1. “Creative Use of Legal Options and How to Keep Them Alive!” Shawna Bowshot April 22, 2015 NCMA Training Workshop

2. Overview What is an Option? When is an Option used? Rules for use (summary) Risks for not using properly Creative Uses How to keep them alive Activities throughout Questions

3. What is an Option? The contracting officer may include options in contracts when it is in the Government’s interest, after considering price and other factors. FAR 17.202- Options; FAR 17.203-206 Solicitation, evaluation, documentation etc.; FAR 17.7 use of options (main focus of this training) Clauses for use of options (FAR 17.208): 52.217-3 Evaluation Exclusive of Options. 52.217-4 Evaluation of Options Exercised at Time of Contract Award 52.217-5 Evaluation of Options Clauses for types of options: 52.217-6 Option for Increased Quantity. 52.217-7 Option for Increased Quantity—Separately Priced Line Item 52.217-8 Option to Extend Services. 52.217-9 Option to Extend the Term of the Contract.

4. What is an Option? Used when (summary): A new solicitation may or fails to produce a better price or more advantageous offer Informal analysis of prices & examination of the market indicates that the option price is better than prices available or that the option is the more advantageous offer The timing between award and exercise of option indicates the option price is the lowest price obtainable or the more advantageous offer considering market stability time since award & duration of contracts for such supplies or services The CO should take into account the Government’s need for continuity of operations, potential costs of disrupting operations and may consider the effect on small business. Note to contractors: options are not guaranteed, must still put forth best pricing and be in best interest of gov’t at the time. Cannot protest gov’ts decision to not exercise the option- unilateral right.

5. When is an Option used? Contract type: all* types for services and commodities, though IDIQ is preferred over options if contemplating lots of options (does not preclude the use of an IDIQ) *consider FAR 17.204 The Government’s need in certain service contracts for continuity of operations; and 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 Pre-determined and included in solicitation with known requirements Funds will be available The basic quantity is a learning or testing quantity and competition for the option is impracticable Can be added after award in certain circumstances (ex. sole-source, only one responsible source; J&A, acq plan amendment etc., D&F required)

6. When an Option is not used Inclusion of an option is normally not in the Government’s interest when, in the judgment of the contracting officer— Too much risk to the government (price or performance) – Market prices for the supplies or services involved are likely to change substantially – Poor contractor performance – price or availability of necessary materials or labor is not reasonably foreseeable (Minimum economic quantities) – Economic drivers reduce prices or increase competition Too much risk to the risk to contractor (contractor will incur undue risks due to losing funds, personnel, expertise, etc.) Delivery requirements too far into the future to permit competitive acquisition, production, and delivery Other reasons why Reacquisition better gov’t interest

7. Rules for Option Use The contracting officer shall make a written determination that there is a reasonable likelihood that the options will be exercised: D&F for inclusion of options in a contract Include the provision at 52.217-5,52.217-5 Send an intent to exercise (at specified time ahead of performance expiration as identified in the provision)-- conserves Government unilateral right Pre-price option periods at solicitation including 6 month option extension of services (52.217-8)

8. Rules for Option Use D&F to exercise an option See 17.207(f) with regard to the exercise of options.) The contracting officer may exercise options only after determining that—17.207 Funds are available; Economic price adjustments (EPAs) are considered and negotiated before the exercise of an option The requirement covered by the option fulfills an existing Government need & is most advantageous to the Government (price and other factors) The option was synopsized in accordance with Part 5 unless exempted by 5.202Part 55.202 The contractor is not listed in the System for Award Management Exclusions (see FAR 9.405-1);9.405-1 The contractor’s past performance evaluations on other contract actions have been considered; The contractor’s performance on this contract has been acceptable, e.g., received satisfactory ratings. Options may also require J&A depending on acquisition plan and stage of adding/exercising the option. In the case of a cost-type contract, consider needs for EPAs, fee plans, labor rate changes, etc.

9. Risks for not using Options properly Lose Government unilateral right Bilateral induces claims or increased cost Anti-Deficient if you don’t have funds Expiring period of performance if forgotten or disregarded Disruption/end of service Re-acquisition time and costs Others?

10. Activity Options on a contract are added in 12 month increments. Move to the side of the room of which you would answer—let’s discuss! Left Side: True Right side: False Front: I am not sure, or it depends.

11. Activity; Common Option Characteristics Can be off the fiscal year if allowable for the agency (i.e. DoD can cross fiscal years on a contract as long as proper funding rules apply but many other agencies must follow fiscal year) Can be various lengths Can have various requirements or added tasks How about some legal, creative uses of options?

12. Creative Uses of Options Have option alternatives (i.e. more than one pre-priced option) Have pre-priced optional packages for work that are turned on via mod and with funds but are not options Options as an incentive-- award term (incentive opportunities pre-identified w/ measured objectives) Different PWS/SOW/SOOs for options Time to consider change in economic adjustment or increase in fee or incentives – Some FAR regulations and rules apply; legal council imperative PROS: Continuity of svc/ctr- ID up front at competitions to avoid protest etc Helps to define scope and optional directions of research, svc needs if budget uncertainty coming, or qty/design changes for procurement, production etc Prepares contract/customer for last minute funds for recognized requirements, flexibility, reduce costs for planning, more likely to award options- good for all CONS: Requires more planning, time, pre-proposal costs, pricing efforts and cost analysis, May not ever use; Agency dependent

13. Activity It is 5pm. You are new to a contract and the PM just told you that the PoP ends at midnight. He doesn’t have money but it is coming. Can you award the option? Move to the side of the room of which you would answer—let’s discuss! Left Side: Yes Right side: No Front: I am not sure, or it depends.

14. Activity The PoP ended 5 days ago and the option was forgotten. The service is absolutely needed. Can you award the option? Move to the side of the room of which you would answer—let’s discuss! Left Side: Yes Right side: No Front: I am not sure, or it depends.

15. Activity; Consider Option Characteristics Sole source; J&A—or one of the other exceptions in the FAR Stop work orders Funding timing via CRA/ Gov’t shutdown, etc. Agency requirements Claims How about some ways to keep options from getting this far without an award?

16. How to Keep them Alive Why? High interest of all parties in most cases Trigger all parties for intent letter timing (per clause) on various media to remember Without funds to continue past a certain point (ex. CRA)- issue stop work J&A requirements? Have in place well in advance No PoP = no contract in most cases: contractor needs to re-compete, Government runs new acquisition—protest prospect if rushed Time tables: make sure all are aware of milestones Contractors can help with option timing reminders Tie reminders and timing to initial CPARS input or other action (award fee board input etc.) Set time frame in clause at low interval-15 or 30 days vs 60+

17. Questions? Share time- your ideas, experiences, questions, other thoughts? Thank you for coming!