Unpriced Options - Legal?

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Perhaps you should include a justification for other than full and open competition ("J&A") or some equivalent documentation appropriate to the type of procurement. 

FAR 17.207(f) seems to say that an unpriced option cannot satisfy the Competition in Contracting Act's requirement of full and open competition.

If you are in some other competitive standard, the justification would be slightly different, but it seems like exercising an unpriced option is considered "new work" that is subject to competition.

"(f) Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6. To satisfy requirements of Part 6 regarding full and open competition, the 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, e.g. --

(1) A specific dollar amount;

(2) An amount to be determined by applying provisions (or a formula) provided in the basic contract, but not including renegotiation of the price for work in a fixed-price type contract;

(3) In the case of a cost-type contract, if --

(4) A specific price that is subject to an economic price adjustment provision; or

(5) A specific price that is subject to change as the result of changes to prevailing labor rates provided by the Secretary of Labor.

(i) The option contains a fixed or maximum fee; or

(ii) The fixed or maximum fee amount is determinable by applying a formula contained in the basic contract (but see 16.102(c));"

Would it make a difference if it was A&E work where we award to the most highly qualified and cost is not part of the competition?

Yes, it would. What Pepe quoted doesn't apply to A-E contracts. See FAR 17.200.

So does that then mean that we cannot have ANY options in an A&E contract??  Seems pretty restrictive.

Desparado said:

So does that then mean that we cannot have ANY options in an A&E contract??  Seems pretty restrictive.

Not at all. You can have options in an A-E contract, but the rules in FAR subpart 17.2 don't apply. FAR 17.200:

Quote

This subpart prescribes policies and procedures for the use of option solicitation provisions and contract clauses. Except as provided in agency regulations, this subpart does not apply to contracts for (a)services involving the construction, alteration, or repair (including dredging, excavating, and painting) of buildings, bridges, roads, or other kinds of real property; (b)architect-engineer services; and (c)research and development services. However, it does not preclude the use of options in those contracts.

The use of options in A-E contracts is not regulated by the FAR. Nothing says you can't do it, so you can (FAR 1.102(d)).

Don Mansfield said:

The use of options in A-E contracts is not regulated by the FAR. Nothing says you can't do it, so you can (FAR 1.102(d)).

So if we do use options and the FAR does not apply, how does that affect the idea of unpriced options?  Since cost is not a competitive factor in A&E selection, is the taboo on unpriced options applicable?

BTW - I have this in Contract Administration because I am discussing task orders on multiple award A&E contracts.  The underlying contracts are silent on this issue.

Task orders for A-E services on multiple award A-E contracts are not competed on the basis of price. 

You use the QBS procedures to select a firm, then negotiate the price to perform the task.

Joel - 100% agree, but we have some in our agency that state that we still have to get a full cost proposal even though the nature of our A&E work contains several unknowns that make it impossible to price upfront.

16.505

(d) The statutory multiple award preference implemented by this subpart does not apply to architect-engineer contracts subject to the procedures in subpart 36.6. However, agencies are not precluded from making multiple awards for architect-engineer services using the procedures in this subpart, provided the selection of contractors and placement of orders are consistent with subpart 36.6.

Ask the “some” in your agency that justify their position that you must price A-E task order proposals or price base award A-E contracts. Price is not a factor in the task order selection, unless you are unable to reach agreement on a fair and reasonable price with the most highly rated firm.

Oh believe me, I have...  They are sticking to the article in the original post that these equate to unpriced options and are therefore illegal.

We are making selection based solely on technical, then reaching agreement on a fair and reasonable price for the first phase of work (there are several phases but the latter phases are undefinable at a level low enough to facilitate getting a cost proposal), but their contention is that we still have to get a full cost proposal for all phases upfront.

Based upon what source for the requirement?  FAR 17.2?  

As for timing, are “some” saying that this is supposed to be priced during the negotiations for the task order price? 

There are no prices at the MAC -pool level.

Of course, “some” know that 17.207 isn’t applicable here, correct? 

Edit: The scope of services for any options would have to be within the scope of the original A-E or task order A-E competition.

But the fact remains that this is a qualifications based selection (QBS) not  a priced based or  Best Value based selection.

Agree on all points.  They state we do not have the authority to issue a task order without pricing for all phases and options.

Based upon what?You’re going to have to make them justify their position.

