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    Is it possible to exercise the option for less than the full 12 months as specified in the contract? Do we have to go back to the contractor to let them reprice the option year? Do we have to terminate for convience? Is there any FAR references that address this issue?


    Answer

    Question: Do we have to go back to the contractor to let them re-price the option year?

    ANS: Yes, but you may have to execute a J&A to negotiate on a sole source basis if, via market research, you determine that price competition for the option is available and that competition would not result in a lower price for the changed work. You also have to consider the impact of your program’s continuity of operations and costs associated with disruption of the work effort while competing the option.
    Assuming that you had a competitive acquisition and the option was evaluated for award in accordance with FAR 17.206. 

    FAR 17.207(f) states “Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6. To satisfy requirements of Part 6 regarding full and open competition, the option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract.” 


    We contend that you would not be exercising the option at an amount specified in the basic contract. The effort will now be 10 vice 12 months duration.
     

    FAR 17.207(c) states that the contracting officer may exercise options only after determining that--
    (1) Funds are available;
    (2) The requirement covered by the option fulfills an existing Government need;
    (3) The exercise of the option is the most advantageous method of fulfilling the Government’s need, price and other factors (see paragraphs (d) and (e) of this section) considered;

    We further contend that the option on your contract does not meet the FAR 17.207(c)(2) requirement of fulfilling an existing Government need (12 vs 10 months effort). The original need may be met but the duration has changed. Thus the option you seek to exercise on the face of your basic contract doesn’t meet your need (10 vs 12 months).

    The “new” effort would have to be negotiated. However, you need to determine if re-competing the effort will result in a lower price and if that be the case, you need to recompete. If not, execute a J&A and negotiate the changed condition (10 months vice 12). 

    After the J&A has been approved, we would request a proposal for the de-scoped option requirement, negotiate it, and incorporate the requirement into the contract to include a change to the period of performance.
    Comptroller General decisions, etc., provide more light on some of the issues associated with renegotiating the price of options. 
     
    Magnavox Electronic Systems Company, (Nov. 02, 1988)

    "An agency is not permitted to negotiate with the awardee to reduce the option price stated in the contract if price competition for the option quantity is available. Varian Associates, Inc., B-208281, Feb. 16, 1983, 83-1 CPD 160, aff’d in relevant part sub nom Department of the Army--Reconsideration, B-208281.2, July 12, 1983, 83-2 CPD 78." 

     
    Question:  Do we have to terminate for convenience?
     
    ANS: It is not recommended to terminate for convenience an option that doesn’t meet your requirement. First get the requirement right and then exercise an option that meets our requirement.
     
    After saying all of the above, you need to speak with your legal authority on the specifics of your contract instance.


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