Two recent questioners in the DAU "ASK A PROFESSOR" Site, under Contract Law topic - see:
http://web2.deskbook.osd.mil/askaprof/normal/
qlist.asp?cgiSubjectAreaID=4&cgiStart=0&RefreshField=20

, asked whether the Government could reinstate expired options. The 'professors' correctly stated that the Government couldn't unilaterally reinstate expired options - that there would have to be a bilateral agreement to reinstate. However, they also missed the other main point that, in my opinion, such an agreement is outside the scope of the contract, thus would require an exemption to full and open competition, under FAR Part 6 - before attempting to extend or modify the option. Am I correct? If not, why not?

The terms in the contract allowing the Government to unilaterally exercise the options expired. I believe that there has to be an applicable contract provision or clause in the contract to authorize a supplemental agreement,reinstating or modifying the option.

If the CHANGES Clause were applicable, the Government could unilaterally re-instate the option or at least issue a change order, reinstating with a price adjustment.

The CHANGES Clause doesn't apply because the Government CAN'T unilaterally incorporate the option at an adjusted price or unilaterally incorporate the option.

I don't know of any other clause which allows this either. If the price has to be renegotiated, then the work has no longer been aquired under "competitive" procedures.

Thus, if the Changes Clause is inapplicable to work, and no other clause authorizes the addition of the work, it has to be "out of scope".

Out of scope work can normally be added to an existing contract through sole source means only after obtaining an exception to full and open competition under FAR 6.3 (unless it is an 8(a) contract).

What do you think? Happy Sails! Joel

By joel hoffman on Tuesday, December 19, 2000 - 10:07 pm:

See also a similar question at Ask a Professor's "Post-Award Procurement and Contracting" http://web2.deskbook.osd.mil/askaprof/normal/
qdetail2.asp?cgiSubjectAreaID=8&cgiQuestionID=6935

This is even a wilder answer. Here, the Prof admits that the Government no longer has the right to unilaterally accept the option. He says he'd exercise it anyway -

"The contractor then has three courses of actions as I've indicated below:

· Remain silent and perform–contractor waives right to later protest the exercise. Government’s improper exercise considered a counteroffer, performance considered acceptance of counteroffer creating a binding contract.

· Protest, perform, and seek equitable adjustment—Improper exercise of option = a constructive change. However, contractor must notify Government of intent to seek equitable adjustment (allowable costs + reasonable profit) as a result of the improper action before beginning to perform the option.

· Refuse to perform—Government’s improper exercise is considered a counteroffer, contractor free to reject and contract cannot be T4D."

Under option one we have what amounts to a new contract - no mention of exemption from competition to do this. Then, If option 2 were proper, option three is impossible. In fact, options one, two and three are all mutually exclusive.
How can you interpret the contract three different ways, depending upon the Contractor's response to your directive? Happy Sails! Joel

By bob antonio on Wednesday, December 20, 2000 - 05:22 am:

Joel:

I once had a couple of cases that fit this scenario. It is one of the easiest beyond the scope items to find. I think a perfect case is

B-219136, 10/22/85 at 85-2 CPD 435.

It should note something like a person can not breathe life into the dead. Another example, that I have from the late 1980s deals with an Education contract. It was an EDS contract and it was allowed to expire without a timely exercise of the option. EDS understood what happened and they agreed to negotiate a new sole-source extension for 20 percent more in cost

By joel hoffman on Wednesday, December 20, 2000 - 07:29 am:

Bob, I don't disagree with anyone that the parties can negotiate a sole source extension, price increase or both. I just believe that this act is "out of scope", thus not subject to the Changes Clause. therefore the Government must obtain an exemption to open competition. Happy Sails! joel

By bob antonio on Wednesday, December 20, 2000 - 07:53 am:

Joel:

It is beyond the scope of the original contract competition. Once the option exercise period is expired, it cannot be revived without a new procurement. It does need a new J & A. I will see if I can find that decision today. I used it in the past.

By bob antonio on Wednesday, December 20, 2000 - 08:13 am:

Here is one section from a 1989 report in which I used the decision.

"In a bid protest decision, GAO determined that once a contract expires, the contractual relationship that existed is terminated and the issuance of a modification attempting to revive the expired contract is a new procurement without competition." Here is one of the specific examples dealing with an option.

