17.207 Exercise of options
Source: FAR 17.207 on acquisition.gov
FAR 17.207 requires contracting officers to thoroughly justify, document, and notify contractors when exercising options, ensuring the action is in the Government’s best interest and compliant with all regulatory requirements.
Overview
FAR 17.207 outlines the procedures and requirements for contracting officers when exercising options in government contracts. The section ensures that options are exercised only when it is in the Government’s best interest, funds are available, and all regulatory and contractual conditions are met. It details the steps for notification, price evaluation (especially when economic price adjustments are involved), and the necessary determinations and documentation. The regulation also emphasizes market analysis, contractor performance, and compliance with competition requirements.
Key Rules
- Written Notice Requirement
- Contracting officers must provide written notice to the contractor within the contractually specified timeframe when exercising an option.
- Economic Price Adjustment
- If the contract allows for economic price adjustment and the contractor requests a price revision, the effect on option prices must be determined before exercising the option.
- Preconditions for Exercising Options
- Options can only be exercised if funds are available, the requirement is valid, the option is the most advantageous method, the option was properly synopsized, the contractor is not excluded, and past performance is satisfactory.
- Market Analysis
- The contracting officer must determine that the option price is the best available through market analysis or comparison with new solicitations.
- Consideration of Other Factors
- Determinations should consider continuity of operations and potential impacts on small businesses.
- Written Determination and Documentation
- A written determination must be made and filed, confirming compliance with the contract, this section, and competition requirements.
- Citing Authority
- The contract modification or notification must cite the option clause as authority.
Responsibilities
- Contracting Officers: Must ensure all regulatory and contractual conditions are met, conduct market analysis, document determinations, and provide timely written notice.
- Contractors: Should be aware of performance expectations and economic price adjustment provisions.
- Agencies: Must oversee compliance and ensure proper documentation and competition requirements are met.
Practical Implications
- This section ensures options are exercised only when justified and beneficial to the Government, protecting against automatic or unjustified extensions. It requires careful documentation, market analysis, and performance review, helping prevent waste and ensuring fair competition. Common pitfalls include failing to document determinations, missing notification deadlines, or not properly analyzing market conditions.
(a) When exercising an option, the contracting officer shall provide written notice to the contractor within the time period specified in the contract.
(b) When the contract provides for economic price adjustment and the contractor requests a revision of the price, the contracting officer shall determine the effect of the adjustment on prices under the option before the option is exercised.
(c) 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;
(4) The option was synopsized in accordance with part 5 unless exempted by 5.202(a)(11) or other appropriate exemptions in 5.202;
(5) The contractor does not have an active exclusion record in the System for Award Management (see FAR 9.405-1);
(6) The contractor’s past performance evaluations on other contract actions have been considered; and
(7) The contractor’s performance on this contract has been acceptable, e.g., received satisfactory ratings.
(d) The contracting officer, after considering price and other factors, shall make the determination on the basis of one of the following:
(1) A new solicitation fails to produce a better price or a more advantageous offer than that offered by the option. If it is anticipated that the best price available is the option price or that this is the more advantageous offer, the contracting officer should not use this method of testing the market.
(2) An informal analysis of prices or an examination of the market indicates that the option price is better than prices available in the market or that the option is the more advantageous offer.
(3) The time between the award of the contract containing the option and the exercise of the option is so short that it indicates the option price is the lowest price obtainable or the more advantageous offer. The contracting officer shall take into consideration such factors as market stability and comparison of the time since award with the usual duration of contracts for such supplies or services.
(e) The determination of other factors under paragraph (c)(3) of this section-
(1) Should take into account the Government’s need for continuity of operations and potential costs of disrupting operations; and
(2) May consider the effect on small business.
(f) 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, e.g.-
(1) A specific dollar amount;
(2) An amount to be determined by applying provisions (or a formula) provided in the basic contract, but not including renegotiation of the price for work in a fixed-price type contract;
(3) In the case of a cost-type contract, if-
(i) The option contains a fixed or maximum fee; or
(ii) The fixed or maximum fee amount is determinable by applying a formula contained in the basic contract (but see 16.102(c));
(4) A specific price that is subject to an economic price adjustment provision; or
(5) A specific price that is subject to change as the result of changes to prevailing labor rates provided by the Secretary of Labor.
(g) The contract modification or other written document which notifies the contractor of the exercise of the option shall cite the option clause as authority.