Hugh and Charles,
I also do not understand the stated myth. If a contract (issued by an agency subject to FAR) has expired how can it be legally extended without being treated as new procurement? How is extending a contract post expiration authorized by contract and within the general scope of a contract? Do you have examples or case law?
Here's a discussion thread from the wifcon archives that treats the subject of late option exercise:
http://www.wifcon.com/arc/forum35.htm