Can the USG exercise the option at their discretion. Does the contractor have the right to renegotiate the option pricing since the USG intends to exercise the option early?
The US government can exercise options at their discretion/"early", as long as it is done by the time established in the applicable option clause and IAW any special T&Cs when applicable. Exercising options is an unilateral right of the government. If the contract does not include special terms regarding the right to renegotiate the option pricing when the USG intends to exercise the option early, then renegotiating the option pricing will depend on the contract type. Each contract line item (CLIN) in the contract should reference its contract type. The answer is no for any CLINs that have fixed priced elements to them, as that pricing is established as firm once the contract was awarded. If the contract type is fixed price with economic price adjustment, then contractors can ask for a price revision for the EPA portion of the pricing, but again in accordance with the terms and conditions of the contract.