Link: GAO Opinion
Agency: Defense Logistics Agency
Disposition: Protest denied.
Keywords: Option Exercise
General Counsel P.C. Highlight: GAO will not question an agency’s exercise of an option under an existing contract unless the protester shows that the agency failed to follow applicable regulations or that the determination to exercise the option, rather than conduct a new procurement, was unreasonable.
Following a request for proposals (RFP) for the award of a fixed-price, indefinite-quantity contract for a base year with four option years for a dehydrated egg mix, the Defense Logistics Agency (DLA) received three offers, including Nutriom and, the eventual awardee, Oregon Freeze Dry (“OFD”). The initial award was not protested.
After OFD completed the base year of the contract and prior to DLA exercising the second option year, Nutriom informed DLA that it had made an investment in new production equipment that would allow it to offer its product at a lower price than OFD’s price for the next option period. DLA conducted a market survey, weighing several factors, such as Nutriom’s ability to continually provide the product at its stated lower market price and OFD’s excellent past performance, quality history, and conformance to contractual terms, conditions, and price. The CO reasoned that “Due to the urgency of the current requirement, resoliciting is not an option since there is no guarantee that Nutriom’s product could meet the 2[-percent] moisture requirement and that their price will be lower than the current contract price.” The CO concluded that exercising the option in OFD’s contract and not resoliciting the requirement was still the most advantageous to DLA. Nutriom protested the CO’s decision not to reprocure and to exercise OFD’s option.
As a general rule, option provisions in a contract are exercisable at the discretion of the government. GAO will not question an agency’s exercise of an option under an existing contract unless the protester shows that the agency failed to follow applicable regulations or that the determination to exercise the option, rather than conduct a new procurement, was unreasonable. GAO found no basis to question DLA’s exercise of the option in OFD’s contract where the record showed that DLA had specifically considered Nutriom’s lower price due to the new manufacturing process, but that the process had not yet been tested. GAO denied the protest.