Can you exercise an option with reduced terms without violating competition requirements? Is there any legal precedence to support the reduction of work when exercising an Option Year using the originally negotiated line item pricing.
Options must be exercised in accordance with the terms set forth in the contract - legal precedent does not support any other procedure. FAR 17.207 states that the contracting officer must make a determination that the requirement covered by the option fulfills an existing Government need and that exercise must be accordance with the terms of the option. In your situation, it sounds like the Government need has changed and therefore the terms of your option do not support the current requirement. Furthermore, since the reduced scope could change the competitive environment by encouraging more potential offers’, you should consider a new competition for the current requirement.
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This answer is based on the information provided as we do not have all the facts pertaining to your situation. As always, we highly recommend you consult the contracting officer as well as your legal office.