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Unilateral Modication under Commercial Item Contract


GOVCO

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Question: Can I exercise an option under a commercial item contract for supplies/services unilaterally? If so, do I modify the task order or issue some other written document?

The FAR clauses set out in 52.217 allow your unilateral exercise. Which clause do you have in the contract?

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The FAR clauses set out in 52.217 allow your unilateral exercise. Which clause do you have in the contract?

FAR Clause 52.217-9 Option to Extend the Term of the Contract (MAR 2000).

See, I was thinking more on the lines of why do I need to issue a 'contract modification,' instead of some other written document (see 17.207(g)). Similar to when we issue the notice of intent.

FAR Subpart 2.101 defines contract modification as "any written change in the terms of a contract." Now, maybe I am looking to much into the word 'change,' and that may be the case. However, when I see the word 'change,' in this sense, I interpret that to mean some type of alteration in the rights of the parties to a government contract. Having said that, since this is a commercial item contract, any changes in the terms and conditions of the contract "may be made only by written agreement of the parties." (See also FAR Clause 52.212-4(c ))

I have always issued a modification and cited FAR Clause 52.217-9. Does this authority over-ride 52.212-4(c ) allowing me to issue a change unilaterally?

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GOVCO, take a look at FAR 17.207(g): "The contract modification or other written document which notifies the contractor of the exercise of the option shall cite the option clause as authority." I read "contract modification" here as merely the instrument used to exercise the right. In fact, an option exercise should not include any other changes to the contract, as that would defeat the government's ability to unilaterally exercise. Your agency may have implemented FAR 17.207 further, so make sure you look at any supplementation.

I don't understand your question about the relationship between FAR 52.212-4© and 52.217-9. The option clause wasn't unilaterally imposed, I trust. If it was in the contract at time of award, then there is no inconsistency. Exercising an option does not involve a party unilaterally changing a term or condition of the contract.

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Guest Vern Edwards

First, a contract option is an offer in a contract that the offeror (contractor) agrees to keep open for a specified period of time. See the definitions in FAR 2.101 and in Black's Law Dictionary, 9th. By definition a contract option creates a unilateral right of the offeree (government) to accept it (exercise it) in accordance with its terms.

Second, you need a contract modification because when you exercise an option under a government contract you change one or more of the contract terms--add an item to the contract, extend the period of performance, or increase the quantity of an item.

Third, FAR 52.212-4( c) and 52.217-9 are not in conflict, and the option clause does not "override" the commercial items changes article. When the contractor enters into a contract that contains an option clause, it bilaterally agrees to give the government a unilateral right.

Finally, I have no idea what Jacques meant when he said: "Exercising an option does not involve a party unilaterally changing a term or condition of the contract," because that is exactly what a party does when it exercises a contract option under a government contract. An option is an unaccepted offer until exercised. Its terms are not part of the existing contract. When exercised, it changes the terms of the contract in accordance with the terms of the offer (option).

In addition to that standard options contemplated under FAR 17.2, the parties can write an option to add or delete a clause, or change a specification or statement or work, or change the contract in almost any other way.

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First, a contract option is an offer in a contract that the offeror (contractor) agrees to keep open for a specified period of time. See the definitions in FAR 2.101 and in Black's Law Dictionary, 9th. By definition a contract option creates a unilateral right of the offeree (government) to accept it (exercise it) in accordance with its terms.

Second, you need a contract modification because when you exercise an option under a government contract you change one or more of the contract terms--add an item to the contract, extend the period of performance, or increase the quantity of an item.

Third, FAR 52.212-4( c) and 52.217-9 are not in conflict, and the option clause does not "override" the commercial items changes article. When the contractor enters into a contract that contains an option clause, it bilaterally agrees to give the government a unilateral right.

Finally, I have no idea what Jacques meant when he said: "Exercising an option does not involve a party unilaterally changing a term or condition of the contract," because that is exactly what a party does when it exercises a contract option under a government contract. An option is an unaccepted offer until exercised. Its terms are not part of the existing contract. When exercised, it changes the terms of the contract in accordance with the terms of the offer (option).

In addition to that standard options contemplated under FAR 17.2, the parties can write an option to add or delete a clause, or change a specification or statement or work, or change the contract in almost any other way.

Vern - Thank you for clarifying. Regarding your third comment, last sentance, I presume it wouldn't make a difference whether this was a Task Order placed under a GSA FSS which included options. I say this just becasue so long as the FSS contractor accepts the order, it "bilaterally agrees to give the government a unilateral right."

Regarding accepting orders placed against a GSA FSS contractor, GSA says:

Is a GSA Schedule contractor required to accept any order placed against its Schedule contract? If a Schedule contractor is not obligated to and does not accept my order, how will I be notified?
....For orders above the minimum order specified in each Schedule contract, up to the maximum order threshold, GSA Schedule contractors are obligated to accept orders placed by activities within the executive branch of the federal government. Schedule contractors are not obligated, but are encouraged, to accept orders from agencies and activities outside the executive branch....

Either way, not trying to drag this out. Was just curious to gain a little more insight. Thanks again!

