GAO's latest MCS Decision

I thought this case was somewhat astounding myself. Maybe GAO was trying to find a way to take jurisdiction in this case so that it could "right" a wrong, who knows, but the logic doesn't make a whole lot of sense. I think, Velhammer, that you are correct in your assertion that the inclusion of the right of the Government to extend services under 52.217-8 is not "evaluated" in the sense that separately priced option periods are evaluated, since the pricing on an extension of services under 52.217-8 is set with reference to the agreed upon contract prices in effect at the time it is exercised. The two cases cited by the GAO for the proposition that "[T]he option to extend the contract here under FAR clause 52.217-8 was not evaluated as part of the initial competition, so that the exercise of this option amounts to a contract extension beyond the scope of the contract, and therefore effectively constitutes a new procurement" don't really support that proposition. In Laidlaw, the agency awarded an interim contract, and then, after award, modified the contract to add 52.217-8. The vendors competing for the interim would not have been able to apprehend that an extension might be in the offing, so clearly, such an extension would have been outside of the scope of the interim contract as originally solicited. The extension of services exercised in Techno-Sci did not occur pursuant to 52.217-8 and was most definitely a new procurement.

I don't put much stock in the argument that the extension in MCS was a "new procurement" because the exercise of the extension took place inside the 30-day window and it was therefore "not authorized." When the Government failed to exercise the right to extend by providing at least a 30-day notice, it lost its right to unilaterally do so, but the fact that DAV did not complain and allowed the extension to be exercised in any case does not somehow make the extension beyond the scope such that it is a new procurement. At least, that's the way I see it.

I made sure to provide a copy of the decision to the contracting officers I advise, and we will be looking at ways to document contract files to better ensure the viability of our right to extend under 52.217-8. Would have been nice if GAO had elaborated on what constitutes an "evaluation" of the option to extend services.

I hope the agency asks GAO for a reconsideration and GAO gets another chance to look at this. If this stands, it's going to cause some real strange propsal evlauations.

And, by the way, the Army FAR Supplement, Section 5117.204, "Addition of option clause or quantities to contracts after award" provides that "Modification of contracts to incorporate option clauses or additional option quantities after award is a noncompetitive action and cannot be done without prior approval in accordance with FAR 6.304. Such requests must be documented to give the reason for the proposed modification and the potential impact of disapproval."

The argument that the extension of services in the MCS case was noncompetitive just doesn't make sense. Amen to a request for reconsideration!

I do not see how an option under the extension of services clause could be evaluated as part of the initial competition. Presumably, no one sets out with the intent of ever having to exercise the extension of services clause. As such, I've never seen pre-pricing of options specifically for the extension of services clause. I think the requirements of 17.207(f) are met because the clause already establishes that the services will be performed within the limits and at the rates specified in the contract subject to any adjustments due from changes in the wage determination; so the amount is "reasonably determinable from the terms of the basic contract" which would have been evaluated as part of the initial competition.

Neither FAR, DFARS, nor AFARS provide instructions about the pricing of the 52.217-8 option. The clause itself says:

The Government may require continued performance of any services within the limits and at the rates specified in the contract. These rates may be adjusted only as a result of revisions to prevailing labor rates provided by the Secretary of Labor.

What are the "rates specified in the contract"? I think many COs assume that they are the rates in effect during the performance period in which the option is exercised. But there is no basis for that interpretation in FAR or in the language of the clause itself. The clause says only "the rates specified," which suggests that the contract should expressly state something specific. Silence on the matter does not "specify" rates. Would silence warrant an interpretation that the rates applicable to the period currently in effect apply to 52.217-8 extensions? I would argue not. Unwarranted assumptions based on the fact that you haven't seen anything else are just that. Contracting officers (and agency lawyers) are supposed to think things through and avoid such problems for their agencies. But who knows what a board of court would say. If the parties agree that the contract is to be extended at the rates then in effect, then the contract should say so explicitly. In that case, express evaluation of the rates would be pointless, since they could not change the offerors' relative price or cost positions in the competition. But a CO could write a special clause to specify monthly rates for 52.217-8 extensions, require offerors to propose rates, and include those rates in the price evaluation. In such a case, the rates could affect competitive price standings. (But see FAR 17.206(a). Is it "likely" that the government will exercise those options? If not, then FAR suggests that evaluation would be inappropriate.)

In my opinion, if the contract provides for extension under 52.217-8 at the rates applicable to the period in which the option is exercised, then explicit evaluation of those option prices could not affect the price standings of the offerors or the outcome of the competition. I suppose that a CO could go through the pointless exercise in order to satisfy the GAO.

Unless I missed it, the Major Contracting Services decision does not say how the Army contract was priced. If the Army contract provided for 52.217-8 pricing on the basis of prices already in effect (which would be my bet), then the Army should reject the GAO's recommendation on grounds that it is harebrained. If, however, the contract stipulated hourly rates specifically for the 52.217-8 option, such that the offerors had to propose such rates, then the Army should have evaluated those rates, and the GAO decision is sound. What I would like to know is why the Army thought it had to prepare a sole source justification.

By the way, Velhammer, why do you say it's clear that the agency did not exercise the option within the timeframe stated in the contract? The contract said: "within 30 days of contract expiration." The contract expired on May 31 and they exercised the option on May 14. Why is that late?

