Concurrent Exercise of Contract Options

What do you mean by CLIN ceiling value and what year an type of funds will be used to fund the work for option year 2 in this scenario?

What does the option clause say? The clause should indicate when the option(s) may be exercised. (If they want to exercise option 2 early, first modify the option clause language so that option 2 can be exercised in strict accordance with its [new] terms ... then exercise option 2)

@Retreadfed CLIN ceiling value just means the value of the CLIN in terms of the price of the CLIN (Cost + Plus Fixed Fee = Price). The color of money/funds type is RDT&E, which is two-year money, I believe. The funding will be FY19 money I think and since the PoP and CLIN values of both Option-Years 1 & 2 will be rolled into the base CLIN, I’m assuming (don’t judge me, lol) that the funding aspect will just carry forward once the option is exercised using RDT&E funds. I hope that answers your question. Thanks so much for your response.

@Jamaal Valentine The contract is CPFF with the following option clauses: 52.217-8 (to extend services) and 52.217-9 (to extend the term of the contract. I use 52.217-9 for my Notice or Intent to the CTR, and as my mod authority. Neither of the clauses have been modified to reflect the early exercise of Option 2. If the PCO doesn’t modify either of the Option clauses in the contract before exercising both Option 1 and 2, will this be considered an illegal contact action? Thanks much for your response.

BigBirdContracting81 said:

If the PCO doesn’t modify either of the Option clauses in the contract before exercising both Option 1 and 2, will this be considered an illegal contact action?

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)).

A contract usually specifies the end date by which an option must be exercised — if so, exercising earlier than anticipated is fine.

FY2019 RDT&E funds may be obligated in FY2019 or 2020.  It is generally okay to exercise a FY2020 option using FY2019 RDT&E funds.

Indeed, good for the program office!  

BigBird, Does your contract specify a period (with a beginning and end date) for exercising the option, or just an end date?  If it is the latter, why are you charging the program office with “illegal” activities?  It is fine to research when you don’t know the answer, as you don’t, but you shouldn’t carelessly charge your colleagues as criminals until AFTER you have done your research.  Please look at your contract and let us know if it specifies a period or just an end date.

@ji20874 If you had thoroughly READ my question, you would know that I DID NOT charge my Contracting activity with any illegal conduct. I simply asked IF exercising two separate option periods concurrently would be considered illegal , simple as THAT. It seems as though you are looking to start trouble with me simply for my asking of a question regarding a contract action of which I have no knowledge. I NEVER accused ANYONE of DOING ANYTHING illegal. I simply asked if the action is taken to exercise two separate option-periods concurrently is it considered legal. Simple as that. Also, if you’d THOROUGHLY read my question, instead of looking for trouble or a way to insult me then you’d know that it was a sincere, harmless question, And, I included the contract period of performance dates for both options in my initial post question. Anyhoo, thanks for your time. Take Care.

@Jamaal Valentine Thanks a bunch!!

“Illegal” was your word, not mine.  Unfortunately, it is too common among us for one party to use words like illegal and unethical for matters where there is a difference of opinion in practice.  I didn’t read your original posting as honest intellectual inquiry — rather, it seemed to me that you had already judged your program office’s action as “questionable/potentially illegal” (your words), even though you later admitted that you have no knowledge of the rules in this area.  Please be more careful.  Continue to engage and ask.  Give your colleagues every benefit of the doubt.  Still, my apologies if I mis-read your original posting.

Anyway, you didn’t answer the question:  Does your contract contain (1) a period (with a start date and an end date) for the exercise of the option; or (2) only an end date?  No. (2) is the more common approach, from my experience — if your contract had (2), then maybe all is well with exercising the option sooner rather than later.

There may be other issues (like whether these are severable services) that others will look at as the proposed modification works its way through the system — but these go beyond your question about exercising an option sooner rather than later.

@BigBirdContracting81

You're welcome.

Also, here is the pertinent part of FAR 52.217-9(a):

"(a) The Government may extend the term of this contract by written notice to the Contractor within _____ [insert the period of time within which the Contracting Officer may exercise the option]; provided that the Government gives the Contractor a preliminary written notice of its intent to extend at least ___ days [60 days unless a different number of days is inserted] before the contract expires." (bold emphasis added)

Regarding option 2, when may the government extend the term? (that's what I meant, in my original post, when I asked what the option clause said)

By the way, @ji20874 is a wealth of knowledge...I doubt he was starting trouble with you. Relax.

Admitting that I have not read in detail the case citations provided I did find this aged discussion on WIFCON to be an interesting read as to BigBird's intention with regard to the option exercise.

/legacy/reg/4ffd8f42416d1544.html

@Jamaal Valentine Thank you so very much. And you're right, I need to relax. I work in a pretty high tempo contracting environment and sometimes it gets the better of me. Thanks again and Happy Contracting!

