Option to Extend the Term not Exercised on Time - Now What?

Generally, the Government must exercise options in strict compliance with the option clause in order for the exercise to be valid. However, there are cases where the contractor was found to have waived the "strict compliance" rule by performing without objection. If the "strict compliance" rule can be waived implicitly, then I presume it can be waived explicitly. As such, if you can get the contractor to agree to waive its right to strict compliance with the option clause, then I think you can exercise the option. However, if the contractor wants to enter into negotiations for the terms of the remaining options, then I think that would be a sole source negotiation requiring justification.

A risk that the Government runs with an invalid option exercise is that the contractor can claim that the exercise was a constructive change and, as such, request an equitable adjustment. This is why I suggest getting an explicit agreement releasing the Government from any such claims up front.

Thanks Don. I've done that in the past. I've had the contractor waive their right to a preliminary notice, but in this case, the base period of performance has passed. It ended about 45 days ago. I don't think I could extend this contract because it has ended. I don't think the contractor's waiver will help with the period of performance that's ended already. Or will it?

Rios0311,

Since in your original post you stated this is not a unique service and other contractors could provide the service, in order to comply with CICA, I think you are required to put out a new solicitation or process a J&A for the incumbent (which doesn't sound supportable based on your description).

I understand that, but I'd like to know why, if we contemplated a performance period of up to 5 years, and all offerors were aware of that fact, why can't we correct the error (of not exercising an option on time) and award a contract to the same contractor for a period of time equivalent to the time remaining on the original award?

We wouldn't be adding any new work or giving the contractor any additional money. We're only buying the services we contemplated in the original award. How does making a direct award to correct an administrative error a violation of CICA? This doesn't seem like it would be unfair to contractors because had the error not been committed, no one would have the opportunity to bid on the contract until the last option period ended. Does this serve a purpose? It seems punitive at the least.

I would like to hear a solid rationale for why I can't make a direct award to the contractor, other than "because it's unfair" or other than "because you're required to".

I assume that, if exercised, the option would have begun 45 days ago? And the contractor has not been performing for the last 45 days? If that's true, then it sounds like you would have to renegotiate the terms of the option.

I think that you have the wrong idea if you think that Congress had in mind the punishment of agencies for failure to exercise options on time when passing CICA. Think of it this way--an option is an offer that may or may not be accepted by the Government. If the Government fails to exercise an option in strict compliance with the option clause, then they have not accepted the offer. As such, the Government will have to solicit new offers if they still have a requirement for the supplies or services. CICA requires that these new offers be solicited using full and open competition unless an exception applies.

...If the "strict compliance" rule can be waived implicitly, then I presume it can be waived explicitly. As such, if you can get the contractor to agree to waive its right to strict compliance with the option clause, then I think you can exercise the option. However, if the contractor wants to enter into negotiations for the terms of the remaining options, then I think that would be a sole source negotiation requiring justification.

A risk that the Government runs with an invalid option exercise is that the contractor can claim that the exercise was a constructive change and, as such, request an equitable adjustment. This is why I suggest getting an explicit agreement releasing the Government from any such claims up front.

Does the option state specific dates for performance?

Yes, it does. Each option was to be performed May 7 through May 6 of the following year.

You have not answered Don's question whether the contractor is still performing the contract. Did the contractor stop work on May 6? If it did, have you been obtaining the covered services some way?

I understand that, but I'd like to know why, if we contemplated a performance period of up to 5 years, and all offerors were aware of that fact, why can't we correct the error (of not exercising an option on time) and award a contract to the same contractor for a period of time equivalent to the time remaining on the original award?

...I would like to hear a solid rationale for why I can't make a direct award to the contractor, other than "because it's unfair" or other than "because you're required to".

...I don't think I could extend this contract because it has ended. I don't think the contractor's waiver will help with the period of performance that's ended already.

The contract ended on May 6th (over 7 weeks ago). You said that you don't think you can make "direct award" to the firm. You indicated that you would have to negotiate changes to all remaining performance periods. (EDIT: You would also have to negotiate no cost changes to all the remaing option periods that you want to retain.) It would seem that those are solid rationales for not being able to simply make "direct award" . I assume that you meant bilaterally , not unilaterally.

