Option to extend services

[Guest hooter17]

I have in my contract FAR Clause 52.217-8, Option to Extend Services. The Government has already extended services three times for a total of 5 months. FAR 52.217-8 states that "the option provision may be extended more than once, but the total extension of perfromance hereunder shall not exceed six months. What happens if the Government issues me another modification extending serivces to six months and then fails to negotiate and award the contract to our firm by the end of the sixth month (we are sole source). After six months the Government will no longer have the ability to extend?

Thanks

[formerfed]

Then the agency has to justify a sole source extension and follow the procedures of FAR part 6.

[joel hoffman]

Hooter, the government could still extend services beyond 6 months, but not unilaterally.

A further extension would be generally beyond the terms of the contract. So, an out-of-scope supplemental agreement between the parties would be necessary. This means that your firm would have to agree to the terms and conditions of any further extension.

If a further extension is outside the scope of the current contract, the government would first have to justify using other than full and open competition to acquire the services pursuant to FAR Part 6 before it could implement the extension.

It would also have to justify only acquiring the extended services from your firm.

Since the new contract is apparently sole source, the government may not have much problem with the justification. But your firm would have to agree with the terms of the extension.

[formerfed]

I agree with Joel's comment. Mine was too hasty when I responded.

[Guest hooter17]

I agree with Joel's comment. Mine was too hasty when I responded.

Thanks for your responsese. They helped.

[brian]

.

in plainer language,

That clause says you have to do the work for up to 6 months past the term stated in the contract, without any changes in the terms, such as an increase in the contract rate. Once that 6 months is up, you can renegotiate the terms, such as demanding more money for the same work.

How much more ?

If the Sole Source justification is legit, and some are, you ought to push the limit.

If it's not, and most JOFOC's I see posted at the FBO site are not, then only demand a modest increase, unless you have some other influence with the Requiring Activity.

For those who object to my advice, take a course in Microeconomics.

.

[Guest Vern Edwards]

Once that 6 months is up, you can renegotiate the terms, such as demanding more money for the same work.

How much more ?

If the Sole Source justification is legit, and some are, you ought to push the limit.

If it's not, and most JOFOC's I see posted at the FBO site are not, then only demand a modest increase, unless you have some other influence with the Requiring Activity.

For those who object to my advice, take a course in Microeconomics.

Please cite a passage in an economics textbook or paper that supports the notion that a company should "push the limit" (whatever that means) if they are a true sole source, but seek only a "modest increase" (whatever that means) if they are not. I took a course in microeconomics, but don't remember this topic being covered. You can't possibly be talking about the law of supply and demand, because it doesn't support your assertions at all. So, please help us ignoramuses out. Just cite a textbook or a paper.

[brian]

... please help us ignoramuses out. Just cite a textbook or a paper.

The Law of Supply and Demand was enacted as PL 24-112. Section 15.235, Corollary B says:

"Wheretofor inasmuch therefore be it resolved that, assuming a constant demand, price varies inversely with supply, ceterus paribus, et cetera, et cetera."

That quote may not be exact; I'm reciting from memory.

.

[DOJ-CO]

This is a different scenario, but applicable to the topic. What if the Option to extend services clause was executed for 6 months (although there were available options remaining on the contract), and then it was realized that a new award could not be made during the 6-month extension? Could the C.O. issue a bi-lateral mod converting 52.217-8 to 52.217-9? The contractor agreed to the change. Obviously, this is not an ideal situation. Is this legally a ratification because the contract was extended improperly?

[Guest Vern Edwards]

Could the C.O. issue a bi-lateral mod converting 52.217-8 to 52.217-9? The contractor agreed to the change.

The CO would have to obtain approval of a justification for other than full and open competition.

[minhhapd912]

Hi everyone,

Hope you don't find this question silly. But let's say we already used the clause 52.217-8 clause once to extend a contract for 3 months and we did the J&A and everything. If we need to extend the contract for another 3 months, do we need to do another J&A?

Thanks for your inputs.

Kate.

[C Culham]

Kate - So how about a probable silly one right back at your first. Why do you use the term "J&A", or in other words what required the first J&A?

[wvanpup]

Kate

I assume you prepared the J&A because the -8 option was not part of the evaluation for the initial award. What did the J&A authorize? If it authorized only a three month extension, I expect you will need another (or need to amend the J&A IAW your agency procedures).

[Boof]

Provided the 217-8 clause was in the contract at award, then why would you need to do a J&A? The need for an extension is already anticipated and should have been priced (most contractors just use thier last option year pricing) before award. Local agency policy may want the reason documented but we don't do them at my agency.

[C Culham]

Boof - Your response hits on the issue I was attempting to air by asking the question I did in my first post. A read of FAR 17.2 provides that J&A's are required when placing an option in a solicitation and when required by FAR Part 6. Otherwise 17.2 only requires a "determination" by the CO regarding the use of the option to extend. Hopefully you are doing a determination as required and with regard to Kate, clarfication is needed as to why the question about a "J&A", before anyone could adequately provide guidance. So Kate confused with "determination" or really a J&A and why?

