Base Period Active, Future Option Expired- Can it be 'revived' by bi-lateral modification??

Hey guys- this is my first post. Where is the love?

You posted your question during the weekend on Saturday and your second post was on Sunday.  Although some members respond on weekends, most respond on work days.

Since it’s the weekend, try pondering the following: What rule(s) about options or modifying contract options leads you to conclude that your situation is substantively different merely because a base period is active?

bob7947 said:

You posted your question during the weekend on Saturday and your second post was on Sunday.  Although some members respond on weekends, most respond on work days.

Thanks. Long time lurker first time poster.  Didn't realize most people respond on weekdays.

Matthew Fleharty said:

Since it’s the weekend, try pondering the following: What rule(s) about options or modifying contract options leads you to conclude that your situation is substantively different merely because a base period is active?

In all the examples I saw, the base had expired so the contract had ended. My K is still active so perhaps the option  language can still be modified.

Contractor123 said:

In all the examples I saw, the base had expired so the contract had ended. My K is still active so perhaps the option  language can still be modified.

That doesn’t answer the question: think about what options are and the rule(s) that govern them...

On 7/14/2018 at 9:02 AM, Contractor123 said:

We would like to use this opportunity to renegotiate terms, specifically pricing, if possible.

And this is problematic to especially if options were evaluated ss part of the award decision.

My view. From your facts, it appears clear that the Government believes it is no longer contractually able to exercise the option, hence the talk about bilateral agreement. In my world, two parties can successfully find a contractual way to agree to the delivery of production quantities. You and/or the Government may have a sound basis to reach agreement on a different price. It is not clear if your company’s performance contributed to the delay in exercising the option. For example, if first article acceptability was delayed past the contract schedule date. This may provide an argument by the Government that it was not able to exercise the option until now. Also, not clear if there are any extenuating circumstances on the Government side such as funding and shutdowns that delayed the exercise of the option. Hopefully your company will also consider whether it still wants or is capable of performing production work. Finally, it is not clear from the facts whether or not additional un priced quantities may be ordered by the Government under an existing contract clause.

C Culham said:

And this is problematic to especially if options were evaluated ss part of the award decision.

The priced options were part of the evaluation of the award.  However, there is a price redetermination opportunity at the end of phase I. 

A concern is that if the parties are not able to agree to a redetermined price and the govt exercises the option, we may be forced to perform and deal with any disagreement via a dispute under the disputes clause (which is how disagreements on the redetermined price are to be handled).

If the option is dead and we can negotiate new terms, this would be a more favorable position for the company.  Can we renegotiate new options without violating/needing exemption from CICA? Is the CO correct that we can just modify the notice period so that it has not expired so the govt can still exercise it? This would be the govts ideal position. There are very different possible outcomes based on which path is taken and/or allowable.

Neil Roberts said:

My view. From your facts, it appears clear that the Government believes it is no longer contractually able to exercise the option, hence the talk about bilateral agreement. In my world, two parties can successfully find a contractual way to agree to the delivery of production quantities. You and/or the Government may have a sound basis to reach agreement on a different price. It is not clear if your company’s performance contributed to the delay in exercising the option. For example, if first article acceptability was delayed past the contract schedule date.

There are reasons for the delays on both sides.

This may provide an argument by the Government that it was not able to exercise the option until now.

Wouldn't it have been prudent for the govt to then do a contract mod to extend the notice period? If there were delays and the govt did not do its due diligence to protect it's interest, can they come back a year later and do so?

Also, not clear if there are any extenuating circumstances on the Government side such as funding and shutdowns that delayed the exercise of the option.

No.

Hopefully your company will also consider whether it still wants or is capable of performing production work.

Neil Roberts said:

Finally, it is not clear from the facts whether or not additional un priced quantities may be ordered by the Government under an existing contract clause.

No.

Contractor123 said:

If the option is dead...

If? 😑

What’s the basic rule governing how an option must be exercised?

What are the rules governing changes to a contract when it comes to the Competition in Contracting Act (CICA)?

I’m sure if you thought about those two questions in light of all the situational facts you have available that we don’t/won’t, you’d know what you could and couldn’t do and how to do it.

You didn’t post this in the beginner’s section so you should have some foundational knowledge about contracting (and options) - try thinking about it from that vantage point.

