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deloftin

minimum guarantee on IDIQ option periods

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While it is true, as stated in my prior post, that the first year's minimum is not past consideration relative to the formation of the option contract obligation (i.e., the option CLIN) which option contract is formed contemporaneously with the initial award of the base year (i.e., the base year’s min serves a double duty as both consideration for the base year and the option contract), the first year's minimum is past consideration (i.e., “no consideration” and therefore not good consideration) relative to the prospective contract obligation underlying the OPTION CONTRACT and may not be used to form that new contract obligation upon the option contract's exercise.

There you go again. You are misusing the term "past consideration." You think that the consideration given upon formation of the IDIQ contract is "past consideration" when it comes to exercising the option. That is not "past consideration." "Past consideration" has a specific meaning. It is used to describe a situation where the consideration is given prior to the exchange of promises. From my post #19:

Past consideration:

Something that has already been given or some act that has already been performed that cannot therefore be induced by the other party's thing, act, or promise in exchange and is not truly a consideration. For example, A gives B a ride to the market and back home again. When A delivers B to his house, B promises to give A some gas money. A cannot sue B to enforce B's promise since the consideration (A's act of giving B a ride) occurred before B's promise. A gave B the ride without expecting anything in return. (A did not give B a ride in exchange for B giving A gas money.)

That does not describe a situation under an IDIQ contract with options whereby the consideration is concurrent and subsequent to the exchange of promises. The discussion on "One consideration for a number of promises" that Vern posted above more accurately describes what happens under an IDIQ contract with options.

Your argument is based on a false premise.

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I think the terminology is causing some confusion.

An “Option Contract” is not the same thing as a Contract with Option Periods.

An Option Contract is a contract that sells options. Options are sold to buy something in the future at a specified price. Like a stock option. I sell you a stock option. This stock option (which you paid for) allows you to buy a share from me at the specified option price within a specified period. That “Option Contract” does indeed have two separate elements: (1) the offer to sell (which you paid for and I give you), and (2) the completed contract (the share which you will pay for and I give you if you exercise the option). Both the option element and the share purchase element are supported by consideration. If that Option Contract expires or lapses, I can sell you another Option Contract for additional consideration.

I can see where one might consider an IDIQ Contract to be a collection of Option Contracts, whereby the established contract prices for individual items and services in the IDIQ contract are individual Option Contracts; and at the end of each IDIQ contract period each individual Option Contract expires; and each new IDIQ contract period requires each individual Option Contract to be renewed and needing their own consideration seperate from the prior period's consideration. But I don’t think that is right, a contract price for an item or service within an IDIQ contract is not an Option Contract.

In contrast, exercising an Option Period under a contract does not create an Option Contract. Exercising the option to extend the contract merely extends the term of the contract. It is not creating an Option Contract. The extension is always a part of the underlying contract, whether or not it is exercised, and does not require additional consideration.

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I just want to remind readers that this question has been settled by the Federal Circuit. Varilease Technology Group, Inc. v. U.S.,. 289 F.3d 795, 798 (2002). An IDIQ contract need not include minimums for option years. Unless and until the Federal Circuit reverses itself or the Supreme Court overrules them, the Federal Circuit's decision binds the Court of Federal Claims and the boards of contract appeals. The legal scholars I know think that the Federal Circuit's decision is sound. I know of no outcry or commentary in the legal journals that the court erred.

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Whynot,

The first three lines of your 4th paragraph up to the word "expires" captures my point. However, I am not suggesting that "exercising an option" is what creates the option contract as you suggest. Rather, the option contract is already created at the moment of the base period's award. The minimum for the base period serves as consideration for both 1) the obligation to honor DOs up to the stated max of the base period and 2) the obligation to keep the offers open for the option periods (option contracts). So, in terms of explaining my position, you're not exactly on point when you say these option contracts need "their own consideration separate from the prior period's consideration". Rather, it's the underlying obligations of each option contract that need their own consideration separate from the prior period's consideration. The option contracts allow for additional "fixed periods" to be created, if exercised, within which orders may be placed. Those option contracts are a part of the IDIQ contract inasmuch as they are CLINs under the IDIQ contract initially awarded and rely upon the base period's consideration for their creation but the underlying obligations that arise upon exercise cannot rely upon the base period's consideration -- they need their own consideration i.e. the $100,000 for Blackacre.

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Vern....sorry for being a smart alec...couldn't control myself.

While my position is clearly open to reasonable debate, it is a fact the court failed to "join the issue" in its decision and therefore the case law created by the court in Varilease cannot be said to have ruled on the issue I raise.

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Retreadfed,

eriand2, are you saying that when an option is exercised a new contract is formed?

The option contracts allow for additional "fixed periods" to be created, if exercised, within which orders may be placed. Those option contracts are a part of the IDIQ contract inasmuch as they are CLINs under the IDIQ contract initially awarded and rely upon the base period's consideration for their creation but the underlying obligations that arise upon exercise cannot rely upon the base period's consideration -- they need their own consideration i.e. the $100,000 for Blackacre.