Vern:

To answer your question, I took the "within 30 days of contract expiration" to be a deadline (i.e. they had to exercise the extension NLT 1 May), rather than a window (they can exercise between 2 May and 31 May). Why? Probably because that is the way 52.217-9 is laid out. (I'll go ahead and flog myself for making another "unwarranted assumption")

I think the language of 52.217-8, as written in the Army contract, is interesting. According to the GAO, the contract expired on May 31. "Within 30 days of contract expiration" could have meant at any time between May 2 and June 30. The boards and courts have interpreted 52.217-8 literally in the past. I wonder what the Army meant? And why did they prepare a sole source justification?

Vern:

Could you expand on what you mean by "the boards and courts have interpreted 52.217-8 literally in the past".

As for why the Army prepared the sole source, I would suspect it was a CYA move that in hind-sight hurt more than it helped. I wouldn't be surprised if that decision was made at the HCA level with the urging of legal counsel. MCS was clearly inquiring about the status and this contract was already on the sky-line.

Vern:

Could you expand on what you mean by "the boards and courts have interpreted 52.217-8 literally in the past".

Yes, there have been at least three cases dealing with interpretation and application of the 52.217-8 clause:

1. Arko Executive Services, Inc. v. U.S., 78 Fed.Cl. 420 (Fed.Cl. Sep 12, 2007), aff'd on appeal, Arko Executive Services, Inc. v. U.S., 553 F.3d 1375 (Fed.Cir. Jan 21, 2009).

2. Griffin Services, Inc., ASBCA 52280, 02-2 BCA ? 31943 (2002).

3. American Contract Services, Inc., ASBCA 46788, 94-2 BCA ? 26,855, aff'd on recons., 94-3 BCA ? 27,025, aff'd on appeal, American Contract Services, Inc. v. Widnall, 53 F.3d 348 (Fed.Cir. Apr 20, 1995).

I wrote about them for The Nash & Cibinic Report, see "WHEN THE GOVERNMENT CAN CHOOSE AMONG OPTIONS: Let The Contractor Beware" (June 2007) and "POSTSCRIPT: WHEN THE GOVERNMENT CAN CHOOSE AMONG OPTIONS" (November 2007). I'm now writing about the Major Contracting Services decision.

FAR 52.217-8 is a tricky little clause. COs are routinely inserting it in contracts without thinking through all of its implications. Contractors aren't thinking it through, either.

The way that 52.217-8 was written in the MCS case ("within 30 days ...) is pretty much the way I've always seen it written (and I work for the Army). Additionally, I've always taken the phrase "within the limits and at the rates specified in the contract" to mean that the terms, conditions, rates and so forth in effect at the time of exercse of the option would apply to the extension period. The Court in Arko appears to agree with that proposition. So does the Board in Griffin Services. Am I missing something here?

I think the clause can be read in different ways, and that it is up to the parties to express their intent. I suspect that most parties interpret it the way that you do--the "rates" are those in effect at the time the option is exercised. That creates obvious problems when it comes to evaluating the option, since it is not clear at the time of evaluation when the option will be exercised, so it cannot be known what rates to evaluate.

It is one of the most interesting clauses in the FAR, because of its apparent simplicity and latent complexity. Thinking about it is a pleasure.

I think that GAO's decision assumes that when the offeror proposed its rates for each year, it did not consider the prospect of the Government requiring extended performance at those rates pursuant to FAR 52.217-8. Why is that the correct assumption? How does GAO know that the offeror didn't consider extended performance at its proposed rates when preparing its offer?

Let's assume the offeror did consider the prospect of extension when it proposed its rates and the Government evaluated those rates in the initial competition. How could one argue, then, that the rates in effect during the option period were not "evaluated as part of the initial competition" and that the exercise of the option did not comply with FAR Part 6?

A very questionable assumption by GAO.

I think that GAO's decision assumes that when the offeror proposed its rates for each year, it did not consider the prospect of the Government requiring extended performance at those rates pursuant to FAR 52.217-8. Why is that the correct assumption? How does GAO know that the offeror didn't consider extended performance at its proposed rates when preparing its offer?

Let's assume the offeror did consider the prospect of extension when it proposed its rates and the Government evaluated those rates in the initial competition. How could one argue, then, that the rates in effect during the option period were not "evaluated as part of the initial competition" and that the exercise of the option did not comply with FAR Part 6?

A very questionable assumption by GAO.

I'm not sure that was GAO's assumption. I believe that GAO was simply being anal about their interpretation of FAR 17.207(f ) that states that the option must have been evaluated as part of the initial competition. It would be as easy as looking under the Price Evaluation tab in the contract file. I can imagine a line of questioning like: "You may have evaluated the base and option period rates, but did you include the total price of the option at 52.217-8 (in any form) in your overall price evaluation? No? Then how can you state in a written determination for the contract file that the option was evaluated as part of the initial competition?"

In my opinion, if the contract provides for extension under 52.217-8 at the rates applicable to the period in which the option is exercised, then explicit evaluation of those option prices could not affect the price standings of the offerors or the outcome of the competition. I suppose that a CO could go through the pointless exercise in order to satisfy the GAO.

I agree with that opinion. But I don't know how you even could include a total price for the option in an overall price evaluation since the option could be exercised after any period of the contract and for any time frame up to 6 months.

If you agree with the premise that the option at 52.217-8 is not considered evaluated unless it is somehow included in the overall price evaluation, than rather than go through the pointless exercise of trying to come up with a consistent way of applying it in an evaluation, I think a better remedy is to simply make the determination at 17.206(b ) that "evaluation would not be in the best interests of the Government". That written determination would need to be approved one level above the CO.

Another remedy might be to include a statement in your RFP to the affect: "The Government will consider the option at 52.217-8 to have been evaluated through the evaluation of rates proposed for all contract periods."

Another remedy might be for COs to simply ignore GAO... assuming COs are aware of this case at all.