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Second, you need a contract modification because when you exercise an option under a government contract you change one or more of the contract terms--add an item to the contract, extend the period of performance, or increase the quantity of an item.

Another reason for a contract mod is the need to obligate $$ to fund the services covered by the option.

k

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Vern - Thank you for clarifying. Regarding your third comment, last sentance, I presume it wouldn't make a difference whether this was a Task Order placed under a GSA FSS which included options. I say this just becasue so long as the FSS contractor accepts the order, it "bilaterally agrees to give the government a unilateral right."

GOVCO,

Prior to issuing the order, did your solicitation of quotes include the options and the option clause?

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Finally, I have no idea what Jacques meant when he said: "Exercising an option does not involve a party unilaterally changing a term or condition of the contract," because that is exactly what a party does when it exercises a contract option under a government contract. An option is an unaccepted offer until exercised. Its terms are not part of the existing contract. When exercised, it changes the terms of the contract in accordance with the terms of the offer (option).

I was trying to suggest that the option clause comes into existence through the agreement of the parties, and the impacts of that exercise are spelled out at the time. The impacts of exercising the option are apparent to the parties at the time they agree to grant the government the option. While the decision to exercise is plainly unilateral, any changes that flow for the exercise of an option are not. Sorry for the confusion.

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Regarding accepting orders placed against a GSA FSS contractor, GSA says:
QUOTE

Is a GSA Schedule contractor required to accept any order placed against its Schedule contract? If a Schedule contractor is not obligated to and does not accept my order, how will I be notified?

QUOTE

....For orders above the minimum order specified in each Schedule contract, up to the maximum order threshold, GSA Schedule contractors are obligated to accept orders placed by activities within the executive branch of the federal government. Schedule contractors are not obligated, but are encouraged, to accept orders from agencies and activities outside the executive branch....

Either way, not trying to drag this out. Was just curious to gain a little more insight. Thanks again!

Don't confuse placing task orders under GSA Schedules with contract options. GSA Schedule contracts are IDIQ types - contracts that contain items for ordering by issuance od task orders at established prices. The contractor must accept orders from any defined agency (essentially those in the Executive Branch) and perform to complete what's called for in the order. However the contractor may decline acceptance of orders that are for very small dollar values - minimum order amount, and large dollar value orders - above the maximum order threshold.

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Either way, not trying to drag this out. Was just curious to gain a little more insight. Thanks again!

Don't confuse placing task orders under GSA Schedules with contract options. GSA Schedule contracts are IDIQ types - contracts that contain items for ordering by issuance od task orders at established prices. The contractor must accept orders from any defined agency (essentially those in the Executive Branch) and perform to complete what's called for in the order. However the contractor may decline acceptance of orders that are for very small dollar values - minimum order amount, and large dollar value orders - above the maximum order threshold.

Thanks formerfred!

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Yes.

Since you solicited quotes for options and included an option clause applicable to the order, you are OK to exercise the option unilaterally. You will do so pursuant to the option clause included in the order you issued.

One more thing - does the period of the option fall within the effective period of the underlying Schedule?

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Guest Vern Edwards
Vern - Thank you for clarifying. Regarding your third comment, last sentance, I presume it wouldn't make a difference whether this was a Task Order placed under a GSA FSS which included options. I say this just becasue so long as the FSS contractor accepts the order, it "bilaterally agrees to give the government a unilateral right."

An option is an option. Assuming that the inclusion of the option in the task order was legal, then the fact that the option is in a task order instead of the underlying contract should make no difference.

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An option is an option. Assuming that the inclusion of the option in the task order was legal, then the fact that the option is in a task order instead of the underlying contract should make no difference.

Even if the period of the task order option exceeds the contract performance period?

Here is guidance on the GSA website:

Quote

Options may be included on orders placed against GSA Multiple Award Schedule (MAS) contracts, provided that the options are clearly stated in the requirement and are evaluated as part of the ordering activity's best value determination. Such options may be exercised on GSA Schedule contract orders, provided that:

Funds are available;

The requirement covered by the option fulfills an existing government need;

Prior to exercising an option, the ordering activity ensures that it is still in the government's best interest; i.e., that the option is the most advantageous method of fulfilling the government's need, price and other factors considered; and

The options do not extend beyond the period of the Schedule contract, including option year periods.

End Quote

http://www.gsa.gov/portal/content/101193

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Guest Vern Edwards

I said, "assuming that the inclusion of the option in the task order was legal."

Suppose that an IDIQ contract includes the clause at FAR 52.216-22, Indefinite Quantity (OCT 1995) and that the date inserted at the end of paragraph (d) is 15 August 2010. The contractor is not obligated to perform beyond that date.

Now suppose that the contractor accepts an order that includes an option through which the government could extend the contractor's obligation to perform under the order to 15 September, 31 days beyond what would otherwise have been the end of the contractor's obligation to perform. By accepting the order the contractor has waived its right to stop working on 15 August. The option would be enforceable against the contractor.

But there would be the issue of the government expanding the scope of the contract without full and open competition, which would violate CICA and FAR Part 6 and which would be protestable. That problem could be avoided if the CO gets approval of a justification for other than full and open competition. Voila! The option would be legal.

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