One perceived benefit of landing a government service contract is the assurance that there will be steady work for the next five years. However, there is no guarantee that the contract will make it to the end. Each year the contracting officer must make a determination that exercising an option is in the best interest of the government. This determination takes into consideration, in part, if the contract still fulfills the government’s needs, market conditions, contractor performance, and of course the availability of funding.
You will be hard-pressed to find a contract that has the same exact requirement in year five as it did at award. Some change is expected, but when the requirements have changed so much that they no longer resemble the overall scope anticipated at award, the option may not be exercised. In this case the contract would no longer fulfill the government’s need without a significant modification; the new requirement would no longer be within scope. In this situation, a sole source justification is required for the increased scope or the effort must be re-competed early. Many agencies today are opting for the latter in an effort to increase their competition rate and reduce reliance on sole source actions.
Changing market conditions may result in the Government spending more for a service in an option year than it would if it re-competed the effort early. In addition, there may be more favorable terms that were not available when the contract was originally awarded or new technology that would improve how the service is obtained. For this reason, the contracting officer is required to make a determination that the market conditions have not changed to the point that it would be more beneficial to re-compete.
Performance is always a major focus area in federal acquisition. The Contracting Officer has many avenues to address performance concerns to include rework, CPARS, and termination proceedings. In each of these options the contractor is involved; however, when the government decides not to exercise an option, the contractor has zero avenues of recourse. In other words, the decision to forgo an option is the most expedient way to address and get rid of a contractor with performance issues. Contractors are mistaken when they think the government won’t do this since it takes time for a re-compete. To the contrary, in today’s acquisition environment there are many options to meet the government’s short-term needs while carrying out a competition (i.e. GSA, GWACs, bridge contracts).
Finally, the days of unlimited budgets are long gone. The government is faced with eliminating services to free up budget for other requirements. Since 2010, the requirement offices and contracting officers have strategically reshaped many contracts via modification and re-competition to stay within tight fiscal constraints. Funding limitations alone may result in reductions so significant that the requirement is no longer within the scope of the original contract. In this case, as discussed above, the requirement would be re-competed.
While an early re-compete decision may be unavoidable in some situations, a contractor with a strong program management team can significantly minimize the risk by becoming a key member of the overall program. The successful team will work with the government to discuss market conditions, funding constraints, and new requirements to determine how they can be met within the confines of the current contract and, furthermore, show how they are in the best position to address any changes. A proactive approach like this will increase your company’s value to the government with minimal increase to your performance costs and make it more difficult for the government to opt for an early re-compete.