Overview
FAR 17.203 prescribes the mandatory requirements for drafting solicitations that include options, ensuring that offerors are fully informed of how option quantities and prices will be evaluated and exercised. It establishes the default rule of pricing flexibility while providing specific constraints for unusual circumstances where option prices must be capped.
Key Rules
- Mandatory Provisions: Solicitations must include appropriate option clauses and explicitly state whether evaluation for award will be inclusive or exclusive of the options.
- Pricing Flexibility: Solicitations normally allow offerors to price options without limitation; however, if options are evaluated for award, the government cannot impose price limitations on those options.
- Price Variation Disclosure: If unit prices for options differ from the basic requirement, the solicitation must state that offerors may vary prices based on quantities and ordering dates.
- Price Caps (Unusual Circumstances): The government may only require option prices to be no higher than the initial requirement if future competition is impracticable or the option cannot be evaluated under FAR 17.206.
- Quantity Limitations: When price caps are used, additional supply quantities are generally limited to 50% of the initial line item quantity unless a higher level approves.
- Trade Agreements: The total value of all options must be included when determining if the procurement exceeds World Trade Organization (WTO) or Free Trade Agreement thresholds.
Practical Implications
- Evaluation Transparency: Contracting Officers must be precise in stating the evaluation basis (e.g., evaluating the "highest option price") to prevent bid protests regarding how the "best value" or "lowest price" was determined.
- Strategic Pricing: Offerors have the freedom to use "stepped pricing" or volume discounts for options unless the solicitation specifically invokes the restrictive "unusual circumstances" clauses.