Options Beginning 10/01

[Guardian]

Specialists are submitting modifications to me, the purpose of which is to 1) "Exercise an option with a period of performance beginning 10/01, per the authority of FAR 52.217-9," 2) incorporate our agency-specific "subject to availability of funds" clause relative to the funding of that one year extension, and 3) incorporate the "ByteDance" clause at 52.204-27, per the prescription in FAR section 4.2203.  

As the CO authorized to sign these mods, I have instructed them to cite but one authority, which is "By the Mutual Agreeement of the Parties [as cited in 52.212-5(c)]."

This was dicussed to some extent in an earlier WIFCon thread: 

 

The response has been that we can add clauses (further conditions), including a contigency stating that the action is SAF, but cite dual authorities for the mod, i.e., FAR 52.217-9 (for the "option") and mutual agreement of the parties for the other changes.  I have referred my specialists to the definition of an option under part 2 of the FAR, explaining that it is strictly a unilateral authority or mechanism.  One specialist insisted that we are not changing the terms of the option.  But, we are.  We are predicating the 12-month contract extension on the future availability of funds, which is not certain, and we are adding a material condition beyond a simple administrative change, that necessitates the contractor's signature.

I have specialists and others telling me that options can be "bilateral," as at least one GAO precendent has established.  I do not have enough support and information to accept these assertions.  My perspective is that if we seek to effectuate material changes to the contract, then we cannot unilaterally exercise an option.  We are instead mutually agreeing to extend the term of the contract for 12-months at the pricing and rates specified in CLINS 2001 through 2010 (for example).  

Is anyone aware of a GAO or court decision that sets a precedent contrary to my understanding of an option under these certain circumstances?

Lastly, I am not quite sure what the point of incorporating 10/01 options in a contract is, given the above explanation of my understanding.

[C Culham]

25 minutes ago, Guardian said:

Is anyone aware of a GAO or court decision that sets a precedent contrary to my understanding of an option under these certain circumstances?

   Consider this reference and its related cases -

"Exercise of an option before funds are made available, contingent of the availability of funds, is an invalid exercise, J.E.T.S., Inc., ASBCA 26135, 82-2 BCA ¶15,986; Lear Siegler Inc., ASBCA 30224, 86-3 BCA ¶19,155. However, exercise of an option contingent on the availability of funds is proper if that is called for in the option clause of the contract, Western States Management Servs., Inc., ASBCA 37504, 92-1 BCA ¶24,663; Cessna Aircraft Co., ASBCA 43196, 93-3 BCA ¶25,912."

Quoting J.E.T.S. -

It is well settled that in order for the Government to properly exercise an option, its acceptance of the offer must be unconditional and in exact accord with the terms offered. (Citations omitted.) Here the purported execution of the option included the availability of funds clause and made the execution conditional upon the subsequent availability of funds for performance of the contract and written notice to appellant of such availability. It is undisputed that funds were not available for performance during the option period on or before the date for acceptance of the option, 15 April 1981, nor by the date of commencement of the second year of the contract, 1 May 1981.

 

[Guardian]

2 hours ago, C Culham said:

It is well settled that in order for the Government to properly exercise an option, its acceptance of the offer must be unconditional and in exact accord with the terms offered. (Citations omitted.)

Thank you for the citation, Carl.  I have another question based on a similar but different scenario.  Let's presume that the only change the Government seeks to make is the addition of the ByteDance clause?  Although this clause may incorporate itself by default via the Christian Doctrine, at my agency, we seek the contractor's signature whenever we add such clauses.  I went back and read another post from 2011 in which the venerable Mr. Edwards addresses this topic.

Per the explanation therein, the scenario above described would need to be considered vis-à-vis the "validity issue."  

As to whether we should cite two authorities in a mod under the above described circumstances, my contention is that we should be citing only one authority, that is, 52.212-4(c) or "mutual agreement of the parties," pick your poison.  Even adding a clause such as the TikTok clause ("ByteDance") could present an added burden and expense to a contractor, which might affect their ability to perform work at pre-negotiated option prices to the extent that they realize a reasonable profit.  For example, I know someone who owns a small business.  They were required to install a ramp at their store's front entrance to comply with ADA.  Seems simple enough.  They ended up having to pay a carpenter $15,000 for the effort to meet the width requirements and other codified specifications.  So then, what might a company have to pay to train their employees about prohibitions against ByteDance apps or confirm compliance with the removal of certain apps from their devices?  I don't know.

