The CO issued the Notice of intent on June 1, 2017, outside of the 120 calendar day window. However, the modification to exercise the option was issued July 12, 2017.
Failure to issue the 120 Notice of intent timely does not compromise the Government's unilateral right to exercise the option, in this case, since the modification was executed before August 1, 2017 which is prior to the last 30 days of the period of performance.
The notice is only required if you are going to exercise the option within the last thirty days of the performance period.
If you exercise the option prior to the last thirty days of the performance period, the notice, in essence, isn't even required.
Therefore issuing a unilateral modification to exercise the option is appropriate.
Do you agree?
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The majority of the time, contractors will gladly accept an option regardless of how/when it occurs. But from a technical perspective, I would disagree with your interpretation of FAR 52.217-9. The date of the preliminary notice establishes the limit of the Government's unilateral right. While the first fill-in of the clause establishes the execution window.
So, in your example, the Government decides to execute the option 35 days prior to the end of the contract. Per the terms of the options clause, the execution window is within 30 days of the end with a preliminary notice required 120 days prior to the end of the period of performance. So technically, I believe the Government could not unilaterally execute an option at 35 days prior to the end of the contract because they missed the notification window and are outside the execution window