17.202 Use of options
Source: FAR 17.202 on acquisition.gov
Options may only be included in contracts when it is in the government's interest and must not expose contractors to undue risk or circumvent competitive acquisition for known requirements.
Overview
FAR 17.202 outlines the circumstances and limitations under which contracting officers may include options in government contracts. Options allow the government to purchase additional supplies or services at predetermined terms in the future. The regulation applies to both sealed bidding and negotiated contracts, but requires a written determination of the likelihood of exercising options for sealed bids. It also sets out when options are not in the government's interest, such as when requirements are predictable and can be competitively acquired, or when indefinite quantity or requirements contracts are more suitable. The section prohibits the use of options if they would expose the contractor to undue risk, if market prices are volatile, or if the option covers known firm requirements with available funding (with limited exceptions). For service contracts, options may be used to ensure continuity of operations and avoid the costs of disrupted support when future needs are anticipated.
Key Rules
- Inclusion of Options
- Contracting officers may include options when it serves the government's interest, with a written determination required for sealed bidding.
- When Not to Use Options
- Options are generally not appropriate if requirements are predictable and can be competitively acquired, or if an indefinite quantity/requirements contract is more suitable.
- Prohibitions on Options
- Options must not be used if they impose undue risk on contractors, if market prices are likely to change significantly, or if they cover known requirements with available funds (except for learning/testing quantities where competition is impracticable).
- Service Contracts
- Options may be included to ensure continuity of operations and avoid disruption costs when future needs are anticipated.
Responsibilities
- Contracting Officers: Must assess the appropriateness of options, document determinations for sealed bids, and avoid options in prohibited scenarios.
- Contractors: Should understand when options may be included and the risks involved.
- Agencies: Oversee compliance with option use policies and ensure proper documentation.
Practical Implications
- This section ensures options are used judiciously to protect government and contractor interests.
- It impacts contract planning, pricing, and risk management.
- Common pitfalls include improper justification, using options for firm requirements, or exposing contractors to undue risk.
(a) Subject to the limitations of paragraphs (b) and (c) of this section, for both sealed bidding and contracting by negotiation, the contracting officer may include options in contracts when it is in the Government’s interest. When using sealed bidding, the contracting officer shall make a written determination that there is a reasonable likelihood that the options will be exercised before including the provision at 52.217-5, Evaluation of Options, in the solicitation. (See 17.207(f) with regard to the exercise of options.)
(b) Inclusion of an option is normally not in the Government’s interest when, in the judgment of the contracting officer-
(1) The foreseeable requirements involve-
(i) Minimum economic quantities (i.e., quantities large enough to permit the recovery of startup costs and the production of the required supplies at a reasonable price); and
(ii) Delivery requirements far enough into the future to permit competitive acquisition, production, and delivery.
(2) An indefinite quantity or requirements contract would be more appropriate than a contract with options. However, this does not preclude the use of an indefinite quantity contract or requirements contract with options.
(c) The contracting officer shall not employ options if-
(1) The contractor will incur undue risks; e.g., the price or availability of necessary materials or labor is not reasonably foreseeable;
(2) Market prices for the supplies or services involved are likely to change substantially; or
(3) The option represents known firm requirements for which funds are available unless-
(i) The basic quantity is a learning or testing quantity; and
(ii) Competition for the option is impracticable once the initial contract is awarded.
(d) In recognition of-
(1) The Government’s need in certain service contracts for continuity of operations; and
(2) The potential cost of disrupted support, options may be included in service contracts if there is an anticipated need for a similar service beyond the first contract period.