Preliminary and Written Notice Under 52.217-9

1. Yes.  See FAR 1.602.  There could be others I guess above the CO like Head of Agency but no lower than CO unless the CO delegated that person such authority which would be very unusual.

2. Yes by my read as long as the 60 days was met.  No reference so others might substantiate a different view but for me the wording suggests the minimum or in other words not something less than five days.

3. Verification to ensure understanding.  No doubt there is some case law behind the wording since it is straight from the FAR.

Sunstrider said:

a) The Government may extend the term of this contract by written notice to the Contractor within 5 days...

If I may, I would like to piggyback on this topic. Specifically this sentence portion. To those knowledgable professionals that do post a response, could you please tell me what "within 5 days" means to you? Within 5 days of what? Personally I would not accept such a contract clause as written. I don't understand this portion of it and I consider it critical to understand. Since  this is  FAR clause that has been around a long time, I am going to assume I don't know what it means out of my lack of experience with this clause. Thanks.

Sunstrider said:

1. Does the person providing preliminary notice have to be the CO?

2. If the Government exercises the option via written notice "early", say 10 days prior to contract expiration, is said option exercise invalid??

3. Why was paragraph b necessary in this clause? If a contract is extended, aren't existing terms and conditions in the conformed contract incorporated by default?

1. Probably not.  I know that in practice, in the civilian agencies I am familiar with, the CO rarely sends out these preliminary notices.  A Contract Specialist or Admin usually sends the notice on behalf of the CO.  These folks might have some delegated CO authority or something though.  But it is 'intent'- its not binding.

2. No, I don't think so.  I interpret that sentence as meaning 5 days is the minimum period between receipt of the option exercise and when the contractor is responsible for work (under the extended term).  I consider the 'within 5 days' statement a way of preventing this: The CO sends an option exercise at 11:58 PM the day the contract expires, and expects the contractors to show up at 8 AM the next day.  Could be wrong though.

3. I think the intent of this sentence is to (indirectly) confirm that the clause can be used repeatedly to extend the term (up to the limit of para c).  The alternative would be an interpretation of the clause where the term can be extended only one time.

Paragraph (a), first sentence is poorly written and ambiguous, upon initial read. 

“Within 5 days” of what?

The Cambridge Diction defines the preposition “within” as:

“inside or not beyond (a particular area, limit, or period of time)”.

so from 0-5 days from (?) is within five days of the completion period? Within five days of the start of the option period? Or is five days supposed to be the minimum notice period before ( ?): “at least five days before...”

Should it say:

“The Government may extend the term of this contract by written notice to the Contractor at least 5 days before [?],  provided that the Government gives the Contractor a preliminary written notice of its intent to extend at least 60 days before the contract expires.

I agree with Neil and Joel.  The clause is so poorly worded that it might not be enforceable because there was no meeting of the minds over what it meant.

Yeah, this clause, which I've used at least a hundred times, sucks, now that I am reading it carefully.  Here is better....you listening FAR Council?

Option to Extend the Period of Performance (Jul 2019)

(a) The Government may  extend the period of performance of this contract through the unilateral exercise of options under this clause, if two conditions are met:

 1) The Government gives to the Contractor notice that the option has been exercised at least 5 days before the contract expires, and

 2) The Government gives to the Contractor preliminary written notice its intent at least 60 days before the contract expires.

(b) If these two conditions are not met, the option may be exercised only through a bilateral contract modification (supplemental agreement).

(c) The total period of performance of this contract, including all extensions, shall not exceed 60 months.

General.Zhukov said:

Yeah, this clause, which I've used at least a hundred times, sucks, now that I am reading it carefully.  Here is better....you listening FAR Council?

Option to Extend the Period of Performance (Jul 2019)

(a) The Government may  extend the period of performance of this contract through the unilateral exercise of options under this clause, if two conditions are met:

 1) The Government gives to the Contractor notice that the option has been exercised at least 5 days before the contract expires, and

 2) The Government gives to the Contractor preliminary written notice its intent at least 60 days before the contract expires.

(b) If these two conditions are not met, the option may be exercised only through a bilateral contract modification (supplemental agreement).

(c) The total period of performance of this contract, including all extensions, shall not exceed 60 months.

