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Exercise of Options Under ID/IQ Contracts Was Improper

The government's exercise of options under indefinite-delivery/indefinite-quantity contracts for health care services was improper, according the Court of Federal Claims, because the options were unpriced, in violation of FAR 17.207(f). The protest arose from the government's modification of 6 ID/IQ contracts that covered 63 military treatment facilities and its subsequent exercise of options under 4 of the contracts. In the initial competition, offerors were required to submit yearly not-to-exceed pricing for a number of labor categories across a base term and two option terms, and the evaluators considered the proposed pricing for these positions in calculating the total evaluated prices. During the base term, the ID/IQ contractors had difficulties complying with the NTE pricing due to changes in wage determinations, so the government issued contract modifications that removed the NTE pricing. FAR 17.207(f) provides that for an option exercise to be valid, "the option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract." The protesters, whose options the government did not exercise, argued the exercise of the options violated the Competition in Contract Act and the Federal Acquisition Regulation and the government was required to hold a new competition for the option work.

FAR 17.207 Violated

The court sustained the protest, finding the government did not evaluate the pricing of the exercised options as part of the initial competition. After the contract modifications rendered the NTE prices non-binding, the price evaluation was no longer useful. At the time the government exercised the options, the NTE rates were only advisory, and the contractors could increase their labor rates at will. The relative costs to the government of the various options, therefore, was then entirely unknown. Further, the basic contract terms did not specify or reasonably identify the option amounts. The modifications removed the only basis the government possessed for a meaningful comparison of the option costs, and despite the government's "cost control measures," the pricing of the options was not "reasonably determinable" from the ID/IQ contracts.

Injunction

In determining an appropriate remedy, the court reviewed the four factors to consider in deciding whether to issue a permanent injunction and found the protesters satisfied the first criteria because they established the exercise of the options violated FAR 17.207(f). Second, the exercise of the options deprived the protesters of the ability to compete for the work in a new competition, so they established they would suffer irreparable harm in the absence of injunctive relief. With respect to the third factor, balancing the hardships, the government maintained an immediate injunction would disrupt the delivery of care. The protesters responded with several mechanisms the government could utilize to obtain medical service during the pendency of an injunction, but none of these would ensure uninterrupted services pending a new procurement, so there was the potential for harm to both the government and the protesters. Under the final factor, there were competing public interests of ensuring government officials follow applicable procurement statutes and regulations and maintaining uninterrupted medical care for wounded veterans, service members, and their families. A government official testified the government would need two years to complete a new procurement to minimize the potential harm to the recipients of the health care services. The court weighed the harms and concluded the best relief it could provide was a tailored injunction prohibiting the government from obtaining work under the options, effective two years from the date of the opinion (Magnum Opus Technologies, Inc., et al. v. U.S., et al., FedCl, 54 CCF ¶79,345)

(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )

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