Option items – Any one of the following option items may be awarded depending on available funding.

* * * * *

Pricing shall reflect the full scope of each optional item and shall represent only that line item in the event it is exercised at the time of award.

IFB at 5.

The protester also notes that the question and answer issued by the VA in IFB amendment No. A00002 stated that “The Government[’]s intent is to award the base bid and any or all of the option bids at time of award.” IFB amend. No. A00002, at 2.

We agree with Glen Mar that the IFB created the potential for confusion as to whether the VA intended to evaluate bids based on the price of the base bid and any options that were exercised at the time of award, or based on the price of the base bid and all of the options. Specifically, while the language discussed above indicated that the agency intended to award the base bid and other options at the time of award, the solicitation also included FAR clauses which stated that the agency would evaluate all option prices, and reserved the agency’s right to exercise options in the price schedule up to 120 days after award.

We conclude, however, that any such conflict was obvious on the face of the solicitation. In this regard, the question and answer provided to bidders by the VA squarely raised the question as to whether “the price evaluation [will] be based on the total price of base + all options?” IFB amend. No. A00002, at 2. The agency’s response did not clearly resolve the issue, as the agency merely advised that “[t]he Government[’]s intent is to award the base bid and any or all of the option bids at time of award,” and did not specifically address how the price evaluation would be conducted. Id. Moreover, the response did not specifically address whether the agency could, in light of FAR clause 52.217-7, subsequently exercise any options that were not included in the award.

On this record, we conclude that even if the solicitation was ambiguous as to the basis upon which the agency would evaluate bidders’ prices, any such ambiguity was patent. We therefore dismiss the protester’s challenge as untimely. See Simont S.p.A., supra. As set forth below, however, the record here shows that at the time of award, the agency knew with reasonable certainty that it would not have sufficient funds to exercise all, or even most, of the additive optional items identified in this solicitation. As a result, the agency could not reasonably continue with the plan, stated in its solicitation, to include the price for all of the options in determining the lowest-priced bidder.

When an agency uses the sealed bidding procedures of FAR part 14, the agency must award the contract to “the responsible source whose bid conforms to the solicitation and is most advantageous to the Federal Government, considering only price and the other price-related factors included in the solicitation.” 41 U.S.C. § 3702(b); see also John C. Grimberg Co., B 284013, Feb. 2, 2000, 2000 CPD ¶ 11 at 3 (noting that 41 U.S.C. § 3702 requires “that a determination of the low bid must be measured by the actual work to be contracted for; otherwise award cannot be said to have been made to the lowest bidder.”) As discussed above, if an agency includes FAR clause 52.217-5 in a solicitation, the agency must evaluate the price of all options unless “it is determined in accordance with FAR § 17.206(b) not to be in the Government’s best interests.” FAR clause 52.217-5; Marshall Co., Ltd., supra, at 2. The FAR explains that, “[a]n example of a circumstance that may support a determination not to evaluate offers for option quantities is when there is reasonable certainty that funds will be unavailable to permit exercise of the option.” FAR § 17.206(b). Our Office has held that where an agency includes FAR clause 52.217-5 in a solicitation, it should not base its price evaluation on options that the agency knows with “reasonable certainty” it will not exercise. Kruger Constr., Inc., B‑286960, Mar. 15, 2001, 2001 CPD ¶ 43 at 5; Charles J. Merlo, Inc., B 277384, July 31, 1997, 97-2 CPD ¶ 39 at 3.