I think a better remedy is to simply make the determination at 17.206(b ) that "evaluation would not be in the best interests of the Government". That written determination would need to be approved one level above the CO.

I don't see how that would be a remedy. When it came time to exercise the option, the CO would still have to comply with FAR Part 6 (which they didn't do if they didn't evaluate the option during the initial competition).

Another remedy might be to include a statement in your RFP to the affect: "The Government will consider the option at 52.217-8 to have been evaluated through the evaluation of rates proposed for all contract periods."

Or, "Offerors shall consider the prospect of the Government extending performance pursuant to FAR 52.217-8 when proposing rates for each contract period."

I don't see how that would be a remedy. When it came time to exercise the option, the CO would still have to comply with FAR Part 6 (which they didn't do if they didn't evaluate the option during the initial competition).

Hmm... sounds like a Catch-22. If you follow the strict interpretation of 17.207( f) then you can't exercise any option if you didn't evaluate it prior to award.

I don't see how that would be a remedy. When it came time to exercise the option, the CO would still have to comply with FAR Part 6 (which they didn't do if they didn't evaluate the option during the initial competition).

Or, "Offerors shall consider the prospect of the Government extending performance pursuant to FAR 52.217-8 when proposing rates for each contract period."

That might be the answer. As long as the CO took those prices into consideration in the full potential contract lifecycle, it should be okay.

But it could be tricky. Assume offeror A and B have virtually identical evalauted prices over a base and four option years periods (60 months). Offeror A's initial prices are lowest in the base year and each subsequent year's proposed prices increase. Offeror B proposes the same rates for all five years. How do you evaluate the extension?

At first this decision bothered me. Now it doesn't because this situation happening again in a real situation is slim. The extension is used mostly for an unforeseen delay in recompeting. The solicitation gets structured to include the full period of performance the government wants and needs. If you have a 5 year need, the RFP gets structured for 5 years of proposed pricing. The government's intent is to then do a new contract before the five years are up if there's still a need. That's what should be evaluated. The extension is a safety net. If it's needed, it gets exercised. Anyone proposing on the new award is made aware of it and knows they are in contention for a new award and wouldn't protest. That's why we haven't seen a protest like this before. It's an anomaly.

But it could be tricky. Assume offeror A and B have virtually identical evalauted prices over a base and four option years periods (60 months). Offeror A's initial prices are lowest in the base year and each subsequent year's proposed prices increase. Offeror B proposes the same rates for all five years. How do you evaluate the extension?

Tell the offerors that, when proposing rates for any given period, they are to assume that the Government will extend performance for an additional six months past that period at the rates proposed for that period. Make it a wash.

Tell the offerors that, when proposing rates for any given period, they are to assume that the Government will extend performance for an additional six months past that period at the rates proposed for that period. Make it a wash.

Then that's the answer. I think that language would stand up in this case situation.

Given the broad impact GAO?s decision here, the strange timing of it (Why now? Doesn?t the fact pattern here occur 10,000+ times/year?), and GAO?s decision to interpret the FAR?s language so narrowly. I wonder if GAO believes its closing a ?hole? in procurement. That is: is it suggesting to the FAR Council that it change something about the FAR; or, for Congress to change CICA as it relates to 52.217-8?

I don't buy Don's assumption theory. I think Vbus nailed it: "I believe that GAO was simply being anal about their interpretation of FAR 17.207(f) that states that the option must have been evaluated as part of the initial competition." That, along with GAO's current obsession with the small business rules and its own notion of socio-economic justice led it to look for a way to sustain the protest.

All the same, we have to deal with the FAR, and the GAO has it right. You have to evaluate an option or prepare a J&A in order to exercise it without competition. A determination that evaluation is not in the government's interests will not let an agency off the hook in that regard.

The obvious and simplest solution is to say that the option will be priced at the rates in effect when the option is exercised and that for evaluation purposes the rate will be the monthly rate of the last year of performance (final option year) times six and adding the total to the contract price. An alternative would be to have each offeror propose option rates. That would be more complicated.

Arguably, the prospect of exercising the option is too speculative to warrant evaluation. See FAR 17.206(a).

A better solution in the long run would be for the FAR councils to say that the option is not to be evaluated and may be exercised without competition. While they're at it, they ought to rewrite the clause, which, as written, is ambiguous. There is practically no hope that the councils will do either of those things.

The agency should reject GAO's recommendation.

I think there is a much chance the agency will reject GAO's recommendation as there is a chance the FAR Council will modify usage of the clause or rewrite it.

The obvious and simplest solution is to say that the option will be priced at the rates in effect when the option is exercised and that for evaluation purposes the rate will be the monthly rate of the last year of performance (final option year) times six and adding the total to the contract price.

That only solves the problem if the option were exercised after the final option year. What if the Government wanted to exercise the option to extend after the completion of the base year, like in the MCS case?

If the 6 month option prices were evaluated as part of the source selection using the prices in the final performance period, I do not see a problem if the 52.217-8 option is exercised earlier than the end of the final performance period. Oftentimes, the Government evaluates based upon its plans (e.g. will exercise all annual options) or estimates (e.g. the estimated number of hours, items, etc.). The fact that actual events vary from the plans or estimates does not invalidate the initial evaluation.

If the 6 month option prices were evaluated as part of the source selection using the prices in the final performance period, I do not see a problem if the 52.217-8 option is exercised earlier than the end of the final performance period. Oftentimes, the Government evaluates based upon its plans (e.g. will exercise all annual options) or estimates (e.g. the estimated number of hours, items, etc.). The fact that actual events vary from the plans or estimates does not invalidate the initial evaluation.

