (or a formula) provided in the basic contract, but not including renegotiation of the price for work in a fixed-price type contract;"

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13 minutes ago, C Culham said:

Even when it is a unilateral exercise of the option?   If bilateral would it not be a renegotiation of the contract terms and therefore not a exercise of option?  Reference please to support the "Yes" as I am very interested in how it could happen.

From FAR subpart 17.207(f)....."Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6. To satisfy requirements of Part 6 regarding full and open competition, the option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract, e.g. --

(1) A specific dollar amount;

(2) An amount to be determined by applying provisions (or a formula) provided in the basic contract, but not including renegotiation of the price for work in a fixed-price type contract;"

 

48 minutes ago, jwomack said:

Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d at 323 “option exercise must be unconditional and in exact accord with terms of contract being renewed”

 

Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999) “attempt to exercise an option outside its terms does not constitute a valid exercise of option”)

 

Black’s Law 10th.  Breach of contract.  Violation of a contractual obligation by failing to perform one’s own promise, by repudiating it, or by interfering with another party’s performance”

 

Black’s Law 10th.  Material breach.  A breach of contract that is significant enough to permit the aggrieved party to elect to treat the breach as total (rather than partial), thus excusing that party from further performance and affording it the right to sue for damages”

My question related to a bilateral agreement resulting from a voluntary price reduction offered to avoid losing the option when the government’s required market research before exercising an option reveals that current pricing would be more advantageous than the option prices. .

i quickly scanned through my old 3rd edition of Formation of Government Contracts yesterday. I didn’t have time to search for the referenced decisions but it appeared that the GAO may question a voluntary price reduction under the Competition in Contracting Act as affecting the Scope of the Competition. Too busy today to research it. From reading some other articles, I doubt that the GAO would rule for the government in a Protest by another original competitor or by industry. I think it would be considered out of scope, under the circumstances (the reason for the price reduction). 

Having said that, my gut feeling is that a contractor could offer a voluntary price reduction, provided that the motive isn’t based upon influencing the government to award an option. 

But - I’m not talking about a unilateral “exercise” of an option. Strictly bilateral - the issue is one of in-scope or out-of-scope.  

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What if the Government fails to provide notification prior to 60 days before the end of the current contract period (FAR 52.217-9)? What recourse, if any, does the contractor have? At day 59, can the Contractor reject the exercise of the option period? Does it become bilateral within that 60-day window? 

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