On ‎7‎/‎15‎/‎2018 at 1:02 AM, Contractor123 said:

Can the contract option period for Phase II be modified to change it's notice period to retroactively make it appear to not have expired?

In the alternative, can the parties negotiate a new option and add it to the contract via a bilateral modification? 

Would either of these actions violate/require an exemption from CICA?

1. The notice period can be changed. (I don't know of an absolute prohibition.)

2. Generally, the parties may at any time, make mutually agreed upon changes within the general scope of a contract anytime before final payment.

3. Generally, a change outside the scope of the contract/competition is a new procurement that the Contracting Officer is not authorized to order. Whether either of these actions 'violate/require an exemption from CICA' requires more information.

Remember, an option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract. (You mentioned renegotiating terms and price redetermination requirements; also, letting a year lapse may prove difficult to justify.)

In order to get a more useful response you will need to provide detailed information or revise your question:

There are two primary issues and you can probably decide for yourself if you filter your fact scenario through the rules regarding exercising options (exact accord with price and terms); and contract changes (scope determinations, and clauses).

Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999), 41 GC ¶ 308 (“[A]n attempt to exercise an option outside its terms does not constitute a valid exercise of the option.”); Griffin Servs., Inc., ASBCA No. 52280 et al., 02-2 BCA ¶ 31,943, at 157,803 (“The Government’s exercise of an option must be unconditional and done in strict accordance with its terms. Any attempt by the Government offeree to alter the conditions of the option will render the exercise of it ineffective.”); Contel Page Servs. Inc., ASBCA No. 32100, 87-1 BCA ¶ 19,540, at 98,734 (an option must be unconditionally accepted and any attempt to alter the option terms will render exercise of the option ineffective); Holly Corp., ASBCA No. 24975, 83-1 BCA ¶ 16,327, at 81,164 (“the notice by which the power of an option holder is exercised must be unconditional and in exact accord with the terms of the option” (citing Corbin on Contracts § 264 (1963)).

On 7/14/2018 at 9:02 AM, Contractor123 said:

Can the contract option period for Phase II be modified to change it's notice period to retroactively make it appear to not have expired?

What option clause is in the contract? If the clause is FAR 52.217-9, and if the only problem is that the government failed to give the "preliminary written notice," then the CO should ask the contractor to waive the preliminary written notice requirement in writing and then exercise the option before the end of the period of performance.

On 7/14/2018 at 9:02 AM, Contractor123 said:

We would like to use this opportunity to renegotiate terms, specifically pricing, if possible... can the parties negotiate a new option and add it to the contract via a bilateral modification?

The CO must obtain an approved sole source justification in order to do either of those things.

Jamaal Valentine said:

Generally, the Contracting Officer may at any time, by written order make changes within the general scope of a contract anytime before final payment.

That's an incomplete paraphrase of the terms of the Changes clause, FAR 52.243-1, et al. What the clause says is:

Quote

The Contracting Officer may at any time, by written order, and without notice to the sureties, if any, make changes within the general scope of this contract in any one or more of the following:

(1) Drawings, designs, or specifications when the supplies to be furnished are to be specially manufactured for the Government in accordance with the drawings, designs, or specifications.

(2) Method of shipment or packing.

(3) Place of delivery.

The list of things the CO may change by written order does not include the deadline for preliminary written notice.

Jamaal Valentine said:

Generally, the Contracting Officer may at any time, by written order make changes within the general scope of a contract anytime before final payment

Vern Edwards said:

That's an incomplete paraphrase of the terms of the Changes clause, FAR 52.243-1, et al.

Well here we go.  An OP provides dribbling information and then we make conclusions based on the lack there of until it is dribbled out.    Question - What if it is a Commercial Item acquisition and 52.212-4 has not been tailored, what then?

Vern Edwards said:

That's an incomplete paraphrase of the terms of the Changes clause, FAR 52.243-1, et al. What the clause says is:

The list of things the CO may change by written order does not include the deadline for preliminary written notice.

I intentionally wrote it as such because the various changes clauses are specific to changes within those clauses (e.g., unilateral change orders). I have since removed 'by written order' because I don't necessarily believe the parties are limited to those types of changes (change orders).