In order to price and option one must know what the scope of work for the option will be. Same with all phases

On ‎5‎/‎13‎/‎2019 at 9:59 AM, Desparado said:

I've utilized unpriced options in the past but recently a co-worker has raised that these were determined by GAO back in 1986 ( https://www.gao.gov/assets/150/144237.pdf ) to basically be sole-source contracts.

The GAO report resulted in a change to FAR 17.207(f) (see FAC 84-37, 53 FR 17858; Miscellaneous Amendments: Item X - Options). The change had no effect on options in A-E contracts.

Desparado said:

They state we do not have the authority to issue a task order without pricing for all phases and options.

Is not the situation being looked at from the wrong perspective?  

Task order award and subsequent task order changes are subject to the parameters of the parent IDIQ.  FAR references to part 17 regarding options is misplaced in my view.   As the OP's facts are peeled away the real fact is the FAR does not apply to the placement of an option in a task order, the parent IDIQ does and what it allows or does not allow.  Answering the OP's questions piecemeal without seeing the underlying parent IDIQ is a very slippery slope.  But as others have ventured out so will I.

Fact - OP wants to do un-priced options and/or un-priced anticipated phases on a task order under an IDIQ contract. 

If the parent contract and the task order is silent on how this can be approached then the OP could wing it but may cause another holder of the MAC to take the matter to the agency ombudsman as an issue related to fair opportunity.  If the parent contract and/or the task order addresses the ability for un-priced options or  phases so much the better.

If the former I would believe that the ombudsman would look to issues of scope etc. to address whether a contractor received fair opportunity consideration for the un-priced option or phase and might apply principles of competition but I do not believe they would apply.  The four corners of the contract apply.

Bottomline it is not a question about "legal" it is a question about what is contractually allowed with regard to un-priced options and/or phases as to whether they are allowed by the parent IDIQ contract fair opportunity ordering terms and conditions or the task order itself.

C Culham said:

FAR references to part 17 regarding options is misplaced in my view.

I agree.  I have never been persuaded that FAR Subpart 17.2, Options, reaches to orders under multiple-award IDIQ contracts.

The price should be of no concern to  other A-E firms. None of the firms will prepare price proposals at the time of response to the task order request. The concern would be whether or not the work is within the scope of the task order competition. 

I don’t think that the base ID/IQ contract has to specifically address the possibility of options for follow on phases of a task order project, as long as the project to be designed is within the scope of the multiple ID/IQ base (“parent”) contract.

The fact is that the situation here apparently precludes being able to definitize pricing or the specific design parameters  of follow on design phases at the outset. 

Ive seen an A-E umbrella single award ID/IQ contract, which included follow on designs to be based upon a pilot plant , site adapted and updated to include lessons learned and engineering change proposals, etc. as the pilot plant design matured and construction, systemization, pilot testing and operations  progressed for that first plant.

Desparado said:

Oh believe me, I have...  They are sticking to the article in the original post that these equate to unpriced options and are therefore illegal.

We are making selection based solely on technical, then reaching agreement on a fair and reasonable price for the first phase of work (there are several phases but the latter phases are undefinable at a level low enough to facilitate getting a cost proposal), but their contention is that we still have to get a full cost proposal for all phases upfront.

So, they are basing their reasoning on a 1986 GAO report that discusses options on service contracts that were competed with price as a factor and that would now be subject to 17.207 (not applicable to A-E contracting). 

How is that applicable to an AE contract,? And here, the follow on phases can’t be definitized up front.  There are some controls on the cost of A-E design services , most notably the 6% statutory limits, plus negotiating a fair and reasonable price for any follow on work. 

If the firm won’t reasonably negotiate follow on prices, technically, you could replace them. I never heard of our organization being held hostage by an incumbent A-E firm. By and large A-E firms want to maintain good designer-owner professional relationships. Relationships are critical when future work is based upon QBS and client satisfaction, which is expressed in past performance, as well as personal experience of those often on the A-E selection  boards. 

“17.200   Scope of subpart.

This subpart prescribes policies and procedures for the use of option solicitation provisions and contract clauses. Except as provided in agency regulations, this subpart does not apply to contracts for

(a) Services involving the construction, alteration, or repair (including dredging, excavating, and painting) of buildings, bridges, roads, or other kinds of real property;

(b) Architect-engineer services; and

(c) Research and development services.

However, it does not preclude the use of options in those contracts.

[61 FR 41469, Aug. 8, 1996]”

They don't argue that there can be options... but insist they much be priced.

They are really just going with the basic concept that any award has to have a negotiated cost/price (even if a ceiling) to be legal and binding.