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eriend2, I'm not sure what you are missing here regarding IDIQ contracts. I really think you should go read FAR 16.504 again. 16.504(a)(1) states that the contract must require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services. This does not state that the Government must order a minimum quantity in each year of the contract, nor if they exercise the option on the contract.

At the most, your point would only stand if the contract you currently have, or are trying to setup/bid on, stated that there was a min/max on each order, per FAR 16.504(a)(3).

But, I think the crux of your argument is that you believe each option is a new "option contract." I think the language in 16.504(a)(4)(i) is pretty plain however that the options are a part of the base contract, and all that they do is extend it. "Specify the period of the contract, including hte number of options and the period for which the Government may extend the contract under each option;" Notice, in emphasis, the word contract is singular. They are not referring to individual option contracts that arise from option exercise; they are referring to a new ordering period that is exercised on the base contract itself.

But, just for more reference, 16.504(B) pretty much drives it home with stating that an IDIQ is appropriate when the Government cannot predetermine, above a specified minimum, the precise quanties of supplies or services the Government will require during the contract period, and it would be idadvisable for the Government to commit itself more than a minimum quantity.

Notice the use of the singular tense throughout the entire reading of the section, it is one contract, not a contract that contains multiple option contracts to follow.

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Dcarver,

FAR 16.504 (a) "(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. Among the “stated limits” of an IDQ contract are those described in FAR 16 which states that the contract shall require a “stated minimum” and a “stated maximum” of supplies or service to be ordered and furnished during the “fixed period” established by the contract. The base year and each option year of an IDQ contract are separate “fixed periods” under the IDIQ contract and each are to contain a separate minimum and maximum quantity.
  2. If the “fixed period” as used in FAR 16 is viewed as the period covered by the base year plus the entire time period covered by the un-exercised option periods, under that interpretation the required minimum quantity could be ordered, per FAR 16, at any time during this hypothetial unitary “fixed period”, to include the last option year (i.e., the last year of the purported unitary “fixed period”) as nothing in FAR 16, so interpreted, would require any orders to be placed in the base year of the contract because FAR 16 only requires orders for the minimum be placed “during” the “fixed period”. Such a view of the required “fixed period” is absurd, as such a result could never have been intended under FAR 16 as it would clearly render the Government’s promise illusory as there is no obligation to exercise the option years after the base year expires.
  3. Therefore, since the term “fixed period” does not include the time periods covered by the option years, a contract cannot provide for a single stated maximum for all the contract ordering periods which are separate fixed periods.
  4. Hence, option years cannot contain only a stated maximum. Every SF 30 that is used to exercise an option year states “Except as provided herein, all terms and conditions of the document referenced in item 9A(Sol.) or 10A(contracts), as heretofore changed, remains unchanged and in full force and effect.” Many contracting activities have written their contracts to preclude SF 30 from carrying the mandatory minimum into option years by stating that the mandatory minimum shall only apply to the base year. It is ironic that these contracting activities, nevertheless, feel compelled to ignore the application of SF 30 with respect to the minimum but nevertheless apply the operative effect of SF 30 only to the stated maximums to each option year, ostensibly, pursuant to the requirements of FAR 16 which obviously address the need for both a stated maximum and a stated minimum.
  5. It is clear from FAR 16 that the stated limits of the contractor’s and Government’s obligations (i.e., stated minimum and maximum) must both co-exist in the same fixed period.
  6. The exercise of these options (i.e., those containing only stated maximums) involve the Government in “contract obligations” that are “neither fish nor fowl” and therefore are not supported by an authorized contract type as required by FAR 16 and therefore are prohibited by FAR Part 16.102 (B) "Contract types not described in this regulation shall not be used, except as a deviation under Subpart 1.4."

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So, what you're saying is, you came up with different definitions than what are supported by Government Contract Case Law, and then applied them to "if/then" scenarios. And then, you come up with an analysis to support such claim. Got it.

I'll continue when you can come up with a logical reason as to why multiple court decisions already stated by Vern do not apply. It seems as if you cannot look past your own opinion on this, so I should of took Verns route earlier and not even responded.

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, so I should of took Verns route earlier and not even responded.

"should have taken" please.

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eriand2,

What happened to your "past consideration is no consideration" argument? There's no mention of it in your last five posts. Did you realize that you had been misusing the term "past consideration"? If your answer is no, then please define "past consideration" for us.

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Don Acquisition,

While questioned and challenged, my position needs no further explanation...it speaks for itself....you of course are free to have a differing view. While my position is clearly open to reasonable debate, it is a fact that the Varilease court failed to "join the issue" in its decision and therefore the case law created by Varilease cannot be said to have ruled on the issue I raise.

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dcarver

Try reading FAR Part 16.

You will see that contrary to your assumption..... I "came up" with nothing.

The source of the definitions I cite is FAR Part 16.

