$9-1.5103-1

(a)

(1)

Basic selection criteria.

Contracts. The contract is the appropriate instrument when:

The principal purpose of the award is the acquisition, by purchase, lease, or barter, of property or services for the direct benefit or use of ERDA and the outcome of the effort is something which ERDA must obtain to meet its program or operational needs.

(2) The senior program official or designee considers it necessary to exercise control over the objectives, program direction, specifications, costs, reporting of results, methods of research, and scheduling of the project. The degree of control alone may dictate use of a contract even though other considerations may suggest use of a grant. Control means the right to unilaterally terminate for convenience or default; issue unilateral changes; issue stop work orders; redirect the work within the limits of the scope of work and changes clause; and to specify strict adherance to the scope of work.

(b) Grants. The grant is the appropriate instrument when:

(1) The principal purpose of the relationship is the transfer of money, property, services, or anything of value to the recipient in order to accomplish a public purpose of support or stimulation authorized by Federal statute, rather than acquisitions by purchase, lease, or barter, of property or services for the direct benefit or use of ERDA, and no substantial involvement is anticipated between ERDA and the recipient during performance of the contemplated activity. ERDA's role is that of supporting the grantee's project rather than satisfying a specific ERDA operational or program requirement.

(2) The senior program official or designee does not consider it necessary to exercise or have the type of controls which contracts provide to assure that desired outcome.

(c) Grants shall not be used to avoid the formal advertising or competitive negotiation requirements of the FPRs or ERDA-PRs when the use of a contract is more appropriate. Further, the use of a grant rather than a contract shall not be justified on the basis of its relative processing time.

This subpart applies to contracts for supplies and services other than for:

(a)

the construction, alteration, or repair of buildings, bridges, roads, or other kinds of real property;

(b) research and development; or

(c) contracts to be awarded on a cost-reimbursement basis.

However, it does not preclude the use of appropriate option provisions in such contracts.

$9-1.5301 Definition.

As used in this subpart, an option clause is a provision in a contract under which, for a specified time, the Government may elect to purchase additional quantities of the supplies or services called for by the contract, or may elect to extend the period of performance of the contract.

$9-1.5302 Applicability.

(a) Option clauses may be included in contracts where increased requirements within the period of contract performance are foreseeable, or where continuing performance beyond the original period of contract performance may be in the best interest of the Government. Because options require offerors to guarantee that orders will be placed, their improper use could result in prices which are unfair to either the Government or the contractor. When additional requirements are foreseeble and subsequent competition would be impracticable because of such factors as production lead time and delivery requirements, the use of options may be preferable to later negotiating a price with the contractor at a time when it is the only practical

source.

(b) An option normally should not be used where it can reasonably be foreseen that (i) minimum economic production quantities will be procured at some future date, and (ii) startup costs, production lead time, and probably delivery requirements would not preclude adequate future competition.

(c) Option provisions and clauses shall not be included in contracts when:

(1) The supplies or services being purchased are readily available on the open market.

(2) The contractor would be required to incur undue risks: e.g., the price or availability of necessary materials or labor is not reasonably foreseeable.

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(3) An indefinite quantity contract or requirements contract is appropriate except that options for continuing performance may be used in such contracts.

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

(5) The option quantities represent known firm requirements

for which procurement funds are available.

If

(a) When a contract is to contain an option quantity, the solicitation must contain an appropriate option provision and the contract file shall be documented with a justification for the inclusion of the option expressed as a percentage of the base contract quantity. the contract is to be negotiated, the determination and findings shall set forth the approximate quantity to be awarded and the extent of the increase to be permitted by the option. The contract shall limit the additional quantities of supplies or services which may be procured, or the duration of the period for which performance of the contract may be extended under the option and will fix the period within which the option may be exercised, consideration shall be given to necessary lead time required to assure continuous production and the time required for additional funding and other necessary approval action. The period specified for exercising the option shall in all cases be kept to a minimum.

(b) Solicitations containing option provisions should cover five basis points:

(1) Quantity of additional supplies or services which may be procured. Where the exercise of the option would result in increased quantities of supplies, the option quantity should be expressed in terms of a specified number of additional units rather than as a percentage of the base quantity. Where exercise of the option would result in

(2)

an

increase in the performance of services, the option may be similarly expressed in terms of the units of work contained in the contract (e.g., man hours). Where exercise of the option would result in an extension of the duration of the contract, the option may be expressed in terms of a specific date or dates or of an additional time period such as days, weeks, or months. Generally

the quantity subject to the option should not exceed the basic quantity by more than 25%.

The period within which the option may be exercised. The

contract shall fix the period within which the option may be exercised. The period specified shall in all cases be kept to a minimum (generally no longer than 6 months).

(3) Delivery terms for the option quantities.

(4) Prices for the option quantities. The clause shall provide for firm unit prices for any additional quantity that may be ordered up to the maximum quantity of the option, or for any increase in the performance of services or extension of the duration of the contract.

(5) A statement on the evaluation of bids or proposals. Solicitations shall state that evaluation will be on the basis of the firm quantity set forth in the schedule and the option quantity, if any, exercised at time of award.

The option clause normally should not contain a price control feature on the option quantities, such as a requirement that the option quantities be offered at prices no higher than those of the basic quantity. The use of price controls to avoid unreasonable offers on option quantities can be disadvantageous to the Government because the contractor may spread the cost of bona fide risks of option quantities to the basic quantity.

$9-1.5304 Exercise of options.

(a) The exercise of an option by the Government requires the contracting officer's written notification to the contractor within the time period specified in the contract.

(b) Where the contract provides for price escalation and the contractor requests revision of price pursuant to such provision, or the provision applies only to the option quantity, the effect of escalation on prices under the option must be ascertained before the option is exercised.

(c) Options should be exercised only if it is determined that:

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

(3) the exercise of the option is most advantageous to the Government, price and other factors considered.

(d) Insofar as price is concerned, the determination under (c)(3) above shall be made on the basis of one of the following:

(1)

(2)

(3)

A new solicitation fails to produce a better price than that offered by the option. When the contracting officer anticipates that the option price will be the best price available, he should not use this method of testing the market but should use one of the methods in (2), (3), or (4) below.

An informal investigation of prices, or other examination of the market indicates clearly that a better price than that offerred by the option cannot be obtained.

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, considering such factors as market stability and a comparison of the time since award with the usual duration of contracts for such supplies and services.

(4) Established prices are readily ascertainable and clearly indicate that formal advertising or informal solicitation can obviously serve no useful purpose.

(e) Insofar as the "other factors" mentioned in (c)(3) above are concerned, the determination should, among other things, take into account the Government's need for continuity of operations and potential costs to the Government of disrupting operations, including the cost of relocating necessary Government-furnished property (as, for example, in certain repair and overhaul contracts for complex equipment).

(f) When it has been determined that an option may properly be exercised, such determination shall be set forth in writing and included in the contract file. Written notification to the contractor of the exercise of the option and any contract modification resulting therefrom shall cite the option clause contained in the contract as authority for the procurement of the option quantity.

$9-1.5305 Examples of option provisions.

(a) A clause substantially as follows may be used where the contract expressed the option quantity as an additional quantity of a specific line item.

OPTION FOR INCREASED QUANTITY

The Government may increase the quantity of supplies called for herein by the amount stated in the Schedule and at the unit price specified therein. The contracting officer may exercise this option,