list, and (iii) specific efforts to identify and award contracts to minority business enterprises.

(5) Include the Utilization of Minority Business Enterprises clause in subcontracts which offer substantial minority business enterprises subcontracting opportunities.

(6) Cooperate with the Contracting Officer in any studies and surveys of the Contractor's minority business enterprises procedures and practices that the Contracting Officer may from time to time conduct.

(7) Submit periodic reports of subcontracting to known minority business enterprises with respect to the records referred to in subparagraph (4), above, in such form and manner and at such time (not more often than quarterly) as the Contracting Officer may prescribe.

(b) The Contractor further agrees to insert, in any subcontract hereunder which may exceed $500,000, provisions which shail conform substantially to the language of this clause, including this paragraph (b), and to notify the Contracting Officer of the names of such subcontractors.

[36 FR 17509, Sept. 1, 1971, as amended at 40 FR 44138, Sept. 25, 1975]

Subpart 1-1.14-[Reserved]

Subpart 1-1.15-Options

SOURCE: 46 FR 7966, Jan. 26, 1981, unless otherwise noted.

§ 1-1.1500 Scope of subpart.

This subpart prescribes policies and procedures for the use of option solicitation provisions and contract clauses. It does not apply to contracts for: (a) Services involving the construction, alteration, or repair (including dredging, excavating, and painting) of buildings, bridges, roads, or other kinds of real property, (b) architect and engineering services, and (c) research and development services, however, it does not preclude the use of options in those contracts, and (d) automated data processing equipment and services in § 1-4.1108-4.

§ 1-1.1501 Definition.

"Option" means a unilateral right in a contract by which, for a specified time, and at a guaranteed price, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract.

§ 1-1.1502 Use of options.

(a) Contracting officers may include options in contracts when it is in the best interest of the Government.

(b) Contracting officers normally should not employ options if they can reasonably foresee: (1) A requirement for minimum economic production quantities at some future date, and (2) that startup costs, production leadtime, and probable delivery requirements will not preclude adequate future competition.

(c) Contracting officers shall not employ options if:

(1) The supplies are readily available on the open market;

(2) The contractor will incur undue risks; e.g., the price or availability of necessary materials or labor is not reasonably foreseeable or economic price adjustment provisions are not includ

ed;

(3) An indefinite quantity or requirements contract is appropriate (except that contracting officers may use options for extending the term of such contracts);

(4) Market prices for the supplies involved are likely to change substantially; or

(5) The option represents known firm requirements for which funds are available unless: (i) The basic quantity is a learning or testing quantity and (ii) competition for the option is impracticable once the initial contract is awarded.

(d) In recognition of: (1) The Government's need in certain service contracts for continuity of operations and (2) the potential cost of disrupted support, options may be included in service contracts if there is an anticipated need for a similar service beyond the first contract period.

stantially as in § 1-1.1508–1(a) or (b) of this subpart, if it is anticipated that the Government may exercise the option at time of award.

(d) Solicitations normally should allow offerors to submit option prices without limitation. The Government shall not impose a price limitation if it intends to consider the option in the evaluation for award.

(e) Solicitations that allow the offer of options at unit prices which differ from the unit prices for the basic requirement shall state that offerors may offer varying prices for options, depending on the quantities actually ordered and the date(s) when ordered.

(f) Solicitations shall specify the price at which the Government will evaluate the option (highest option price offered or option price for specified requirements).

(g) Solicitations may, in unsual circumstances, require that options be offered at prices no higher than those for the initial requirement; e.g., when: (1) The option cannot be evaluated, or (2) future competition for the option is impracticable.

(h) Solicitations that require the offering of an option at prices no higher than those for the initial requirement shall:

(1) Specify that the Government will accept an offer containing an option price higher than the base price only if the acceptance does not prejudice any other offeror; and

(2) Limit option quantities for additional supplies to not more than 50 percent of the initial quantity of the same contract line item. In unusual circumstances, an authorized person at a level above the contracting officer may approve a greater percentage of quantity.

(2) It may extend beyond the contract completion date for service contracts. (This is necessary for situations when exercise of the option would result in the obligation of funds that are not available in the fiscal year in which the contract would otherwise be completed.)

(c) Contracts shall limit the total term of the contract including option periods to 5 years for services and a 5year requirement for supplies.

(d) Contracts may express options for increased quantities of supplies or services, in terms of: (1) Percentage of specific line items, (2) increase in specific line items, or (3) additional numbered line items identified as the option.

(e) Contracts may express extensions of the term of the contract as an amended completion date or as additional time for performance; e.g., days, weeks, or months.