FAR 2.101 defines "option" as a "unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract." As such, I'd revise the terms used to produce the following:

Option to Extend the Period of Performance (Jul 2019)

(a) The Government may  extend the period of performance of this contract through the exercise of options under this clause, if two conditions are met:

 1) The Government gives to the Contractor notice that the option has been exercised at least 5 days before the contract expires, and

 2) The Government gives to the Contractor preliminary written notice its intent to exercise the option at least 60 days before the contract expires.

(b) If the conditions in (a) are not met, the term of the contract may be be extended to the next option only through a bilateral contract modification (supplemental agreement).

(c) The total period of performance of this contract, including all extensions, shall not exceed 60 months.

If you agree with this, here's my next question. When bilaterally signing due to untimely notices, does one cite 52.217-9 in Block 13D?

General.Zhukov said:

2. No, I don't think so.  I interpret that sentence as meaning 5 days is the minimum period between receipt of the option exercise and when the contractor is responsible for work (under the extended term).  I consider the 'within 5 days' statement a way of preventing this: The CO sends an option exercise at 11:58 PM the day the contract expires, and expects the contractors to show up at 8 AM the next day.  Could be wrong though.

I see. If this is the true intent of the clause, then there's the heads-up provided with the preliminary notice of intent, and then there's actual exercise of the option which requires a minimum lead time for the Contractor to duly maintain continuous performance. This seems very reasonable, especially since the timeliness requirements of these notices are always tailored/negotiated up front... 👍

Sunstrider said:

FAR 2.101 defines "option" as a "unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract." As such, I'd revise the terms used to produce the following:

Option to Extend the Period of Performance (Jul 2019)

(a) The Government may  extend the period of performance of this contract through the exercise of options under this clause, if two conditions are met:

 1) The Government gives to the Contractor notice that the option has been exercised at least 5 days before the contract expires, and

 2) The Government gives to the Contractor preliminary written notice its intent to exercise the option at least 60 days before the contract expires.

(b) If the conditions in (a) are not met, the term of the contract may be be extended to the next option only through a bilateral contract modification (supplemental agreement).

(c) The total period of performance of this contract, including all extensions, shall not exceed 60 months.

If you agree with this, here's my next question. When bilaterally signing due to untimely notices, does one cite 52.217-9 in Block 13D?

Well that scenario would be covered by the reworded clause entitled “option to extend the period of performance”. So yes.

General.Zhukov said:

you listening FAR Council?

Maybe you dont need the FAR Councils nod.....

https://www.gao.gov/mobile/products/448540

On 7/19/2019 at 10:39 AM, Neil Roberts said:

If I may, I would like to piggyback on this topic. Specifically this sentence portion. To those knowledgable professionals that do post a response, could you please tell me what "within 5 days" means to you? Within 5 days of what? Personally I would not accept such a contract clause as written. I don't understand this portion of it and I consider it critical to understand. Since  this is  FAR clause that has been around a long time, I am going to assume I don't know what it means out of my lack of experience with this clause. Thanks.

As written, I would say it means within 5 days of the preliminary written notice.

Jamaal Valentine said:

As written, I would say it means within 5 days of the preliminary written notice.

Hmmm, more indication of an ambiguity... 

i personnally don’t think that is a logical interpretation.  There would seldom be  funding available 2 months (55 days) prior to  contracts renewing on or soon after the start of the next FY.

On 7/18/2019 at 6:39 PM, Neil Roberts said:

could you please tell me what "within 5 days" means to you? Within 5 days of what?

Thanks, all. I think I got the picture!

1 a) Before tossing away any use of "within" in the option clause 52.217-9, consider the possibility of exercising an option after contract completion date: see FAR 17.204 paragraphs b through d:

"(b) The contract shall state the period within which the option may be exercised.

(c) The period shall be set so as to provide the contractor adequate lead time to ensure continuous production.

(d) The period may extend beyond the contract completion date for service contracts. This is necessary for situations when exercise of the option would result in the obligation of funds that are not available in the fiscal year in which the contract would otherwise be completed."

A mistaken conception of "contract expiration" could contribute to the loss of this as an authorized  flexibility, especially if experimental edits of the -9 clause become popular...why voluntarily surrender territory already given us by regulation?

Note: Vern Edwards advised in an earlier Forum discussion concerning contract expiration:

"Contracts don't have expiration dates. Contracts have (1) a delivery date, (2) a completion date, or (3) a period of performance. (In addition, an IDIQ contract has an ordering period.) Contracts do not "expire" until all obligations of both parties have been fulfilled."