I am a Contractor and recently experienced this same question on a contract with a Government Agency (I won't name names). The Government exercsed our option 7 days after the base contract expired and then exercisded the 2nd option period on time. Their legal staff said that since the first option was exercised late, the 2nd option should not have been awarded and the contract should be considered to be dead. They cited FAR 17.207 (a) and (f).

FAR 17.207(a) states When exercising an option, the contracting officer shall provide written notice to the contractor within the time period specified in the contract.

and

17.207 (f) states Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6.

Since we were not notified withion the time limit specified in the contract and in accordance with the terms of the options clause, we were basically out of luck and the contract was not renewed and new task orders were not allowed to be issued!

You have not answered Don's question whether the contractor is still performing the contract. Did the contractor stop work on May 6? If it did, have you been obtaining the covered services some way?

Retreadfed, I didn't see where Don asked whether or not the contractor was still performing the contract. But no, the contractor is not currently working.

I am a Contractor and recently experienced this same question on a contract with a Government Agency (I won't name names). The Government exercsed our option 7 days after the base contract expired and then exercisded the 2nd option period on time. Their legal staff said that since the first option was exercised late, the 2nd option should not have been awarded and the contract should be considered to be dead. They cited FAR 17.207 (a) and (f).

FAR 17.207(a) states When exercising an option, the contracting officer shall provide written notice to the contractor within the time period specified in the contract.

and

17.207 (f) states Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6.

Since we were not notified withion the time limit specified in the contract and in accordance with the terms of the options clause, we were basically out of luck and the contract was not renewed and new task orders were not allowed to be issued!

Loul, you're referring to two different issues. Option 2 was not a valid exercise of an option because option 1 wasn't exercised while the contract was in effect. So both options are invalid. The issue regarding the required notices could have been worked around as long as you, the contractor, agreed to waive your right to the notice.

The contract ended on May 6th (over 7 weeks ago). You said that you don't think you can make "direct award" to the firm. You indicated that you would have to negotiate changes to all remaining performance periods. (EDIT: You would also have to negotiate no cost changes to all the remaing option periods that you want to retain.) It would seem that those are solid rationales for not being able to simply make "direct award" . I assume that you meant bilaterally , not unilaterally.

I don't believe I indicated that "I don't think I can make a direct award". I was asking why I couldn't make a direct award. And I don't think I mentioned negotiating changes to all remaining performance periods. Maybe my use of terminology is incorrect when I stated "make a direct award". What I meant was an award of a contract without competition.

I think the difficulty I'm having with this is that maybe I've placed too much weight on what the original intent of the parties was. The public had knowledge that the Government wanted a contract lasting up to 5 years. The public was given the opportunity to bid on it. Once a selection was made, Both parties intended to engage in a contract with a 5-year period (including options). An administrative error now seems to override the original intent. I just wanted to know why an error can't be corrected.

I don't believe I indicated that "I don't think I can make a direct award".

rios, please see your post #3, quoted in part below:

...I don't think I could extend this contract because it has ended. I don't think the contractor's waiver will help with the period of performance that's ended already. Or will it?

... I don't think I mentioned negotiating changes to all remaining performance periods.

You said that each option was to be performed May 7 through May 6 of the following year. That can't occur if you started the next period 7 or 8 weeks later, right? Therefore, in order to award the option in question, you would have to negotiate a new performance period. I assumed that if you want to retain the remaining options you would also have to change those periods.

Assuming that the contract had not expired, in order to avoid competition to award remaining option or options, as applicable, I think that the prices for the revised periods would also have to remain the same as they would have for the original period(s).

And you also menmtioned that the public was aware of a contract lasting up to five years. Well, you are now looking at a contract that could last up to 5 years and 2 months.

rios0311,

In order to obtain the required services at this point, you will have to solicit a new offer from the contractor, correct?

Joel, I had distinguished between extending the contract and making a direct award. I know I can't extend the present contract because it ended. I wanted to know if there is any way of awarding a new contract to the same vendor without holding a new competition. For example, could it be sufficient to follow a procedure similar to the procedure at 49.102(d) reinstatement of terminated contracts - and determine in writing that awarding the contract without competition is advantageous to the Government?

The period of performance would have to be realigned, but they would not exceed the length of the original contract. For example, base POP would be date of award through May 6 and so on.