"Education awarded a contract for automated data processing support services for a 5-year period, including five option periods, with an original cost estimate of $18.2 million. When the agency exercised its first option period, the contractor submitted a claim for additional contract costs because, it claimed, the option was not exercised in accordance with the contract terms. As a result, the contract had expired. Education and the contractor settled the claim by increasing the contract cost by $2.6 million."

In this case, the contractor understood that no contract existed and that if Education wanted a continuation of the work, they were the source. So they let Education make the mistake and incurred costs under the new contract. After they did some work, the contractor submitted a claim for additional costs. The contractor said this is a new contract and we want a new cost structure.

I have a great deal of respect for a contractor that takes advantage of contract law in this manner.

By Eric Ottinger on Wednesday, December 20, 2000 - 09:54 am:

Joel,

I've seen different answers from different lawyers.

I don't think a bilateral exercise is outside the scope that the parties anticipated when the contract was awarded. Hence I don't see a CICA problem or a need for a J&A.

I do think the unilateral exercise approach is too clever by half.

Eric

By Eric Ottinger on Wednesday, December 20, 2000 - 10:29 am:

Bob,

Apologies for ignoring your post. This may be slicing it too fine, However—

I think there is a difference between a situation where the two parties immediately reconfirm their intention to continue with the contract as it was originally negotiated, and the situation where one of the parties goes for months oblivious to the fact that they are now outside the terms and conditions of the contract.

In the first situation there is no prejudice to the other offerors. In the second situation, the Government is ignoring the terms and conditions of the contract in a high handed manner.

The lawyers routinely allow us to add 10% or 20% to the contract because this is not outside what the offerors might have expected at the date of the competition. A prompt bilateral option exercise would appear to be a smaller issue.

I guess I would want to see a precedent, where the parties had done the bilateral mod within a day or two after the option exercise, to be entirely convinced.

Eric

By joel hoffman on Wednesday, December 20, 2000 - 10:34 am:

Eric, the scope of the contract included a priced option, which was good for a stated period and included the right of the Government to exercise the option unilaterally, within the stated period.

The scope of the option is clearly stated. If the Government can't unilaterally exercise the option because it's too late, the Changes clause doesn't apply either - the Contractor doesn't have to accept the order or doesn't have to accept it at the stated price or completion time.

If the Contractor has to agree to perform the work and if both parties have to agree to the new terms, it is "out of scope", technically, a new contract. The mere fact that the supplemental agreement is executed on an SF30 doesn't make it an inscope change or in-scope anything. Out of scope supplemental agreements are essentially new contracts, administratively added to existing contracts for ease of administration. Bob's GAO case supports this position. Happy Sails! Joel

By bob antonio on Wednesday, December 20, 2000 - 10:39 am:

Joel:

Here are some excerpts from the decision I noted. When the decision states "extended" you must read it as "exercise the option." I remember I had to go to the source documents to clarify this use of terminology.

"The solicitation contemplated award of a 1-year contract with four 1-year oprtions for exercise by the government. Award was made to Ticketron on January 28, 1983. NPS extended the original contract to January 25, 1985, by amendment 2, but never exercised an option prior to that new expiration date to further extend the contract. Instead, NPS allowed the contract to expire. NPS issued amendment 3 purporting to extend Ticketron's expired contract to January 25, 1986. . . ."

The protest was on two grounds. One was "since Ticketron's original contract expired in January 1985, NPS could not retroactively extend ther term of that contract and add other services by an amendment issued more than 4 months later."

The Comptroller General said "The record shows, as TicketCenter alleges, that the original contract term was extended to Jaunary 25, 1985, by issuance of amendment 2 to the contract. While there remained options under the contract term further, neither NPS nor the record indicates that NPS ever exercised another option before the contract ended on the amended Jaunary 25, 1985, expiration date. NPS states in its report that it did extend the contract term to January 25, 1986, and that it added the Carter Barron ticket sales by the same modification. NPS neglects to state in its report, however, that this modification, in the form of amendment 3 showing a January 25, 1985, effective date, was not executed by NPS and Ticketron until June 10, 1985, more than 4 months after Ticketron's contract had expired. In other words, amendment 3 appears to have been an attempt by NPS to revive Ticketron's expired contract by retroactively extending and modifying it.

We agree with TicketCenter that this attempt was improper. Upon expiration of Ticketron's contract, neither the government nor Ticketron was obligated by any of the contract terms; Ticketron no longer was bound to provide visitor reservation services, and the government no longer was bound to pay Ticketron commissions for such services. The unexercised option provisions were part of the contract and, thus, necessarily expired when the contractual relationship was terminated. Thus, the attempted retrospective extension of Ticketron's contract was not an extension at all--there was no contract to extend--but the noncompetitive creation of a new contractual relationship with Ticketron.