Here, the VA states that the budget for the entire primary care building construction project was $9.3 million. Decl. of Agency Chief of Projects and Operations (Oct. 31, 2014) ¶ 6. Included within this budget was $7,870,000 for construction, $1.03 million for design and impact, and $400,000 for contingency. Id. The VA explains that at the time of award, based on unused design and impact funds, the agency had $7,996,000 available for construction, as well as $400,000 for contingency, which potentially could be used for additional construction costs depending on the volume of contract changes during construction. Id. ¶ 8. In summary, the Chief of Projects and Operations explains that the agency “had a potential $8,396,000 available in construction in contingency costs for this operation.” Id. As set forth above, Hanke’s bid for the base construction and all nine additive options was $9,036,214, while Glen Mar’s bid for the base construction and all nine additive options was $9,039,186. As a result, the VA faced a shortfall of more than $600,000 to procure additive options that ranged in prices (from Hanke and Glen Mar) from $20,003 to $23,032 (option 6, window blinds for all outside windows) to $333,938 to $372,161 (option 3, a cover for the crosswalk from the new building to a nearby building). Despite this shortfall, the agency asserts that it was reasonable to evaluate price by adding the price for the base bid and the prices for all options. We do not agree.

We conclude that the VA did not have a reasonable basis for using the base construction price, and the bid price for all nine additive options to conclude that Hanke was the lowest-priced bidder, as required by FAR part 14 and the IFB, and sustain the protest on this basis. As the record reflects, the agency knew with reasonable certainty that it did not have the funding to award all of the options. As stated above, the Contracting Officer determined that the VA only had funds available to award the base bid and option 1. AR at 2. Although the agency states that it had the potential to use an additional $400,000 to award one or some of the remaining options if the contingency funds became available, Decl. of Agency Chief of Projects and Operations (Oct. 31, 2014) ¶ 9, the agency knew that this additional money would not be sufficient to award all of the remaining options. Accordingly, the agency selected a bidder for award based on the prices of options the agency knew with reasonable certainty it could not exercise. See Kruger Constr., Inc., supra. In so doing, the agency relied upon an evaluation scheme which made it impossible for the agency to determine which bid offered the lowest price to the government. See Associated Healthcare Sys., Inc., B-222532, Sept. 2, 1986, 86-2 CPD ¶ 246 at 2 (when using sealed bidding procedures, an award must be based on the lowest cost to the government measured by the actual and full scope of work to be awarded). To the extent the agency believed it might be able to spend an additional $400,000 on the additive options, the VA should have prioritized the remaining options, up to the $400,000 amount, and included the prices for those options in its price evaluation.  (Glen Mar Construction, Inc. B-410603: Jan 14, 2015)  (pdf)

The protester also argues that the agency's consideration of price in the source selection decision, and the determination that an award to NaphCare was in the best interest of the government, were inconsistent with the terms of the solicitation. The protester contends that, although the solicitation stated that "[t]he evaluated price will be inclusive of the base and all option years," RFP at 39, the agency only considered base period pricing in the source selection decision. The protester points out that the source selection decision does not discuss or reflect any awareness of the fact that the price advantages of the protester's proposal increases from the base period of the contract through each of the four option years. Protester's Comments at 9-10, attach. A; Protester's Supp. Comments at 3-4.

In response, the agency notes that its price evaluation documentation references the base and option periods, and it argues that the use of the base year pricing "to provide a foundation for the value of [NaphCare's] [DELETED]" in the tradeoff analysis does not mean that the tradeoff analysis was limited to consideration of only base year pricing. Supp. AR at 3.

Although the source selection decision provides considerable detail with regard to the base year pricing of the evaluated proposals, and some quantification of the value of the NaphCare's evaluated enhancement of an [DELETED], we agree with the protester that the source selection decision reflects a consideration of the proposals' base period pricing only. That is, the source selection decision does not provide any discussion of the proposals' option year pricing, including any recognition that the price advantages of MDI's proposal appears to increase over each of the proposed option periods. Furthermore, the agency has not provided any documentation or statement from, for example, the source selection authority evidencing the consideration of the proposals' option year pricing contemporaneous with the source selection. Given this, and based on our review of the record, we cannot find the agency's source selection to be consistent with the terms of the solicitation. See EEV, Inc., B-261297; B-261297.2, Sep. 11, 1995, 95-1 CPD para. 101 at 3 (failure to base award on option items was contrary to the terms of the solicitation and thus objectionable).  (Medical Development International, Inc., B-402198.2, March 29, 2010)  (pdf)

Staker & Parsons argues that the agency was required to consider the bidders' prices for the option CLINs that the agency awarded, and that, considering the option prices, the protester's overall bid price for Schedule C and for Options W, X and Z is lower than Eagle Peak's, even after application of the HUBZone preference. Staker & Parsons does not dispute that the IFB included the FAR clause that informed bidders that options would not be evaluated, but essentially argues that the agency's incorporation of the clause by reference was ineffective.

