Contract Option Year(S)

Procurement Decision Matrix Contract Option Year(s) [FTA C 4220.1F Ch. VI, 7.b]

The procedures used must comply with State and local law as well as with Federal requirements. The following guidance is based on the requirements of the Common Grant Rule for governmental recipients, supplemented by FTA policies that address the needs of FTA recipients.

Definition: General: When evaluating the bids or proposals submitted, FTA expects the recipient to consider all evaluation factors specified in its solicitation documents, and evaluate the bids or offers only on the evaluation factors included in those solicitation documents. The recipient may not modify its evaluation factors after bids or proposals have been submitted without re-opening the solicitation.  A unilateral right in a contract by which, for a specified time, a grantee may elect to purchase additional equipment, supplies, or services called for by the contract, or may elect to extend the term of the contract.

Basic Requirement: In awarding the contract that will include options, the following standards apply: (1) Evaluation Required. In general, FTA expects the recipient to evaluate bids or offers for any option quantities or periods contained in a solicitation if it intends to exercise those options after the contract is awarded.  An option may not be exercised unless it has determined that the option price is better than prices available in the market, or that when it intends to exercise the option, the option is more advantageous.  The prices of the option year(s) determine which contractor has the most advantageous bid for the recipient. On the other hand, an apparent low bidder may in fact be the high bidder after the prices of the option year(s) are considered. If a market is such that offerors are unable to propose prices for the option year(s), the solicitation may identify an applicable index to be used as an escalator and the mechanics for its use. These escalation provisions must be firmly established in the solicitation and the contract. The offeror should be advised in the solicitation how the option year(s) price will be calculated, evaluated and the selection made. (2) Evaluation Not Required. The recipient need not evaluate bids or offers for any option quantities when the recipient determines that evaluation would not be in its best interests. An example of a circumstance that may support a recipient’s determination not to evaluate bids or offers for option quantities is when the recipient is reasonably certain that funds will not be available to permit it to exercise the option.

Awards Treated as Sole Source Procurement [FTA C 4220.1F, V, 7.a(1)(c)]. The following actions constitute sole source awards:  Failure to Evaluate Options before Awarding the underlying Contract [FTA C4220.1F, V, 7.a(1)(c)1]. If a contract has one or more options and those options were not evaluated as part of the original contract award, exercising those options after contract award will result in a sole source award. o When there is no evaluation of options or option year(s) at the time of award and no option provisions are contained in the contract, the sub-recipient has no unilateral right to exercise the option and is now placed in either a sole source or a re-competition situation. o Methods of Procurement [FTA C 4220.1F, VI,3.i,(3)(c)] . i. Other Than Full and Open Competition: (1)(b). Sole Source. When the recipient requires supplies or services available from only one responsible source, and no other supplies or services will satisfy its requirements, the recipient may make a sole source award. When the recipient requires an existing contractor to make a change to its contract that is beyond the scope of that contract, the recipient has made a sole source award that must be justified.

Procedures: ☐ Third-party Operating Specifications/Bid Requests must include clear outline of expectations of offerors/bidders for submittal of option year(s). Specifications/Bid Requests must also outline evaluation of offers/bids will be for the option year(s).  Key word is intention. Always evaluate the option year(s) if you think you might exercise.

Option Year(s) Procurement Decision Matrix November, 2012 Page 1  If you do not review/evaluate, exercising the option year(s) at a later date becomes a sole source procurement and must meet all requirements in this area.  Original contract does not need to have covered the option year(s) within it. Option year(s) are contained in their own contract when they are exercised.  Specifications/Bid Requests are to be reviewed and approved by TPM and Procurement Coordinator prior to Notice to Proposers/Bidders release. ☐ Cost Analysis Form Completed: FTA C 4220.1F, VI, 3.i.6.a The recipient is expected to obtain a cost analysis when price competition is inadequate, when only a sole source is available, even if the procurement is a contract modification, or in the event of a change order. This is to be completed when recipient wished to exercise their option year(s).  Prepare or obtain a cost analysis verifying the proposed cost data, the projections of the data, and the evaluation of the costs and profits.  Must include coverage of profit and fee.  Complete a Cost Analysis for the entire option period. Ensure that the option pricing is still in the best interest of the agency.

o Can use CPI(Consumer Price Index), other system costs, etc.

o The offeror is required to submit the elements (i.e. labor hours, overhead, materials) of the estimated cost.

 Develop procedures and implement management controls that ensure that options are priced and evaluated as part of the contract award. Should further ensure, when using options, that they have the unilateral right to exercise the options. Preparation for Cost Analysis:  Proposals/Bids that have been supplied over the years should be evaluated based on actuals and less on judgment factors/contingencies. Utilize previous cost/pricing data and analysis.  Understand supplier’s competitive position. To what extent did supplier price the proposal competitively?  What is the past experience with this supplier?  Evaluate each element of cost.

Total Price of Contract

Total Cost of Contract Gene Costs to Meet Contract Requirements ral & Profit Product Costs Other Direct Costs Admi nistrat /Fee (Allocation of ive (Direct Labor & (Other Allocatable Costs Overhead to Labor & Expe Direct Material) Plus Overhead) Material) nses

 The amount of profit depends on: o Complexity And o Risk

Example: In a Firm Fixed Price Contract, the supplier bears the risk, and therefore is entitled to more profit. Average profit rate: 12% before taxes in the U.S.

Option Year(s) Procurement Decision Matrix November, 2012 Page 2 Supplier Costs

Direct Labor $20,000 Direct Material 5,000 Overhead 22,500 Total Cost $47,500 + Profit $ 3,750 Price $51,250

Price – Costs == Profit

 Special Circumstances

o Equipment Purchase

. May be difficult to get a cost breakdown

. At a minimum, get a profit margin

o Vendor may refuse to provide

. Find information on base price plus additional features

☐ Submittal of Cost Analysis form and narrative to TPM and Procurement Coordinator for review and approval.

Option Year(s) Procurement Decision Matrix November, 2012 Page 3