Consequently, we sustain the protest on the ground that NPS should have conducted a competitive procurement for these visitor reservation services."

This is an open-and-shut issue. There are no alternatives.

By joel hoffman on Wednesday, December 20, 2000 - 10:42 am:

Eric, if one thinks about it, the SF30 requires us to state in block 13 what authority we are using for the mod. If it is in scope, there will be some authority... The Changes Clause is inapplicable, because it is only for work which the Government can unilaterally order. What do I cite, e.g. - "we both still want the work" ?

Out of scope supplemental agreements cite what FAR competition exemption was used for the action. happy Sails! Joel

By bob antonio on Wednesday, December 20, 2000 - 10:43 am:

Joel:

I did a good deal of searching on this specific issue in the 1980s. However, this was the only decision I ever found. There may have been some later ones that I am not aware of.

I used this in 1989 in a major review of 87 contracts at civilian agencies. Of those 87, 21 attempted to add new work or exercise options after the contracts expired.

By Eric Ottinger on Wednesday, December 20, 2000 - 10:47 am:

Joel,

I don't question that it is in some sense a new contract. That is the reason that you have to have a bilateral agreement. However, I don't see prejudice to the other offerors.

If Bob's GAO case had gone the other way, the Government would never be under any compulsion to exercise options in a timely manner.

I agree that the Changes clause is not the way to go. It won't do to say that the Government has the unilateral right to override the explicit language in the contract terms and conditions. No Court is going to sign up to that logic.

Eric

By Eric Ottinger on Wednesday, December 20, 2000 - 11:43 am:

All,

Now that Bob has confessed that he has researched this issue, I have to be careful.

All kinds of illegal and improper things are done. As long as both parties benefit, the issue never ends up in court. I wouldn’t regard the lack of subsequent cases to be a definitive answer.

Back circa 1980 when October 1st arrived at DOE and we didn’t have a continuing resolution, the General Counsel’s office put out a memo directing us to immediately return all of the copiers and other rented equipment. Approximately the third time around, somebody told the lawyers not to bother with their silly memo, and the copiers remained in place.

I’m just telling the story, I draw no conclusions.

I would venture that most of the instances which Bob found were situations where the parties intended the contract to die. Then, after a couple/three months a new requirement surfaced and agency started looking for a “vehicle” to accommodate the unexpected requirement. Then somebody suggests that the easiest thing to do would be to revive the expired vehicle. I agree that this is improper.

I’m thinking of the situation where a routine option is to be exercised on 29 December and this doesn’t happen because of some combination of the flu and two feet of snow. When everybody comes to work on 2 January, something has to be done. I think this is a different situation.

I wouldn’t make an argument based entirely on what the Form 30 seems to contemplate or not contemplate. I don’t think the Form 30 has that kind of authority.

Eric

By bob antonio on Wednesday, December 20, 2000 - 12:12 pm:

Eric:

It has been a long time since I dealt with this specific issue. However, there is a process in FAR Part 17 that notes the contracting officer is to notify the contractor within a time-frame specified in the contract. I cannot remember the exact wording of the clause. However, if there was a timely paper (e-mail) notification to the contractor in accordance with this clause and there was ongoing paper processing when the contract expired, I think things may be different. I cannot remember a specific case and have no support for this but I do remember dealing with it.

I cannot remember the specifics of the other cases but the contracts were allowed to expire and then new work was added after expiration. It was fairly common.

By Eric Ottinger on Wednesday, December 20, 2000 - 12:28 pm:

Bob,

The standard "Options" clause requires the notification. This doesn't mean that the notification always happens.

I guess we agree that the intent of the parties has some bearing, as a practical matter if nothing else. If all of the contractor worker bees show up on Monday morning thinking that they still have a contract, nobody is going to want to send them home.

If the workers were all tranferred or laid off six months ago, the situation is entirely different.

Eric

By bob antonio on Wednesday, December 20, 2000 - 12:28 pm:

Here is one with a slightly different twist from a more recent decision.