Yes, I don't think you would necessarily have a CICA problem. However, you could end up paying Year 5 rates at the end of Year 2. Those rates may not be fair and reasonable when the option is exercised.

I think the solution is to either advise offerors that, when proposing rates for each period, they should consider the prospect of the Government extending performance up to six months at the proposed rates. An alternative would be to evaluate each of the proposed rates over an 18-month period.

I agree with napolik. Also, using rates for evaluation purposes need not lock the government in to using those rates upon exercise of the option at an earlier time.

In any case, the fact is that if the contract provides that the "rates specified in the contract" are the rates in effect at the time of the exercise of the option, then the option prices have been evaluated, even if not explicitly so. Adding six months at any such rates could not change the price standing of the competitors. The agency screwed up by writing a J&A and did not defend the protest intelligently.

In any case, the fact is that if the contract provides that the "rates specified in the contract" are the rates in effect at the time of the exercise of the option, then the option prices have been evaluated, even if not explicitly so.

I agree with that, but I don't think that the GAO would, given the MCS decision.

I agree with that, but I don't think that the GAO would, given the MCS decision.

I think they might have if the agency had argued effectively.

Without having seen the agency submissions to the GAO, I would hesitate to judge the quality of the defense in this case. While it may not have proven effective in that it didn't work, the fact that it didn't work doesn't mean it wasn't any good. I suspect that GAO was straining to sustain (although, I do agree that the agency should never have executed a "J&A" if that's what that was).

While it may not have proven effective in that it didn't work, the fact that it didn't work doesn't mean it wasn't any good.

I know that makes sense at some level, but I'm going to laugh anyway. I will pass it on to all of my lawyer friends, who, pragmatists that most of them are, will get a kick out of it.

I just learned that the decision is under reconsideration.

Reconsideration complete.

http://www.gao.gov/decisions/bidpro/4014722.htm

I don't buy Don's assumption theory. I think Vbus nailed it: "I believe that GAO was simply being anal about their interpretation of FAR 17.207(f) that states that the option must have been evaluated as part of the initial competition." That, along with GAO's current obsession with the small business rules and its own notion of socio-economic justice led it to look for a way to sustain the protest.

All the same, we have to deal with the FAR, and the GAO has it right. You have to evaluate an option or prepare a J&A in order to exercise it without competition. A determination that evaluation is not in the government's interests will not let an agency off the hook in that regard.

The obvious and simplest solution is to say that the option will be priced at the rates in effect when the option is exercised and that for evaluation purposes the rate will be the monthly rate of the last year of performance (final option year) times six and adding the total to the contract price. An alternative would be to have each offeror propose option rates. That would be more complicated.

Arguably, the prospect of exercising the option is too speculative to warrant evaluation. See FAR 17.206(a).

A better solution in the long run would be for the FAR councils to say that the option is not to be evaluated and may be exercised without competition. While they're at it, they ought to rewrite the clause, which, as written, is ambiguous. There is practically no hope that the councils will do either of those things.

The agency should reject GAO's recommendation.

Well, the Agency requested reconsideration and the GAO remains entrenched in its anal interpretation and application of the FAR to a temporary extension of services. See http://www.gao.gov/decisions/bidpro/4014722.htm for "B-401472.2, Department of the Army--Reconsideration, December 7, 2009"

OOPS! Parkerr beat me to the punch while I was reading the reconsideration...

I would have argued that the option prices were evaluated at the time of award because the contractor priced the base and option year rates under the assumption that they could be required to perform at those rates up to an additional six months. I think that it's unreasonable to assume that the inclusion of FAR 52.217-8 in the solicitation had no effect on the proposed prices.

I would have argued that the option prices were evaluated at the time of award because the contractor priced the base and option year rates under the assumption that they could be required to perform at those rates up to an additional six months. I think that it's unreasonable to assume that the inclusion of FAR 52.217-8 in the solicitation had no effect on the proposed prices.

Don, GAO made the point that there is no evidence that the government evaluated the pricing for the extension period. Even if the extension option possibility affected the pricing, the government, according to GAO,would have to document evaluating it.

Requiring a separate evaluation for a non CLIN contract extension at prices which were determined to be fair and reasonable for the contract period is novel and a real stretch of reasoning. In effect, you now will have to evaluate whether all prices are fair and reasonable twice.

Based on the reconsideration, we got new guidance from our legal yesterday. Basically they want the KO to document as part of their Price Negotiation Memo the evaluation of the pricing of the 6 month extension should it be exercised. Kicker is that KO must document it for every period where it could potentially be utilized. So if you have Base + 4 years, must evaluate the pricing if used at end of Base, end of Option 1, etc. to ensure fair and reasonable. Add another page to the memo!

Based on the reconsideration, we got new guidance from our legal yesterday. Basically they want the KO to document as part of their Price Negotiation Memo the evaluation of the pricing of the 6 month extension should it be exercised. Kicker is that KO must document it for every period where it could potentially be utilized. So if you have Base + 4 years, must evaluate the pricing if used at end of Base, end of Option 1, etc. to ensure fair and reasonable. Add another page to the memo!

woops85,

How will you evaluate each potential 6-month option period in terms of total contract price?

Per your example, if you have a Base + 4 Option Year contract and must include in your evaluation the prices for exercising the option at 52.217-8 for 6-months at the end of each of those years, how are you expected to include that option pricing in the total contract price given that you cannot exercise a 6-month option at the end of each option period? Including all option prices in the total price I think would be inappropriate.

