...Contracting Officer told ISI on September 12, 2002 it would not exercise the two options.
ISI argued before the GSBCA that the DoC “constructively” exercised the options by requesting ISI to perform work from February through July of 2000. The GSBCA summarily dismissed ISI's argument.
The GSBCA stated that “An option clause does not obligate the Government to exercise an option.” Remember that an option is an event set forth in an offer from the Seller to the Buyer for a specified period of time during which the offer cannot be revoked unilaterally. An option does not impose a binding obligation on the Buyer. The Government, i.e., the Buyer, has the discretion to exercise, or not to exercise, the option. The GSBCA stated that “The clause simply gives the Government the discretion to decide whether to exercise an option…the Government's discretion is nearly complete.”2
If, however, the Buyer, i.e., the Government, decides to exercise an option under the rules accorded such a decision in the FAR and standard commercial law, “the Government must exercise the option in exact accord with the terms of the contract.”3 Moreover, when the Government actually exercises an option, it “must be unqualified, absolute, unconditioned, unequivocal, unambiguous, and strictly according to the terms and conditions of the option.” 4
ISI stated that DoC “constructively” exercised the option. This type of argument has no basis in any legal authority, and the GSBCA refused to accept their position stating that the “Government can exercise an option by [not] doing something other than strictly complying with the terms of the contract which created the option.” Hence, the GSBCA denied ISI's argument.
So, don't think that options are automatic or that they are guaranteed. The Seller, i.e., the Offeror in a proposal, can set the terms for exercise of an option and can benefit from the contract clauses from the FAR that will be incorporated in the resultant contract. The Seller also takes the majority of the risks.
The Buyer, i.e., the Government, must exercise the option in strict compliance with those terms that are in the contract. The option does not bind the buyer to the exercise of the option; the buyer, however, must exercise the option in strict compliance with the terms and conditions of the option. Hence, “constructive” or “substantial” compliance is not effective. Both the term and the exercise of an option must be clear and unambiguous; So when preparing proposals, be certain that option terms are not vague.
Finally, the option must be exercised timely. The buyer must exercise the option no later...