"By letter dated February 1, 2000, the Navy also conceded that the GSA schedule contract had expired at the time it placed its order for video recorders. Without an FSS contract against which to place its order, the Navy, in effect, made an improper sole-source award. Anacomp, Inc., B-242029, Mar. 15, 1991, 91-1 CPD para. 291 at 2. Accordingly, we conclude that the Navy's actions here violated the Competition in Contracting Act (CICA), 10 U.S.C. sect. 2304(a)(1) (1994), which requires that agencies obtain "full and open" competition through the use of competitive procedures, and we sustain the protest on this basis." (B-284080; B-284080.2, February 14, 2000)

http://www.wifcon.com/cgdedexpired.htm

I am surprised industry does not use this more often.

By bob antonio on Wednesday, December 20, 2000 - 12:32 pm:

Eric:

There are probably a number of contracts with everyone working cheerfully that would be quickly terminated for convenience if they were identified.

In the 1985 case, the CG actually recommended termination for convenience. That is about as far as the CG goes.

By Eric Ottinger on Wednesday, December 20, 2000 - 12:55 pm:

Bob,

"Ordering Period" is not the same thing as "Period of Performance". I would agree that an order placed outside to the Ordering Period would be improper under any circumstance.

T for C implies that you have a contract to terminate. I think most of us would be a lot more worried by "ab initio" than we sould be worried by a hypothetical T for C.

Eric

By Kennedy How on Thursday, December 21, 2000 - 10:43 am:

In the office I'm currently in, I always have a problem with making sense out of funding rules for the next year's services. Specifically for us, VAN services that run our EDI program. I'm always baffled on the funding rules for our infrastructure support (lights, heat, phones). Because I know about when contracts expire, and when funds can be used.

Joel, when I was doing Option exercises, I usually said "Unilateral Exercise of Option IAW Clause ". Made it pretty clear. I know we did a lot of dancing when the option expiration date became closer. I also know that there were times that if we couldn't get a Bilateral On-time exercise done, we'd do a Unilateral, but require the contractor to sign the mod AFTER the CO executed it. I suppose that was kind of sneaky, but some COs thought it was important that there was a contractor signature on the mod.

But, if the Option expired, we were dead. I can't comment on "Backdating" an option exercise if it was within a day (sort of like the "Sept 31st" contract award!).

Kennedy

By joel hoffman on Thursday, December 21, 2000 - 02:59 pm:

Kennedy - I'm not sure I followed your discussion. When you refer to a "bilateral action" or a "unilateral" sent to the Contractor "to sign" after the KO do you mean in those circumstances after you'd missed the date to exercise the option?

If you are discussing the normal exercise of an option, I believe the standard clauses for options clearly state that it is the Government's sole option whether or not to exercise an option within the prescribed period. Options do not require a bilateral mod for the Government to exercise. The Government 'purchased the option' when it awarded the contract. I don't have a problem with asking the Contractor to acknowledge receipt of the Mod but they don't don't have to sign it, during the valid excercise period.

My discourse concerning supplemental agreements only concerns mods written after the acceptance period expires. I was saying that if the Government lost the right to exercise the option or to unilaterally order the Contractor to perform the option, then Contractor has the right not to perform the work, if it doesn't want to or is no longer satisfied with the price or other terms. Therefore, the Changes Clause is inapplicable.

Then, reinstating or modifying the "option", constitues a "new contract action", requiring an exemption to the Competition in Contracting Act requirements for free and open competition.

I'm not saying that the parties don't often simply agree to reinstate the option or reinstate at an adjusted price - it happens all the time.

My primary point is that DAU's "Ask a Professor" site shouldn't officially advise Contracting officials to "just direct it and see how the Contractor reacts" (as their "post award procurement and contracting" advisor did) or just advise them to do it after the fact as a bilateral "change" (as their "Contract Law" advisor did). Happy Sails! Joel

By Kennedy How on Wednesday, December 27, 2000 - 11:06 am:

Joel,

Our policy was to exercise options via Bilateral modification, even though the clause specifically states that the option can be unilatera. This is during the valid option exercise period, i.e., prior to the expiration date.

Now, say the option expires on 29 Dec (today being 27 Dec). Since there is mail time involved with Bilateral Mods, what we had done in the past was to issue a PCO signed mod on the 27th, with the contractor instructed to sign and return it when he receives it. The mod is properly executed by the PCO unilaterally, so the contractor doesn't really have to sign off on it. And, given the closeness of the expiration date, it was doubtful that a normal Bilateral mod can be done in a timely manner anyway.

I suppose the contractor is signing his part of the modification after the expiration date, but in these cases, it's not really a problem since the PCO had already done his side, and it's a proper exercise of option.

