FAR 17.202—Use of options.
Plain-English Summary
FAR 17.202 explains when contracting officers may use contract options and when they should avoid them. It covers both sealed bidding and negotiated acquisitions, the need for a written determination before using the option evaluation provision in sealed bidding, the general rule that options must be in the Government’s interest, and the specific situations where options are normally not appropriate. It also addresses when options should not be used because of contractor risk, market volatility, or the availability of funds for known requirements, with a narrow exception for learning or testing quantities when competition later would be impracticable. Finally, it recognizes that service contracts may include options to preserve continuity of operations and avoid the cost and disruption of interrupted support. In practice, this section is about choosing the right contract structure and documenting why an option is or is not appropriate based on the acquisition’s timing, market conditions, risk, and the Government’s need for continuity.
Key Rules
Options only if in Government interest
The contracting officer may include options in both sealed bidding and negotiated contracts only when doing so is in the Government’s interest. This is the baseline rule, and it requires a judgment based on the acquisition’s facts rather than a routine preference for options.
Written finding for sealed bidding
When using sealed bidding, the contracting officer must make a written determination that there is a reasonable likelihood the options will be exercised before including FAR 52.217-5, Evaluation of Options, in the solicitation. This ensures the option price is evaluated only when there is a real expectation the Government may use it.
Options usually not appropriate for economic quantities
An option is normally not in the Government’s interest when the foreseeable requirement involves minimum economic quantities and delivery dates far enough in the future to allow a competitive acquisition, production, and delivery. In that situation, a separate future procurement may be more economical and competitive than locking in an option now.
Use other contract types when better suited
If an indefinite-quantity or requirements contract would better fit the need, the contracting officer should generally use that structure instead of a contract with options. The rule does not prohibit using those contract types with options, but it signals that the contract vehicle should match the nature of the requirement.
Do not use options when risk or price volatility is high
The contracting officer shall not use options if the contractor would incur undue risk, such as when the price or availability of labor or materials is not reasonably foreseeable, or when market prices are likely to change substantially. Options should not shift unpredictable business risk onto the contractor in a way that undermines fair pricing or performance.
No options for funded known requirements, with narrow exception
The contracting officer shall not use options for known firm requirements for which funds are available, unless the basic quantity is a learning or testing quantity and competition for the later quantity would be impracticable after award. This prevents using options to bypass competition for requirements that could and should be competed separately.
Service contract continuity may justify options
Options may be included in service contracts when there is an anticipated need for a similar service beyond the first contract period, recognizing the Government’s need for continuity of operations and the cost of disrupted support. This is a practical exception aimed at avoiding service interruptions where transition costs or operational impacts would be significant.
Responsibilities
Contracting Officer
Determine whether an option is in the Government’s interest, document the required written finding for sealed bidding, and decide whether the acquisition is better suited to an option, an indefinite-quantity contract, or a requirements contract. The contracting officer must also avoid options when contractor risk is undue, market prices are likely to shift substantially, or the option would cover known funded requirements without meeting the narrow exception.
Contracting Officer
For service contracts, assess whether continuity of operations and the cost of disrupted support justify including an option for a later period of similar services. The contracting officer should tie the decision to the anticipated need and the practical consequences of a break in service.
Agency/Program Office
Provide the requirement forecast, timing, and operational need information needed to support the contracting officer’s option decision. Program officials should identify whether future needs are likely, whether continuity is important, and whether the requirement is a learning or testing quantity.
Contractor
Price and perform in accordance with the option structure if included, while understanding that the Government may or may not exercise the option depending on the solicitation and contract terms. The contractor should also recognize that options should not be used where the contract would impose undue or unforeseeable risk.
Practical Implications
Options are not a default feature; they require a reasoned business judgment tied to the Government’s interest. A weak or undocumented rationale can create acquisition risk and make the solicitation harder to defend.
For sealed bidding, the written determination that the option is reasonably likely to be exercised is a key compliance point. If that finding is missing or unsupported, the option evaluation provision should not be used.
Contracting officers should compare options against other contract structures early in planning. If the need is recurring and ongoing, an indefinite-quantity or requirements contract may be a better fit than a base-plus-option arrangement.
Market conditions matter. If labor or material prices are unstable or hard to predict, an option may be inappropriate because it can distort pricing or create unfair risk for the contractor.
Service contracts often justify options because continuity matters, but the justification should be specific. Agencies should explain why a break in service would be costly or disruptive and why an option is better than recompeting or transitioning later.
Official Regulatory Text
(a) Subject to the limitations of paragraphs (b) and (c) of this section, for both sealed bidding and contracting by negotiation, the contracting officer may include options in contracts when it is in the Government’s interest. When using sealed bidding, the contracting officer shall make a written determination that there is a reasonable likelihood that the options will be exercised before including the provision at 52.217-5 , Evaluation of Options, in the solicitation. (See 17.207 (f) with regard to the exercise of options.) (b) Inclusion of an option is normally not in the Government’s interest when, in the judgment of the contracting officer- (1) The foreseeable requirements involve- (i) Minimum economic quantities ( i.e., quantities large enough to permit the recovery of startup costs and the production of the required supplies at a reasonable price); and (ii) Delivery requirements far enough into the future to permit competitive acquisition, production, and delivery. (2) An indefinite quantity or requirements contract would be more appropriate than a contract with options. However, this does not preclude the use of an indefinite quantity contract or requirements contract with options. (c) The contracting officer shall not employ options if- (1) The contractor will incur undue risks; e.g., the price or availability of necessary materials or labor is not reasonably foreseeable; (2) Market prices for the supplies or services involved are likely to change substantially; or (3) The option represents known firm requirements for which funds are available unless- (i) The basic quantity is a learning or testing quantity; and (ii) Competition for the option is impracticable once the initial contract is awarded. (d) In recognition of- (1) The Government’s need in certain service contracts for continuity of operations; and (2) The potential cost of disrupted support, options may be included in service contracts if there is an anticipated need for a similar service beyond the first contract period.