Also, how will you describe the Government's price evaluation to offerors in the solicitation?

woops85,

How will you evaluate each potential 6-month option period in terms of total contract price?

Per your example, if you have a Base + 4 Option Year contract and must include in your evaluation the prices for exercising the option at 52.217-8 for 6-months at the end of each of those years, how are you expected to include that option pricing in the total contract price given that you cannot exercise a 6-month option at the end of each option period? Including all option prices in the total price I think would be inappropriate.

Also, how will you describe the Government's price evaluation to offerors in the solicitation?

One way to do it is assign a weight based on probability. For example, if there's an equal chance the option could get exercised at the end of any year, assign a 20% weight to each 6-month option. Of course, then you factor in the probability that you need the extension as well.

I'm just offering this as a way to comply with the decision. Actually I think the decision is wrong and the CO shouldn't have to evalutae this at all.

Since 52.217-8 is so ambiguous as to what exactly are the rates specified in the contract, one way to not exceedingly complicate the evaluation of this option may be to say that if 52.217-8 is exercised to cover performance for any period for which the Government had unexercised options available, then those unexercised option prices govern the 52.217-8 extension, plus any allowed adjustment made in accordance with 52.217-8. For extensions for the 6 month period following the last option period you can get separate pricing for those months and evaluate that as part of the award.

What do all of you think of that? (Although it still really doesn't address 17.206(a) - but I don't think there is any way to comply with this GAO decision and 17.206(a) at the same time without just making the assumption it is likely we are going to exercise that option when you think you need to include it in a contract.)

Mike

Don, GAO made the point that there is no evidence that the government evaluated the pricing for the extension period. Even if the extension option possibility affected the pricing, the government, according to GAO,would have to document evaluating it.

Joel,

My point was that in evaluating the rates for the base and option years, the agency did evaluate the rates for the extension option (the rates would be the same).

However, I've given this more thought and I think that an agency has to multiply the rates by some unit (i.e., hours) and arrive at an actual dollar figure for evaluation purposes. This GAO decision is consistent with past decisions in that respect.

Joel,

My point was that in evaluating the rates for the base and option years, the agency did evaluate the rates for the extension option (the rates would be the same).

However, I've given this more thought and I think that an agency has to multiply the rates by some unit (i.e., hours) and arrive at an actual dollar figure for evaluation purposes. This GAO decision is consistent with past decisions in that respect.

Don, I don't know the criteria for evaluating options to include the possibility that the contract may be extended at the end of either the initial period or any subsequent period. I would think that if the proposal was the best value for any of the full option periods, it would be okay for less than a full period. Maybe a statement to that effect would suffice Then, the only question should be "What if the final option period is extended?"

Don, I don't know the criteria for evaluating options to include the possibility that the contract may be extended at the end of either the initial period or any subsequent period. I would think that if the proposal was the best value for any of the full option periods, it would be okay for less than a full period. Maybe a statement to that effect would suffice Then, the only question should be "What if the final option period is extended?"

And do we evaluate prices only, the technical merits of using that firm for a bridge period , both price and technical (best value)?

Since 52.217-8 is so ambiguous as to what exactly are the rates specified in the contract, one way to not exceedingly complicate the evaluation of this option may be to say that if 52.217-8 is exercised to cover performance for any period for which the Government had unexercised options available, then those unexercised option prices govern the 52.217-8 extension, plus any allowed adjustment made in accordance with 52.217-8. For extensions for the 6 month period following the last option period you can get separate pricing for those months and evaluate that as part of the award.

What do all of you think of that? (Although it still really doesn't address 17.206(a) - but I don't think there is any way to comply with this GAO decision and 17.206(a) at the same time without just making the assumption it is likely we are going to exercise that option when you think you need to include it in a contract.)

Mike

That might work. However, I would get separate pricing for each six month period after the base and option years and include those prices in the total evaluated contract price. I don't think that would be too complicated.

Also, FAR 17.206 says that an agency is required to evaluate options if they are likely to be exercised. It doesn't say that agencies cannot evaluate options if they are unlikely to be exercised.

That might work. However, I would get separate pricing for each six month period after the base and option years and include those prices in the total evaluated contract price. I don't think that would be too complicated.

Also, FAR 17.206 says that an agency is required to evaluate options if they are likely to be exercised. It doesn't say that agencies cannot evaluate options if they are unlikely to be exercised.

Don, that doesn't make any sense to me. You will be evaluating mutually exclusive options.

FAR 17.206 Evaluation.

(a ) In awarding the basic contract, the contracting officer shall, except as provided in paragraph (b ) of this section, evaluate offers for any option quantities or periods contained in a solicitation when it has been determined prior to soliciting offers that the Government is likely to exercise the options. (See 17.208.)

(b ) The contracting officer need not evaluate offers for any option quantities when it is determined that evaluation would not be in the best interests of the Government and this determination is approved at a level above the contracting officer. An example of a circumstance that may support a determination not to evaluate offers for option quantities is when there is a reasonable certainty that funds will be unavailable to permit exercise of the option.

If 17.206(a ) states that a CO shall evaluate options after making a determination that the Government is likely to exercise the options, does that imply that a CO 1) shall not, 2) should not, or 3) need not but may evaluate options that the Government does not intend to exercise? (Before going straight to 17.206(b ), note that (b ) is an exception to (a ) and states that a CO need not evaluate options if it makes a [separate?] determination that evaluating the options is not in the Government's best interest.)

I think it would be impossible for a CO to determine that the Government intends to exercise the Option to Extend Services for 6-months at the end of each contract year. That being the case, is it improper for a CO to evaluate them all?

Don, that doesn't make any sense to me. You will be evaluating mutually exclusive options.