On 7/19/2019 at 7:29 PM, joel hoffman said:

(b) If the conditions in (a) are not met, the term of the contract may be be extended to the next option only through a bilateral contract modification (supplemental agreement).

FAR-flung, the proposed paragraph (b) above should cover the situation you are referring to - but would require mutual agreement.

The contractor might have demob and mob costs or other impacts, such as loss or re-assignment of personnel due to a break/delay.  At that point, it should be up to the contractor to accept or decline to continue performance at the previously agreed price. The government should not have a unilateral right to force continued performance after a break or delay in performance.

No need to over complicate the clause. Either way, there should be a nexus between the end of performance period and bilaterally extending performance, like, for example,  “as soon as possible after receipt of funds intended for continuation of the previous effort”.

And yes, one would cite the option clause as the authority, because the situation would be covered under that clause. 

The language you proposed would allow the government unilaterally to delay the continuation without regard for any impact on the contractor or it’s employees of a break in performance. The contractor should be allowed to make a business decision whether or not to absorb any related cost or personnel impacts if it agrees to resume performance at the agreed price.

On 7/20/2019 at 9:18 PM, joel hoffman said:

Hmmm, more indication of an ambiguity... 

i personnally don’t think that is a logical interpretation.  There would seldom be  funding available 2 months (55 days) prior to  contracts renewing on or soon after the start of the next FY.

Where is 'fiscal year' mentioned in the option language or in the post for that matter? The option clause gives a timeline for a preliminary written notice (at least 60 days before the contract expires).

What does within 5 days mean, biases aside, based on the clause as written above? Within 5 days of what? (we both know what training and experience says it's supposed to mean)

Logical: expected or sensible under the circumstances.

On 7/18/2019 at 7:47 PM, Sunstrider said:

Option to Extend the Term of the Contract (Mar 2000)

1. (a) The Government may extend the term of this contract by written notice to the Contractor within 5 days 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.

So, is your interpretation below that the clause says that the government can only extend the contract within 5 days of giving the written notice? The Preliminary notice must be made at least 60 days prior to the end of the current period of performance.

So that interpretation appears to mean that the government could only extend the term of the contract (by exercising an option) between 55-60 days before the contract expires. 

That is illogical to me. It would require funding to be available  55-60 days prior to the next period. 

On 7/20/2019 at 7:00 AM, Jamaal Valentine said:

As written, I would say it means within 5 days of the preliminary written notice.

The clause doesn’t commit the government to extend the contract, which is logical, if there is no funding yet available. Your interpretation would only allow five days from the preliminary notice to fund and exercise the option. . 

It would seem logical for the clause to provide for a preliminary notice and a window between that and five days before expiration of the performance period to exercise the option with funding for (at least part of ?) the next period. 

That would allow the contractor to plan ahead for continuation but allow the government some time to obtain funding. If no award before five days remains, the contractor would have (a little) time to plan for the end of the contract performance and beyond.

That’s just my reading interpretation of the apparent intent of that paragraph of the clause.  But “within five days” of the end of the performance period means 0-5 days- not “at least five days”. Allowing an extension to be made only between 0-5 days before the end doesn’t make sense, either.

Thus, though not as written, the only logical interpretation would seem to me to be “at least five days before expiration”.

The same language exists in 52.217-8 and always causes issues as some feel that you have to wait "within" 30 days (or whatever number you put in the blank) to exercise that clause, and others feel that it has to be prior to that time frame. Legalese and English are not synonymous.

Desparado said:

The same language exists in 52.217-8 and always causes issues as some feel that you have to wait "within" 30 days (or whatever number you put in the blank) to exercise that clause, and others feel that it has to be prior to that time frame. Legalese and English are not synonymous.

desparado, the clause at 52.217-8 is set up for the writer to define the period, not just fill in the number of days.

And here is the policy for including the two clauses: 

“17.204 -- Contracts.

(a) The contract shall specify limits on the purchase of additional supplies or services, or the overall duration of the term of the contract, including any extension.

(b) The contract shall state the period within which the option may be exercised.

(c) The period shall be set so as to provide the contractor adequate lead time to ensure continuous production.

(d) The period may extend beyond the contract completion date for service contracts. This is necessary for situations when exercise of the option would result in the obligation of funds that are not available in the fiscal year in which the contract would otherwise be completed.

