# Presentation: 689220

## 	   Billie Smith
	   GSFC Procurement 
	       Operations Division
	   October 27, 2004

- 	   GSFC Procurement
- 	       Operations Division
- 	   October 27, 2004

**Options & Exercising****FAR 17.2, NFS 1817.2****and****PIC 03-17**

## Contents

-  Use of Options
-  Options & NASA 5-Year Contract Limitation
-  Option Justifications
-  Option Evaluations
-  Exercise of Options
-  Changes During Exercise of Options
-  Analysis to Support Exercise of Options

## Use of OptionsFAR 17.202(d)

***Options may be authorized when there’s a :***
- Government need in service contracts for continuity of operations; _and_
- (Considering 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.

## Options & Five-Year LimitationNFS 1817.204

- 5-Year Limitation (basic plus options) applies to _***all ***_NASA contracts regardless of type and other procurement award instruments (e.g., BOAs, BPAs, IAs, orders under GSA FSS or other IDIQ contracts)
- Requests for deviations to 5-year limitation shall be approved by Assistant Administrator for Procurement (no blanket deviations)

## Option JustificationsFAR 17.205 

***Contracting Officer (CO) shall justify in writing:***
- Quantities or terms under an option
- Notification period for exercising the option
- Any limitation on option price
- Include the justification in the contract file.
- NFS 1817.203(g)(2), Procurement Officer approval required when option quantities greater than 50 percent of the initial quantity of the same contract line item.

## Option JustificationsVirtual Procurement Office (VPO)

- VP0 contains the attached Option Justification templates under:
- Action:  Acquisition
- Type:  New Simplified Acquisition or
- 	           New Large Acquisition
- Procurement Request and Solicitation Development Section

## VPO Option Justification Template

- MEMORANDUM FOR RECORD
- FROM:	*(Insert Mail Code)*/Contracting Officer
- SUBJECT:	Justification for Use of Options in Solicitation for *(Insert Title of Procurement)*
- The inclusion of *(Insert number and length of options, e.g. 4 one-year)* option periods in the basic *(Insert length of basic contract, e.g. one-year)* contract is hereby determined to be in the best interest of the Government, in accordance with FAR 17.202 and based on the following:
- The Government has a bona fide need for continuity of services to be provided under the *(Insert Title of Procurement)* contract; and
- The potential exists for additional costs due to disrupted support because there is an anticipated need for similar services beyond the basic contract period.
- All necessary option clauses and provisions will be included in the resultant contract ***along with a (insert number) day written advance notification period for exercise of each option***.  Evaluation will be inclusive of the options, as it is considered likely that they will be exercised.
*(Insert Name)*
- Contracting Officer

## VPO Option Justification Template

- MEMORANDUM FOR RECORD
- FROM:	*(Insert Mail Code)*/Contracting Officer
- SUBJECT:	Justification for Use of Options in Solicitation for *(Insert Title of Procurement)*
- In accordance with the policies and procedures of FAR 17.205, _Documentation_, the following information is provided:
- 1.  _The quantities or the term under option_ – *(Insert number of options, e.g. one)* option to increase the work to be performed under the contract will be included in the solicitation and resulting contract, since the results of the base effort will determine whether the Government desires to proceed with *(Insert description of options)*.
- 2.  _The notification period for exercising the option_ -- Subject procurement will not require notifying the Contractor of pending option exercise, for the Government has determined that the absence of such a provision will not hinder the Contractor's ability to adhere to the contract terms.  Contractor agreement to the absence of these provisions will be obtained by virtue of the proposed contract being returned signed by the Contractor.
- 3.  _Any limitation on option price under FAR 17.203(g)_ -- The option price will not be limited to a price no higher than that for the initial period.  The total contract price will increase only as a result of exercising the option, and the price for exercising this option may be higher than initial period price, since the effort that will be performed under the option differs from the base effort.  All option requirements will be included in the evaluation of the competitive offers.
*(Insert Name)*
- Contracting Officer

## Option EvaluationsFAR 17.206 & NFS 1817.206

- CO’s shall evaluate offers for award purposes by adding the total price of all options to the total price for the basic requirement.
- Procurement Officer is the approval authority for determinations not to evaluate offers for any option quantities or periods.