Specifically, Staker & Parsons contends that the FAR language requires that the agency "insert a provision in the solicitation" containing language "substantially the same" as the operative language of the clause. In the protester's view, the act of incorporating the clause by reference means the agency did not insert a provision containing substantially similar language. Thus, the protester contends that the failure to include the actual operative words of the clause in the IFB meant that the solicitation failed to inform bidders that award would be based on the schedule prices alone. In short, Staker & Parsons contends that it should have been awarded the contract for Schedule C and Options W, X and Z.

We find no merit to Staker & Parsons's contention that FHwA's incorporation of this standard FAR clause was ineffective, or failed to inform bidders that option prices would not be evaluated. It is a well accepted principle of contract law that when an item is incorporated by reference into a contract or other document, it is not necessary to bodily insert the text of the item itself into the contract or document. See Cober Elecs., Inc., B-173643, Nov. 23, 1971; see also Northrop Grumman Info. Tech., Inc., 535 F.3d 1339, 1343-46 (Fed. Cir. 2008) (providing a lengthy explanation of incorporation by reference in government contracts). In this regard, the FAR provides that provisions and clauses "should be incorporated by reference to the maximum practical extent, rather than being incorporated in full text . . . ." FAR sect. 52.102(a).

Here, as noted above, the IFB identified FAR clause 52.217-3, "Evaluation Exclusive of Options," as applying to this solicitation. Given this express incorporation, bidders were on notice that option prices would not be evaluated. To the extent that the protester believed that option prices should be evaluated or that the solicitation was in someway ambiguous with respect to the evaluation of option prices, such allegations concern alleged apparent solicitation improprieties that the protester was required to raise prior to bid opening. 4 C.F.R. sect. 21.2(a)(1) (2009).  (Staker & Parsons Companies, B-402404.2, March 1, 2010)  (pdf)

Marshall contends that the agency should not have evaluated all of the option prices because the agency did not have a reasonable expectation that it would be able to obtain funding for these options. If all of the options were not evaluated, Marshall asserts, its proposal would have been lower in price and could have been determined to be the best value.  Where, as here, the solicitation includes a provision requiring the evaluation of options, such options must be evaluated “[e]xcept when it is determined in accordance with FAR [sect.] 17.206(b) not to be in the Government’s best interests” to exercise the options. FAR sect. 52.217-5. FAR sect. 17.206(b) provides that it may not be in the government’s best interests to evaluate options “when there is a reasonable certainty that funds will be unavailable to permit exercise of the option.”

Here, the contracting officer states that she fully intended to award the options “as future funds become available” and that there was a “reasonable likelihood” that the options would be exercised, as evidenced by a memorandum she prepared three months before award. Agency Report, Tab 4, Contracting Officer’s Determination for Use of Option, at 1; Tab 9, Contracting Officer’s Affidavit, para. 8. In support of these statements, the contracting officer explains that an additional $2 million has already been made available for options on this project, and she has provided documentation showing “remaining funding authorities and the threshold limits” available for this project. Agency Report, Tab 9, Contracting Officer’s Affidavit, para. 7; Tab 11, Request Award Construction Funds, at 1.  Marshall asserts, without support, that additional funding is “unlikely” and that, absent more definitive proof by the agency that funding is available, the contracting officer should not have evaluated option pricing. Protester’s Comments at 2. However, Marshall misconstrues the burden of proof applicable to this issue. The test is not whether a contracting officer can state with certainty that funds will be available to exercise options. Building Constr. Enters., Inc., B-294784, Dec. 20, 2004, 2004 CPD para. 251 at 2; Contractors NW, Inc., supra, at 4. Rather, FAR sect. 17.206(b) provides that options should be evaluated unless there is “reasonable certainty” that funds will not be available. Charles J. Merlo, Inc., B-277384, July 31, 1997, 97-2 CPD para. 39 at 3-4. The record does not show that there was “reasonable certainty” that funding is not available. Thus, we cannot find unreasonable the agency’s determination to evaluate option pricing in this case.  (Marshall Company, Ltd., B-311196, April 23, 2008) (pdf)

