Overview
This section addresses the integration of options within multi-year contracts, emphasizing that while they provide strategic benefits, they must comply with standard option regulations and specific pricing restrictions.
Key Rules
- Regulatory Compliance: Contracting officers must adhere to the requirements of FAR Subpart 17.2 when including options in a multi-year contract.
- Restriction on Amortized Costs: Option prices must exclude charges for plant and equipment that have already been amortized during the base period of the contract.
- Exclusion of Nonrecurring Charges: Costs categorized as nonrecurring charges that were already covered in the basic contract cannot be included in the pricing for the options.
Practical Implications
- Prevents "Double-Dipping": These rules ensure that the government does not pay twice for the same capital investments or start-up costs, leading to lower unit prices in option years.
- Pricing Accuracy: Contractors must carefully segregate recurring versus nonrecurring costs during the proposal stage to ensure option prices reflect only the actual cost of continued performance.