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    I've been told that the only way to exercise an option is by a contract mod. However, someone outside of contracts said that the option can be exercised at time of contract award in order to not have to do a contract mod. Is this true? We want to ensure that we have time to exerecise the option prior to 30 Sept 2012 once the contract has been awarded.


    Answer

    The following response is based solely on the question and background information provided. As we do not have all of the facts particular to your contract, program, and situation, we highly recommend you consult your Contracting Officer and Legal Office for guidance.
     
    The wording of the question makes it difficult to ascertain the exact timing of the actions contemplated.  When was the contract/will the contract be awarded?  When does the contract specify the option period applies?  Based on all the information provided, I am assuming that the contract has not been awarded yet.  I am also assuming that the government has a firm requirement for additional spares but funding for those additional spares was uncertain, thus the original plan was to treat those additional spares as an option.  If funding came through, the option would be exercised; if funding did not come through it would not be exercised. 
     
    However, now the funding issue has been resolved.  Again, assuming the basic contract has not yet been awarded, the entire requirement can be addressed in one award, thus negating the need to include an option.  However, if the requirement were synopsized as a base requirement with an option to purchase additional spares, the government would first need to amend the solicitation to clearly show the entire quantity as one requirement, with no option to consider (to include removing the applicable provisions and clauses related to options).
     
    Now, to address your question regarding whether one can exercise an option at time of contract award.  First, let's talk basics.  By definition an " 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 (FAR 2.101).  Additionally, FAR 17.207 - Exercise of Options, paragraph (a), states "When exercising an option, the contracting officer shall provide written notice to the contractor within the time period specified in the contract."  The time period referenced here is included by the contracting officer as a fill-in within the applicable option clause incorporated into the contract.  Be advised that there are additional requirements under FAR 17.207 that must be met in addition to the one referenced within this response before the contracting officer may exercise an option. 
     
    When you take the definition of an option, combined with the written notice to the contractor "specified in the contract", one can clearly see that an option cannot be exercised concurrently with contract award.  The FAR is also silent on any minimum time period that must pass after contract award before a contracting officer may consider contemplating an option.  As a matter of fact, FAR 17.207(d)(3) states that "The contracting officer, after considering price and other factors, shall make the determination on the basis of one of the following: (3) The time between the award of the contract containing the option and the exercise of the option is so short that it indicates the option price is the lowest price obtainable or the more advantageous offer. The contracting officer shall take into consideration such factors as market stability and comparison of the time since award with the usual duration of contracts for such supplies or services." 
     

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