So what?

woops85,

How will you evaluate each potential 6-month option period in terms of total contract price?

Per your example, if you have a Base + 4 Option Year contract and must include in your evaluation the prices for exercising the option at 52.217-8 for 6-months at the end of each of those years, how are you expected to include that option pricing in the total contract price given that you cannot exercise a 6-month option at the end of each option period? Including all option prices in the total price I think would be inappropriate.

Also, how will you describe the Government's price evaluation to offerors in the solicitation?

VBus - No clue yet. Obviously our CO council needs to works this out quick as we have some solicitations currently on the street and will potentially need to amend based on their decision. Maybe I can pass some suggestions from here. Initial guidance was to do it but not how to do it

If 17.206(a ) states that a CO shall evaluate options after making a determination that the Government is likely to exercise the options, does that imply that a CO 1) shall not, 2) should not, or 3) need not but may evaluate options that the Government does not intend to exercise? (Before going straight to 17.206(b ), note that (b ) is an exception to (a ) and states that a CO need not evaluate options if it makes a [separate?] determination that evaluating the options is not in the Government's best interest.)

I think it would be impossible for a CO to determine that the Government intends to exercise the Option to Extend Services for 6-months at the end of each contract year. That being the case, is it improper for a CO to evaluate them all?

Paragraph (a) is a rule that applies to a situation where the Government is likely to exercise an option and it mandates the contracting officer to evaluate the option. The rule does not apply to situations where the Government is not likely to exercise the option. Paragraph ( b ) applies to situations where the Government is not likely to exercise the option and it gives the contracting officer the discretion to not evaluate the option (which implies that the CO can choose to evaluate the option). Notwithstanding the FAR language, paragraph ( b ) really isn't an exception to ( a ). ( a ) and ( b ) are two different rules that apply to two different situations.

Paragraph (a) is a rule that applies to a situation where the Government is likely to exercise an option and it mandates the contracting officer to evaluate the option. The rule does not apply to situations where the Government is not likely to exercise the option. Paragraph ( b ) applies to situations where the Government is not likely to exercise the option and it gives the contracting officer the discretion to not evaluate the option (which implies that the CO can choose to evaluate the option). Notwithstanding the FAR language, paragraph ( b ) really isn't an exception to ( a ). ( a ) and ( b ) are two different rules that apply to two different situations.

Thanks Don. So it's not the case that if you determine in accordance with (a ) that it is likely you will exercise the option, you shall evaluate the option unless the exception at (b ) applies? I'm honestly trying to get the right read on this.

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Thanks Don. So it's not the case that if you determine in accordance with (a ) that it is likely you will exercise the option, you shall evaluate the option unless the exception at (b ) applies? I'm honestly trying to get the right read on this.

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Vbus,

No, that is the case. I just re-read FAR 17.206 and I think I had it wrong in my earlier post--( b ) is an exception to ( a ).

Regardless, I see nothing in FAR 17.206 that prohibits a contracting officer from evaluating options even if it is unlikely that the options will be exercised.

Vbus,

No, that is the case. I just re-read FAR 17.206 and I think I had it wrong in my earlier post--( b ) is an exception to ( a ).

Regardless, I see nothing in FAR 17.206 that prohibits a contracting officer from evaluating options even if it is unlikely that the options will be exercised.

Don, thanks - I'm glad you posted this, because, while I agree now, I had read too much into 17.206(a) myself before now. This is a great example of a case where it's easy to read too much into the FAR. I just had a discussion with some of my colleagues where they thought FAR 42.1503(e) limited use of information in PPIRS to 3 yrs. (6 for construction and A/E) of completion, and I said that it doesn't state that, that they were reading too much into the FAR, because it says you SHALL use that information when it is within the 3/6 yr. period, it doesn't say you cannot use information that is older than that. (They may have been influenced too much by the old FAR language re: PPIRS, but that's for another thread - not trying to thread-jack this one.)

Vbus,

No, that is the case. I just re-read FAR 17.206 and I think I had it wrong in my earlier post--( b ) is an exception to ( a ).

Regardless, I see nothing in FAR 17.206 that prohibits a contracting officer from evaluating options even if it is unlikely that the options will be exercised.

I could see a situation where if a contract contained many options that the Government did not intend to exercise, that including them all in the evaluation might make an offeror's overall evaluated price less meaningful and would less accurately reflect the expected value of the contract.

For example, if Offeror A proposes high prices for the base requirement and low prices for the unlikely optional items, while Offeror B proposes low prices for the base requirement and high prices for the unlikely optional items, the two offerors may end up having overall evaluated prices that are closer together than what would have been had the unlikely option prices not been evaluated. In fact, Offeror A may end up winning the contract based in part of their overall price, when Offeror B may in fact be a better value for the "real" requirement.

If you include the prices for a 6-month option for each contract year in your price evaluation, you are essentially evaluating 7.5 years of contract performance that is only anticipated to run 5 years. Since not only is it unlikely to exercise a 6-month option period five times during the life of the contract, it's downright impossible, I believe its improper to include that many potential options in your overall price evaluation.

It just doesn't seem right to do it that way.

For example, if Offeror A proposes high prices for the base requirement and low prices for the unlikely optional items, while Offeror B proposes low prices for the base requirement and high prices for the unlikely optional items, the two offerors may end up having overall evaluated prices that are closer together than what would have been had the unlikely option prices not been evaluated. In fact, Offeror A may end up winning the contract based in part of their overall price, when Offeror B may in fact be a better value for the "real" requirement.

FAR 15.404-1( g ) requires that price analysis be performed for each separately priced line item--presumably to avoid the situation you described.