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eriand2,

Your position is clear, but the original basis of your position ("past consideration is no consideration") is no longer present in your posts. This prompted my question as to why. Have you found this basis to be inapplicable to the exercise of options in IDIQ contracts? Or do you still think that a promise to buy the minimum under an IDIQ is "past consideration" when exercising the option?

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eriand2:

The problem you are having is that people don't understand your argument. They don't understand it because your explanations are too complex and you freight them with legal jargon like "past consideration," "black letter law," and now, "join the issue." Most of the readers here are not lawyers. You don't need to use such terminology, and a good explicator would not.

Your argument really isn't as complicated as you are making it. Your posts come across like first drafts of a law review article, and you come across like a recent law school grad. I'm not trying to be insulting. I'm simply giving you a point of view. I know some of the top government contract attorneys in this country, and they don't write like you. And none of them would write anything like, "My post is a teaching point, not an attempt to persuade," which was asinine.

I'm truly interested in what you're trying to say, but I'm tired of trying to sort it out. If you would simplify the structure of your argument, make it brief and clear, and write in plain English, you might get a better reception. And, eriand2, I'm a pretty damned smart and competent reader of law. If I can't understand you, and I don't, not fully, then you should take that as a sign.

Finally, stop posting, then disappearing for a week or two, and then coming back and picking up where you left off. It's discourteous and annoying and it makes you seem like a crank. I don't think you are a crank, but some do, as you can probably tell.

You can take this as well intentioned advice or as an attack. It doesn't matter to me. But if you are really interested in teaching, you will take it as the first. Take some time. Think the argument through, element by element, then write it as though you were explaining it to a non-lawyer friend, without legalese. Don't cite any case law at this point, because your citations have not worked for you. We all know about the need for consideration. So just explain why, in addition to the minimum in the base contract, consideration must be a part of the option itself in order for its exercise to bind the parties.

Vern

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eriend2,

My fault for responding in a somewhat...attacking manner.

You did lay out your response somewhat clearly, but where you are losing me (and others?) is where you are stating that each option period is a seperate fixed period, which is completely contradictory to the conclusion that has been reached in Case Law. I think this is what Vern may of been speaking to, but could you explain in a clearer manner I guess why you believe the courts ruled incorrectly in Verilease and others? It is spelled out very clearly in Verilease that minimum gurantees are not required in each option period because the options are part of the contract itself, not a seperate "option contract" as you are implying.

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While this chain respectfully waits for the elusive bright line clarity, I was thinking of how the GSA Schedule, as an ID/IQ contract, has some unique characteristics. One, it has the obligatory minimum order requirement; two, it is an “evergreen” contract that never expires; and three, the seller has an minimum order requirement placed on themselves as well, whereby if they don’t sell enough or anything their contract is terminated. So, I wonder if the government never orders the minimum within the no time limit, who is seen as breaching the contract first, the government that never ordered or the contractor that never sold?

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I know this horse has been beaten severely and appears dead, but in looking at some Davis Bacon requirements I came across this:

29 C.F.R. PART 4—LABOR STANDARDS FOR FEDERAL SERVICE CONTRACTS

§ 4.145 Extended term contracts.

  1. Sometimes service contracts are entered into for an extended term exceeding one year; however, their continuation in effect is subject to the appropriation by Congress of funds for each new fiscal year. In such event, for purposes of this Act, a contract shall be deemed entered into upon the contract anniversary date which occurs in each new fiscal year during which the terms of the original contract are made effective by an appropriation for that purpose. In other cases a service contract, entered into for a specified term by a Government agency, may contain a provision such as an option clause under which the agency may unilaterally extend the contract for a period of the same length or other stipulated period. Since the exercise of the option results in the rendition of services for a new or different period not included in the term for which the contractor is obligated to furnish services or for which the Government is obligated to pay under the original contract in the absence of such action to extend it, the contract for the additional period is a wholly new contract with respect to application of the Act's provisions and the regulations thereunder (see §4.143(B)).

I know the application of this language is limited to Davis Bacon, but it does lend support that an option is a wholly new contract.

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Whynot, this langujage is from the DoL SCA regulations. Note the last sentence. This guidance is specifically limited to the provisions of the SCA. On several occasions, the Court of Appeals for the Federal Circuit has explained that from a procurement law perspecitive, an option does not form a new contract but is a part of a larger contract.

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In the mid 1980s, I was presented a Disputes Act claim by a contractor for about $30 in unpaid Prompt Payment Act interest. After sending it back to find out what was really going on, we learned that the contractor had over $100,000 in similar claims waiting to be filed. The contract was executed before the effective date of the Prompt Payment Act (IIRC, before 1 Oct 82), but there were options exercised after the PPA became effective. Again, IIRC, the ASBCA ruled that (1) an option is an irrevocable offer that may be accepted in the manner prescribed by the offer, (2) the option exercise is acceptance of that offer, (3) the contract came into existence when the offer was accepted, and (4) therefore the PPA did not apply to the basic contract but did apply to the option periods. I do not know if that is still (or ever was) good law -- I seem to recall contrary holdings.

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