Here, the contracting officer states that he intended to exercise options at the time of contract award if bid prices were low enough to permit him to do so. However, because the bid prices were not low enough to permit the contracting officer to exercise options at contract award, the contracting officer states that Fort Riley is "attempting to secure additional funds so that options could be awarded" and that he anticipated, based upon his experience, that additional funds might become available, although that is not certain. Affidavit of Contracting Officer at 2. Although the contracting officer cannot state with certainty that funds will be available to exercise options, this is not the test. FAR 17.206(b) does not require the agency to be clairvoyant in forecasting the availability of option quantity funding. Charles J. Merlo, Inc. , B-277384, July 31, 1997, 97-2 CPD 39 at 3-4. Absent a showing that there is reasonable certainty that funds will not be available, an agency should evaluate option prices, where the solicitation provides for their evaluation. See Federal Contracting, Inc. , B-250304.2, June 23, 1993, 93-1 CPD 484 at 6. The record here shows that the agency is continuing to seek funds to permit the exercise of the options and that the contracting officer does not know with reasonable certainty that funds will be unavailable to permit the exercise of the options. Accordingly, we find that the agency reasonably evaluated option prices, as was provided for by the IFB. (Building Construction Enterprises, Inc., B-294784, December 20, 2004) (pdf)

Where, as here, the IFB properly includes a provision requiring the evaluation of options, such options must be evaluated “[e]xcept when it is determined in accordance with [FAR §] 17.206(b) not to be in the Government’s best interests” to exercise the options. FAR § 52.217-5. As noted above, the agency received confirmation the day after bid opening that an additional $2.2 million would likely be appropriated, which would cover the cost of the entire project. Given this expectation of additional funding, the agency determination to make award based on evaluation of base and optional items was reasonable. The agency need not have all funds currently available for optional items in order to evaluate them for award. See Charles J. Merlo, Inc., B-277384, July 31, 1997, 97-2 CPD ¶ 39 at 3-4; Federal Contracting, Inc., supra, at 5-6. Although CNI points to a series of pre‑award communications between agency personnel discussing the fact that only $1.6 million was currently available to fund the project (which is less than even the base bid), these communications reflect only the agency’s discussion about how the basic contract could be funded and do not demonstrate that future funding was not going to be available, as anticipated.  (Contractors Northwest, Inc., B-293050, December 19, 2003)  (pdf)

Thus, a determination not to evaluate options, made after receipt of bids, does not preclude an award on the basis of base bid items and, by implication, does not require the receipt of new bids. Foley Co., B-245536, Jan. 9, 1992, 92-1 CPD para. 47 at 3; see also Occu-Health, Inc., B-270228.3, Apr. 3, 1996, 96-1 CPD para. 196 at 4.  (ACC Construction Company, Inc., B-289167, January 15, 2002)

We find that Agriculture could not reasonably determine that it was in the government's best interests to evaluate both of these alternate options to determine the total evaluated price. In this regard, as noted above, Agriculture knew it would not exercise both options. Given that Kruger's bid price, after application of the SDB evaluation preference, would be low, regardless of which option is evaluated and exercised, we conclude that only Kruger's bid could be determined most advantageous to the government, considering price and price-related factors.  (Kruger Construction, Inc., B-286960, March 15, 2001)