An option is the government's unilateral right to extend your contract or buy more of what you sell, on terms fixed at award. Most contractors treat exercise as a formality. It is not. FAR Subpart 17.2, whose current text carries an effective date of 03/13/2026 under FAC 2026-01, sets seven conditions a contracting officer must satisfy before exercising an option. DFARS 217.207 adds three more that live entirely on your side of the table — and a lapse in any of them can stall an option on work you are already performing.
Background
Options exist so agencies can lock in future pricing without committing funds today. FAR 17.200 sets the boundaries: the subpart does not apply to contracts for construction, architect-engineer services, or research and development services. That is routinely misquoted: the regulation does not ban options in those contracts, it says options may still be used in them.
Within scope, FAR 17.202 tells contracting officers when options are inappropriate. Options must not be used if the contractor will incur undue risks, if market prices are likely to change substantially, or if the option quantity represents known firm requirements for which funds are available — unless the basic quantity is a learning or testing quantity and competition for the option is impracticable once the initial contract is awarded.
That last constraint matters more than it looks. If an agency knows and has funded a five-year need, structuring four of those years as options is not the intended use of Subpart 17.2, and contractors bidding it are pricing risk that should not have been shifted to them.
Key Details
The five-year ceiling. FAR 17.204 is explicit: "the total of the basic and option periods shall not exceed 5 years in the case of services, and the total of the basic and option quantities shall not exceed the requirement for 5 years in the case of supplies. These limitations do not apply to information technology contracts." The IT carve-out is the exception contractors most often forget when modeling out-year revenue.
The 50 percent quantity rule. FAR 17.203 provides that where solicitations require options be offered at prices no higher than those for the initial requirement, they must limit option quantities for additional supplies to "not more than 50 percent of the initial quantity of the same contract line item." The rule is not absolute — an official above the contracting officer may approve a greater percentage — but that approval has to exist. If a solicitation caps option pricing at base pricing and demands quantities well beyond half the base line item, raise it before proposals are due.
Evaluation basis. FAR 17.203 also requires the solicitation to state the basis of evaluation, "either exclusive or inclusive of the option." Whether option-year pricing counts toward the total evaluated price changes bidding strategy entirely.
The seven conditions on exercise. Under FAR 17.207, a contracting officer may exercise an option only after determining that funds are available; that the requirement covered by the option fulfills an existing government need; that exercise is the most advantageous method of fulfilling that need, price and other factors considered; that the option was synopsized under Part 5 or was exempt; that the contractor has no active exclusion record in SAM; that its past performance evaluations have been considered; and that its performance on this contract has been acceptable. The determination is documented in writing for the contract file.
The DoD Ordering-Period Rules
DFARS 217.204 governs how long DoD task and delivery order contracts may run. Contracts awarded under 10 U.S.C. 3403 may have ordering periods up to five years, extendable successively, but not exceeding ten years "unless the head of the agency determines in writing that exceptional circumstances require a longer ordering period." Several categories sit outside that limit: contracts under other statutory authority, definite-quantity contracts, GSA schedule contracts, and multi-agency contracts awarded by agencies other than DoD, NASA, or the Coast Guard. Advisory and assistance service task order contracts, authorized under 10 U.S.C. 3405, are capped by statute at five years, with authority to extend six months.
The Compliance Gate Most Contractors Miss
DFARS 217.207 converts cybersecurity paperwork into a revenue event. Before an option is exercised, the contractor must have an active System for Award Management record with an accurate unique entity identifier, CAGE code, name, and physical address; a summary-level NIST SP 800-171 DoD Assessment score posted in the Supplier Performance Risk System that is not more than three years old, unless a lesser time is specified in the solicitation; and a current Cybersecurity Maturity Model Certification status at the CMMC level required by the contract, or higher.
The practical consequence: an SPRS score that ages past three years is not merely an award-time problem. It is a condition on option exercise on contracts you already hold. A score posted in mid-2023 goes stale in mid-2026, and nothing in your CLIN structure will remind you.
What GAO Will and Won't Review
Contractors who lose an option sometimes ask whether the decision is protestable. Under the standard restated in GAO decision B-243116.2 (July 19, 1991), GAO will not question an agency's exercise of an option unless the protester shows the agency failed to follow applicable regulations, or that the determination to exercise rather than conduct a new procurement was unreasonable. That decision also notes the regulatory instruction that where the CO anticipates the option price is the best available, a new solicitation should not be issued to test the market.
What It Means for Contractors
Build an option calendar. For every contract with unexercised options, record the exercise window, the funding cycle it depends on, and the date your SPRS assessment turns three years old. Refresh at thirty months, not thirty-six.
Verify SAM registration and CAGE accuracy quarterly. DFARS 217.207 reaches your name and physical address too, so an unrecorded office move is a live exposure, and reinstatement of a lapsed registration is not instantaneous.
Track CPARS ratings as option-year infrastructure. FAR 17.207 conditions exercise on acceptable performance and on the CO having considered your past performance evaluations. A marginal rating entered eight months before an option window is a problem you address then, not when the modification fails to arrive.
Read the option structure at proposal time. Confirm whether evaluation is inclusive or exclusive of options, whether the total period respects the five-year ceiling or claims the IT exception, and whether option quantities exceed 50 percent of the base line item where price-capped. Those checks tell you what the vehicle is worth.