(e) Unless otherwise approved in accordance with agency procedures, the total of the basic and option periods shall not exceed 5 years in the case of services, and the total of the basic and option quantities shall not exceed the requirement for 5 years in the case of supplies. These limitations do not apply to information technology contracts. However, statutes applicable to various classes of contracts, for example, the Contract Labor Standards statute (see 22.1002-1), may place additional restrictions on the length of contracts.”

(I'm going to check out the actual FAR clause language for the 52.217-9 clause) and then edit if necessary) 

EDIT:  see below plus the bolded paragraph above.  All of our criticism of the FAR clause and suggested rewrites were unnecessary!   Geeze!!!!!!!!

Ok, duh, well dummy me for assuming that the wording in the original post was the actual wording in the FAR clause!!!!!!!!!

Here it is: 

“52.217-9 -- Option to Extend the Term of the Contract.

As prescribed in 17.208(g), insert a clause substantially the same as the following:

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 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. 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 ___________ (months)(years).

(End of Clause)”

The FAR isn’t ambiguous!  The original post is ambiguous.  The spec writer has to define the period,  not just state a number of days!!!

I guess that sunstrider was referring to language in a specific contract.

I’m sorry that I wasted my time and others’ time on this thread.

joel hoffman said:

I’m sorry that I wasted my time and others’ time on this thread.

You didn't waste my time. I never noticed the language at FAR 17.204(d).

joel hoffman said:

I’m sorry that I wasted my time and others’ time on this thread.

I don't see that this discussion has been a waste of time.  Sunstrider brought up a good point, i.e., contractors cannot rely on the government to know what it is doing when writing contracts.  You might be surprised how many contractors, particularly small business concerns, get in trouble because they trusted the government when entering into a contract.

52.217-9(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];…” 

Examples of fill-ins and their proper interpretations:

“the contract’s ordering period” – the option could be exercised as long as the contract’s ordering period had not expired.

“the contract’s performance period” – the option could be exercised as long as the contract’s period of performance had not passed.

“one month following the final performance period” – the option could be exercised up to one month following the contract’s final performance period.

“one year” –  the option could be exercised within one year of the date the 52.217-9 clause was included in the contract.

“five years” – the option could be exercised within five years of the date the 52.217-9 clause was included in the contract.

“five days” – the option could be exercised within 5 days of the date the 52.217-9 clause was included in the contract.

On ‎7‎/‎19‎/‎2019 at 2:34 PM, Retreadfed said:

The clause is so poorly worded

The clause isn't poorly worded.  COs just don't know how to interpret it properly.

joel hoffman said:

The FAR isn’t ambiguous!...The spec writer has to define the period,  not just state a number of days!!!

Exactly.  I was taught to put "90 days" in the first fill-in and did so for years.  I trusted the initial guidance but, in hind sight, should have questioned it.  I suspect I'm not alone.

jwomack said:

Exactly.  I was taught to put "90 days" in the first fill-in and did so for years.  I trusted the initial guidance but, in hind sight, should have questioned it.  I suspect I'm not alone.

90 days before, during or after what?

jwomack said:

52.217-9(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];…” 

Examples of fill-ins and their proper interpretations:

“the contract’s ordering period” – the option could be exercised as long as the contract’s ordering period had not expired.

“the contract’s performance period” – the option could be exercised as long as the contract’s period of performance had not passed.

“one month following the final performance period” – the option could be exercised up to one month following the contract’s final performance period.

“one year” –  the option could be exercised within one year of the date the 52.217-9 clause was included in the contract.

“five years” – the option could be exercised within five years of the date the 52.217-9 clause was included in the contract.

“five days” – the option could be exercised within 5 days of the date the 52.217-9 clause was included in the contract.

17.204 (c) says:” The period shall be set so as to provide the contractor adequate lead time to ensure continuous production.” 

One can’t simply write anything they want, without considering how to provide the contractor adequate lead time to ensure continuous production .  

One shouldn’t simply insert a number of days, without providing context to those days and without providing adequate lead time.

joel hoffman said:

17.204 (c) says:” The period shall be set so as to provide the contractor adequate lead time to ensure continuous production.” 

One can’t simply write anything they want, without considering how to provide the contractor adequate lead time to ensure continuous production .  

One shouldn’t simply insert a number of days, without providing context to those days and without providing adequate lead time.