Also consider this.  If the A-E firm is logically and practically the only choice for the follow on design phases*, you could issue separate follow on task orders using an exception to the fair opportunity requirements in 16.505.  

But that would be a clunky way to accomplish the same purpose and wouldn’t produce any different result or method of pricing the follow on A-E work.

*it should be obvious, for continuity in accountability and responsibility for design, warranty of design, familiarity with the basis of design and the initial developed design, not to mention the cost and time involved to substitute another firm .Follow on phases would likely depend on the initial design. If  they don’t and if the integrated program schedule permits, then you could consider separate task order using fair opportunity.  I’m guessing not though, here.

That was one suggestion as well.  But, like you, I find that clunky and unnecessary.  Sadly, my lack of A&E knowledge puts me at a disadvantage in these discussions with the HQ peeps.

Desparado said:

They don't argue that there can be options... but insist they much be priced.

They are really just going with the basic concept that any award has to have a negotiated cost/price (even if a ceiling) to be legal and binding.

That basic concept is flawed where QBS is the basis of award and where 17.2 is not really applicable and the government could logically not be required to use fair opportunity for the follow on phases. 

“Some” apparently don’t understand the complexities of A-E contracting for complex projects or programs and are trying to force fit requirements for best value contracting to QBS.

Desparado said:

That was one suggestion as well.  But, like you, I find that clunky and unnecessary.  Sadly, my lack of A&E knowledge puts me at a disadvantage in these discussions with the HQ peeps.

If this is USACE, I’d be glad to discuss offline with you.

Sadly, it is not, but I appreciate the offer!  I feel that if this were USACE, I wouldn't have this problem.

Desparado said:

They don't argue that there can be options... but insist they much be priced.

They are really just going with the basic concept that any award has to have a negotiated cost/price (even if a ceiling) to be legal and binding.

Desparado,

I don't think unpriced options are binding, either. They lack the requirement for certainty of terms. We probably shouldn't call them "options" at all, because they don't meet the FAR definition of "option". I understand them as an agreement to negotiate the price of work that may or may not be defined in the contract.

For an A-E contract, you select your contractor and then negotiate the price. I don't know of anything that requires you to price the entire contract all at once. I think you can price some contract work now (for work you want done now) and some later (for work you want done later). Call the work you haven't priced "unpriced work"--don't call it an "unpriced option".

Don - I agree with you, but unfortunately that is the battle I am fighting (and losing).  They won't allow unpriced anything.

Desparado said:

Don - I agree with you, but unfortunately that is the battle I am fighting (and losing).  They won't allow unpriced anything.

What about an IDIQ?

This has been an intriguing puzzle.   

Putting all the pieces together provides the following.

FAR part 6 provides that A-E contracting (Brooks Act) is a competitive procedure.  (FAR 6.102(d)(1))

FAR part 6 provides that FAR part 6 does not apply to orders placed under IDIQ contracts when the contract was entered into pursuant to FAR 6.1 as well as orders placed against task and delivery orders entered into pursuant to FAR 16.5.  (FAR 6.001(e) & (f))

FAR part 16.505 provides that orders are to describe all services to be performed so the full price or cost of the work can be established when the order is issued.

FAR part 17 does not apply to A-E contracts but does not preclude the use of options in A-E contracts. (FAR 17.2)  Note here that the considerations of exercise of options at FAR 17.207 provide that requirements of FAR part 6 should be considered and satisfied when it comes to options but as already noted FAR part 6 provides that it does not apply to task orders.

FAR subpart 36.6 provides that its processes can be used with regard to FAR subpart 16.505.  (36.600)

It is generally held and supported in part by determinations that a task order is a “contract”.  /blogs/don-mansfields-blog/dar-council-interprets-contract-to-include-task-and-delivery-orders

Conclusion – The award of multiple award IDIQ contracts implied in this thread were accomplished using a competitive procedure and as such task orders, which are determined to be contacts in and of themselves,  under the IDIQ contacts are not subject to competition requirements of FAR part 6.   FAR part 16.5 provides that task orders are to be priced but does not provided the imperative that they cannot include an option, priced or un-priced, and options are not precluded in an A-E contract (task order).

The GAO document that is indicated as the lynch pin for the discussion in this thread deals specifically with standalone “umbrella” contracts and provides no reference to task orders and more specifically task orders under multiple award IDIQ contracts for A-E services.