(a) Contracting officers may consider the option in the evaluation for award of a firm fixed-price contract or a fixed-price contract with economic price adjustment. If the contracting officer determines to do so, an authorized person at a level above the contracting officer shall determine, before the solicitation is issued, that:

(1) There is a known requirement which exceeds the basic quantity to be awarded but: (i) That quantity is a learning or testing requirement, or (ii) due to the unavailability of funds, the agency cannot exercise the option at the time of award; and

33-133 0-84-9

(2) Competition for the option quantity is impracticable once the initial contract is awarded. (This determination shall reflect factors such as substantial startup or phase in costs, superior technical ability resulting from performance of the initial contract, and long preproduction leadtime for a new producer.)

(b) Contracting officers may consider the option in the evaluation of award for fixed-price incentive contracts if:

(1) The determination in paragraph (a) of this section was made before issuance of the solicitation; and

(2) The solicitation: (i) Specifies an incentive arrangement and (ii) specifies that the agency will base the ceiling price and target profit for the basic and option quantities on stated percentages of the offeror's target cost. The solicitation shall state the percentages which apply to all proposals and shall contain the provision substantially as in § 1-1.1508-1(c) of this subpart.

§ 1-1.1507 Exercise of options.

(a) In the exercise of option provisions, contracting officers shall provide the written notice to the contractor within the time period specified in the contract.

(b) When the contract provides for economic price adjustment and the contractor requests a revision of the price, the contracting officer shall determine the effect of the adjustment on prices under the option before the option is exercised.

(c) Contracting officers may exercise an option only after determining that: (1) Funds are available;

(2) The requirement covered by the option fulfills an existing Government need; and

(3) The exercise of the option is the most advantageous method of fulfilling the Government's need, price and factors in paragraphs (d) and (e) of this section considered.

(d) Contracting officers, after considering price and factors other than price, shall make their determinations on the basis of one of the following:

(1) A new solicitation fails to produce a better price or a more advantageous offer than that offered by

the option. If it is anticipated that the best price available is the option price or that this is the more advantageous offer, the contracting officer should not use this method of testing the market.

(2) An informal analysis of prices and an examination of the market indicates the option price is better than prices available in the market or that the option is the more advantageous offer.

(3) The time between the award of the contract containing the option and the exercise of the option is so short that it indicates the option price is the lowest price obtainable or the more advantageous offer. The contracting officer shall take into consideration such factors as market stability and comparison of the time since award with the usual duration of contracts for such supplies or services.

(e) The determination of other factors under paragraph (c)(3) of this section should take into account the Government's need for continuity of operations and potential costs of disrupting operations.

(f) Contracting officers, when exercising an option, shall determine that it was exercised in accordance with the terms of the option and with the requirements of this section. (The written determination shall be included in the contract file).

(g) The contract modification or other written document which notifies the contractor of the exercise of the option shall cite the option clause as authority. The negotiation authorities under 41 U.S.C. 252(c) or 10 U.S.C. 2304(a) are not applicable and shall not be cited.

§ 1-1.1508 Examples of evaluation of option solicitation provisions and option clauses.

§ 1-1.1508-1 Evaluation of option solicitation provisions.

(a) As required by § 1-1.1503(c) of this subpart, insert a provision substantially similar to the following:

EVALUATION OF OPTIONS

The Government will evaluate the total price for the basic requirement together

with any option(s) exercised at the time of award.

(End of provision)

(b) As required by § 1-1.1503(c) of this subpart, insert a provision substantially similar to the following:

EVALUATION OF OPTIONS

(a) The Government will evaluate offers for award purposes by adding the total price for all options to the total price for the basic requirement. Evaluation of options will not obligate the Government to exercise the option(s).

(b) The Government may reject an offer as nonresponsive if it is materially unbalanced as to prices for the basic requirement and the option(s). An offer is unbalanced when it is based on prices significantly less than cost for some work and prices are significantly overstated for other work.

(End of provision)

(c) In accordance with § 1-1.1506(b) of this subpart, insert a provision substantially as follows:

EVALUATION OF OPTIONS

(a) The Government will evaluate offers for award puposes by adding the total price for all options to the total price for the basic requirement. The offeror's target cost for the basic requirement and the option(s) is the price of the basic requirement and the option(s) for evaluation purposes. Evaluation of options will not obligate the Government to exercise the option(s).

(b) Any offer may be rejected as nonresponsive if it is materially unbalanced as to prices for the basic requirement and the option(s). An offer is unbalanced when it is based on prices significantly less than cost for some work and prices which are significantly overstated for other work.

(End of provision)

§ 1-1.1508-2 Option clauses.

(a) A clause substantially as follows may be used to express the option as a percentage of the basic contract quantity or as an additional quantity of a specific line item.

