Type: Law Bulletins
Date: 07/08/2013

When Can the Government Extend a Contract Under FAR

FAR § 52.217-8, Option to Extend Services, states: "The Government may require continued performance of any services within the limits and at the rates specified in the contract. These rates may be adjusted only as a result of revisions to prevailing labor rates provided by the Secretary of Labor. The option provision may be exercised more than once, but the total extension of performance hereunder shall not exceed 6 months."

The Armed Services Board of Contract Appeals ("ASBCA") recently reviewed, on summary judgment motion by the government, whether a contractor was entitled to compensation for constructive changes that occurred when the agency exercised options under FAR § 52.217-8 for successive one-month periods, despite the fact that the contract contained unexercised annual options and had already modified the periods of the options. Glasgow Investigative Solutions, Inc., ASBCA No. 58111, April 9, 2013. The contractor, GIS, did not prevail.

GIS’ contract consisted of a base period and four one-year option periods. The parties later bilaterally modified the contract to extend the base year an additional four months to end on January 30 and modified each of the four option year periods to begin February 1. After expiration of the extended base period on January 30, 2011, the government exercised the first full option year. On the last day of the first option period, the CO notified GIS that it intended to exercise option year two, but at the moment it only had funding for one month. A series of short extensions occurred as a result.

GIS claimed that it should be paid for costs incurred during these extensions because they were not a valid exercise of FAR § 52.217-8. GIS argued that this clause was intended to extend the contract term “after all options have been exercised” and cannot be exercised in monthly increments until that time. The government took the opposite approach, saying that FAR § 52.217-8 can be exercised “prior to exercising all contract option years.” The board found that although FAR § 52.217-8 is typically used at the end of a contract to allow the government to bridge performance to another contractor, it is not the only circumstance when it may be used. It is this lack of limitation on use of the clause that led the board to grant summary judgment in favor of the government.

This decision is an important reminder that pursuant to FAR § 52.217-8, the government is entitled to unilaterally extend your contract up to six months, in any increment, before all option years have been exercised and at the rates in effect in the contract.

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