Kennedy

By Anonymous on Thursday, December 28, 2000 - 08:15 am:

What about a bilateral modification extending the period in which the Government may declare the option; if contract period expires 30 September, the mod allows one week beyond the expiration for the Government to declare the option. The dead period in between suspends services, thus the length of contract period in which services are provided does not change. Would you consider this out of scope/require J&A?

By Kennedy How on Thursday, December 28, 2000 - 10:48 am:

28 Dec Anon,

If the option exercise period hasn't arrived yet (option hasn't expired), you can always try to get a bilateral modification extending the option expiration date. That might cause a break in services, but if the contractor agrees, then the option is still valid. Because, we still have a effective contract.

I think we all agree that the option period still has to be valid before you can issue a mod extending the period.

Kennedy

By Anonymous on Friday, January 05, 2001 - 04:33 pm:

I have a situation where I am buying natural gas from an 8(a) supplier. There was a recent, timely exercise of the option extending the contract term one year. However, the contractor is claiming that because they did not receive the 60-day notice of intent to exercise the option, they consider the contract terminated. However, they will be glad to continue to provide the gas provided a new contract is issued. I can understand what they're trying to do since we have a firm, fixed-price contract and their price for natural gas has gone up drastically. Is there any validity in their claim? So far in my research I have not found any discussions focusing on the preliminary notice. I consider the fact they did not receive the timely notice as a procedural error that did not prejudice them in any way; the option does not change any of their rights or responsibilities. The requirements are the same as if they received the notice. I expect them to continue providing the gas at the contract price, but plan on giving them an opportunity to show how the mere absence of the preliminary notice is causing them harm they would not have suffered if they received the notice. Any suggestions?

By Kennedy How on Monday, January 08, 2001 - 12:22 pm:

Where in the contract does it state that the Government has to issue a 60 day notice of intent to exercise the option? Is this a contract provision that's normally included in your contracts? Also, has the option exercise period expired (as of now)?

It sounds to me that the contractor is alleging either a breach of contract, or improper exercise of option. Of course, if he's wrong in this case, and he doesn't perform, he'd be guilty of a breach of contract.

I suppose if the option period is still in effect, you could issue another exercise of option, with the first exercise of option serving notice that you want to exercise the option (your legal department may or may not be inclined to accept this line of thought).

Kennedy

By Anonymous on Monday, January 08, 2001 - 01:23 pm:

It says it in FAR 52.217-9.

By joel hoffman on Monday, January 08, 2001 - 04:53 pm:

Anon, you ought to consult your counsel. However, if the FAR Clause you cited is in your contract, I believe your Contractor is right -provided that it didn't receive 60 days notice.

The Government's unilateral rights are only valid, provided it meets the terms of the clause. The Government must provide 60 day notice of intent to exercise the option to the Contractor. I assume you can't prove this occurred.

Since this is a 8(a) contract, you can negotiate an out of scope mod to extend gas service- at a mutually agreeable price.

By the way, wholesale gas prices have gone up 80% since December 2000 in our area. Don't expect the supplier to be able to furnish gas at the old price.

It would appear that the Government's mistake gave the supplier and "out" and saved it from possibly substantial losses.

Here is the Clause, as well as the FAR prescription. It is pretty clear to me.

"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) "

"17.207 Exercise of options.
(a) When exercising an option, the contracting officer shall provide written notice to the contractor within the time period specified in the contract."

"17.208 Solicitation provisions and contract clauses.

(g) Insert a clause substantially the same as the clause at 52.217-9, Option to Extend the Term of the Contract, in solicitations and contracts when the inclusion of an option is appropriate (see 17.200 and 17.202) and it is necessary to include in the contract any or all of the following:

(1) A requirement that the Government must give the contractor a preliminary written notice of its intent to extend the contract.

(2) A statement that an extension of the contract includes an extension of the option.

(3) A specified limitation on the total duration of the contract."


Sorry, Anon. Happy Sails! Joel

By Linda Koone on Tuesday, January 09, 2001 - 04:02 pm:

Joel:

I'd agree that the requirement to provide advance written notification is more than a minor procedural error. (I'm looking up some decisions on this)

My question to you is whether, by prescription, the inclusion of this particular option clause is appropriate.

I'm out of my element here, but I believe that it is necessary, say under a contract subject to the Service Contract Act (SCA), to provide advance notice when extending the contract by a provision such as an option.

I didn't think contracts for utility services were subject to the SCA, and therefore, am not sure that it is 'necessary' to give a preliminary notice of an extension.