Considering the specifics of all the facts an option can be used in a task order for A-E services and the option is not subject to FAR part 6 competition requirements.   An un-priced option is not precluded and is not subject to any limitations, procedures, or processes of FAR part 6 and therefore not FAR 17.   The unpriced option is subject only to limitations, procedures or processes stated in the task order and/or the parent IDIQ contract.

Desparado said:

They won't allow unpriced anything

I presume that your agency has lawyers.  What do they say about this?

“Some “ in Desperado’s organization appear to be hanging their hats on 17.2 and perhaps 17.207, which aren’t applicable to A-E contracts.

A-E contracts use a specifically directed QBS process to select the most qualified.firm, then the parties negotiate fair and reasonable pricing to accomplish the A-E services task.

I hope that my understanding is correct that that they cant definitize a price for later phases of the contract that will depend upon the initial design. 

If so, how would the organization  contract for A-E services to design the project if there were no ID/IQ ?  

Also, please note 36.101(b):

“(b) When a requirement in this part is inconsistent with a requirement in another part of this regulation, this part 36 shall take precedence if the acquisition of construction or architect-engineer services is involved.”

Ok, so just issue the follow up task orders to the same A-E firm as an exception to fair opportunity. Mutually determine and define the scope then negotiate the design fee. 

If the follow on design work is within the overall scope of the instant task order, you can add the work as in-scope changes. Mutually define the additional design work and negotiate the price.

if You are in the initial task order solicitation process , include your intended course of action for the phases in the task order statement of work. 

Edit: you probably ought  to state that it is the government’s intent to... but the government reserves the right to separately contract for such design work, if it is determined  to be in the best interest of the government to do so. Not being familiar with the nature  of the follow on  limits my recommendation somewhat.

Everyone's assumptions above are accurate.  It is a multiple award IDIQ contract for A&E services. We do a QBS competition where the most highly qualified firm is selected for task order award IAW 36.6, but as a task order also has some 16.505 applicability..

The "some" people in my organization feel that no contract, task order or anything can be awarded without being priced, period...

I appreciate all your input.  It has been informative.

On ‎5‎/‎17‎/‎2019 at 11:44 AM, Retreadfed said:

I presume that your agency has lawyers.  What do they say about this?

Lawyers appear to be on board with the "some" as well.  Small agency, limited A&E experience.

You can only price what you can definitize.

What do they say about my suggestions, both of which would be consistent with 16.5?

Your organization would have to be totally ignorant about architect -engineer design processes, design development, design integrity if they won’t let you use the same architects and engineers of record for follow on design work that would be essentially non-severable or based off of the initial design effort. 

The other A-E pool members should understand that if you let everyone know that during the initial task order selection process.

Why not issue a task order for what you can price at the outset, then subsequent task orders for other work when you price the other work?

Desparado said:

It is a multiple award IDIQ contract for A&E services

Why do you need options for this contract type?  Why not just issue a contract with an ordering period that covers the entire period of performance?

Don Mansfield said:

Why not issue a task order for what you can price at the outset, then subsequent task orders for other work when you price the other work?

Yes, that is one of my suggestions, with the proviso that it or they will be follow on task orders, exempt from fair opportunity (based upon the description provided). If so, then state that intent in the initial task order.

I think that this thread concerns an internal debate over hypothetical scenarios, not an actual A/E task order.

Sadly, this is an actual situation. Multiple award IDIQ A&E services contracts.

Not knowing the details of the actual multi-phase project, I can only speculate. You said that it is not possible to define the follow on phase design effort well enough to price now.

I’m guessing that the follow on design phase involves using the initial design somehow. Is the follow on work segregable or integral to the initial design and construction? 

If yes, then how would “some” proceed to obtain design services for those latter phases? 

If no, then you should not be tied to the initial A-E firm.

On 5/28/2019 at 8:50 PM, Desparado said:

Sadly, this is an actual situation. Multiple award IDIQ A&E services contracts.

Desparado, in noticing this thread this morning,  I'm curious how this was resolved. 

1.  Were you referring to options for follow on periods under the base MATOC ID/IQ contracts, or options for additional services under a specific task order(s)?

2. Note that the government doesn't "award" an A-E  task order until after 1) selection of the A-E and 2) price negotiations for what can be priced. 

3.  You wouldn't award an option for additional services under an ongoing task order until you determine or refine the specific scope and price for the necessary follow on work.

4. If you don't want to mess with "options" in task orders for logical follow-on efforts, you can use the exclusions to fair opportunity in 16.5 to select the same A-E and negotiate a task for the follow-on work. 

