I understand it is our unilateral right to exercise an option, but does the contractor have the right to decline? If not, how do I force them to perform if they are losing money, especially an 8(a) contractor?
It is the Government's unilateral right to exercise options if they are done in accordance with the contract. The financial capability of a company to perform can be a consideration in exercising the option. If the contractor declines to perform, you cannot force them but there are penalties that would be associated with it depending on your contract. Termination for cause/default, could be an option here but you normally wait until they do not perform. However, since this is an 8(a) contract, you must involve the SBA immediately and your Small Business Office. The SBA is technically the prime on the contract. Review your SBA partnership agreement, https://www.sba.gov/sites/default/files/files/Department of Justice.pdf
. As we never want to put a company out of business, the best course of action will be to try and find a workable solution and discuss what your options are with the SBA. Ask the contractor why they are losing money? If you have non-performance, then you can cancel the contract. Again, working with the SBA in finding a good solution is probably your best option. If you can find another 8(a) firm through your own market research or through the SBA, you can award a new contract.