MAC's and Options

[jpmackie]

I have a quick question that I can't seem to find the answer to in my research.

Here is the situation (changed slightly to make it generic enough). Supposed you have a multiple award IDIQ strategy with a base period plus one option to extend the ordering period.

8 proposals are received, 6 of those offerors receive awards.

Among the 6 awards, delivery orders are competed throughout the base period. Some awardees are great suppliers, some only receive their guaranteed minimum (possibly due to price or other factors, not necessarily because they are problematic).

How do you determine which awardee gets their option exercised? Is it legal to pick and choose based on past performance? Obviously the good suppliers would get their option exercised and the bad ones would not. I realize "good" and "bad" are subjective terms which is why I am asking this question. In fact, keep in mind that all 6 awardees were found to be competent and worthy of the initial award, hence capable of producing the items on contract.

Also, assume there was no language in the RFP or resulting contracts that specified how or why the options would/would not be exercised.

I am hoping there is some regulation that can guide me, but I am at a loss. At times like this, it makes me wish I had 15 more years experience and better ability to read case law, but I turn to the great minds here. I don't post often, but this site has helped me immensely in the past. Keep up the great discussions.

Thank you in advance.

[joel hoffman]

Here is the situation (changed slightly to make it generic enough). Supposed you have a multiple award IDIQ strategy with a base period plus one option to extend the ordering period.

8 proposals are received, 6 of those offerors receive awards.

Among the 6 awards, delivery orders are competed throughout the base period. Some awardees are great suppliers, some only receive their guaranteed minimum (possibly due to price or other factors, not necessarily because they are problematic).

How do you determine which awardee gets their option exercised? Is it legal to pick and choose based on past performance? Obviously the good suppliers would get their option exercised and the bad ones would not. I realize "good" and "bad" are subjective terms which is why I am asking this question. In fact, keep in mind that all 6 awardees were found to be competent and worthy of the initial award, hence capable of producing the items on contract.

Also, assume there was no language in the RFP or resulting contracts that specified how or why the options would/would not be exercised.

You hinted but didn't directly say that "some" suppliers weren't competitive, due either to pricing or "other factors".

Do you have guaranteed minimums for the option period?

If they aren't competitive, would you want to extend their contracts, especially if there is a risk of having to either set-aside delivery orders for them or pay a guaranteed minimum stipend?

If you had to set aside orders for firms during the initial period because they weren't competitive, that would seem to be a legitimate reason not to renew them.

If you had to pay the guaranteed minimum, that would be a strong reason not to renew them.

How much competition would remain if you eliminated the mundane firms?

Those are all legitimate considerations.

You didn't provide a lot of detail as to why or how the "some" firms only received their guaranteed minimums. But it looked like they weren't competitive. You sure don't want to have to set aside delivery orders for non-competitive firms. You don't get the best deal and deny the top performers opportunities to continue to excel. And you certainly don't want to have to pay a guaranteed minimum for no return.

If a firm isnt competitive,that seems to me to be a reasonable excuse not to extend them.

[Guest Vern Edwards]

You will not find any guidance in the FAR.

Generally, complaints about failure to exercise an option under a multiple-award contract must be handled under the Contract Disputes Act as claims. The Court of Claims has said that it will not handle such matters as bid protests, see Government Technical Services, LLC v. U.S., 90 Fed. Cl. 522 (2008). I do not believe that the GAO would have jurisdiction, either. GAO generally will not entertain a protest because an agency will not exercise an option. See Jones, Russotto, and Walker, B-283288, 99-2 CPD ? 111 (1999). But I have not seen a GAO decision on such a matter with regard to a multiple-award contract.

There is no contractual obligation to exercise an option. As long as the decision is not inconsistent with the terms of the contract and is not arbitrary or otherwise unreasonable, it will stand. Just make sure that you document your reason for not exercising the option and that the reason, whatever it is, is not arbitrary. Past performance or pricing would be good reasons if the underlying facts support the decision.

[joel hoffman]

I agree with Vern.

You said "I am hoping there is some regulation that can guide me, but I am at a loss."

I probably should have expanded my answer to say that the FAR doesnt provide a nice, neat answer to your question.

You don't owe firms who haven't shown themselves to be competitive or good performers an optional contract extension.

I recommend that you not put the government (taxpayers and customers) at risk to pay guaranteed minimums or to have to award delivery orders to firms that otherwise wouldnt win any delivery order competitions.

Even if you don't owe any minimum guarantees during an extension, you need to decide whether or not you think that a firm would be competitive or be a good performer during the extended period if you have a reasonable basis to make such a conclusion. But you aren't bound to extend them simply because the firm rated well in the initial source selection competition.

In reality it does cost the government money in the amount of resources and time necessary to continue dealing with non-performers and non-competitive firms (contract administration efforts and time to review, document the reviews, etc.every time they submit a proposal). In our organization, the acquisition personnel cost our clients money because we are generally reimbursible to the program being served. And clients don't like to pay for guaranteed minimums.

There might be other considerations that you didn't bring up here.

I hope you see though that there might be valid business reasons involved in the decision to extend or not extend firms, beyond simply whether or not they are "good" or "bad" firms.

But don't be arbitrary in your decision.

Yes, after considering the facts and using your business judgement, document the basis of your decision to exercise or not to exercise an option to extend a firm.

Ater all, it is called an "option".

[jpmackie]

Vern - Thank you for your response and the references. I plan on reading some of it tonight.

Joel - Thank you as well. As you surmised, there are other considerations that I intentionally did not bring up.

Both of your responses are helpful. While I do not believe that firms who are not performing well deserve to have their option exercised, I wanted to make sure there was nothing in the regulatory MAC arena that would guide the decision. The costs aside, it is an administrative burden on my office as well as the customers to juggle more contracts than necessary. Those points I agree with and have already considered.

Again, thank you.