In government employees’ zeal to provide maximum flexibility to the government to exercise an option, they need to remember to consider how the contractor can plan for continuation and how to price their proposal to cover themselves if the government waits til it affects the contractors’ cost or employee retention to exercise an option. 

Contractor employees have needs too, for you to consider.

jwomack said:

The clause isn't poorly worded.  COs just don't know how to interpret it properly.

The clause quoted by Sunstrider is poorly worded as demonstrated by this discussion.  The poor wording may be a consequence of contracting officers not knowing how to complete the clause or pure ineptitude.

joel hoffman said:

In government employees’ zeal to provide maximum flexibility to the government to exercise an option, they need to remember to consider how the contractor can plan for continuation and how to price their proposal to cover themselves if the government waits til it affects the contractors’ cost or employee retention to exercise an option. 

Contractor employees have needs too, for you to consider.

I think FAR 17.207 gets overlooked too!

Retreadfed said:

The clause quoted by Sunstrider is poorly worded as demonstrated by this discussion.  The poor wording may be a consequence of contracting officers not knowing how to complete the clause or pure ineptitude.

Yes , a lack of knowledge of business practices. I thought that KO’s are supposed to have a business education background . Sheesh.

Given the definition of Option at FAR 2.1:

"Option” means a unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract."

Who here thinks an option can be exercised bilaterally? 

If so, what is your reasoning?

."Please define “exercise”. Thanks. 

EDIT:

An “option” provides the government a unilateral right, for a specified time, to elect to [or elect not to] purchase additional supplies or services called for by the contract, or [an option may provide the government a unilateral right to elect to or elect not] to extend the term of the contract.

However, if there has been a change or economic price adjustment applies, or some other factor requires a “”change” to the price or the work, etc. the parties may or should bilaterally agree to the change or adjustment. See for instance, FAR 17.207(b). 

See, for example:

”52.217-6   Option for Increased Quantity.

As prescribed in 17.208(d), insert a clause substantially the same as the following:

Option for Increased Quantity (MAR 1989)

The Government may increase the quantity of supplies called for in the Schedule at the unit price specified. 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 the added items shall continue at the same rate as the like items called for under the contract, unless the parties otherwise agree.

(End of clause)”

See, for example:

“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:

Option for Increased Quantity—Separately Priced Line Item (MAR 1989)

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.

(End of clause)”

Thanks Joel...

Let's try this definition of exercise: "choose to implement".

So... my takeaway is that the government may exercise it's option (unilateral right) to extend at the stated terms,  or may enter into a bilateral agreement according to (a) new term(s)...We kind of knew that latitude already, didn't we? Well, in this firmat it may provide cover under Competition in Contracting Act.

So, Joel, please remember you didn't yet answer the question...can an option be exercised bilaterally?

FAR-flung 1102 said:

can an option be exercised bilaterally?

Yes.  In order for an option to be exercised unilaterally, it must be exercised in precise conformity with the terms of the option.  If the government fails to exercise an option in that way, it is in material breach of the contract relieving the contractor from any further obligation to perform.  However, the contractor can waive this material breach and perform the option.  However, in this case, the contractor can receive consideration (an equitable adjustment) as compensation for waiving the material breach.  This waiver and adjustment are evidenced by a bilateral modification to the contract.

I have seen in 52.217- 6 and -7:

-".......within no less than 60 days of the end of the period of performance...."

-"........within one year after contract award......."

jwomack and sjanke,

Yes, the first fill-in is supposed to be a period of time.

Retreadfed said:

Yes.  In order for an option to be exercised unilaterally, it must be exercised in precise conformity with the terms of the option.  If the government fails to exercise an option in that way, it is in material breach of the contract relieving the contractor from any further obligation to perform.  However, the contractor can waive this material breach and perform the option.  However, in this case, the contractor can receive consideration (an equitable adjustment) as compensation for waiving the material breach.  This waiver and adjustment are evidenced by a bilateral modification to the contract.

Yes, I also agree. In addition, the government can choose to implement it bilaterally as I described above, with changes as needed. But not reprice it for market conditions, etc.*

* Can the contractor offer a voluntary price reduction for say, supplies that the government can purchase elsewhere for less, in order not to lose the option?

Retreadfed said:

If the government fails to exercise an option in that way, it is in material breach of the contract

Failing to exercise an option is not a material breach of the contract.

jwomack said:

Failing to exercise an option is not a material breach of the contract.