The above thread ("Exercise Options As Written," January 28, 2011) states that the parties to the contract "can bilaterally agree to modify an option prior to or concurrent with its exercise [emphasis added to the latter].  In practice, might that mean the Government should cite both the commercial items changes clause and the options clause as authorities on the same modification?  Should the Government expressly state that the parties hereby agree to modify the terms of the option?  If so, why not simply seek a signature citing the changes clause?  After all, we cannot unilaterally exercise the option without first getting the contractor's approval and agreement to modify it.  What then would be the point or effect of citing both clauses, as 52.217-9 is intended to be unilateral?

[C Culham]

Or in the alternative.  Exercise the option with one mod noting the authority to do so.  Then add the clause with another mod and note the authority to do so.  Time consuming, inefficient and whatever?   Yet then consider if the entity wants to make issue that leads to conflict and where ever that conflict leads to resolution.   Good hygiene would suggest the alternative of two mods in my view.

[formerfed]

On 9/20/2023 at 2:41 PM, C Culham said:

Good hygiene would suggest the alternative of two mods in my view.

This is my preference as well.  I wouldn’t try to state both authorities as once in block 13.  Instead I would include a reference to block 14.  In block 14, list both actions with a note for each citing respective mod authorities.  I always try to make everything clear so that someone with no prior knowledge of the contract can understand.

[Guardian]

3 hours ago, formerfed said:

In block 14, list both actions with a note for each citing respective mod authorities.

I don't question whether citing two authorities would be legally sufficient.  However, I am not sure I see the point of citing the option clause.  If we obtain the contractor's signature, is that not enough?  The Government either has the unilateral authorization to exercise the option or it does not.  If we wanted to invoke our unilateral right, shouldn't we first issue a mod bilaterally whereby the parties agree to the incorporation of a new clause, then cut a second mod unilaterally exercising the option?  While I grasp the concept of taking two actions concurrently within a single mod, the fact of the matter is that the Government requires the contractor's signature to add conditions to the option as it was previously structured.  Citing two authorities in one mod requiring the contractor's signature, one of which is unilateral, seems an attempt by the Government to illustrate that it has an authority, which it really does not absent the contractor's signature.  Instead isn't it more accurate to say we are obtaining their signature agreeing to the change and extending the contract term for an additional year per the pricing captured in those particular CLINs associated with the option?

[formerfed]

Certainly you can do two mods the way you described.  I just am in the habit of minimizing the number of contract modifications when possible and try to consolidate actions.

[C Culham]

11 hours ago, Guardian said:

Instead isn't it more accurate to say we are obtaining their signature agreeing to the change and extending the contract term for an additional year per the pricing captured in those particular CLINs associated with the option?

I would tend to agree but timing of which mod seems not to be a big issue.  Having both the option exercise and added clause in one mod could imply a condition (the clause) that must be agreed to. Therefore it could be other than "this" contract (ref: 52.217-9) and the long standing view of GAO, whether it be available funding language or otherwise such as a clause banning something.    Option first or adding the clause first reaches the same end result, a exercised contract with a new clause in it. 

I guess I could see one mod with wording that says "First" the contract is option is exercised per the authority of  X, and second following this exercise of option the contract is modified to include clause X and equitable adjust for this addition is blah, blah, blah.  The bottomline is that both the Government and contractor are on board with the wording and intent of a single mod and the detailed wording notes it being so.  Just flinging a mod at the contractor with both on it is not good communication about intent and by my read of the referenced protests is probably what the crux of the matter was, poor communication.   Just my read and thoughts. 

[Guardian]

59 minutes ago, C Culham said:

I guess I could see one mod with wording that says "First" the contract is option is exercised per the authority of  X, and second following this exercise of option the contract is modified to include clause X and equitable adjust for this addition is blah, blah, blah.  The bottomline is that both the Government and contractor are on board with the wording and intent of a single mod and the detailed wording notes it being so.  Just flinging a mod at the contractor with both on it is not good communication about intent and by my read of the referenced protests is probably what the crux of the matter was, poor communication.   Just my read and thoughts. 

Carl, I appreciate that you read what I wrote and understand my point.  I like the sequential nature of your suggested approach.  It aligns with how I tend to process and discern language.  I will use it.

[formerfed]

@Guardian, that’s exactly what I was saying.  Maybe I should have used more detail.