B-225165, B-225166, JAN 16, 1987, OFFICE OF GENERAL COUNSEL

B-225165, B-225166, JAN 16, 1987, OFFICE OF GENERAL COUNSEL

PROCUREMENT - SPECIAL PROCUREMENT METHODS/CATEGORIES - MULTI-YEAR PROCUREMENT - PRICES - OPTIONS DIGEST: 1. IN RESPONSE TO REQUEST FOR COMMENTS ON FEDERAL ACQUISITION REGULATION (FAR) CASE NO. 86-52, A PROPOSAL TO AMEND SECTIONS OF FAR SUBPART 17.2 AND FAR SEC. 52.217-5 CONCERNING CONTRACT OPTIONS, THE GENERAL ACCOUNTING OFFICE OFFERS SUGGESTIONS WITH RESPECT TO (1) THE APPLICABILITY OF THE REVISED SECTIONS TO SERVICE CONTRACTS, (2) THE NEED TO PRICE ALL CONTRACT OPTIONS AT THE TIME OF THE INITIAL CONTRACT AWARD, AND (3) THE NEED FOR CORRESPONDING CHANGES TO FEDERAL PROCUREMENT DATA SYSTEM REPORTING REQUIREMENTS. PROCUREMENT - SEALED BIDDING - CONTRACTING OFFICER DUTIES - PLANNING - FEDERAL PROCUREMENT REGULATIONS/LAWS - REVISION PROCUREMENT - COMPETITIVE NEGOTIATION - CONTRACTING OFFICER DUTIES - PLANNING - FEDERAL PROCUREMENT REGULATIONS/LAWS - REVISION 2. GENERAL ACCOUNTING OFFICE HAS NO COMMENTS ON FEDERAL ACQUISITION REGULATION (FAR) CASE NO. 86-57, A PROPOSAL TO ADD PARAGRAPH (B)(2)(IV) TO FAR SEC. 7.105 TO REQUIRE A CONTRACTING OFFICER'S WRITTEN ACQUISITION PLAN TO ADDRESS COMPETITION AT THE SUBCONTRACT LEVEL, WHEN SUCH COMPETITION IS BOTH FEASIBLE AND DESIRABLE.

MS. MARGARET A. WILLIS:

THIS RESPONDS TO YOUR LETTER OF NOVEMBER 4, 1986, REQUESTING OUR COMMENTS ON FEDERAL ACQUISITION REGULATION (FAR) CASE NOS. 86-52 AND 86 57.

FAR CASE NO. 86-52 IS A PROPOSAL TO AMEND SECTIONS OF FAR SUBPART 17.2, ENTITLED "OPTIONS," AND FAR SEC. 52.217-5 IN RESPONSE TO RECOMMENDATIONS CONTAINED IN OUR REPORT, PROCUREMENT: THE USE OF UNPRICED OPTIONS AND OTHER PRACTICES NEEDS REVISION, GAO/NSIAD-86-59, APRIL 1986. RECOMMENDED ON PAGE 21 OF THAT REPORT THAT THE SECRETARY OF DEFENSE TAKE ACTION TO HAVE THE FAR AMENDED TO REQUIRE THAT ALL CONTRACT OPTIONS BE PRICED AT THE TIME OF AWARD OF THE INITIAL CONTRACT. WITH REGARD TO EXISTING CONTRACTS CONTAINING UNPRICED OPTIONS, WE RECOMMENDED THAT THE SECRETARY ENSURE THAT THE EXERCISE OF SUCH OPTIONS BE JUSTIFIED AND APPROVED AS PROCUREMENTS USING OTHER THAN COMPETITIVE PROCEDURES. RECOMMENDED FURTHER ON PAGE 40 THAT THE FAR BE AMENDED TO REQUIRE THAT ALL CONTRACT OPTIONS TO EXTEND SERVICE CONTRACTS THAT ARE LIKELY TO BE EXERCISED BE EVALUATED IN CONNECTION WITH THE AWARD OF THE INITIAL CONTRACT, UNLESS IT IS DETERMINED THAT NOT DOING SO WOULD BE MORE ADVANTAGEOUS TO THE GOVERNMENT. EXCEPT FOR THE COMMENTS BELOW, WE HAVE NO OBJECTION TO THE CHANGES PROPOSED IN FAR CASE NO. 86-52.