Let me be clear.  If the government attempts to exercise an option in a way that is not in strict compliance with the terms of the contract, that is a material breach.

What you're describing is not a breach of contract nor material breach.  Both of those terms, as defined by Black's Law, imply there was a violation of a contractual obligation.

"Exercising an option in a way that is not in strict compliance with the terms of the contract" is not, in fact, exercising an option; it's a non-binding offer to change the terms of the contract.  That offer can be ignored/rejected, accepted, or counter-offered.

jwomack said:

What you're describing is not a breach of contract nor material breach.

See, CTA, Inc., ASBCA No. 47062 00-2BCA 30,947 and White Sands Construction, Inc., ASBCA No. 51875,54029 (16 April 2004).

joel hoffman said:

Can the contractor offer a voluntary price reduction for say, supplies that the government can purchase elsewhere for less, in order not to lose the option?

Yes.

Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d at 323 “option exercise must be unconditional and in exact accord with terms of contract being renewed”

Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999) “attempt to exercise an option outside its terms does not constitute a valid exercise of option”)

Black’s Law 10th.  Breach of contract.  “Violation of a contractual obligation by failing to perform one’s own promise, by repudiating it, or by interfering with another party’s performance”

Black’s Law 10th.  Material breach.  “A breach of contract that is significant enough to permit the aggrieved party to elect to treat the breach as total (rather than partial), thus excusing that party from further performance and affording it the right to sue for damages”

ji20874 said:

Yes.

Even when it is a unilateral exercise of the option?   If bilateral would it not be a renegotiation of the contract terms and therefore not a exercise of option?  Reference please to support the "Yes" as I am very interested in how it could happen.

From FAR subpart 17.207(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;"

C Culham said:

Even when it is a unilateral exercise of the option?   If bilateral would it not be a renegotiation of the contract terms and therefore not a exercise of option?  Reference please to support the "Yes" as I am very interested in how it could happen.

From FAR subpart 17.207(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;"

jwomack said:

Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d at 323 “option exercise must be unconditional and in exact accord with terms of contract being renewed”

Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999) “attempt to exercise an option outside its terms does not constitute a valid exercise of option”)

Black’s Law 10th.  Breach of contract.  “Violation of a contractual obligation by failing to perform one’s own promise, by repudiating it, or by interfering with another party’s performance”

Black’s Law 10th.  Material breach.  “A breach of contract that is significant enough to permit the aggrieved party to elect to treat the breach as total (rather than partial), thus excusing that party from further performance and affording it the right to sue for damages”

My question related to a bilateral agreement resulting from a voluntary price reduction offered to avoid losing the option when the government’s required market research before exercising an option reveals that current pricing would be more advantageous than the option prices. .

i quickly scanned through my old 3rd edition of Formation of Government Contracts yesterday. I didn’t have time to search for the referenced decisions but it appeared that the GAO may question a voluntary price reduction under the Competition in Contracting Act as affecting the Scope of the Competition. Too busy today to research it. From reading some other articles, I doubt that the GAO would rule for the government in a Protest by another original competitor or by industry. I think it would be considered out of scope, under the circumstances (the reason for the price reduction). 

Having said that, my gut feeling is that a contractor could offer a voluntary price reduction, provided that the motive isn’t based upon influencing the government to award an option. 

But - I’m not talking about a unilateral “exercise” of an option. Strictly bilateral - the issue is one of in-scope or out-of-scope.

What if the Government fails to provide notification prior to 60 days before the end of the current contract period (FAR 52.217-9)? What recourse, if any, does the contractor have? At day 59, can the Contractor reject the exercise of the option period? Does it become bilateral within that 60-day window?

jwomack said:

Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d at 323 “option exercise must be unconditional and in exact accord with terms of contract being renewed”

Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999) “attempt to exercise an option outside its terms does not constitute a valid exercise of option”)

Black’s Law 10th.  Breach of contract.  “Violation of a contractual obligation by failing to perform one’s own promise, by repudiating it, or by interfering with another party’s performance”

Black’s Law 10th.  Material breach.  “A breach of contract that is significant enough to permit the aggrieved party to elect to treat the breach as total (rather than partial), thus excusing that party from further performance and affording it the right to sue for damages”

What's your point?  Nothing you have said here is inconsistent with an exercise of an option that is not in strict compliance with the terms of the contract being a material breach of a contract that excuses the contractor from performing in accordance with the invalid exercise of the option.  In this regard, the government has promised the contractor that any exercise of an option will be done as stated in the contract.  An attempted exercise of an option that is not in accordance with the process described in the contract is a failure to perform in accordance with that promise.

