Overview
FAR 17.202 establishes the criteria and restrictions for including options in federal contracts, specifying that they should be used only when in the Government’s best interest and when certain market or requirement conditions are met. It provides a framework to balance the need for administrative convenience and continuity against the preference for full and open competition.
Key Rules
- General Authority: Contracting officers (COs) may include options in both sealed bidding and negotiated contracts, provided they serve the Government’s interest.
- Sealed Bidding Limitation: In sealed bidding, a CO must provide a written determination that there is a "reasonable likelihood" the options will be exercised before including the "Evaluation of Options" provision.
- Prohibitions on Use: Options shall not be used if:
- The contractor would incur undue risk (e.g., unforeseeable labor or material costs).
- Market prices for the supplies or services are likely to fluctuate substantially.
- The requirement is a known firm need for which funds are already available (unless it is a "learning" or "testing" quantity where future competition is impracticable).
- Avoidance of Options: Options are normally discouraged if the requirement involves "minimum economic quantities" and a timeline that allows for a future competitive acquisition, or if an Indefinite Quantity/Requirements contract is more appropriate.
- Service Contracts: Options are explicitly encouraged for service contracts to ensure "continuity of operations" and to avoid the costs associated with disrupted support.
Practical Implications
- Justification Requirements: Contracting officers must document their rationale for using options, ensuring they aren't bypasses for requirements that should be competed as standalone contracts.
- Risk Management: This section protects both the Government and the contractor from "locked-in" pricing during periods of high economic volatility or when requirements are too ill-defined to price accurately in advance.
- Standard for Services: For most recurring service requirements, the need for continuity typically outweighs the preference for immediate re-competition, making the "base plus four option years" a common industry standard.