@ji20874 You are right, I did use the term "illegal". I used it impulsively by reason of fear of the unknown. My original posting was an honest intellectual inquiry but I presented it in a "fire, aim, ready" fashion. Please forgive and pardon my rant. I got nervous that I was potentially "in trouble" for my use of the words "illegal" and "unethical" on this forum, as I am new to Wifcon. I've been told many times by sharp, well-seasoned contracts folks like you and @Jamaal Valentine that the contracting community is small so be careful to not burn any bridges or ruffle the wrong feathers...which totally wasn't my intention here. Between my 8-year career in industry (Boeing) and nearly 4 years in Government (DoD), I'm happy to admit there's still a great deal about contracting that I don't know or quite understand, so I appreciate the good, well-intentioned advice.

Here's the setup of my contract: Contract Type: CPFF, Acquisition Type: Services - particularly Advisory and Assistance Services (A&AS) (FAR Part 37.2) for non-personal services. Yes, the contract contains a period with a start and an end date for the base-period (ending in June) and its subsequent option-periods. Here's the contract's Period of Performance Data: Base Year: June 22, 2016 to June 21, 2019, Option Period 1: June 22, 2019 to June 21, 2020, Option Period 2: June 22, 2020 to June 21, 2021.

The intent is to exercise Option-Periods 1 and 2 by rolling the CLIN values of Option-Periods 1 and 2 into their respective base-period CLIN values. The contracting office cited the following advantages to the methodology of rolling the option-year CLINs into their respective base-period CLINs: 1) Programs can use unexpended funds on the base CLINs immediately, 2) Reduction in the number of CLINs for contract close-out, and 3) Reduction in contract administration overhead

@ji20874 @Jamaal Valentine, Did I provide the right information this time relative to the start and end dates of the respective Option-Periods? I will await your reply. Thanks a bunch!

@C Culham Thank you!

@ji20874, @Jamaal Valentine Additionally, here's what the option clauses currently state in the contract:

52.217-8     OPTION TO EXTEND SERVICES (NOV 1999)
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. The option provision may be exercised more than
once, but the total extension of performance hereunder shall not exceed 66 months. The Contracting
Officer may exercise the option by written notice to the Contractor no later than 30 days prior to
the expiration of the contract.
(End of clause)

52.217-9     OPTION TO EXTEND THE TERM OF THE CONTRACT (MAR 2000)

(a) The Government may extend the term of this contract by written notice to the Contractor no
later than 30 days prior to the expiration of the contract; provided that the Government gives the
Contractor a preliminary written notice of its intent to extend at least 60 days before the
contract expires. The preliminary notice does not commit the Government to an extension.

(b) If the Government exercises this option, the extended contract shall be considered to include
this option clause.

(c) The total duration of this contract, including the exercise of any options under this clause,
shall not exceed 60 months.
(End of clause)

Jamaal Valentine said:

a) The Government may extend the term of this contract by written notice to the Contractor within _____ [insert the period of time within which the Contracting Officer may exercise the option]; provided that the Government gives the Contractor a preliminary written notice of its intent to extend at least ___ days [60 days unless a different number of days is inserted] before the contract expires." (bold emphasis added)

This has got to be some of the worst language in the FAR.  It seems like everyone has a different interpretation, for example, "insert the period of time within which the Contracting Officer may exercise the option"  seems to suggest that  "from 1500 GMT 21 MAR 2018 to 1500 GMT 21 APR 2018" would be just okey-dokey because it specifies a "period of time".  But that would be stupid.

Personally, I follow the lead of the clause author and write in "X days _before the contract expire_s" after "within".  Still hate the language though.  What the heck were they thinking when they wrote that one???

BigBirdContracting81 said:

the total extension of performance hereunder shall not exceed 66 months.

66 months????  So you can extend the contract for  5-1/2 years in addition to the base + option periods???

@BigBirdContracting81

Based on your contract clause's language, what do you think? Can they properly exercise option 2 concurrently?

@Jamaal Valentine Hey there. Although 52.217-9 states: “The total duration of this contract, including the exercise of any options under this clause, shall not exceed 60 months”, I do not believe Option 2 can be exercised concurrently with Option 1 since the contract was awarded with explicit PoP beginning and end dates for both options. (Am I making sense?)

Also, this is a services contract for non-personal A&AS. 