OPTION FOR INCREASED QUANTITY

The Government may increase the quantity of supplies called for in the Schedule at the unit price specified. The Contracting Officer may exercise the option by written notice to the Contractor within the period specified in the Schedule. Delivery of added items shall continue at the same rate that

like items are called for under the contract, unless the parties otherwise agree.

(End of clause)

(b) A clause substantially as follows may be used to express the option as a separately priced line item.

OPTION FOR INCREASED QUANTITY

The Government may require the delivery of the numbered line item in the amount and at the price identified in the Schedule as an option. The Contracting Officer may exercise the option by written notice to the Contractor within the period specified in the Schedule. Delivery of added items shall continue at the same rate that like items are called for under the contract, unless the parties otherwise agree.

(End of clause)

(c) A clause substantially as follows may be used to express the option as an extension of the services described in the schedule.

OPTION TO EXTEND SERVICES

The Government may require continued performance of any services within the limits and at the rates stated in the Schedule. The Contracting Officer may exercise the option by written notice to the Contractor within the period specified in the Schedule.

(End of clause)

(d) A clause substantially as follows may be used to express the option as an extension of the services described in the schedule, to extend the option, and to establish the limits on the number of years the option may continue.

OPTION TO EXTEND THE TERM OF THE
CONTRACT

(a) The Government may extend the term of this contract by written notice to the Contractor within the time specified in the Schedule.

(b) The Government shall give the Contractor a preliminary written notice of its intent to extend at least 60 days before the contract expires. The preliminary notice does not commit the Government to an extension.

(c) If the Government exercises the option, the extended contract includes this option provision.

(d) The total duration of this contract, including the exercise of any options under this clause, shall not exceed (months)(years).

(End of clause)

Subparts 1-1.16—1–1.17—[Reserved] Subpart 1-1.18-Postaward Orientation of Contractors

SOURCE: Subpart 1-1.18 appears at 31 FR 12437, Sept. 20, 1966, unless otherwise noted.

§ 1-1.1800 Scope of subpart.

The subpart prescribes policies and procedures regarding the postaward orientation of contractors performing contracts and subcontracts for supplies and services (except construction).

§ 1-1.1801 [Reserved]

§ 1-1.1802 Policy.

(a) When it is determined after contract award that the contractor does not or may not have a clear understanding of the scope of the contract, of its technical requirements, or of the rights and obligations of the parties, postaward orientation conferences may be employed (see § 1-1.1803) in order to clarify these matters. Where less complex contracts are involved, simpler means may be used, such as a letter to the contractor (see § 11.1806). Postaward orientation of subcontractors also may be employed (see § 1-1.1804).

(b) However, a postaward orientation conference may not be used in substitution for affirmative preaward determinations as to a bidder's responsibility, e.g., as to his willingness and ability to comply with the equal employment opportunity requirements.

[31 FR 12437, Sept. 20, 1966, as amended at 36 FR 17421, Aug. 31, 1971]

§ 1-1.1803 Postaward orientation confer

ences.

§ 1-1.1803-1 Factors.

In selecting contracts for postaward orientation, the selection should include consideration of the following factors:

(a) Nature and extent of the preaward survey and any prior discussions had with the contractor;

(b) Technical complexity of the item or service;

(c) End use of the item or service, particularly its relation to critical programs;

(d) Urgency of the delivery schedule; (e) Length of the planned production cycle;

(f) Past performance of the contractor;

(g) Procurement history of the item or service;

(h) Type and value of the contract; (i) Requirements for spare parts or related equipment;

(j) Contractor's experience with the agency's contracts, or with the item or service being procured;

(k) Extent of subcontracting; and (1) Safety precautions required for hazardous materials or operations.

§ 1-1.1803-2 Initial action.

(a) The need for a postaward orientation conference normally will be established by the contracting officer or the head of the office in charge of contract administration as a result of substantive review and analysis of the contract and related reports. It is desirable for interested Government personnel to hold a meeting prior to the conference to assure that an appropriate and coordinated Government position is developed regarding indicated questions and problems.

(b) An orientation conference should be held, as soon as possible after the contract award, when analysis of the contract or other information indicates that existing or potential problems may adversely affect the performance of the contract. The official who determines that a postaward orientation conference is needed should normally make all necessary arrangements to:

(1) Conduct a preliminary meeting of Government personnel;

(2) Establish the time and place of the orientation conference;

(3) Prepare an agenda or checklist; (4) Notify all participants;

(5) Designate a conference chairman (this should be the contracting officer if he will be a participant); and

(6) Prepare a summary report of the conference, when necessary. When the contracting officer initiates the request for a conference, the arrange