FAR 17.107—Options.
Plain-English Summary
FAR 17.107 explains how options may be used in a multi-year contract and what limits apply to option pricing. Its main point is that options can provide benefits in multi-year contracting, but when a contracting officer includes them, the officer must follow the requirements of FAR subpart 17.2, which governs the use of options generally. The section also addresses a specific pricing safeguard: option quantities or periods should not be priced to recover plant and equipment costs that have already been amortized, or other nonrecurring charges that were already included in the basic contract. In practice, this section helps prevent double recovery by contractors and ensures option pricing reflects only legitimate future costs. It matters because poorly structured options can distort competition, overstate contract value, and create audit or protest risk.
Key Rules
Options May Benefit Multi-Year Contracts
The regulation recognizes that including options in a multi-year contract can be advantageous. This means agencies may use options when they support continuity, flexibility, or better pricing, but the decision must still be justified and structured properly.
Follow Subpart 17.2 Requirements
If a contracting officer includes options, the officer must comply with FAR subpart 17.2. That subpart contains the general rules for using options, so this section does not stand alone; it directs the reader to the broader option requirements.
No Double Recovery of Amortized Costs
Option pricing should not include charges for plant and equipment that have already been amortized under the basic contract. The contractor should not recover the same capital cost again through the option price.
Exclude Other Nonrecurring Charges
Options also should not include other nonrecurring charges that were already included in the basic contract. This prevents the government from paying twice for startup, setup, or similar one-time costs.
Responsibilities
Contracting Officer
Determine whether options are beneficial in a multi-year contract, and if so, ensure the option structure complies with FAR subpart 17.2. Review pricing to make sure the option does not include amortized plant and equipment costs or other nonrecurring charges already paid in the basic contract.
Contractor
Prepare option pricing that excludes costs already recovered in the basic contract, including amortized plant and equipment and other nonrecurring charges. Support the pricing basis if questioned by the contracting officer.
Agency
Use options only when they are appropriate for the acquisition and ensure internal review processes support compliance with FAR subpart 17.2 and sound pricing practices.
Practical Implications
Contractors should separate recurring costs from one-time startup or capital recovery costs when pricing options, or they risk disallowance or negotiation delays.
Contracting officers should check whether the basic contract already recovered nonrecurring costs before accepting option pricing; otherwise the government may pay twice.
This section is a pricing-control rule as much as a contract-structure rule: the presence of an option is allowed, but the price must be cleaned of already recovered costs.
A common pitfall is carrying forward the same cost build-up from the base period into the option period without removing amortized or nonrecurring items.
Because the section points to subpart 17.2, users should not treat it as a complete option policy; it is a cross-reference plus a specific pricing limitation.
Official Regulatory Text
Benefits may accrue by including options in a multi-year contract. In that event, contracting officers must follow the requirements of subpart 17.2 . Options should not include charges for plant and equipment already amortized, or other nonrecurring charges which were included in the basic contract.