## Exercise of OptionsFAR 17.207 & NFS 1817.207

- CO shall provide written notice to the contractor within the time period specified in the contract.
- 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

## Exercise of OptionsFAR 17.207(c)

- The CO may exercise options only after determining that:
- Funds are available;
- The requirement covered by the option fulfills an existing Government need;
- The exercise of the option is the most advantageous method of fulfilling the Government's need, price and other factors considered; and
- The option was synopsized in accordance with Part 5 unless exempted by 5.202(a)(11) or other appropriate exemptions in 5.202 (basic contract synopsis counts, if it included the option(s)).

## Exercise of OptionsNFS 1817.207(c)(2) [PIC 03-17]

**In addition to determining the option fulfills an existing need, the CO shall determine that there is no change in the scope of the option requirements **.

## Exercise of OptionsLegal Position on Changes to Options

- Changes clause may not be used as authority to reconstitute an option before it is exercised.
- Until an option is exercised, there is no contract requirement which can be changed by the Government under its changes authority.
- Once exercised, or _concurrent with exercise of the option_, the Changes clause may be used to revise the requirements to the extent the revisions are within the general scope of the contract.

## Exercise of OptionsFAR 17.207(d)

- The CO, after considering price and other factors, shall make the determination to exercise the option on the basis of one of the following:
- A new solicitation fails to produce a better price or a more advantageous offer than that offered by the option.
- An informal analysis of prices or an examination of the market indicates that the option price is better than prices available in the market.
- 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.

## Exercise of OptionsFAR 17.207(f)

- Before exercising an option, the CO shall make a written determination for the contract file that:
- Exercise is in accordance with the terms of the option, and
- Exercise is in accordance with the requirements of FAR 17.207 and FAR Part 6 – Competition Requirements.
- 	[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.]

## Analysis to Support Exercise of OptionsNFS 1817.207-70(a) [PIC 03-17]

- The CO’s determination that exercise of the option is the most advantageous method of fulfilling the requirement shall be based on **input and information from the requiring organization**.
- The CO **and the requiring organization** shall ensure that analysis sufficient to support the determination that option exercise is the most advantageous method is completed _***in advance***_ of providing the notice to the contractor required by FAR 17.207(a).
**Sufficient time shall remain in the performance period** to allow the acquisition team to pursue appropriate alternative approaches with minimal impact to the program or project in terms of technical, cost, or schedule risk should the analysis conclude that the best programmatic path is not exercising the option.

## Analysis to Support Exercise of OptionsNFS 1817.207-70(b) [PIC 03-17]

- In addition to the other factors contained in FAR 17.207(e), the determination to exercise the option should include, but is not limited to, consideration of:
- The contractor’s performance in satisfying contract requirements, for example, receiving positive performance ratings (see subpart 1842.15) and the contractor’s level of success in implementing and maintaining small business programs (including mentoring arrangements), which were evaluated as part of the source selection process and incorporated into the awarded contract; and
- The results of market research activities to identify any technical, engineering or scientific advances that offer programmatic benefits or performance improvements beyond those that are contractually available under the option to be exercised.
***Per GSFC Procurement Officer, the determination must include at least one Part 10 Market Research technique.***

## Analysis to Support Exercise of OptionsGuidance [PIC 03-17]

- If the market research analyses conclude that the requirements available under the option exercise no longer offer the best path to success (due to advances in technology, science or business applications), the better decision may be to not exercise the option and pursue an alternate programmatic solution.
- Agency personnel should use their expertise to survey the market and capitalize on those opportunities to achieve programmatic excellence.

## Analysis to Support Exercise of OptionsGuidance [PIC 03-17]

- The determinations supporting option exercise decisions will reflect the input and agreement of program/project management in making option exercise decisions.
- Procurement Officers and Program/Project Managers should ensure that COs and technical acquisition team representatives receive sufficient levels of training in developing and applying effective market research techniques.

##  OptionsNFS 1817.207(f)

- Options under cost type contracts shall contain an estimated cost for the option period(s).
- Use of the provision (or formula) for determining the price of a fixed price option requires advance approval by the Assistant Administrator for Procurement.
- Use of a formula to determine the fee of an option in a cost-type contract requires advance approval of the Assistant Administrator for Procurement. The formula shall preclude the contractor from increasing costs for the purpose of earning additional fee.

## Option Exercise DeterminationVirtual Procurement Office (VPO)

- VP0 contains the attached Option Exercise Determination template under:
- Action:  Acquisition
- Type:  New Simplified Acquisition or
- 		     New Large Acquisition
- Contract Administration Section