Jamaal Valentine said:

I have since removed 'by written order' because I don't necessarily believe the parties are limited to those types of changes.

I don't understand "I don't necessarily believe the parties are limited to those types of changes."

On ‎7‎/‎14‎/‎2018 at 9:02 AM, Contractor123 said:

Looking through this forum

123 - Did you find this thread when doing your research in WIFCON?

Vern Edwards said:

I don't understand "I don't necessarily believe the parties are limited to those types of changes."

I don't think the parties are limited to only changes listed in a changes clause. The standard changes clauses allow the government to order unilateral changes. Why couldn't parties mutually agree to modifications not covered in a changes clause?

@Jamaal Valentine

Are you saying that the Changes clauses authorize changes other than those specified in the clauses, or are you saying that the parties to a contract can mutually agree to make changes other than those mentioned in the Changes clauses?

Vern Edwards said:

@Jamaal Valentine

Are you saying that the Changes clauses authorize changes other than those specified in the clauses, or are you saying that the parties to a contract can mutually agree to make changes other than those mentioned in the Changes clauses?

Definitely the latter.

Thanks, Jamaal. That clears it up.

On 7/14/2018 at 9:02 AM, Contractor123 said:

My question relates to an IDIQ with an active base period of performance (Phase I) that will be expiring soon. The gov't missed the notice period requirement to exercise the option for Phase II and thus the option has lapsed. The CO believes we can execute a bi-lateral modification to change the notice period term so that it has not yet expired. We would like to use this opportunity to renegotiate terms, specifically pricing, if possible.

Those remarks refer specifically to the "notice requirement," by which I presume the OP meant the "preliminary notice requirement" in FAR 52.217-9 or one like it. If that's not what he meant he should come back here quickly and clear things up. I also presume, since he wanted a prompt response from us, that he is monitoring this thread.

Vern Edwards said:

Those remarks refer specifically to the "notice requirement," by which I presume the OP meant the "preliminary notice requirement" in FAR 52.217-9 or one like it. If that's not what he meant he should come back here quickly and clear things up. I also presume, since he wanted a prompt response from us, that he is monitoring this thread.

In my original post, I cited the option clause included in the k. It is 52.217-7. The fill in language in the clause states the govt had to provide written notice to the contractor to exercise its option 24 months after award. No preliminary notice was required. The 24 months passed. The CO wants to modify the 24 months to 48 months.  Question is can he do so if both parties agree? If an option has to be exercised in strict compliance with its terms, can the terms be changed after the period to exercise has passed.

If the contract already provides for a price redetermination for Phase 2 production in Phase 1 , then it would seem that this is within the terms of the contract and could still be done.

This is a great example where a little bit of thinking could have avoided wasting time and effort (and paperwork)...why not specify the option period for Phase II as "X days/months post completion of Phase I (or some other milestone)" given that delays on projects involving producing first articles and testing are a possibility?

Contractor123 said:

The fill in language in the clause states the govt had to provide written notice to the contractor to exercise its option 24 months after award.

No preliminary notice was required. The 24 months passed.

The CO wants to modify the 24 months to 48 months.

They have met the 24 month requirement, right? (e.g., the option was unavailable months 1-23, but could be exercised >24 months)

The exact phrasing is important.

Contractor123 said:

The fill in language in the clause states the govt had to provide written notice to the contractor to exercise its option 24 months after award. No preliminary notice was required. The 24 months passed. The CO wants to modify the 24 months to 48 months.  Question is can he do so if both parties agree? If an option has to be exercised in strict compliance with its terms, can the terms be changed after the period to exercise has passed.

Okay, for everybody's benefit, here is FAR 52.217-7:

Quote

The Government may require the delivery of the numbered line item, identified in the Schedule as an option item, in the quantity and at the price stated in the Schedule. The Contracting Officer may exercise the option by written notice to the Contractor within [insert in the clause the period of time in which the Contracting Officer has to exercise the option]. Delivery of added items shall continue at the same rate that like items are called for under the contract, unless the parties otherwise agree.

