CHALLENGING DECISIONS TO EXERCISE OPTIONS

We have been asked whether it is possible to challenge an agency decision not to exercise an option under an existing government contract. Conversely, we have been asked whether a disappointed competitor can challenge the propriety of the agency's decision to exercise an option under an existing contract.

First, we address whether a contractor on an existing contract can challenge the government's decision not to exercise its option. Under recent judicial authority, when a contract contains an option to extend its term, unless the contract provides otherwise, the government enjoys broad discretion and is under no obligation to exercise the option. The government's decision can provide a vehicle for relief only if the contractor proves that the decision was made in bad faith or was so arbitrary or capricious as to constitute an abuse of discretion. Bad faith amounts to proof of specific intent to injure the contractor.

Second, is it possible for a disappointed bidder on the contract to challenge the government's exercise of an option under the contract it awarded to another contractor? By challenge, of course, we mean can one go to a board of contract appeals, the Court of Federal Claims (COFC) or the GAO seeking redress? Since the disappointed bidder has no contract, it cannot seek redress at a board of contract appeals or the COFC under the statute affording those tribunals jurisdiction over contract disputes. So, can the contractor challenge the proposed exercise of the option under the bid protest jurisdiction of COFC or GAO?

The rule is you cannot protest matters of contract administration but there are exceptions to the rule.

The Competition in Contracting Act (CICA) affords GAO jurisdiction relating to: (1) solicitations; (2) cancellation of solicitations; (3) award or proposed award of a contract; and (4) termination or cancellation of award if the protest is based on improprieties in the award of the contract. Based on CICA, it would appear GAO will not hear complaints about contract administration. However, we are aware of a 2010 case (citing other GAO cases) in which GAO undertook to review whether exercise of the option was proper. GAO found "no basis to question the agency's exercise of the option . . . ." GAO will not question an agency's decision "as long as it is reasonable". As far as we know, GAO has never granted such a protest.

The COFC has protest jurisdiction relating solely to solicitations and contracts or violations of statutes or regulations relating to procurements or proposed procurements. The COFC specifically declines protest jurisdiction over complaints involving contract administration. However, the COFC also heard a 2010 case in which a disappointed bidder protested the exercise of an option although the facts in that case are very unique and a definite exception to the rule.

So, you may always challenge wording in the solicitation, the nature and type of the procurement, the cancellation of a solicitation, an award under a solicitation and in some cases the termination or cancellation of an award. You may get GAO (or perhaps even the COFC) to hear your complaint about the exercise of an option but GAO will not second guess the agency unless its decision is unreasonable or an abuse of discretion.

Postscript: If the agency issues a solicitation as part of its decision making process on whether to exercise an option and then cancels the solicitation, you could protest. However, the agency has broad discretion in cancellations and, again, it need only show it acted reasonably, rationally and that it did not abuse its discretion.