5-8.7 Exercising Options

Before exercising an option, the purchase/SCM team must determine the following:

• Funds are available.
• The Postal Service has a continuing need and the goods or services are covered by the option.
• Market conditions have not substantially changed since the time of establishment of the option and that the option price is reasonable.
• Exercising the option is the most advantageous action in the interest of the Postal Service, considering price and other factors (“other factors” include, e.g., the need for continuity of operations; the cost and time of transitioning to a new supplier; or other costs of disrupting operations, as discussed above).

The contracting officer must determine that the option price remains reasonable and is advantageous to the Postal Service, based on one of the following:

• Market research clearly indicates that a better price than that offered by the option cannot be obtained.
• The time between the award of the contract containing the option and the exercise of the option is sufficiently brief such that the option price remains the lowest obtainable, considering such factors as market stability and usual duration of supply or service contracts.
• A new solicitation fails to produce a better price than that offered by the option (this method of testing the market should be used only if neither of the other methods is satisfactory).

If the contract provides for economic price adjustment, the effect of such adjustment on prices under the option must be ascertained in determining whether to exercise the option.

When an option is to be exercised, the contracting officer must do as follows:

• Include a written determination that the option may be properly exercised, in accordance with the criteria above, in the contract file;
• Provide written notice to the supplier within the period specified in the schedule or clause if not indicated within the schedule; and
• Modify the contract as needed, citing the applicable option clause as authority.

Contracting officers may refer to the Option Exercise – Renewal Memorandum template for their use.