Does the PCO have to issue the letter of contemplation or can the PCO just exercise the NTE option unit prices that were proposed as part of the initial proposal?
Ms Harder, I attempted to telephone you several times for clarification of some of the terms in your question. However, I developed a "cover the waterfront" response and I hope this helps. If further clarification is needed, send an email.
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Section I of your contract at FAR 52.217-7 “Option for Increased Quantity-Separately Priced Line Item” provides a notification period prior to exercising the option as identified in FAR 17.207. If the option is not pre-priced, there should be a Section H “Special Contract Requirement” that delineate the provisions or methods to price the not-to-exceed option prices.
If the basic contract options are priced, then you must notify the contractor of your intent to exercise the option and exercise the option at the established base contract option price.
If the options are not priced or provide not to exceed prices, I believe a proposal is required to enable you to “definitize” or negotiate the option price.
If schedule is critical for exercising the NTE prices you will need to fund a portion of the not-to-exceed price and establish a definitization schedule pursuant to FAR 16.603 “Letter Contracts”.
If your contract is a Fixed Price Incentive contract and your basic contract option prices were fixed price incentive (FPI), you would exercise the option at the proposed FPI prices after proper FAR 52.217-7 notice of intent to exercise the option.