Retreadfed said:

What's your point?  Nothing you have said here is inconsistent with an exercise of an option that is not in strict compliance with the terms of the contract

You cannot "exercise an option that is not in strict compliance with the terms of the contract".  It's impossible and contradictory to the definition of what exercising an option means.  See the Lockheed and Alliant citations provided above.

joel hoffman said:

But - I’m not talking about a unilateral “exercise” of an option. Strictly bilateral - the issue is one of in-scope or out-of-scope.

Much in same context of jwomacks comments.  Options as discussed in the FAR are a unilateral right,  unless so stated in a contract that it shall be bilateral.  As such I believe your comment noted above is off base from the standpoint that I have never seen nor do I believe the FAR guidelines support anything other than the government having a unilateral option right.

Edited to add - Bilaterally the government and a contractor can do anything to a contract bilaterally (mutual agreement) even if out of scope as long as the government adheres to a process consistent in doing so  pursuant to CICA.

jwomack said:

You cannot "exercise an option that is not in strict compliance with the terms of the contract".

You mean that the government cannot properly exercise an option other than in strict compliance with the terms of the contract.  However, the government will sometimes issue a modification to a contract purporting to exercise an option.  However, that purported exercise of an option has not been accomplished in accordance with the terms of the contract.  In that case, the contractor has a problem.  Does it comply with the purported exercise of the option without objection, comply after objecting and seek an adjustment to the contract price, or does it refuse to perform at all.  If it does either of the first two, what is the basis upon which the government can accept and pay for such performance?

C Culham said:

Much in same context of jwomacks comments.  Options as discussed in the FAR are a unilateral right,  unless so stated in a contract that it shall be bilateral.  As such I believe your comment noted above is off base from the standpoint that I have never seen nor do I believe the FAR guidelines support anything other than the government having a unilateral option right.

Edited to add - Bilaterally the government and a contractor can do anything to a contract bilaterally (mutual agreement) even if out of scope as long as the government adheres to a process consistent in doing so  pursuant to CICA.

Not sure of your point but the government has the unilateral right whether or not to add work or time that is addressed in an option. The contractor normally has no choice to decline as long as there are no changes to the terms and conditions. 

There may be circumstances (some of which ARE addressed in the FAR as I explained earlier) where the parties should or must bilaterally agree to adjustments for various reasons but not to “repricing”. The government doesn’t have the unilateral right to “exercise” an option that is different than that which was proposed, evaluated and accepted in a competitively awarded proposal. 

Yes- of course- if the ultimately added work or period is out of scope of the contract or scope of competition, an exception from full and open competition pursuant to CICA is necessary and requires a supplemental agreement.

I do believe that the parties may institute in scope changes to future optional line items.  Then the government can exercise those already modified options at the appropriate time.

For instance, if an in-scope change will affect every option year’s efforts similarly, the parties would be wise to implement the change to all of the affected option CLINs, rather than having to implement the same change each time an option is exercised.

Thus, the key is whether or not the change is “in-scope” or not.

joel hoffman said:

I do believe that the parties may institute in scope changes to future optional line items

Agree.  See, Glascow Investigative Solutions, Inc. ASBCA No. 58111 (9 April 2013).

On ‎7‎/‎22‎/‎2019 at 2:13 PM, joel hoffman said:

17.204 (c) says:” The period shall be set so as to provide the contractor adequate lead time to ensure continuous production.” 

One can’t simply write anything they want, without considering how to provide the contractor adequate lead time to ensure continuous production .  

One shouldn’t simply insert a number of days, without providing context to those days and without providing adequate lead time.

I feel the most overlooked FAR reference is the very next line which is:

(d)  The period may extend beyond the contract completion date for service contracts.  This is necessary for situations when exercise of option would result in the obligation of funds that are not available in the fiscal year in which the contract would otherwise be completed. 

That not really contradicts but defeats the intent of (c) but is required with fiscal year service contracts.  So many exercise options contingent on availability of funds which to me is an invalid exercise.  How can you unequivocally exercise an option that is based on a future event (the availability of funds).

Does one use another authority besides 52.217-9??