PROPOSED FAR SEC. 17.206(A) WOULD STATE THAT CONTRACTING OFFICERS NORMALLY SHOULD EVALUATE OFFERS FOR OPTION QUANTITIES WHEN IT IS LIKELY THAT THE GOVERNMENT WILL EXERCISE SUCH OPTIONS. PROPOSED FAR SEC. 17.206(B) WOULD PROVIDE EXAMPLES OF THE CONDITIONS UNDER WHICH OFFERS FOR OPTION QUANTITIES NEED NOT BE EVALUATED. SINCE THESE PROPOSED PROVISIONS REFER TO OPTION "QUANTITIES," HOWEVER, IT IS UNCLEAR WHETHER THEY WOULD APPLY ONLY TO SUPPLY CONTRACTS OR WOULD APPLY ALSO TO SERVICE CONTRACTS, AS WE RECOMMENDED IN OUR REPORT. WE SUGGEST THEREFORE THAT THE WORDS "OR PERIODS" BE INSERTED AFTER THE PHRASE "OPTION QUANTITIES" WHEREVER IT APPEARS IN PROPOSED FAR SEC. 17.206.

THE PROPOSED AMENDMENT OF FAR SEC. 17.207(F) WOULD STATE THAT THE EXERCISE OF AN OPTION MUST BE IN ACCORDANCE WITH, AMONG OTHER THINGS, THE REQUIREMENTS OF FAR PART 6 REGARDING FULL AND OPEN COMPETITION, AND THAT THESE REQUIREMENTS CAN BE SATISFIED ONLY IF THE OPTION IS PRICED AT AN AMOUNT SPECIFIED IN, OR REASONABLY DETERMINABLE FROM, THE TERMS OF THE BASIC CONTRACT. THIS PROVISION IS CONSISTENT WITH THE POSITION EXPRESSED IN OUR REPORT THAT THE EXERCISE OF AN UNPRICED OPTION SHOULD BE CONSIDERED AN ACQUISITION THROUGH THE USE OF OTHER THAN COMPETITIVE PROCEDURES. THE PROPOSED AMENDMENT FALLS SHORT, HOWEVER, OF ESTABLISHING A GENERAL REQUIREMENT THAT CONTRACT OPTIONS BE PRICED AT THE TIME OF THE INITIAL CONTRACT AWARD. WE SUGGEST THAT FAR SUBPART 17.2 INCLUDE A STATEMENT THAT, AS A GENERAL RULE, ALL OPTIONS SHOULD BE PRICED AT THE TIME OF THE INITIAL CONTRACT AWARD.

FINALLY, SINCE THE EXERCISE OF AN UNPRICED OPTION WOULD BE CONSIDERED THE USE OF OTHER THAN COMPETITIVE PROCEDURES UNDER PROPOSED FAR SEC. 17.207(F), IT SHOULD BE REPORTED AS SUCH TO THE FEDERAL PROCUREMENT DATA SYSTEM (FPDS). HOWEVER, NEITHER THE FPDS REPORTING MANUAL, REFERRED TO IN FAR SEC. 4.602(B), NOR THE DEPARTMENT OF DEFENSE FAR SUPPLEMENT'S INSTRUCTIONS FOR REPORTING TO THE FPDS, 48 C.F.R. SEC.204.671-5 (1985), PROVIDE FOR REPORTING THE EXERCISE OF AN UNPRICED OPTION AS THE USE OF OTHER THAN COMPETITIVE PROCEDURES. THEREFORE, IF THE PROPOSED CHANGE TO FAR SEC. 17.207(F) IS ADOPTED, THE ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY AND THE DIRECTOR OF THE DEFENSE ACQUISITION REGULATORY COUNCIL SHOULD BE ADVISED TO MAKE THE APPROPRIATE CHANGES TO THESE REQUIREMENTS.

FAR CASE NO. 86-57 IS A PROPOSAL TO ADD PARAGRAPH (B)(2)(IV) TO FAR SEC. 7.105 TO REQUIRE A CONTRACTING OFFICER'S WRITTEN ACQUISITION PLAN TO ADDRESS COMPETITION AT THE SUBCONTRACT LEVEL, WHEN SUCH COMPETITION IS BOTH FEASIBLE AND DESIRABLE. WE HAVE NO COMMENTS ON THIS PROPOSED CHANGE.