Option Year
An additional contract performance period beyond the base year that the government may exercise at its discretion.
Overview
An option year is an additional period of performance that the government has the right — but not the obligation — to add onto a contract. Most government contracts are structured with a base period (usually one year) followed by one or more option years. The government exercises options by issuing a modification before the current period expires.
Why It Matters in GovCon
Option years provide continuity and the potential for long-term revenue, but they are not guaranteed. The government can choose not to exercise an option for any reason — budget constraints, poor performance, changing requirements, or simply deciding to recompete. Understanding this risk is important for workforce planning and financial projections.
Key Details
- Structure: Common patterns include 1 base + 4 options (five years total), or 1 base + 2 options (three years total).
- Exercise Timing: The government must notify the contractor of its intent to exercise an option within a specified timeframe (typically 30-60 days before the current period ends).
- Pricing: Option year pricing is proposed at the time of initial award and can include escalation factors.
- FAR 17.2: Governs the use of options, including limitations and conditions for exercising them.
- Performance-Based: Strong performance during the base year significantly increases the likelihood of option exercise.
Related Terms
- Base Year
- Contract Modification
- Period of Performance
- Contracting Officer (CO)
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