I was assigned to administer an IDIQ contract with Options. FAR 17.202((2) says that an indefinite quantity contract can have options. We wish to exercise the IDIQ option. Since the IDIQ contract is unfunded as a whole (there are no funds required) does it follow that therefore we don’t need any funds to exercise the option? If there are no funds required on the base contract does this mean that there is no financial commitment on the IDIQ to verify funds for the option and that the Option is unpriced or $0? To exercise an unfunded Option appears to go against FAR 17.207©(1) and 15.403-2(a), which states that the exercise of an option must be at the price established at contract award or initial negotiation. Please clarify, is this correct?

An IDIQ contract must have some funding on it, even if just to cover the guaranteed minimum, unless, as is typical these days, the guaranteed minimum was satisfied with the issuance of the first order. An option item may or may not require funding, but it cannot be "unpriced." Don't confuse funding with pricing.

Typically, option items on IDIQ contracts include unit prices (for fixed-price supplies) or other pricing arrangements/procedures (for services or any T&M/LH type of effort.) You will need to read the contract carefully to determine whether any funding is required. Sometimes, there are annual "guaranteed minimums," which must be funded; sometimes not.

Agree with Navy...it appears you are confusing pricing with funding. Funding for IDIQs takes place at the TO/DO level. Also, for the most part, the minimum guaranteed is met during the base year via a TO/DO so exercising Options on and IDIQ without an actual obligation is a pretty common practice and it doesn't go against the FAR language you referenced.

So, it’s a common practice to exercise an option without funding? Is that correct?

Sure, you're exercising the option, that doesn't mean you are placing an order with it. Exercising the option just gives you the ability to utilize that CLIN for it's period of performance. It doesn't obligate any funding on the Governments behalf, it just signals the intent that the Government has a requirement for whatever that CLIN is for the period for which it is performed.

Look at it this way: You have an ID/IQ contract. You execute actions from this contract based off of either delivery orders or task orders, correct? You would modify the base contract to exercise the option, and then issue a task or delivery order for any work to be performed on that CLIN.

So, it’s a common practice to exercise an option without funding? Is that correct?

Just to be clear - you are referring to an option for an extension of the contract, correct? If so, yes it is common. However, as stated above, if the contract language somehow provides for a minimum order obligation for the future year option, that would be different.

So, it’s a common practice to exercise an option without funding? Is that correct?

What does common practice have to do with anything? What matters is correct practice.

If the contract would require the government to buy something during the option period if the option were exercised, then exercising the option would obligate the government, and you would need funds to cover the obligation. If exercising the option would not require the government to buy anything, then exercising the option would not obligate the government and no funds would be needed.

However, this does not change the rule in FAR 17.207(f). The option must be priced, the price must have been evaluated during the original award process, and the option must be exercised in accordance with its terms.

Sure, you're exercising the option, that doesn't mean you are placing an order with it. Exercising the option just gives you the ability to utilize that CLIN for it's period of performance. It doesn't obligate any funding on the Governments behalf....

That is not necessarily correct. Some agencies set minimums for option years. In that case, exercising an option obligates the government and an obligation must be recorded at the time of the exercise. You can do that by simultaneously issuing a task or delivery order.

That is not necessarily correct. Some agencies set minimums for option years. In that case, exercising an option obligates the government and an obligation must be recorded at the time of the exercise. You can do that by simultaneously issuing a task or delivery order.

That's true. I was assuming the minimum was satisfied upon award and that there was no minimum in each option year. As many have stated, you do as the contract states in terms of funding the minimum(s). I think the original poster was confusing an unpriced option with having to fund when exercising an option.

I am not sure how anyone could think that I am confusing funding with pricing. Forgive me if I did not clearly state my thoughts. This is a funding question. The IDIQ and all options were priced and evaluated during the original award process. The guaranteed minimum was satisfied with the issuance of the first order. This is a question on whether FAR 17.207(f) applies to funding for IDIQs with Options at the TO/DO level. I am told that if the minimum guaranteed is met during the base year via a TO/DO, you can exercise an Option without an actual obligation because exercising the option would not require the government to buy anything, as this only preserves the Option Period. And that you would need funds only to cover the obligation made on the subsequent TO/Dos. I hope that I am a bit clearer!

You are not much clearer, but I think my post #7 should have answered what I think is your question. Did it?

Vern, Thank you. Your post #7 answered my question exactly. I just wonder how so many of our collegues interpret this so differently that it is viewed as "common practice".

That is not necessarily correct. Some agencies set minimums for option years. In that case, exercising an option obligates the government and an obligation must be recorded at the time of the exercise. You can do that by simultaneously issuing a task or delivery order.

So if the purpose for providing a minimum guarantee is to make the IDIQ contract binding, what is the purpose of establishing a minimum guarantee for option periods? I have never heard a satisfactory answer to this... it seems like it just makes management of the contract more difficult for the program office.

There could be a couple of reasons: (1) ignorance or (2) it produced a better deal in some way.

Or the contractor required the additional minimums as a condition of accepting the contract in the first place.