Removing Option Years by Modification - Bilateral or Unilateral?

Contracts are largely governed by their terms and conditions. If FAR-based, is it commercial and governed by FAR 52.212-4(c)?

An optionn is an offer with an extended acceptance period. The contractor has no right to the exercise of an option, but the government has the right to exercise that option. The mere existence of an option does not obligate funds. Funds are obligated when the option is exercised. You probably know all this.

There is no contractual reason to delete an option, except, perhaps, to let the contractor know you're rejecting their option offer and that they are off the hook.

But if DODE insists on a mod and you don't want to say no, write a supplemental agreement.

Since it is a unilateral right of the government to exercise or not to exercise an option, why does it have to be a supplemental agreement? Is there a limit stated in the contract on how early the government can make such a decision?

What would be the basis for a claim? Such an action may likely benefit a contractor for future planning purposes.

joel hoffman said:

Since it is a unilateral right of the government to exercise or not to exercise an option, why does it have to be a supplemental agreement?

I don't think any mod is necessary. A letter would do. But it appears that DOGE wants one, and I don't think the government has any contractual authority to unilaterally mod the contract to delete an option. But, I really don't care.

The KO can’t exercise the options if the conditions in 17.207 (c) can’t be met. Since the right to exercise an option is unilateral, I see no additional “authority” required to tell the contractor that the government can’t exercise out year options, then unilaterally delete them to satisfy the DOGE.

The government agency isn’t “punishing” or unfairly treating the contractor.

The contractor can plan for other business opportunities earlier. That is a benefit to the contractor.

Some offices with this issue deal with it by preparing a contract modification for “internal distribution only.” It’s not the best choice in my opinion. If it were me, I would do what Joel suggests and call the contractor to explain what’s going on. Of course, people don’t talk directly now

Maybe just maybe someone should educate DOGE on obligation versus estimated value. But it won't happen as this is one of those places in the current atmosphere where political BS collides with how government contracts are reported. Transparency is lost when it is manipulated!

Thanks for the commentary on this topic. Here's another one to ponder. Regardless of the Contracting Officer's decision to issue a unilateral or bi-lateral modification to remove options three and four...does the modification (contract action) require clearance if the total reduced value of the contract exceeds the agency's clearance threshold?

One thought: If the option prices were evaluated as part of the award of the original contract, would deletion of the options be grounds for a scope of the competition protest?

Just asking. Sheer speculation without analysis. 🤔

(Don't confuse deletion of the options with termination for convenience.)

On 7/9/2025 at 4:11 AM, joel hoffman said:

What would be the basis for a claim? Such an action may likely benefit a contractor for future planning purposes.

The contract in question appears to be for long-term services. There is likely no "future planning" advantage (what other kind of planning is there?) to losing the options, because there is no issue of fixed production capacity. The contractor likely hires as needed. But there is a kind of loss, because the government usually exercises service options unless the requirement goes away or performance is poor. The contractor may have considered that to be a reason to lower its first year price, calculating the likely long term pricing advantage.

If the options are to be eliminated because the requirement is going away, that's one thing. But if there has not been a determination that the requirement is going away, if DOGE simply wants to report "savings" be eliminating the options, that may be another thing entirely. A board or court might consider that to be a matter of first impression. You ask someone to compete for a requirement that enticingly include options, which provide an advantage in obtaining future business, and with price evaluated including those option prices. What's to prevent a contractor from pricing based on the long term possibility? And then you take that advantage away. Why?

Think about it. Think about it like a lawyer.

@Vern Edwards

Scope! Great thought! Of course the details of the contract would help as like usual it depends on the specific contract.

With this noted then why not partial T4C as how else do you reduce the scope of a FAR based contract?

Air Force One, what is the basis for the DOGE cuts? Is the requirement for the service being eliminated?

Are any of the conditions in 17.207 (c) such that exercising out year option are not warranted, e.g., those requirements are to be eliminated?

joel hoffman said:

Air Force One, what is the basis for the DOGE cuts? Is the requirement for the service being eliminated?

Are any of the condition in 17.207 (c) such that exercising the next option isn’t warranted?

This is exactly the issue - it sounds like the requirement is being eliminated. Air Force 1, if this is true, get the requiring activity to tell you that in writing. Then call the contractor and explain that as well as notifying them options will be not exercised. Be sure your senior management is aware of everything you plan to do.

That’s it.

On 7/10/2025 at 12:34 PM, Air Force One said:

Thanks for the commentary on this topic. Here's another one to ponder. Regardless of the Contracting Officer's decision to issue a unilateral or bi-lateral modification to remove options three and four...does the modification (contract action) require clearance if the total reduced value of the contract exceeds the agency's clearance threshold?

@Air Force One What exactly do you mean by “the agency’s clearance threshold”?