The point is, I understand clearly why we must compete new requirements or new work. What I don't understand is why we can't correct an administrative error by awarding a contract to the same contractor without being subjected to a new competition. It's seems like a silly requirement. There is no new work involved. How is it unfair to anyone? Like I stated previously, it seems punitive. If the services are required, the contractor has been performing satisfactorily, program had the money to pay for the option, but someone dropped the ball and failed to realize that the end date had passed and the option hadn’t been exercised, then why can't the error be corrected?

Why should the Government be required to spend the resources involved in competing a new requirement due to what amounts to an administrative error? I don’t see the sense in it. In fact, is it expressly prohibited somewhere? Or is it an over-interpretation? I would argue that it could be reasonable to award such a contract and that doing so would be within the spirit of the law.

rios0311,

In order to obtain the required services at this point, you will have to solicit a new offer from the contractor, correct?

Yes Don, but I would make the direct award conditional upon the original pricing. If the contractor felt compelled to change its pricing, then I wholeheartedly agree that a new competition should be held. I'm discussing a case in which nothing would change from the original award. The new contract would pick up where the old contract left off.

I'm not going to keep beating this subject, but I find it difficult to accept that we would have a process in place for ratifying unauthorized committments, but there isn't a process in place for correcting this type of an administrative error.

rios0311,

The pricing may stay the same, but the performance period would not. If you're talking about awarding a new contract that would be subject to CICA (not an order under an existing contract), then I am out of ideas.

Rios0311,

You stated that the effort in question is relatively small. Perhaps you could award a single option bilaterally as a new contract if it is under SAT and use the reasoning that you have been discussing throughout the thread as your justification for doing so (See FAR 13.106((1)(ii)). I would go further to quantify the costs of conducting a new competition and demonstrate the benefit of awarding a sole source contract to the Government. Of course before you decided to pursue this path you would need to do adequate market research in order to determine that a new solicitation would result in a more optimal situation for the Government (i.e. better performance, better T&C’s, better price). Once you have the contract in place for a year go out and conduct a new competition. All of this babbling could be for not if a single option is not less than SAT but your reaching so I thought I would reach as well.

I think the difficulty I'm having with this is that maybe I've placed too much weight on what the original intent of the parties was.

I could not find any GAO or Court of Federal Claims protest decision that addresses this issue. So why not go ahead and bilaterally extend the contract through May 6 of next year, as originally intended, document the file to explain what happened and why you decided to extend the contract through bilateral modification, and wait to see what, if anything, happens? That's what I would do. If I got a protest, how I would handle it would depend upon the protester's argument.

Wouldn't that be better than letting yourself be frozen into inaction by speculation about how a protest might be decided?

What about any price difference for the expired 45 days? Could the 45 days worth of services be "de-scoped" after co-execution of the bilateral extension, or is that too risky for the Government?

Sure. Why not? The risk here is that there would be a protest and that the protest would be sustained. Rios would be no worse off if that happened than he is now. If the GAO decided it, perhaps a courageous agency head would disagree and tell it to get lost.

But if Rios is going to do such a thing, he'd better do it right away. The fact that the contractor stopped performing 45 days ago might be the biggest factor working against him. If the agency takes too long to get off its butt and do something, it could put the last nail in its coffin for this matter.

My bet is that Rios' agency won't have the guts to do it or will take forever to get it done.

Exactly. My question is why is it subject to CICA? It was already competed once. What value is obtained by holding an additional competition for the same exact services that, were it not for an administrative error, would be provided by the original awardee? The only period of performance that would change would be the period that should be in effect. It would be shortenend. The contract end date would not change, hence the contractor would not obtain additional work.

Thanks for trying Don. I think I'm just digging for the original intent of the Act. Was it meant to apply to situations such as the one I described? No answer required. Thanks!

My question is why is it subject to CICA? It was already competed once.

Why is it subject to CICA? The answer should be apparent. According to FAR 6.001, CICA applies to "all acquisitions" except those listed in FAR 6.001. What you want to do is an acquisition -- see the definition in FAR 2.101( b ) -- on a sole source basis. You have come up with the term "direct award" in an apparent attempt to avoid saying sole source.

