Contrary to a common misconception, GAO has jurisdiction to consider a protester’s challenge to the exercise of an option in a competitor’s contract. But GAO’s review is largely deferential to the agency: it will uphold the exercise of an option unless a protester is able to show the agency failed to follow applicable regulations or otherwise should have conducted a new procurement.

A recent bid protest illustrates this deferential review, as GAO denied a protest challenging the exercise of an option where the agency considered pricing and other factors before exercising its option.

At issue in InGenesis, Inc., B-412101.2 (Mar. 28, 2016) was a contract awarded by DHS Immigration and Customs Enforcement (“ICE”) to Maxim Health Care Services, Inc., to provided medical staffing and support services for undocumented immigrants at various ICE facilities across the United States. As part of the solicitation, ICE discussed its requirements with 32 possible vendors (not including InGenesis); after determining that only Maxim had the capability to perform the services, ICE awarded Maxim the contract on a sole-source basis.

Maxim’s contract included an initial three-month base period and three 3-month option periods. ICE, meanwhile, was to be preparing a new competitive solicitation to address its longer-term needs.

At the end of the base period, in December 2015, ICE exercised its first option under the contract. It did so after determining that exercising the option was the most advantageous way of fulfilling the government’s needs, price and other factors considered. Specifically, ICE found that the “time between award of the contract and [o]ption exercise is so short that the [o]ption price is the lowest obtainable or most advantageous offer[.]” ICE, moreover, evaluated Maxim’s proposed option prices as part of its initial evaluation, and determined them to be fair and reasonable.

ICE further considered the “legal and moral obligation to provide a minimum standard of care to detained, undocumented immigrants” on a 24/7/365 basis. Transitioning to a new contractor would disrupt the provision of health care services at ICE’s facilities, and would likely come with increased costs to the agency.

ICE thus found that these factors justified exercising the option under Maxim’s contract. InGenesis protested this determination, arguing that ICE unreasonably determined that exercising Maxim’s option was the most advantageous method of filling the Government’s need.

Because option provisions are exercisable at the Government’s discretion, GAO’s jurisdiction over challenges to the exercise of an option is limited: though GAO will not consider an agency’s decision to not exercise an option (as a matter of contract administration), it will consider a protest challenging the decision to exercise an option. In doing so, GAO will consider whether the protester has shown that the decision to exercise was unreasonable or otherwise violated the applicable regulations.

As noted by GAO, FAR 17.207(d) requires the contracting officer to consider both price and other factors before making its most-advantageous-determination. This determination, moreover, must be based on one of the following factors:

• A new solicitation fails to produce a better price;
• An informal market survey or price analysis indicates that the option price is lower; or
• The time between contract award and option exercise is short enough and the market stable enough that the option price is the most advantageous.

Under this rubric, GAO determined ICE’s exercise of the option to be reasonable. Not only was the timeframe short between the award and the exercise of the option, but the option price was determined to be fair and reasonable, Maxim’s performance was satisfactory, the continuity of services was necessary to provide uninterrupted medical care, and ICE was preparing a competitive procurement for its longer term needs. Moreover, transitioning to a new contractor was estimated to take at least three months and to cause additional costs. Finally, though InGenesis proposed a lower cost, ICE determined InGenesis was not a reasonable alternative due to apparent issues in its performance of similar work.

GAO thus found ICE’s exercise of the option to have been reasonable, and denied InGenesis’s protest.

The ability to exercise options under an existing contract is a powerful tool for agencies, as it allows them to satisfy needs without undergoing a formal competition. As InGenesis demonstrates, an agency’s decision to exercise an option can be challenged at the GAO–but the broad discretion afforded agencies may make it difficult to win such a challenge.