If you include the prices for a 6-month option for each contract year in your price evaluation, you are essentially evaluating 7.5 years of contract performance that is only anticipated to run 5 years. Since not only is it unlikely to exercise a 6-month option period five times during the life of the contract, it's downright impossible, I believe its improper to include that many potential options in your overall price evaluation.

It just doesn't seem right to do it that way.

Totally agree that it's impossible. Think our CO Council has been tasked with coming up with a procedure for documenting this consistently so say if Option 2 is not exercised and order is recompeted early for some reason but then we wind up using 52.217-8, we don't get caught in the MCS situation and someone says we never evaluated it. Sometimes it seems we spend more time figuring out how to "protest-proof" the documentation than doing the evaluation itself. Sry - just frustration talking.....

Don, thanks - I'm glad you posted this, because, while I agree now, I had read too much into 17.206(a) myself before now. This is a great example of a case where it's easy to read too much into the FAR. I just had a discussion with some of my colleagues where they thought FAR 42.1503(e) limited use of information in PPIRS to 3 yrs. (6 for construction and A/E) of completion, and I said that it doesn't state that, that they were reading too much into the FAR, because it says you SHALL use that information when it is within the 3/6 yr. period, it doesn't say you cannot use information that is older than that. (They may have been influenced too much by the old FAR language re: PPIRS, but that's for another thread - not trying to thread-jack this one.)

Mike, FAR 42.1503(e) was rewritten after the July 2006 version of FAR to be consistent with GAO Decisions and position that FAR 42.1503(e) did not limit past performance evaluation periods in source selections to 3 years. That section related to collection and maintenance of the info. It used to read that agencies could not retained to provide source selection information for longer than three years after completion of contract performance. I had a copy of a decision from sometime in 2006 or 2007 which nixed the limitation, because I was involved in a debate with some Contracting Officers who mistakenly cited 42.1503(e) as a prohibition on evaluating PP for construction past three years but I cant find it offhand. Not only did the GAO disagree, but FAR 36201© requires retainage of pp ratings for 6 years for responsibility determinations. I did a GOOGLE search under GAO FAR 42.1503(e) and found numerous articles or cites. One GAO paper indicated that the info must be kept for at least 3 years after end of performance, not that the government is limited to evaluating performance to 3 years. Dont have the time to look at every link and copy the info tonite, but you can do a GOOGLE Search and read for yourself

Mike, FAR 42.1503(e) was rewritten after the July 2006 version of FAR to be consistent with GAO Decisions and position that FAR 42.1503(e) did not limit past performance evaluation periods in source selections to 3 years. That section related to collection and maintenance of the info. It used to read that agencies could not retained to provide source selection information for longer than three years after completion of contract performance. I had a copy of a decision from sometime in 2006 or 2007 which nixed the limitation, because I was involved in a debate with some Contracting Officers who mistakenly cited 42.1503(e) as a prohibition on evaluating PP for construction past three years but I cant find it offhand. Not only did the GAO disagree, but FAR 36201? requires retainage of pp ratings for 6 years for responsibility determinations. I did a GOOGLE search under GAO FAR 42.1503(e) and found numerous articles or cites. One GAO paper indicated that the info must be kept for at least 3 years after end of performance, not that the government is limited to evaluating performance to 3 years. Dont have the time to look at every link and copy the info tonite, but you can do a GOOGLE Search and read for yourself

Thanks Joel - I believe I had read that decision, or at least some decision which included PP info older than 3 years. I had the same arguments with 1102s in my office re: the old language, and told them just because it said the system could not retain info older than 3 years didn't mean we could obtain and use info older than that.

If you include the prices for a 6-month option for each contract year in your price evaluation, you are essentially evaluating 7.5 years of contract performance that is only anticipated to run 5 years. Since not only is it unlikely to exercise a 6-month option period five times during the life of the contract, it's downright impossible, I believe its improper to include that many potential options in your overall price evaluation.

It just doesn't seem right to do it that way.

Vbus,

I sense that you think that there is something inherently wrong with structuring a contract with options that account for two possible futures, only one of which can happen. Consider the following scenario.

You have a requirement for services for one year and at least six months of the following year. Circumstance A has not arisen, but there's a possibility that it could arise any time during the first year. If Circumstance A arises, then you will only need services for the first six months of the second year. If Circumstance A does not arise, then you will need services for the entire second year.

What would be wrong with structuring a contract with one line item for the base year, one optional line item for the first six months of the second year (which you would exercise if Circumstance A arose), and one optional line item for the entire second year (which you would exercise if Circumstance A did not arise)?

Vbus,

I sense that you think that there is something inherently wrong with structuring a contract with options that account for two possible futures, only one of which can happen. Consider the following scenario.

You have a requirement for services for one year and at least six months of the following year. Circumstance A has not arisen, but there's a possibility that it could arise any time during the first year. If Circumstance A arises, then you will only need services for the first six months of the second year. If Circumstance A does not arise, then you will need services for the entire second year.

What would be wrong with structuring a contract with one line item for the base year, one optional line item for the first six months of the second year (which you would exercise if Circumstance A arose), and one optional line item for the entire second year (which you would exercise if Circumstance A did not arise)?

What would be wrong with it? Because having to go to such overly complex lengths to implement a GAO decision shows how ridiculous that decision is.

Why can't you just evaluate the possibility that any of the line item services might be extended for up to six months and assure that prices are still fair and reasonable,as part of the price analysis. Then during the tradeoff analysis evaluate to ensure that the value (both technical and price) would still provide the best value if the temporary extension(s) are needed. After all, the extension is purportedly designed to cover delays in awarding replacement contracts. Why get so elaborate?