37.106 Funding and term of service contracts states: (I’m trying to determine whether or not this would also affect whether or not the Option-Years could be exercised concurrently). 
(a) When contracts for services are funded by annual appropriations, the term of contracts so funded shall not extend beyond the end of the fiscal year of the appropriation except when authorized by law (see paragraph(b) of this section for certain service contracts, 32.703-2 for contracts conditioned upon availability of funds, and 32.703-3 for contracts crossing fiscal years).
(b) The head of an executive agency, except NASA, may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed does not exceed oneyear (10 U.S.C.2410a and 41 U.S.C.3902). Funds made available for a fiscal year may be obligated for the total amount of an action entered into under this authority.

BigBird,

Based on your understanding, what is the earliest possible date the Government can exercise Option 2?  We know the latest date is 30 days before the contract expires, but what is the earliest date?

@ji20874 Based on my understanding of everything, the earliest possible date the Government can exercise Option 2 is June 22, 2020 to June 21, 2021. Thanks for your help.

@BigBirdContracting81

I don't read a limitation on the earliest date the option can be exercised in accordance with the clause. Do you? Why do you think June 22, 2020 is the earliest date?

I’m with Jamaal.  You don’t have an earliest date to exercise the option.  June 22, 2020, is the start date of the period of performance, not the earliest date for option exercise.  Your contract clause at FAR 52.217-9 doesn’t have an earliest date, so you may exercise the option weeks or months in advance of that date, maybe even a whole year in advance, provided you have funds — and it sounds like you do (RDT&E funds with a multi- year obligation period).

In fact, you cannot exercise Option 2 on June 22, 2020 — that’s the day the contract will expire, and you must exercise the option at least 30 days before that, right?  So based on what you have shared from your contract, it seems the latest date you can exercise is May 23, 2020 (30 days before the contract would otherwise expire), and there is no earliest date.

@ji20874, @Jamaal Valentine I gotcha. I misread and misinterpreted FAR 52.217-9 completely, 🤦🏽‍♀️. What I believe you guys are trying to get me to understand is that the Option-Period PoP start date and the earliest date for Option exercise, according to FAR 52.217-9, are two completely different things. Reading, well, reading thoroughly with a clear understanding of that facts is fundamental, huh 🧐🤔😂

The biggest concern, and point of contention for the budget folks is that although we use RDT&E funds (2-year availability of funds), our program office treats those RDT&E funds like O&M money, meaning we obligate within the current year fiscal year. Our program office within the Agency does not use its RDT&E funds as though they have a multi-year obligation period. Everything is obligated within the current fiscal year.  With that said, the greatest concern here, especially from the budget analysts within our office, is that because the program office has made the decision to roll the CLIN values and the Period of Performance of both Option-CLIN  periods into the base-CLIN period, the concerns are that we could potentially be antideficient since we don’t use our RDT&E money as 2-year money. Another concern from our budget community is that because we are rolling both option periods into the base period, including the CLIN values, what is the incentive to the contractor to not overrun since they now have all this extra CLIN value added from the Option periods. In our office, once we roll the Option period(s), (PoP including CLIN values from the respective option-periods), into the base-year CLINS, we then cancel the Option CLINs in our PD2/SPS contract writing system. The concerns are realizing contract overrun at the end of the contract’s overall PoP because there is no way to incentivize the contractor to not overrun since they now have all this additional CLIN value from the Option Periods...which again, become cancelled after they are rolled into the base effort. My apologies if this all sounds confusing, but this is the way my program office does its business. The more feedback the merrier. You guys have been very helpful and insightful.

It is not necessary to treat multi-year money like one-year money, but many organizations do it -- and because they do it, they lose the ability to tell the difference and they lose the flexibility that multi-year money affords.  Everyone becomes dumbed-down.  Then, when someone wants to use the flexibility that multi-year money affords, everyone else says it can't be done and will break the rules.  This isn't just your office -- this is pervasive throughout the federal government.

The concerns you raise are valid concerns.  But there are legitimate workarounds.

For example, in exchange for the very early exercise of the option, the might ask the contract to agree to a homemade clause that changes the 75% figure at which an overrun notice is required under the Limitation of Cost or Limitation of Funds clause in your contract -- maybe change it to 50% during the first year of the two-year option period.  And require the contractor to have a burn plan and to stick to it, and record it in CPARS if they don't. 

Is it a done deal?  Has the option exercise modification been done already?  If not, you have time to talk about these things across your program management, contracting, and budget organizations.  The contracting office can stop the process by refusing to prepare or sign the modification.  The budget office can stop the process by refusing to certify availability of funds.  I commend you for learning, but warn you that knowledge of correct principles does not guarantee a good outcome -- office tradition and organizational culture can squash correct principles.