5. Bear in mind that one wouldn't logically select another A-E firm to perform non-severable type design services using the original A-E's design. Same goes for "extensions to design" work that are integral to the original design work and that require integration to maintain design integrity (You wouldn't hire Boeing to modify an Airbus plane under construction - same goes for most A-E designs during construction of the designed project).

6.  Bottom line, remember that A-E contracting is not a source selection procedure as prescribed in parts 13, 14, or 15 .  Subpart 17.2—Options does NOT apply to A-E  contracts.  A-E selection and contracting uses a statutory, "quality based selection" process (no price competition), as described in Part 36.6. Using options for additional services in an A-E ID/IQ task order or options for additional ID/IQ ordering periods is for the purpose of defining the extent of the scope of the original QBS competition, not necessarily for upfront pricing purposes.

On 5/20/2019 at 2:26 PM, Retreadfed said:

.Why do you need options for this contract type [A-E services]?  Why not just issue a contract with an ordering period that covers the entire period of performance?

Retread, I'd say that you don't want to tie yourself to every A-E pool member for the full contract order period if one or more are not perfuming well. Options are unilateral choices to make

joel hoffman said:

. . . if one or more are not perfuming well.

Sometimes I suffer from this. Please try to be understanding if you can.

On 10/30/2019 at 8:12 AM, joel hoffman said:

Desparado, in noticing this thread this morning,  I'm curious how this was resolved. 

1.  Were you referring to options for follow on periods under the base MATOC ID/IQ contracts, or options for additional services under a specific task order(s)?

2. Note that the government doesn't "award" an A-E  task order until after 1) selection of the A-E and 2) price negotiations for what can be priced. 

3.  You wouldn't award an option for additional services under an ongoing task order until you determine or refine the specific scope and price for the necessary follow on work.

4. If you don't want to mess with "options" in task orders for logical follow-on efforts, you can use the exclusions to fair opportunity in 16.5 to select the same A-E and negotiate a task for the follow-on work. 

5. Bear in mind that one wouldn't logically select another A-E firm to perform non-severable type design services using the original A-E's design. Same goes for "extensions to design" work that are integral to the original design work and that require integration to maintain design integrity (You wouldn't hire Boeing to modify an Airbus plane under construction - same goes for most A-E designs during construction of the designed project).

6.  Bottom line, remember that A-E contracting is not a source selection procedure as prescribed in parts 13, 14, or 15 .  Subpart 17.2—Options does NOT apply to A-E  contracts.  A-E selection and contracting uses a statutory, "quality based selection" process (no price competition), as described in Part 36.6. Using options for additional services in an A-E ID/IQ task order or options for additional ID/IQ ordering periods is for the purpose of defining the extent of the scope of the original QBS competition, not necessarily for upfront pricing purposes.

Joel,

Sorry it's taken me a bit to get back to you... life and all..

Sadly, I lost and we are having to develop IGEs for work that we can't even define yet (both later-to-be-funded tasks and options) as the powers that be are convinced that if we don't we will have "unpriced options" that essentially are sole-source task orders.  So now we develop an IGE with our assumptions, get a cost proposal from the most highly qualified contractor and negotiate.

I totally concur on all your other comments.

Good luck!

Remember, if you use FAR Subpart 17.2 for A&E—like many do—you may be required to follow FAR Subpart 17.2 procedures.

“While FAR Subpart 17.2 by its terms does not apply to construction contracts, we conclude that the agency is bound to follow the procedures of FAR § 17.208 once, as here, it incorporates either clause (FAR §§ 52.217-4 or 52.217-5) providing for evaluation of options. See Foley Co., B-245536, Jan. 9, 1992, 92-1 CPD ¶ 47 at 4 n.2.“

It’s best you write your own option clauses if you don’t want to be bound to the Subpart.

Jamaal,  it’s not a price competition nor is it a construction contract. It is a quality based A/E selection. There is no competitive price evaluation for selection of an A/E firm for a base ID/ IQ, for a task task or for a single award project design using the Brooks Act procedures.

I think that has been made clear here several times. 

Options in an A/E contract are merely a method for the government to decide whether or not to use the A/E firm for additional services for the project or for additional ordering periods on a base ID/IQ pool. 

One wouldn’t order additional services until prices are negotiated or otherwise known and agreed to. Additional services would be within the scope of the original contract QBS and within the scope of a task order.