I don't know of any GAO case which deals with your problem, untimely exercise of an option, in terms of CICA. However, in Ceredo Mortuary Chapel, Inc. B-232373, 89-1 CPD ¶ 12, January 9, 1989, decided five years after the enactment of CICA, the GAO decided that a contractor could waive untimely notice of the government's intent to exercise an option, which is not the same as the actual exercise. Here is the pertinent text of the decision:

Quote

Ceredo Mortuary Chapel, Inc. protests the exercise of an option to extend contract No. V581P–1526, issued by the Veterans Administration Medical Center, Huntington, West Virginia for ambulance services... We dismiss the protest.

Ceredo argues that because the contracting officer failed to give the required 60 days notice of the government's intent to exercise the option to the incumbent contractor, the option exercise was ineffective, requiring resolicitation of the services.

We do not agree. The notice requirement included in the contract protects the contractor and may be waived either expressly or by conduct. See 3A Corbin, Contracts § 759 (1960). When the condition of notice is waived, a valid contract results. See generally Burroughs Corp., DOTCAB No. 1327, 83–1 BCA ¶ 16,427 (1983); Fourth Street Estates, Inc., GSBCA No. 5813, 81–2 BCA ¶15, 299 (1981). Therefore, as the incumbent contractor apparently accepted the option exercise, the contract is valid for the extended term.

See also Independent Metal Strap Co., Inc., B-231756, 89-2 bCPD ¶ 147, August 17, 1989.

My thinking is that the GAO's reasoning---that the notice deadline protects the contractor and that the contractor thus can waive it---also applies to the deadline for exercising the option, as long as the period of performance has not expired.

If I were the CO, and I was ready to exercise the option, I would not process a supplemental agreement to change the deadline. I would send you a letter or an email asking you to waive it and asking for confirmation of the waiver in writing signed by an authorized representative of your company. Upon receipt of written confirmation I would then issue a unilateral modification exercising the option. I see no CICA or other legal problem with that approach.

As for changing the deadline from 24 months to 48 months, I am not sure whether the CO is ready to exercise now or if the 48th month would be at some time in the future. if the latter, I would change my procedure. I would do a supplemental agreement.

However, you cannot renegotiate the terms of the option without an approved sole source justification in accordance with FAR Part 6. Renegotiation would be treated as a new procurement for which the CO must obtain full and open competition unless an exception applies.

As for price redetermination, I think that contract term would still apply.

For the purposes of review, here are the original questions asked:

1. Can the contract option period for Phase II be modified to change it's notice period to retroactively make it appear to not have expired? It expired almost a year ago.
2. In the alternative, can the parties negotiate a new option and add it to the contract via a bilateral modification?
3. Would either of these actions violate/require an exemption from CICA?

In light of the fact that the period of performance has not expired, my answers are:

1. Yes, in my opinion. You can waive the deadline or the parties can modify it by supplemental agreement even after the fact. However, you don't want to "make it appear." (That doesn't sound good.) You want to change the deadline for exercising the option.
2. Only if the CO complies with FAR 6.302-1.
3. Yes. See 2 above.

Contractor123, in your original post, you stated that the contract is an IDIQ contract.  That indicates that work is done under task or delivery orders.  If that is the case, is there something in the contract that would prevent the government from issuing an order for the Phase II work now before the base period of the contract expires?  By base period, I presume you mean the initial period within which orders may be placed. If that is not the case, please clarify.

Retreadfed said:

Contractor123, in your original post, you stated that the contract is an IDIQ contract.  That indicates that work is done under task or delivery orders.  If that is the case, is there something in the contract that would prevent the government from issuing an order for the Phase II work now before the base period of the contract expires?  By base period, I presume you mean the initial period within which orders may be placed. If that is not the case, please clarify.

This K is a mess and should not have been structured as an IDIQ, but it is. There are conditions in the contract language that must occur prior to the Gov'ts exercise of Option II: first article delivery and acceptance, milestone decision authority (to determine if we are ready to enter into production), and price redetermination. Phase 1 was design to spec. That period is about to end once we complete the production readiness review coming up. By 'base period' I really mean Phase I.

Vern Edwards said:

For the purposes of review, here are the original questions asked:

1. Can the contract option period for Phase II be modified to change it's notice period to retroactively make it appear to not have expired? It expired almost a year ago.
2. In the alternative, can the parties negotiate a new option and add it to the contract via a bilateral modification?
3. Would either of these actions violate/require an exemption from CICA?