I once worked in an organization with no-year money -- two organizations in wholly separate departments, actually.  I can promise you that budget people don't like for a contracting person to tell them the flexibilities with no-year (or multi-year) money -- even if they are wrong (based on a lack of understanding of correct principles) and even if you can quote from GAO reports and the Red Book, they can still win because of their organizational power.  But any discussion in your office about bona fide needs rule and so forth is likely to be in error because your interlocutors will be applying the bona fide needs rule as if your multi-year money is one-year money, which it isn't, and they might be unable to tell the difference.

@ji20874 Man, this is really good stuff. I'm learning so much at the old age of 37, lol. But seriously, thank you all so much for the invaluable information.

No, it is not yet a done deal as the option-exercise modification has not yet been executed, and I'm very apprehensive about discussing with the team the legitimate workarounds you have suggested. My budget analyst will probably want to hug and kiss you when I show her the suggested workarounds you provided. Essentially, she's been saying the same thing you said in terms of the workaround, just in different, more colorful, office-inappropriate language, if you will. She said it creates more work for the budget community when contracting makes such haste decisions, which are basically driven by our internal customers/stakeholders, AKA - Programmatic Folks, without consulting the others that will be impacted and affected by such decisions.

I am apprehensive about discussing the workarounds because I work with a very smart, yet very mercurial PCO. In all fairness to him, my tone hasn't always been the best in the past, (which you saw in a previous message) but my intention is to always do what is in the best interest of the Agency by successfully executing its mission - with integrity and professionalism - of course. I have been reminded on more than one occasion that I am not a PCO and that when I become a PCO then I can sign contract actions when I want to and make decisions. I've said all that to say that I don't know if all of what I have gleaned from posing this question will be well received. It will just depend on the energy and the mood of the person receiving it at that moment. After all, I'm just a lowly NH-II Contract Specialist, LOL!

I like learning and posing these types of questions to the contracting audience because I want to be well-equipped...as best I can...when my promotion leads me to quasi-greener pastures, lol! Thanks again. I appreciate this more than you'll ever know. I'll keep you posted on the outcome. Later.

BigBirdContracting81 said:

because the program office has made the decision to roll the CLIN values and the Period of Performance of both Option-CLIN  periods into the base-CLIN period, the concerns are that we could potentially be antideficient since we don’t use our RDT&E money as 2-year money. Another concern from our budget community is that because we are rolling both option periods into the base period, including the CLIN values, what is the incentive to the contractor to not overrun

I don't understand the ADA concerns.  Can you elaborate on that.

As for contractors having an incentive not to overrun, there are several.  First, there is an unfavorable CPARS rating.  Second, and more importantly from a contractor's perspective is a reduced profit on the contract.  Remember, fee does not equate to profit.  A fixed fee of 7% on a contract may equate to only a 5% profit.  If a contractor incurs an overrun, even if it is funded, it does not receive increased fee, thus the profit rate on the contract goes down.  Instead of receiving 5% profit, the contractor only receives a 3 or 4% profit.

Finally, are you under the impression that an option, as you use the term here, is a separate contract?

On ‎5‎/‎6‎/‎2019 at 7:03 PM, BigBirdContracting81 said:

@ji20874 Based on my understanding of everything, the earliest possible date the Government can exercise Option 2 is June 22, 2020 to June 21, 2021. Thanks for your help.

That is the PoP of Option 2 and does not relate to the exercise of the option.  It all depends on what the fill in for the -9 says.  If just numbers are entered, i.e. 30 for first fill-in and 60 for second, and as long as the required preliminary notice is given, the option exercise should be valid.  The courts have ruled that "within" means prior to (don't have the case off top of my head to site it) when ruling on option exercises under -9 clause.  What I don't know is if the intended result which is to access the ceiling provided by Option 2 is effective at exercise or aligns with the PoP.  I haven't done CR type contracts in over 15 years and lots has changed since then but I don't see a problem with exercising it up to a year early provided the notices are timely per the -9.

@BigBirdContracting81

Regor said:

The courts have ruled that "within" means prior to (don't have the case off top of my head to site it) when ruling on option exercises under -9 clause.

Please find and cite that case.

Regor said:

What I don't know is if the intended result which is to access the ceiling provided by Option 2 is effective at exercise or aligns with the PoP.

The option PoP remains unchanged, right? Doesn't the option (offer) have to be exercised (accepted) in strict accordance with its terms? The terms include the PoP, right?

If the options are separate CLINs, one modification can exercise both options.  The PoP, estimated cost, and fixed fee for each CLIN would remain unchanged.  Both options would be funded from the same pot of RDT&E money.

After exercising the option as two CLINs as written with back-to-back PoPs, I suppose you could renegotiate the CLIN structure and merge those two CLINs into a single CLIN in the interest of efficiency, if both parties were agreeable.  You could probably negotiate it before exercising the options, as you are not affecting scope in any way.  But when you do exercise an option, it is a unilateral action based on the option terms as previously agreed by the parties.