Forget about the "it" that you mentioned. "It" does not exist. It never has. The thing that was competed was an option that was not exercised and cannot be exercised now. "It" -- what you want to do now, a contract for performance during the period June 25 or thereabouts through June 26 or thereabouts next year -- has not been competed.

Among the exceptions in FAR 6.001, paragraph ( c ) includes "priced options that were evaluated as part of the initial competition (see 17.207(f)), that are within the scope and under the terms of an existing contract." Need I say more? There is no existing contract. There has not been one for 45 days. Moreover, what you want to do now would not be under the terms of that contract even if it did still exist. So CICA applies. Really. It's that simple. I see no other exception in 6.001 that covers what you want to do.

When I wrote my post #25, I was responding to Don Acquisition's post #20. I had not seen the 4 responses that followed because they had carried over into page 2.

Amthomf, yes, each POP is under the SAT. Thanks. Vern, I am in a position where I could attempt your suggestion, which is what I wanted to do, but a closer look at the contract revealed that none of the options were priced. I think there are too many issues with the contract to extend it. Since the requirement is between $15k and $25k per year, I've placed the required notice in a public place. I need to display the notice for 10 days. Once the 10 days is up I'll award a 1 year contract to the previous contractor and I'll compete a new one with options later down the line.

Vern, your feedback helps a lot. I appreciate it and I appreciate everyone elses feedback too.

I found a GAO case that involved a case very similar to the one the OP mentioned. In Comp. Gen Decision B-219136, the National Park Service (NPS) retroactively exercised an option to extend Ticketron's contract that expired four months previously. Ticketcenter, a competitor, protested NPS' decision because it was not in compliance with CICA. The findings of the case were as follows:

“We agree with Ticketcenter that this attempt was improper. Upon expiration of Tickettron’s contract, neither the Government nor Ticketron was obligated by any of the contract terms; Ticketron no longer was bound to provide visitor reservation services, and the Government no longer was bound to pay Tickettron commissions for such services. The unexercised option provisions were part of the contract and, thus, necessarily expired when the contractual relationship was terminated. Thus, the attempted retroactive extension of Ticketron’s contract was not an extension at all. There was no contract to extend, but the noncompetitive creation of a new contractual relationship with Ticketron.”

In the OP's case, if you were to "resurrect" the expired contract option at this point, you would need to comply with CICA. You could just extend the contract and hope and pray that no one would be any the wiser, but the FAR does provide the tools for handling the situation. Whether you would get a protest is dependent on how competitive your market is and which companies are paying attention; though, in my opinion, extending the contract without any sort of justification is an ethical abandonment.

If you competed the initial term of the contract, you could extend the term of the contract through a logical follow-on long enough to recompete your requirement, see FAR 16.505((2)©. However, you would need to make a sufficient argument that the extension is in the best interest of the Government in terms of economy and efficiency. I think you'd have a reasonable justification based upon the information you provided.

Amthomf, yes, each POP is under the SAT.

a closer look at the contract revealed that none of the options were priced.

...the requirement is between $15k and $25k per year...

That would have been nice to know up front.

Joel, my apologies for not providing sufficient information up front. I asked the question to gain knowledge on what options I might have in the future when similar situations arise, and to see if there was any way of "fixing" this contract (there isn't). I don't usually work anything this small, but it landed on my desk so I thought I'd ask.

Thanks for the GAO reference, Metteec.

Here's my take on the notices required under option period contracts and proper exercise of options...

As far as CICA is concerned, the entire period of performance should be competed up front, right? Therefore, if something lapses in the middle due to administrative oversight, how does that affect CICA? It doesn't. It would not be a violation of CICA to either modify/exercise the option or award a new contract to complete the term of the original.

What is the intent of 52.217-9? It's to protect the government's right to unilaterally exercise the option(s). If the contractor is willing to accept bilateral exercise of an option, why would anyone believe it wasn't legal?

Further, what does it really matter if the contract has expired or is 'dead'? Of course the government is at risk during this period. However, if the contractor is willing to continue performance and accept bilateral modification to exercise the option, what law is being violated?