 

In light of the fact that the period of performance has not expired, my answers are:

1. Yes, in my opinion. You can waive the deadline or the parties can modify it by supplemental agreement even after the fact. However, you don't want to "make it appear." (That doesn't sound good.) You want to change the deadline for exercising the option.
2. Only if the CO complies with FAR 6.302-1.
3. Yes. See 2 above.

Thanks Vern.

Vern Edwards said:

Okay, for everybody's benefit, here is FAR 52.217-7:

I don't know of any GAO case which deals with your problem, untimely exercise of an option, in terms of CICA. However, in Ceredo Mortuary Chapel, Inc. B-232373, 89-1 CPD ¶ 12, January 9, 1989, decided five years after the enactment of CICA, the GAO decided that a contractor could waive untimely notice of the government's intent to exercise an option, which is not the same as the actual exercise. Here is the pertinent text of the decision:

See also Independent Metal Strap Co., Inc., B-231756, 89-2 bCPD ¶ 147, August 17, 1989.

My thinking is that the GAO's reasoning---that the notice deadline protects the contractor and that the contractor thus can waive it---also applies to the deadline for exercising the option, as long as the period of performance has not expired.

If I were the CO, and I was ready to exercise the option, I would not process a supplemental agreement to change the deadline. I would send you a letter or an email asking you to waive it and asking for confirmation of the waiver in writing signed by an authorized representative of your company. Upon receipt of written confirmation I would then issue a unilateral modification exercising the option. I see no CICA or other legal problem with that approach.

As for changing the deadline from 24 months to 48 months, I am not sure whether the CO is ready to exercise now or if the 48th month would be at some time in the future. if the latter, I would change my procedure. I would do a supplemental agreement.

However, you cannot renegotiate the terms of the option without an approved sole source justification in accordance with FAR Part 6. Renegotiation would be treated as a new procurement for which the CO must obtain full and open competition unless an exception applies.

As for price redetermination, I think that contract term would still apply.

This is helpful. Thanks!

Jamaal Valentine said:

They have met the 24 month requirement, right? (e.g., the option was unavailable months 1-23, but could be exercised >24 months)

The exact phrasing is important.

The language states: "The Contracting Officer may exercise the option by written notice to the Contractor within 24 months of the award...".  The contract was awarded in Sept 2015 so the gov't has missed the date to exercise.

If I were the CO I would change the option exercise deadline from a number of months to a specific date.

Vern Edwards said:

If I were the CO I would change the option exercise deadline from a number of months to a specific date.

Aside from changing the grammar of the 52.217-7 clause (which, I agree, is still movement in the right direction), I don't see how that solution is any different from a risk of delays perspective.  It merely eliminates the need for someone to do math or call the grammar police to determine what the date is for the option deadline.

Is there any issue you're aware of with my previously proposed solution to use an option exercise deadline of X days/months after Phase I completion (or some other milestone)?

Matthew Fleharty said:

Aside from changing the grammar of the 52.217-7 clause...

See 52.217-7:

Quote

52.217-7 Option for Increased Quantity-Separately Priced Line Item.

As prescribed in 17.208(e), insert a clause substantially the same as the following...

Emphasis added.

Matthew Fleharty said:

I don't see how that solution is any different from a risk of delays perspective.  It merely eliminates the need for someone to do math or call the grammar police to determine what the date is for the option deadline.

Stating a date instead of a number of days does not solve the problem of delays. Eliminating the need to do math is nothing to sneeze at. Stating a number of days can lead to disagreement about the proper counting procedure and the resultant deadline.

I agree with everything you just said Vern, that's why I used the words "which, I agree, is still movement in the right direction"  in my previous response.

However, there seems to be another issue here with that no one has talked about.  Presumably, the Government does not want to exercise an option for production of whatever this is until they get the first article and test results (that makes sense) - but we all know delays happen.  So why not specify a period post-completion of Phase I (with better grammar than the 52.217-7 language) rather than hoping everything goes according to plan from the outset when establishing the option?  Or would you rather include a specific date and modify the contract's option if/when a delay occurs?

@Matthew Fleharty

Matthew Fleharty said:

So why not specify a period post-completion of Phase I (with better grammar than the 52.217-7 language) rather than hoping everything goes according to plan from the outset when establishing the option?

Makes perfect sense to me.