If advance notice isn't necessary by operation of some other contract requirement, then maybe failure to provide notice could be a considered a minor procedural error and as Anonymous indicated, failure to provide the notice doesn't have any bearing on their current pricing problems.

Maybe he/she has a case?

By joel hoffman on Tuesday, January 09, 2001 - 07:30 pm:

Linda, I'm out on the road this week. I'll try to look this up as time permits.

However, I'd venture a strong opinion. I assume that the Government, as the drafter of the contract, decided to include this clause in the contract (actually, the Contractor could have insisted on such a term at the time the contract was negotiated). Regardless of who wanted the condition, it was a mutually agreeable contract term at the time of award.

The clause expressly establishes a condition necessary to allow the Government the right to extend the contract. Then, the Government must meet that condition in order to enforce its right to award the option.

This clause states, in part:
"The Government may extend the term of this contract by written notice to the Contractor...PROVIDED THAT the Government gives the Contractor a preliminary written notice of its intent to extend AT LEAST 60 days BEFORE the contract expires." (Emphasis added)

It would seem to me that the Government can't unilaterally nullify a mutually agreed contract term or condition, just because it wasn't necessary to include the term or condition.

This is an entirely different matter than the Christian Doctrine (which basically says if the law required a clause to be a condition of the contract, it IS part of the contract, even if inadvertantly omitted from the contract documents).

Do you disagree? Happy Sails! Joel

By joel hoffman on Tuesday, January 09, 2001 - 07:56 pm:

Linda, I'm not familiar with Utility contracts and this one sounds really unusual - an 8(a) gas distributor?. I would think that options for natural gas purchases at a fixed price for out years? months? would be inappropriate, due to the real probability of widely fluctuating prices for natural gas. This is borne out by today's price situation. Happy Sails! Joel

By anon2 on Wednesday, January 10, 2001 - 08:17 am:

I think one issue not mentioned here on why the notification, be it 30, 60, 90 or more days, is also to allow the contractor to plan his workload and staffing requirements for the next year. He will probably know before the notice is sent or received, just by the day-to-day interface.

I know of several intances where a Contracting Officer(inexpereienced military officers and civilians)lost his/her job, because he forgot to send the notification - which gave the contractor the out he wanted. The contractor would not agree to a "bi-lateral" option or even negotiate a new contract with the Government.

By Joel hoffman on Wednesday, January 10, 2001 - 08:59 am:

Dear Anon2, based on my experience, if I were a contractor, I'd demand the notice, in writing. I've seen the Government change it's mind at the last minute, after leading everyone to believe a certain action was iminent. Of course, according to the option clause, the Government can still opt not to exercise an option, even if the KO provides notice of intent to exercise it. Formal notice is a better sign of intent than day to day interaction, though. A KO shouldn't blindly send notice of intent without some committment from the PM that there is a valid need and actual or probable funding for the option. This is one of the KO's responsibilities to evaluate before providing notice of intent. Happy Sails! Joel

By Kennedy How on Wednesday, January 10, 2001 - 12:16 pm:

Linda's question appears to mirror the way I was thinking in that why the particular clause is included. It may be that it's something that is always done at that location, by tradition. It may not necessarily be the best thing to do. In other words, is it appropriate to include this sort of language in the solicitation?

I don't have any experience with this clause at all, but I do know that my activity changed it's internal guidance with respect to including/excluding options because of circumstances and past experience. By this I mean that we used to not put it in, then, after some investigation, we decided that it would be better if we included it. Eventually, we then decided that it wasn't worthwhile, because we stopped exercising options.

Kennedy

By joel hoffman on Wednesday, January 10, 2001 - 01:02 pm:

My 1st point is that I'm not sure that it is appropriate to pre-price options for utilities, unless we will be providing for a means to allow pricing adjustments, based on cost to the distributor.

My 2nd and major point is, once you decide to include an option, then decide to word the clause to require advanced notice to the supplier, the contract price is negotiated on the basis of the terms and conditions stated in the clause. The Government can't disregard the condition necessary to retain its right to exercise the option, then expect the Contractor to perform. The Contractor doesn't have to perform. Happy Sails! Joel

By Linda Koone on Wednesday, January 10, 2001 - 03:12 pm:

Kennedy:

I was really just speculating as to whether the use of the option clause included in the contract was appropriate, because the prescription indicates that it should be used 'when necessary'.

