Opinion ID: 6661188
Heading Depth: 2
Heading Rank: 4

Heading: Exercise of Options and Government Accountability Office (“GAO”) Protests

Text: On September 11, 2009, the Air Force began considering whether to exercise the first of the two three-year option periods provided for in the ID/IQ contracts, which were set to expire on November 14, 2009. AR Tab 45 at 4603. On September 15, 2009, the program manager indicated in a memorandum that he intended to exercise the first option for American Hospital Service Group, RLM Services, TerraHealth and Luke. AR Tab 45 at 4604. He stated that the “requirements for clinical support services have not changed” and that “[a]ll four contractors have demonstrated substantial or satisfactory performance during the base period of their contracts.” 6 Id. With respect to the remaining two contractors, the memorandum merely stated that “[although this request does not include contracts for the Healing Staff ... and Magnum Medical, Joint Ventee ... there is enough capacity in the exercise of the four contract [ J [options] ... to meet the AFMS demand for services.” AR Tab 45 at 4604. On September 16, 2009, American Hospital Service Group, RLM Services, Luke, and TerraHealth were notified that the Government intended to exercise their contract options. AR Tabs 46-49 (as corrected, docket entry 52, March 16, 2010). On October 20, 2009, the Air Force gave notice to Magnum Medical and Healing Staff that their options would not be exercised. AR Tabs 50-51. Magnum Medical and Healing Staff filed protests with the GAO on November 2, 2009, contending that the Air Force had conducted a limited competition without complying with the requisite laws and regulations and thus GAO review was warranted. On November 12, 2009, the Air Force moved for summary dismissal of these protests on the ground that the exercise of an option is a matter of contract administration not subject to review. Request for Summary Dismissal, B.297687.3, Protest of Magnum Medical Personnel, Joint Venture (Nov. 12, 2009) (docket entry 40-1, filed March 8, 2010). The Air Force stated that “the contracting officer through the normal course of contract administration and in accordance with FAR 17.207,” id. at 3, “determined that Magnum [MedicalJ’s and [Healing Staffs] options should not be exercised because doing so would not be the most advantageous method of fulfilling the government’s needs.” Magnum Medical JV; The Healing Staff, Inc., B-297687.3, B-297687.4, at 2 (Comp.Gen. Dee. 1, 2009) (“GAO Protest Dee.”) (docket entry 33-1, filed March 4, 2010). Also on November 12, 2009, Contracting Officer Clarinda Smith signed four identical documents, one for each of the option awar-dees, titled “Contracting Officer’s Determination to Exercise 1st Option Period.” AR Tab 54 at 5221-24. These memoranda stated that “[i]t is in the best interest of the Government to exercise the 1st option period” and that “[t]his determination is being made in accordance with FAR 17.207.” AR Tab 54 at 5221. Ms. Smith further stated, following the outline of FAR § 17.207(c), that: (a) This modification itself will be used to provide written notice to the contractor, within the time period specified in the contract (Period of Performance: 15 Nov 2009-14 Nov 2012). (b) This contract does provide for economic price adjustment. (c) The contracting officer has determined that— (1) Funds are not required since funding is at the task order level; (2) The requirement covered by the option fulfills an existing Government need; (3) Exercising 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; and (4) This option is exempted from the synopsis requirement in accordance with FAR 5.202(a)(l 1), ...; (d) Prices under the initial Contract were deemed fair and reasonable at the time of award; (e) This determination took into account the Government’s need for continuity of operations and potential costs of disrupting operations. (f) This option is being exercised in accordance with the terms of the option, the requirements of FAR Part 17, and FAR Part 6. The option was evaluated at the time of award and is exercisable. AR Tab 54 at 5221. Ms. Smith concluded each memorandum as follows: “Based on all the preceding facts, and talcing into consideration the contractor’s exceptional performance to date, the Option is considered fair and reasonable, and in the best interest of the Government.” Id. On November 15, 2009, each of the four contracts were modified to exercise the first option period and to incorporate revised Wage Determinations for SCA positions. AR Tabs 55-60. On December 1, 2009, GAO dismissed the protests of Magnum Medical and Healing Staff because the “protests concern a matter of contract administration outside the scope of our bid protest function. Our Office generally will not review an agency’s decision not to exercise an option because a contracting agency is not required to exercise an option.” GAO Protest Dec. at 2. GAO declined to reach Magnum Medical’s argument that the Air Force had failed to comply with FAR § 17.207 in deciding whether to exercise the options because, GAO determined, the argument had not been raised in a timely manner according to GAO rules. Id. at 3 n. 1. In mid-December, Magnum Medical and Healing Staff filed motions for reconsideration at the GAO. Those motions had not been acted upon when, on February 18, 2010, Magnum Opus, one of the joint venturers in Magnum Medical, filed a bid protest in this Court (docket entry 1). The complaint asserted that because the NTE pricing had been eliminated from the contracts, the Air Force had exercised unpriced options in violation of FAR § 17.207. Magnum Opus Compl. 111. On February 26, Healing Staff filed a separate complaint, which was consolidated with Magnum Opus’s lawsuit. See Order Consolidating Case with Civil Action No. 10-106, The Healing Staff Inc. v. United States, No. 10-127 (docket entry 7, Feb. 26, 2010). Healing Staff also alleged a violation of FAR § 17.207, and further alleged that the Government wrongfully failed to disclose that it would use performance evaluations in determining whether to exercise the options. Healing Staff alternatively asserted that the use of performance evaluations in deciding which options to exercise resulted in a de facto competition in which only two of six contractors were downselected, in violation of CICA. Healing Staff Compl. ¶ 1. Awardees Luke and TerraHealth intervened in the consolidated lawsuits to defend the legality of the exercise of the options in their contracts (docket entry 20, Feb. 26, 2010 & docket entry 29, March 2, 2010).