Chances are good that if the prices were reasonable and provided the best combination of price technical value, a six month extension wouldn't change the relative value of the winning proposal, would it? The only scenario I can think of where it might be questionable is if the best value was a lot more expensive than another proposal and you'd want to ensure that it still made sense and provided the best value for a longer period (including the extension.

If price is the most important factor (best value tradeoff with price most important factor or LPTA), a six month extension wouldn't change the relative order of value of the proposals.

Why can't you just evaluate the possibility that any of the line item services might be extended for up to six months and assure that prices are still fair and reasonable, then during the tradeoff analysis evaluate to ensure that the value (both technical and price) would still provide the best value if the temporary extension(s) are needed. After all, the extension is purportedly designed to cover delays in awarding replacement contracts. Why get so elaborate.

So you are advocating two tradeoff analyses--one excluding the price of the optional extension periods and one including them?

So you are advocating two tradeoff analyses--one excluding the price of the optional extension periods and one including them?

Nope, it's included in the same trade-off analysis. There is a separate price analysis of the proposals and a trade-off comparison analysis, like normally done..

FAR 17.206(a) only refers to option periods and option quantities, not all options. One might opine that the 52.217-8 clause provides for neither an option period nor an option quantity, but a different kind of option. The 52.217-8 clause provides for an option to extend services, not an option to extend the term of the contract, as 52.217-9 does.

1. Is the TERM of the contract extended when you exercise the 52.217-8 clause or are the services only extended? Is there any difference to you? Can I extend services without extending the term at the same time? Do you think it proper to refer to the time period covered by the 52.217-8 clause as an "option period?"

2. If you are not incorporating the price of exercising the 52.217-8 clause in your Government Estimate of Contract Price, how are you reconciling that nonaction against the FAR convention at 1.108©, which clearly states "all options," not just option periods and option quantities, as 17.206(a) states?

3. If you are considering the 52.217-8 clause for 1.108© purposes before award, how are you reporting the maximum value of the contract correctly after award if you are not including the price of the option to extend services at the outset in your report?

Most of the time, the exercise of these options should fail the safeguard at FAR 17.207(f) that the option be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract.

Vbus,

I sense that you think that there is something inherently wrong with structuring a contract with options that account for two possible futures, only one of which can happen. Consider the following scenario.

You have a requirement for services for one year and at least six months of the following year. Circumstance A has not arisen, but there's a possibility that it could arise any time during the first year. If Circumstance A arises, then you will only need services for the first six months of the second year. If Circumstance A does not arise, then you will need services for the entire second year.

What would be wrong with structuring a contract with one line item for the base year, one optional line item for the first six months of the second year (which you would exercise if Circumstance A arose), and one optional line item for the entire second year (which you would exercise if Circumstance A did not arise)?

Don,

Sorry for the late reply... I enjoy your scenarios! To your point, no, I don't think there is anything inherently wrong with structuring a contract with options that could exist in mutually exclusive situations. I think under the right circumstances, adding multiple optional arrangements may be very advantageous and may offer the Government a wide range of possibilities and flexibility under a contract that could account for future uncertainties such as changes in technology or changes to the program budget.

To your scenario question, I see nothing wrong with structuring a contract that way to best cover the Government's need in an uncertain situation. In fact, it sounds totally reasonable. I think the problem arises when you try to perform a price evaluation inclusive of all options. I don't believe you can combine the price for Base CLIN 001 with Option CLIN 002 and Option CLIN 003 to reach a total price to be evaluated knowing the Government has no intention of exercising both Option CLINs 002 and 003. I believe that based on FAR 17.206(a ), the CO would need to determine which of the two Option CLINs he/she anticipated that the Government would most likely exercise (e.g. based on the odds of Circumstance A occuring) and perform his/her price evaluation based on that. So if the CO determines that Circumstance A is not likely to happen and that the Government is more likely to exercise Option CLIN 003, then the total price evaluation should include CLINs 001 and 003 only, and Option CLIN 002 should not be evaluated. If Circumstance A does occur and the Government wants to exercise Option CLIN 002, then the CO must follow the procedures for contracting without providing for full and open competition in accordance with FAR 6.3 (assuming the contract was awarded pursuant to FAR Part 14 or 15). I think this is what the FAR says and what GAO would say.

Bringing this back to the discussion of how to evaluate the option at 52.217-8, I think COs would be wise to include the potential 6-month option in their total price evaluation assuming that it is likely that the Government will exercise the option at the end of the contract (which is what I see most often in my office). The CO should also require offerors to submit price information for that 6-month span, possibly in increments if the CO did not want to commit to a full 6-months. So when it comes time at the end of the contract and the Government requires additional performance up to 6 months, the CO may exercise the option. If the Government does not want to continue the contract to the end by exercising more option periods and wants to exercise the option at -8 for up to 6 months at any time before the end of the contract, then the CO may exercise the option only after complying with the procedures of FAR 6.3.

I am working on a contract right now with a CLIN for technical data that will be in the base and also in each option year. We intend, and have notified the contractor, that we do not intend to award that CLIN in either the base or an option year until the FINAL period of the contract, whenever that is. We have added the price for each CLIN into the Government Estimate, and expect the contractor to price each TD CLIN as well, so it will be a set FFP no matter when we need the data.

I see adding the extension clause at 52.217-8 as the same thing, we just have to think a little differently to make the adjustment.

With that said, I agree that the GAO seems to have left its common sense hat at home for some time now on this issue, and should run home and get it soon.