In our previous discussion on exercising options, we established that you must determine exercising the option is the “most advantageous method” for the Government, price considered. But how do you actually prove that?
When you awarded the base contract three years ago, the price was fair. But markets shift. Inflation spikes, or technology makes old tech cheaper. As a Contracting Officer, you cannot simply assume the price is still good. You must validate it under FAR 17.207(d).
The Three Methods of Validation
According to FAR 17.207(d), the Contracting Officer may determine the option price is fair and reasonable by using one of the following methods:
1. Market Research (The “Sanity Check”)
This is the most robust method. You conduct informal market research to see what the current commercial rates are. If the option price is $50/hour, but a quick search shows the current market rate is $45/hour, exercising that option might not be advantageous unless the administrative costs of re-competing outweigh the savings.
2. Comparison to Recent Prices
Have you (or another agency) purchased the same or similar supplies/services recently? If you awarded a separate contract for similar widgets last month at a price close to your option price, you can cite that recent award as your comparison benchmark.
3. Evaluation at Time of Award (The “Easy Button”)
This is the method used 90% of the time, but it comes with a warning. You can rely on the determination made at the initial contract award IF:
- The option prices were evaluated as part of the initial competition; AND
- There is no reason to believe the market has fluctuated significantly.
Veteran Insight: The “Administrative Cost” Justification
What happens if your option price is slightly higher than the current market? Do you have to re-compete?
Not necessarily. FAR 17.207(e) allows you to consider the administrative costs of conducting a new acquisition. It costs the government thousands of dollars (in man-hours) to solicit, evaluate, and award a new contract. Furthermore, there are transition costs and potential disruption of service.
The Pro Move: If the option price is slightly above market, write a Memo for Record (MFR) quantifying the cost of a new acquisition (e.g., “It would cost $15k in man-hours to re-compete this requirement to save $2k on the price”). This creates a rock-solid “Most Advantageous” determination.
Summary: Don’t just rubber-stamp the option exercise. A simple internet search or a look at the PPI (Producer Price Index) can save you from an embarrassing audit finding later. Document your logic in the D&F.