I'm fairly certain that even if it was not the most appropriate option clause to use, it doesn't matter. It's part of the contract and therefore, the C.O. needs to provide the advance notice.

A friend pointed me to a Comp Gen decision, Ceredo Mortuary Chapel, Inc, B-232373.5, 89-1, P12. In this decision, the Comp. Gen. determined that a contractor, either expressly or by conduct, can waive the 60-day notification requirement. In this case, the contractor's act of performing the option was the conduct that created the waiver. The advance notice requirement is to protect the contractor, therefore, if the Government fails to provide the required notice, but the contractor performs anyway, then the contractor has waived the advance notification requirement.

I lost my place in my research so I don't have the decision number (I'll try to find it if anyone is interested), but in another C.G. decision, the C.O. did not provide the required written 30-day notice prior to exercising the 6th option under the contract. The C.O. had oral discussions about exercising the option, but failed to provide the advanced written notice within the contractually stated time frame. The Comp. Gen. determined that the exercise of the option was improper. In this decision, the C.G. wrote:

"An option contract is a contract to keep an offer open; when the option period lapses before the notice required for the exercise of the option is given, the contract to keep the offer open ends.(Williston on Contracts, 61A, 61D 3ed.1957)"

As an aside, I believe that under FAR Part 41, utility contracts should include a change of rate clause. But again, this isn't my area of expertise.

By Anon2 on Thursday, January 11, 2001 - 08:04 am:

Joel,

I didn't mean to imply that the notice was not required by stating that the contractor usually knows if his option is going to be exercised. I agree with you. If the option clause indicates the notice is required, then failure by the Government to provide that notice eliminates the Government's unilateral right.

My second comment regarding the CO that lost his job - There was bad blood between the Government and the contractor and the contractor just wanted out. The Government didn't send the notice and the contractor had his out. The work was on a Defense program that was important to the service and the contractor was a sole source. The CO's failure to provide timely notice had a detrimental impact on the Program and set it back several years and big $$$$. The Contractor refused to even negotiate a new contract.

This is worse case scenario, but it can happen. I agree whole heartedly with you Joel the notice is more than just a minor informality.

By Eric Ottinger on Thursday, January 11, 2001 - 10:59 am:

Anon,

I am sitting here thinking that I am fortunate that it has always been agreeable for both parties to exercise options, in my experience.  I agree with Joel’s first thought. It is time to get help from General Counsel. (After that I would suggest looking for some negotiating leverage. However, in this case there would not appear to be any.)  After talking to GC, it would be a good idea for someone to do a word search. I searched CCH, but I couldn’t find a case which was on point.  If there is a lesson to be learned here, it is that this should not be a single point failure. Each office should have a tickler system to make sure these things are done, even if the cognizant PCO is distracted or unavailable.  (This, of course, would be a good task for one of those secretaries who have been laid off over the last ten years.)

Good Luck,

Eric

By Anon 2001 on Friday, January 12, 2001 - 10:11 am:

Is this in fact a utility contract or merely a contract for natural gas. The two are not synonymous. Also every contract I have written for fuels included an EPA. This one does not?

By joel hoffman on Saturday, January 13, 2001 - 05:24 pm:

Dear Anon 2001, we all probably agree that it's unwise to negotiate a long term contract to purchase natural gas at lump sum prices, be it a "utility contract" or otherwise, unless there is an Economic Price Adjustment clause.

However, from what Anon2 says, it appears that the pricing arrangement may not have been the problem. Due to bad blood between the Kont'r and the KO, the Kont'r wanted an out and seized the opportunity when the KO didn't meet the notice requirements of the option clause. Happy
Sails! Joel

By Anonymous on Friday, February 09, 2001 - 01:44 pm:

Gentlemen and Ladies:

Have read your comments on the terminated options discussion and wish to add my own. But, I must first qualify myself. Eighteen years on the private side, which included my share of PCO/ACO battles. Won most of them, and was one of the "bad blood" contractors who just wanted out and took advantage of non-notification of an option. I believe it ultimately cost the CO her job, as well as one of the 1102 ACO's. It was a mission critical program that I am sure cost the Navy dearly.

I was so disgusted with the shenanigans of the PCO/ACO, reminiscent of the entire discussion that I've just read on your bulletin board, that I left the industry to pursue a law degree. Meaning, with my eighteen years experience I have now read all their law books, know how and why lawyers think and act like they do, and have passed ALL of their tests. I am licensed in Calif. Therefore, I am now a Contract Manager who has a law degree and license as my "voice of authority". I have just finished this "life's goal" and now return to the fray.

