Can we extend the POP of Option Year 1 for longer than 1 year even though it has been incrementally funded with FY20 O&M (1 year) money?
The answer is No. The funding constraints are the biggest hurdle. If FAR Clause 52.217-8 is in the contract, technically yes you could extend the option year by up to another six months as long as the extension does not exceed the overall duration of the term of the contract, including any extension. However, the one big disadvantage of using the -8 clause to extend Option Period 1 is the fact that the entire contract would end at the end of this extension. In other words, if there are additional unexercised options in the contract for follow-on years after Option Year 1, these would not be available any longer for use.
But, even if you did want to use the -8 clause as described here, the funding constraints are insurmountable. 10 USC 2410a says that this severable services contract could have been funded for the full 12 months (27 AUG 20 to 26 AUG 21) with FY20 O&M. But, the moment they go beyond 26 AUG 21, that becomes a bona fide need of FY21. As such, any funds from 27 AUG 21 to FEB 22 must be FY21 O&M.
31 U.S. Code §1502 says “Agencies may only obligate funds to fill a requirement once the bona fide need exists, AND may only use funds current while the bona fide need exists”. FY 20 funds are no longer current.
Finally, I highly recommend discussing the submitted Ask-a-Professor question with your Contracting Officer, Competition Advocate and legal advisor to ensure compliance with any limits in the existing contract as well as applicable laws and regulations.