What is an option?
An option is a unilateral right in a contract by which, for a specified time, the government may elect to purchase additional supplies or services called for by the contract or may elect to extend the term of the contract.
Who is authorized to exercise an option on a contract?
The CO is the only individual authorized to exercise an option on behalf of the government.
What is the COR's role in exercising an option?
The COR may be asked to assist the CO in processing the option and providing written notice to the contractor within the time specified in the contract.
What will the COR need to do to process an option?
The COR will need to perform the following tasks to successfully complete this duty:
1. Evaluate available options
2. Determine the need for additional supplies, services, or time
3. Research the market for the latest pricing information
4. Document the option in the COR contract file and provide written data to the CO.
An option is processed successfully when:
The option is exercised within the time frame established in the contract
Relevant market research data are submitted to support the recommendation to exercise the option
The option represents the most advantageous method of satisfying the government's need, considering price and other related factors.
Evaluating Available Options
What role does the COR play in evaluating available options?
The COR should become familiar with the contract in order to assist the CO in evaluating and processing the option. To this end, the COR must:
1. Thoroughly read and review the contract
2. Analyze the government's position.
1. Thoroughly reading and reviewing the contract
The COR should:
- Understand the requirement, the pricing information, the terms and conditions of the original contract containing the option provision, and the time frame needed to exercise the option
- Determine if it is in the government's best interest to exercise the option.
The COR should begin this step at least six months before the option is due to be exercised to ensure that enough time is allowed to make an informed decision about the option.
In supply-type contracts, options may be appropriate when the basic quantities (quantities provided for in the contract apart from the option quantities) are meant for learning or testing purposes, or competition for the options is not possible once the initial contract has been awarded.
2. Analyzing the government's position The COR should ensure that:
- Funding for the option is available
- The requirements covered by the option fulfill an existing government need
- Exercising the option is the most advantageous method of fulfilling the need, based on price or cost and other considerations.
The option can be exercised only:
- Prior to the date specified in the contract for exercising it
- In accordance with the terms and conditions of the contract.
Determining the need for Additional supplies, services, or time
How does the COR help the CO determine the need for, and possible impact of, an option?
The COR will submit to the CO a written determination in the form of a letter, memorandum, or report that will include information about:
Government requirements supporting the need to exercise the option
The advantages of exercising the option
The technical impact and the value of the option
Funding availability for the option.
The COR's documentation will assist the CO in making a decision about the proposed option. After reviewing the documentation, the CO will send a written notice to the contractor advising the contractor of the government's intent to exercise (or not exercise) the option. This notice should be submitted to the contractor at least 60 days (or within the timeframe specified in the contract) before the effective date of the option.
Consideration of whether to exercise the option can proceed if, at this point, the decision is made that:
There is an existing need for the additional supplies, services, or time and
There are funds available to exercise the option.