The point of all this is, you folks are dancing around some very simple legal points. You can credit my new degree and 18 years's expertise in full-life-cycle contracting for that statement.

The DFAR's especially, and other pertinent procurement regulations are all premised on UCC and basic contract law; both of which are compounded by public financing laws promulgated by Congress. The latter appears to me to be the real issue. Meaning, at law, if the parties want to be bound, the contract will be enforced. Only the congressional financing laws can abrogate that. Take away the $$$ as one side's obligation to perform and there's no deal. It's a basic premise of law. The only remaining issue for discussion is congressional limitations on financing (e.g. READ - authorized expenditures). If the contract is terminated for what ever reason, the funding also terminates and must be re-bid unless some exception is provided, such as interests of national security.

Therefore, instead of examining the purpose of, and origins of the regulations AT LAW to find your answers, you engage in the typical PCO/ACO "how can we do what we want" within the funding restraints imposed by Congress, hoping to find some new loop-hole. You cite specific contract dispute cases but it is clear to me, now, as an attorney, you may not appreciate the full extent of the legal issue's that you toy with. While courts do use the regulations you cite, they are nonetheless only guidelines for the court, who will never allow the regulations to supplant the LAW. Your regulations are persuasive to a court. They are NOT PRIMARY LAW. If the DFAR or whatever regulation is funky, the court will rule that the law prevails. Then what do you have? Claims of illegality at worse, or breach as a minimum. In all cases you will have alienated a source of supply. Then think about the costs to certify a new source in the limited time you have to meet national interests.

For my purposes in responding to your discussion, this is what drives contractor's nuts and was in my mind directly responsible for the 1980's mass-migration of prime's away from government contracting.

Please remember that contractor's are bound to a variety of laws such as corporations (e.g. SEC, fiduciaries), Law of Agency, State legislation (Business & Professions codes regulating conduct) that have as much to do with our response to you as does any of your DFAR regulations. As a result, it is my belief that because contractors must follow the entire spectrum of law in all areas of liability, they, as a result of dire legal consequence, are more prone to follow the basic tenants of contract and UCC law; not just the DFAR's etc. In other words, private contractors do not put all their eggs solely in the DFAR bucket.

Your entire discussion is limited to Federal Regulations; you are avoiding the plethora of other laws that govern the private side. That, in my mind, is the source of the dispute between the Fed and private side. And that is the reason I went to law school. I will no longer accept the rubric "its in the regulations". Quit frankly, I don't care if it's in the regulations or not. I only pay attention to the law. California's B&P code on that topic is quit specific.

Your issue of advance notice to exercise an option is no more complicated at law than to say "you must give fair notice in a bilateral arrangement of a desire to change - you cannot change THIS contract unilaterally AND MUST give the other side the opportunity and time to decide if they want to accept the change".

That's all it means, it doesn't get anymore complicated than that. It has nothing to do with the changes clause, which, like all T&C's are effective only while the contract is in force. Once expired, it goes away.

BUT, to go full circle, if the parties wish to be bound the resulting contract will be enforced, leaving as the sole issue, once again, did the CO violate public financing? Please don't hobble the private side with that issue - it's not ours.

Please stop dancing around the issue. Private contractor's are bound to many more bodies of law than just the DFAR's. etc. They typically respond to the CO in that manner, while the CO responds IAW a specific regulation. But from experience I can say very bluntly that neither side is very good at expressing these differences, and when they do, are frequently misunderstood or viewed with suspicion. Another reason I went to law school - we all speak the same language but use different definitions. Now I know both definitions. Sorry to dampen your parade, but I really felt this needed to be said. Dave G.

By Eric Ottinger on Friday, February 09, 2001 - 05:52 pm:

Anon,

Could you get in touch with the Anon that told Ms. Jenny “that the fact that a long-time fed has to take the divisive step of classifying people in the honorable field of government contracting speaks loudly about not only that person, but the sometimes unnecessary and full-time unwanted adversarial relationship that exists in this universe.”  Sounds like you two could have an interesting discussion on the subject of adversarial relationships.

Eric

By Rob Lloyd on Friday, February 16, 2001 - 03:52 pm:

Folks, take a look at FAR 17.204(d).  Write your option clause (52.217-9 for services, for example) to state in the fill in in (a) that the option will be exercised within the performance period or when option funding becomes available, whichever is later.  Problem solved.  It's an old trick from FIRMR days.