An option period or quantity in a contract authorizes the Postal Service to unilaterally elect to purchase the additional quantities of goods or services called for by the contract option. Upon option exercise, suppliers are required to continue performance for the extended option term or deliver the quantity of goods specified by the option, as applicable. Options are exercised via unilateral modification, and do not require supplier concurrence or bilateral signature. They are contrasted with supplemental agreements which do require supplier agreement and bilateral signature.
Options can be a useful procurement planning mechanism where the Postal Service may determine it wishes to only commit to purchase a portion of a potentially larger requirement at the time of award. The use of options may be in the best interest of the Postal Service due to uncertainty about the future availability of funding, or the continuing need for the goods and services furnished under a contract. The Postal Service has the right not to exercise an established option under a contract and, instead, conduct a competitive procurement or to have the supplier’s performance simply end if there is not a continuing need for the good or service.
2-19.1.1 Use
Option clauses may be included in contracts when increased requirements are foreseeable during the contract period or when continuing performance past the original period is in the best interest of the Postal Service. Option clauses may require that additional quantities be priced the same as the basic quantities or at a different price. Since options require suppliers to commit to prices for definite periods of time with no guarantee that the option will be exercised, their improper use or inclusion of numerous option periods may result in prices that are no longer reasonable at the time of contemplated exercise. Options are effectively used when the need for additional requirements or continued performance are foreseeable and immediate re-competition may be impracticable or not be expected to provide for significant benefits to the Postal Service. Where production lead times or delivery requirements require the continuous availability of goods or services, the inclusion of options may be a preferable solution to negotiating and establishing a new contract.
Service contracts that include options must include Clause 9-12: Fair Labor Standards Act and Service Contract Act — Price Adjustment. See section 7-7.1.1.3, Price Adjustments for additional information.
For fixed-price contracts containing priced options where the sum of the base and option periods is expected to exceed 5 years, the inclusion of an economic price adjustment clause (such as Clause 2-28: Economic Price Adjustment - Labor and Materials or Clause 2-29: Economic Price Adjustment (Index Method)) should be considered.
Option clauses should not be included in contracts or exercised, when the following exists:
The evaluation of options at time of award does not obligate the Postal Service to exercise those options. Unless it is determined that the evaluation of options is not in the best interest of the Postal Service, where option pricing has been solicited, proposals must be evaluated as to offered price(s) of the base requirement, option requirements, and in the aggregate. If the Postal Service elects to exercise an option with the initial contract award, proposals are evaluated by adding the price of the base contract to the price of the option(s) exercised with the initial award.
Any proposal containing options that is materially unbalanced as to prices for base and option quantities may be disregarded as unacceptable. An unbalanced proposal is one that is based on prices significantly less than cost for some work and prices that are significantly overstated for other work.
When options will not be evaluated, the contract file must contain the rationale for the decision. In all other cases, the purchase/ SCM team must follow the instructions in paragraph b.. of Provision 4-2: Evaluation, or include Provision 2-3: Evaluation of Options, in the RFP.
The contract must limit the additional quantities of goods or services that may be purchased; or the duration of the period for which performance of the contract may be extended under the option, and it must fix the period within which the option may be exercised. The period within which the option may be exercised should be kept to a minimum, but this period should give the supplier adequate notice for performance under the option. In fixing the period within which the option may be exercised, consider the lead time needed to ensure continuous production and the time required for additional funding and other approvals. The option clauses require the contracting officer to provide 60 days’ written notice to the supplier unless a different number is inserted within the clauses or stated within the schedule.
When a solicitation contains an option for additional quantities of goods at prices no higher than those for the initial quantities, care should be taken to ensure that the option quantities are reasonable. The quantities or the period under option and the period during which the option may be exercised must be justified and documented in the contract file by the CO.
The solicitation may allow varying prices to be offered for the option quantities, depending on the quantities actually ordered and the dates when ordered. If so, the solicitation must specify the price at which the options will be evaluated (e.g., highest option price offered or option price for specified quantities or dates).
When exercising the option would result in extending the duration of the contract, the option may be expressed in terms of an extended completion date or an additional time period. An option for increased quantities may be expressed as a percentage of specific line items, a number of additional units of specific line items, or additional numbered line items (identified as the option quantity) with the same name as the items initially included in the contract. An option for increased services (including construction) may similarly be expressed in terms of percentages, increases in specific line items, or additional numbered line items expressed in the units of work initially used in the contract (e.g., labor hours, square feet, or pounds or tons handled).
The exercise of options is addressed in Section 5-8.7, Exercising Options.