[wvanpup]

Boof - Your response hits on the issue I was attempting to air by asking the question I did in my first post. A read of FAR 17.2 provides that J&A's are required when placing an option in a solicitation and when required by FAR Part 6. Otherwise 17.2 only requires a "determination" by the CO regarding the use of the option to extend. Hopefully you are doing a determination as required and with regard to Kate, clarfication is needed as to why the question about a "J&A", before anyone could adequately provide guidance. So Kate confused with "determination" or really a J&A and why?

FAR 17.205( provides: "Any justifications and approvals and any determination and findigns required by Part 6 shall specify both the basic requirement and the increase permitted by the option." I am not aware of a requirement for a J&A if the basic contract is competitive. Where you run into a problem is when the basic contract is competitive and the options are not evaluated. In such cases, the options are considered new acquisitions for purposes of a J&A (i.e., you need a J&A to do a sole source new acquisition). Frequently (if not typically) the -8 option is not evaluated as part of the initial award, and a J&A is therefore required as part of the option exercise. For a case almost exactly on point, see Decision Matter of: Major Contracting Services, Inc., B- 401472, 2009 CPD P 170, 2009 WL 2933344, (Comp.Gen.), September 14, 2009

The option to extend the contract here under FAR clause52.217–8 was not evaluated as part of the initial competition, so that the exercise of this option amounts to a contract extension beyond the scope of the contract, and therefore effectively constitutes a new procurement. Laidlaw Envtl. Servs. (GS), Inc.; International Tech. Corp.-Claim for Costs, B–249452, B–250377.2, Nov. 23, 1992, 92–2 CPD para. 366 at 4; see Techno–Scis., Inc., B–257686, B–257686.2, Oct. 31, 1994, 94–2 CPD para. 164 at 8 n.3. Thus, the agency could not have met the FAR Part 6 standards for full and open competition by simply exercising the option under FAR clause 52.217–8. FAR sect. 17.207(f); see Antmarin Inc.; Georgios P. Tzanakos; Domar S.r.l., B–296317, July 26, 2005, 2005 CPD para. 149 at 8 n. 8. In such circumstances, the agency must justify the use of noncompetitive procurement procedures in accordance with FAR Subpart 6.3 before exercising the unevaluated option. Laidlaw Envtl. Servs. (GS), Inc.; International Tech. Corp.-Claim for Costs, supra.

[jwomack]

Poor wording by GAO – “exercise of this option amounts to a contract extension beyond the scope of the contract”. I assume they meant “…beyond the scope of the J&A”.

The scope of the contract is defined by the contract, not the J&A.

[napolik]

Poor wording by GAO – “exercise of this option amounts to a contract extension beyond the scope of the contract”. I assume they meant “…beyond the scope of the J&A”.

The scope of the contract is defined by the contract, not the J&A.

The GAO means the "scope of the contract". However, there is another "scope" at play - the "scope of the competition". If the agency had evaluated prices associated with the -8 option as part of its competitive source selection, it could have exercised the option without a J&A.

The same is true of any -9 option.

See B-401472.2, Department of the Army--Reconsideration, December 7, 2009:

“We sustained MCS's protest because we found that the exercise of the option did not comply with FAR requirements. Specifically, FAR sect. 17.207(f) requires that a contracting officer, before exercising an option, make a written determination that the exercise of the option is in accordance with the terms of the option and the requirements of FAR sect. 17.207 and FAR Part 6, and further specifies that in order to meet the requirements of FAR 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. We found that the option to extend DAV's contract had not been evaluated as part of the initial competition, so that the agency was required to justify the use of noncompetitive procurement procedures in accordance with FAR Subpart 6.3 before exercising this option.”

[rios0311]

“...and further specifies that in order to meet the requirements of FAR 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.”

I've seen a number of time-and-materials and labor-hour contracts that specified only an hourly rate for the options, but did not specify the estimated number of hours. I've always advised that without an estimate of hours, the option price cannot be determined and thus the option is unpriced; ergo, unexerciceable. I don't think the price can be reasonably determined without knowing how many hours of work the contractor is required to perform. Is this correct, or have I been giving bad advice?

[Boof]

Your advice sounds right to me. I always insist on estimated hours for all options with the price being the total evaluated price in the source selection. After award, the hours are just what we said they were.... estimated hours.

[napolik]

I've seen a number of time-and-materials and labor-hour contracts that specified only an hourly rate for the options, but did not specify the estimated number of hours. I've always advised that without an estimate of hours, the option price cannot be determined and thus the option is unpriced; ergo, unexerciceable. I don't think the price can be reasonably determined without knowing how many hours of work the contractor is required to perform. Is this correct, or have I been giving bad advice?

While I prefer to establish the IDQ service contract’s maximum quantity in dollars by summing the extensions of labor hours and labor rates, it is not mandatory to use this approach. See FAR 16.504 (a) (1):

(a) Description. An indefinite-quantity contract provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period. The Government places orders for individual requirements. Quantity limits may be stated as number of units or as dollar values.

(1) The contract must require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services. In addition, if ordered, the contractor must furnish any additional quantities, not to exceed the stated maximum. The contracting officer should establish a reasonable maximum quantity based on market research, trends on recent contracts for similar supplies or services, survey of potential users, or any other rational basis.