Also, couldn’t you determine if this is a requirement internally within the agency?

Could you please also respond my Friday questions? It would help clarify the situation… thanks.

formerfed said:

This is exactly the issue - it sounds like the requirement is being eliminated. Air Force 1, if this is true, get the requiring activity to tell you that in writing. Then call the contractor and explain that as well as notifying them options will be not exercised. Be sure your senior management is aware of everything you plan to do.

That’s it.

I agree, @formerfed

On 6/26/2025 at 6:56 AM, Air Force One said:

Consider the following scenario: You are in the base year of a contract with base year plus four option years. The requirement owner would like to remove option years three and four by modification as part of a DOGE cut drill. Can this be done unilaterally or should a bi-lateral modification be executed.

One might ask: Why do a modification at all? Simply do not exercise option three when the time comes. This approach does not satisfy the DOGE cut drill as the total dollar value remains the same in FPDS and other data sources. DOGE requests the options be removed from the contract to enable reduction of the total contract value.

Thoughts?

Emphasis added.

@formerfed @joel hoffman

Now, what leads you two to the conclusion that the requirement is being eliminated? The fact that "the requirement owner" would like to remove the options?

I see nothing in the OP to justify that conclusion. According to the OP, it's part of a "DOGE cut drill."

My speculation is that DOGE is insisting on a mod to delete the options so it can "document" a claim that it reduced the contract "price" and thus saved money, thus justifying its existence..

Let's see if Air Force One clears things up.

Vern Edwards said:

Let's see if Air Force One clears things up

Yes, Vern. That’s why I asked @Air Force One for clarifications. I haven’t concluded anything. I’m asking if the out years requirements are being eliminated.

From FAR 17.02 (as of FAC Number: 2025-04
Effective Date: 06/11/2025)

“…(c): “The contracting officer may exercise options only after determining that-

(1)Funds are available; [and]*

(2)The requirement covered by the option fulfills an existing Government need; [and]

(3)The exercise of the option is [still] the most advantageous method of fulfilling the Government’s need, price and other factors (see paragraphs (d) and (e) of this section) considered; [and… ]. “

*[ ] Added for emphasis

These are ALL required (not alternatively required) before the KO can exercise an out year option.

We don’t know.

On 7/9/2025 at 6:11 AM, joel hoffman said:

Is there a limit stated in the contract on how early the government can make such a decision?

NO. If you know anytime beforehand that one or more of the conditions in FAR 17.02 (c) can’t be met for exercising the third and fourth year options, the KO can decide not to and can inform the contractor earlier than the window for notifying the contractor of the intent to exercise the option.

Vern Edwards said:

Emphasis added.

@formerfed @joel hoffman

Now, what leads you two to the conclusion that the requirement is being eliminated? The fact that "the requirement owner" would like to remove the options?

I see nothing in the OP to justify that conclusion. According to the OP, it's part of a "DOGE cut drill."

One way to look at this is anything DOGE cuts is because the requirement, at least the way it’s currently defined or exist, is eliminated.

formerfed said:

One way to look at this is anything DOGE cuts is because the requirement, at least the way it’s currently defined or exist, is eliminated.

A good way to frame the possible scenario- maybe the out year requirements may be differently defined than in the current options.

We don’t know…

formerfed said:

One way to look at this is anything DOGE cuts is because the requirement, at least the way it’s currently defined or exist, is eliminated.

Emphasis added.

Source?

joel hoffman said:

We don’t know…

Exactly. So why are you so agitated? What are you trying to convince us (or yourself) of? Even if Air Force responds, we still won't know. We'll never have enough info to stop speculation.

Did I upset you by saying "Think like a lawyer"?

Chill.

Vern Edwards said:

Exactly. So why are you so agitated? What are you trying to convince us (or yourself) of? Even if Air Force responds, we still won't know. We'll never have enough info to stop speculation.

Did I upset you by saying "Think like a lawyer"?

Chill.

No, you didn’t upset me by that statement. I’m not upset or agitated at all.

I was simply responding to your question asking what leads me to “the conclusion that the requirement is being eliminated?”

There was no such conclusion.

I was asking @Air Force One “if the out year requirements were being eliminated” .

If so, I indicated that the government could (should?) inform the contractor earlier that the out-year options can’t be exercised…

I later agreed with formerfed that another possibility could be that the out year requirements may be differently defined than in the current options.

Either scenario could prevent the KO from exercising the out-year options.

You are right that even if @Air Force One responds we won’t know.

AFO has enough info to consider alternatives to satisfy DOGE.

Vern Edwards said:

Emphasis added.

Source?

I didn’t mean that as a fact. I was joking saying if a contract is identified by DOGE for cancellation, it’s safe to say the need behind it is eliminated.

Thank you, Gentlemen.