What does it matter if the contract has expired or is "dead"? See Washington National Arena Limited Partnership, B-219136, 65 Comp. Gen. 25 (1985):

The record shows, as [the protester] alleges, that the original contract term was extended to January 25, 1985, by issuance of amendment 2 to the contract. While there remained options under the contract which could be exercised by NPS [the National Park Service] to extend the contract term further, neither NPS nor the record indicates that NPS ever exercised another option before the contract ended on the amended January 25, 1985, expiration date. NPS states in its report that it did extend the contract term to January 25, 1986…. NPS neglects to state in its report, however, that this modification, in the form of amendment 3 showing a January 25, 1985, effective date, was not executed by NPS and [the contractor] until June 10, 1985, more than 4 months after [the contractor’s] contract had expired. In other words, amendment 3 appears to have been an attempt by NPS to revive [the contractor’s] expired contract by retroactively extending and modifying it.

We agree with [the protester] that this attempt was improper. Upon expiration of [the contractor’s] contract, neither the government nor [the contractor] was obligated by any of the contract terms; [the contractor] no longer was bound to provide visitor reservation services, and the government no longer was bound to pay [the contractor] commissions for such services. The unexercised option provisions were part of the contract and, thus, necessarily expired when the contractual relationship was terminated. Thus, the attempted retroactive extension of [the contractor’s] contract was not an extension at all—there was no contract to extend—but the noncompetitive creation of a new contractual relationship with [the contractor].

Under CICA, agencies are required to “obtain full and open competition through the use of competitive procedures” in procuring property or services. 41 U.S.C. § 253. [Now 41 U.S.C. § 3301.] Certain exemptions from the competition requirement are listed, but it does not appear from the record, and NPS does not argue, that any of these exemptions would apply to justify a noncompetitive award to [the contractor] under the circumstances here. Consequently, we sustain the protest on the ground that NPS should have conducted a competitive procurement for these visitor reservation services. [Emphasis added.]

Perfect reference. It's exactly what I was looking for. It answers all of my questions. Thanks Metteec and Vern.

Interesting. Thanks for the citation Vern.

I don't necessarily agree with GAO, but that's their position.

I don't agree either. I think there should be an exception that allows for the reinstatement (as opposed to extension) of contracts when due to an administrative error, the contract's period of performance is allowed to end prior to exercising an option. Of course, this delusion of mine would require that the contractor agrees to the reinstatement and the contract's pricing, terms and end-date all remain unchanged. I still fail to see the value in competing the action again when nothing material has changed.

I wonder if anyone will be sucessful in persuading GAO to reconsider their 1985 position. Not to reverse their findings, but to apply new rationale to future instances.

But - for the instant situation, it appears that 1) you did not have previously evaluated competitive pricing for the option years and 2) you have some flexibilty in obtaining services for the next period because the scope of one year's services is apparently within the simplified acquisition threshold. Thus, can't you use part 13 streamlined methods to effectively "reinstate" this contractor for one year, using a new contract? Yes, you would still have to compete follow on years.

As for "an administrative error", it would seem to me that somebody didn't do their job. I just dont have the same background or perspective to accept that nobody is responsible to track or administer a contract or should know that the performance period is up or soon to be up. Responsbility should include accountability and associated consequences.

Agreed!

Exactly. My question is why is it subject to CICA? It was already competed once. What value is obtained by holding an additional competition for the same exact services that, were it not for an administrative error, would be provided by the original awardee? The only period of performance that would change would be the period that should be in effect. It would be shortenend. The contract end date would not change, hence the contractor would not obtain additional work.

Thanks for trying Don. I think I'm just digging for the original intent of the Act. Was it meant to apply to situations such as the one I described? No answer required. Thanks!

Read cited GAO opine. This may help. "Where a contract for visitor reservation services has expired, the contractual relationship which existed is terminated and the issuance of an amendment 4 months after the expiration date to retroactively extend and modify the contract as if it had not expired amounts to a contract award without competition, contrary to the requirements of the Competition in Contracting Act. A protest challenging the amendment is sustained, therefore, and GAO recommends that a competitive procurement for the requirement be conducted" (65 Comp. Gen. 25 (Comp.Gen.), 25, 1985 WL 50837, 1).

charles:

You have arrived late for dinner. The case you have quoted, Washington National Arena Limited Partnership, was previously discussed in posts #28 and #32. Yours is post #39.