BNUMBER:  B-257047.2
DATE:  November 13, 1995
TITLE:  Sippican, Inc.

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Matter of:Sippican, Inc.

File:     B-257047.2

Date:   November 13, 1995

Leon J. Glazerman, Esq., and Michael J. Lacek, Esq., Palmer & Dodge, 
for the protester.
Robert G. Fryling, Esq., and Anthony O. Boswell, Esq., Blank, Rome, 
Comisky & McCauley, for Sechan Electronics, Inc., an  interested 
party.
Christine A. Blazina, Esq., Department of the Navy, for the agency.
Susan K. McAuliffe, Esq., and Michael R. Golden, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest that contracting agency improperly exercised a contract option 
is denied where the protester has not shown that the agency failed to 
follow applicable regulations or that the determination to exercise 
the option was unreasonable.

DECISION

Sippican, Inc. protests the exercise of the third option year under 
contract  
No. N00024-94-C-6153, which was awarded to Sechan Electronics, Inc., 
by the Department of the Navy.  Sippican contends that the agency's 
determination to exercise the option was made without complying with 
applicable regulations.

We deny the protest.

On April 8, 1994, the Navy awarded a contract for a base year plus 3 
option years to Sechan, under solicitation No. N00024-93-R-6126, to 
produce EMATTS (expendable anti-submarine warfare sonar training 
targets).  The first year option was exercised concurrently with the 
award of the base year contract.  The second year option was exercised 
in March 1995.  The third year option, the subject of the current 
protest, was exercised on June 28, 1995.

Sippican contends that the Navy improperly exercised the most recent 
option without making a reasonable determination that the option was 
the most advantageous method of fulfilling the government's needs, as 
required by Federal Acquisition Regulation (FAR)  17.207.  Sippican, 
the incumbent contractor, bases its protest principally upon the fact 
that the firm sent several communications to the agency after Sippican 
lost the base contract competition to Sechan in 1994, stating that 
Sippican believed recompetition for the contract's option requirements 
was in the agency's best interest.  In those letters, Sippican stated 
that it would now be able to offer the agency lower prices for option 
quantity EMATTS than those prices offered by Sechan since Sippican had 
recently "downsized" its organization and found alternative and less 
expensive sources for some of the EMATT components.  Sippican contends 
that the agency failed to follow regulatory requirements in not 
issuing a new solicitation and requesting proposals to confirm whether 
Sechan's third option year price (and the exercise of the option) was 
still the most advantageous method of fulfilling the agency's need.

As a general rule, option provisions in a contract are exercisable at 
the discretion of the government.  See FAR  17.201.  An informal 
analysis of prices or an examination of the market which indicates 
"that the option price is better than prices available in the market 
or that the option is the more advantageous offer" is one of three 
methods specifically set forth in FAR  17.207(d) as a basis for 
determining whether to exercise an option.  Person-System Integration, 
Ltd.,  
B-246142; B-246142.2, Feb. 19, 1992, 92-1 CPD  204.  The form of such 
examination is largely within the discretion of the contracting 
officer, so long as it is reasonable.  See Kollsman Instrument Co., 68 
Comp. Gen. 303 (1989), 89-1 CPD  243; Action Mfg. Co., 66 Comp. Gen. 
463 (1987), 87-1 CPD  518.  The FAR also permits a determination that 
the option price is the most advantageous based upon a finding that 
the time between contract award and option exercise is short enough 
and the market stable enough that the option price remains most 
advantageous.  FAR  
 17.207(d).

Our Office will not question an agency's exercise of an option under 
an existing contract unless the protester shows that the agency failed 
to follow applicable regulations or that the determination to exercise 
the option, rather than conduct a new procurement, was unreasonable.  
Tycho Technology, Inc., B-222413.2, May 25, 1990, 90-1 CPD  500.  The 
intent of the regulations is not to afford a firm that offered high 
prices under an original solicitation an opportunity to remedy this 
business judgment by undercutting the option price of the successful 
offeror.  Person-System Integration, Ltd., supra.

We find no basis to question the agency's determination to exercise 
the option.  The record shows that the contracting officer considered 
(1) the prices offered in the original competition and the fact that 
Sechan's high technical score and low price had made its proposal more 
advantageous than the protester's proposal; (2) that only a relatively 
short period of time had passed since the original competition and the 
agency's requirements for the third option year remained the same as 
stated in the original competition; (3) that agency information showed 
that Sippican had recently charged substantially more for EMATT units 
in a foreign procurement than Sechan's option price; (4) that there 
was no known change in the current EMATT market; (5) that since 
Sippican did not provide any financial data to support its allegations 
of more advantageous pricing, and since prior prices known to the 
agency for required materials were substantial, it remained unlikely 
that Sippican could reduce its material costs to the extent stated to 
be below those of Sechan; and (6) the need for continuity of 
operations and the cost of disruption, as well as the costs of a new 
competition (which would involve additional costs of proposal 
evaluation, start-up costs and the possible requalification of a 
vendor or qualification of a new contractor).

Given the agency's consideration of these factors,  the Navy was not 
required to issue a new solicitation for the third year option 
quantity to test prices.  The FAR, in fact, expressly provides that if 
it is anticipated that the best price available is the option price, 
the contracting officer should not issue a new solicitation to test 
the market.  FAR  17.207(d)(1).  The agency appropriately considered 
both pricing and other information available to it regarding the 
stability of the EMATT market and other factors, such as continuity of 
operations, as permitted under the FAR, and reasonably determined that 
the exercise of the option under Sechan's contract was the most 
advantageous method of fulfilling its needs.  FAR  17.207(d)(3) and 
17.207(e).  Sippican's general statements in its letters to the agency 
that it had reorganized to become a "leaner" operation and could offer 
a lower, but unspecified, price--without more credible financial 
information to support the allegation--do not, in our view, entitle 
Sippican to a second chance to compete for the stated option quantity 
where prices were tested by the original competition less than 1-1/2 
years earlier.  See A. J. Fowler Corp., B-205062, June 15, 1982, 82-1 
CPD  582.[1]  The agency's determination to exercise the option was 
not based solely on price but, rather, as shown above, was also 
reasonably based upon non-price factors permitted under the FAR.  We 
conclude that the exercise of the option was proper.[2]

The protest is denied.

Comptroller General
of the United States

1. Sippican's letters to the agency provided only general 
representations that it could offer a lower price for the option year 
quantities.  For instance, Sippican stated that "it undertook a major 
effort internally to become more price competitive," that it "truly 
[believes] that significant cost savings would result to the Navy," 
that the protester's "second source" for an EMATT component reduced 
the price for that item, and that as its "customer base grow, our 
costs are reduced."  

2. Sippican suggests that the agency's early exercise of the third 
year option indicates that the agency was acting in bad faith in an 
effort to preclude Sippican from participation for an award of the 
option quantity.  Sippican's supposition in this regard, without the 
submission of any persuasive evidence of wrongdoing, is insufficient 
to constitute a valid basis of protest.