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13 Federal Contracting Considerations Before Exercising an Option
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My goal in this blog post is to offer you a glimpse into what a contracting officer considers when exercising an option to a federal government contract. If you are a contracting officer, you will find this helpful. If you are a business who is looking to do business with the federal government, or already have a federal government contract, you will find this helpful as well. It will give you an idea of the types of things contracting officers consider, and the thought process that goes into the decision.
In accordance with Federal Acquisitions Regulations (FAR) Part 17.207, there are certain things that a contracting officer must determine before exercising an option. That portion of the regulations list 7 or 8, but I'm going to give you a full list of 13 things that we look at, or should be considering, each and every time we consider exercising an option.
1. Was the notification sent to the contractor of the governments intent to exercise the option? A written notice should be provided to the contractor within the time period specified in the contract. If notice wasn't given, often times you will see a bilateral modification to exercise the option. If notice was given, you will usually see a unilateral modification.
2. Check to see what option clauses were included in the original contract. Was it 52.217-7, 52.217-8, or 52.217-9? And specifically what were the terms (timeframes) specified? This sounds like a no-brainer but sometimes, the base is never looked at. Attention should always be given to what was originally stated in the original contract.
3. Was the option itself evaluated at the time of award? This one is often overlooked but should be considered. FAR notes that 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. Often overlooked, but important.
4. Does the government have a "need" for the requirement? The need must be ascertained at the time the option is exercised. If there is no longer a need for the option, then obviously the option should not be exercised.
5. Are government funds available for obligation, for the option? Again, this one sounds like something that is automatic, but not necessarily. According to the laws and rules for fiscal law, it's very important that we ensure funds are available to be obligated for the option. A violation in this area could be very serious.
6. Is the exercise of the option the most advantageous method of fulfilling the Government’s need, with price and other factors considered. We can do this through some semblance of market analysis to inquire if better pricing is available, and document it.
7. Has the option been synopsized in accordance with FAR Part 5, unless exempt? There are many cases where exemptions apply. Be sure to make a note of this.
8. Does the contractor have satisfactory past performance on other contracts? Past performance on other contracts matters a lot.
9. Does the contractor have satisfactory performance on this contract? Obviously we are assessing whether or not the contractor has been doing a good job on this current contract. If not, there may be reason not to proceed with the exercising of this option.
10. Does the contractor have good overall business ethics? This is subjective, but is nevertheless something that must be considered.
11. Does the contractor have adequate funding to complete the requirements of the option? It is important that we take note and ensure that the contractor can actually fund the option that is being exercised.
12. Does the contractor have the necessary equipment enabling them to be able to deliver/perform? Similarly, it is vital that the contract have the necessary equipment that will allow them to deliver or perform the necessities involved with the option. Because the contractor was found "responsible" and capable a year ago, does not mean they still have those same capabilities today.
13. Is the contractor still not on the excluded parties list in SAM? We have to ensure that a contractor has not made it to the excluded parties list. If a contractor has made it to that list, it does not automatically prevent us from exercising an option. But it must be weighed and considered, as we determine whether or not to exercise the option.
Hopefully this blog post gives you a small glimpse into the thought process that the government should go through everytime it's contemplating exercising an option.
Feel free to reach out to me with questions.
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