Key issues to consider when deciding to exercise an option to extend a contract include:
• the comparative value for money of exercising the option and continuing the contract versus re-approaching the market under a new procurement process, including with regard to the costs of tendering;
• the performance of the current provider and the management of the contract;
• the discretion the entity has in exercising the option;
• the timeframes involved (for example, whether there is sufficient time to run a new procurement process);
• the current market conditions;
• whether any coordinated procurement arrangements that may impact on the exercise of the option have been announced; and
• the changing needs or requirements of the entity.105
Where a decision has been made to exercise the option of extending the contract, it must be managed in accordance with the terms of the contract, for example by notifying the other party of the intention to exercise the option. In addition, relevant approvals and/or authorisations in accordance with the FMA Regulations106 must be obtained.
Good Practice Tip: Schedule a time for consideration of an option to extend the contract Possible contract extensions should be examined at least six months before the contract end date to give the agency time to consult with relevant stakeholders, conduct a value for money assessment and go out to the market if required. |
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105 Department of Finance and Deregulation website, <http://www.finance.gov.au/procurement/>, Evaluating Options in Procurement Contracts and Panel Arrangements guide.
106 See FMA Regulations 9 and 10. Further guidance on the application of FMA Regulations is set out in Finance Circular No. 2011/01 Commitments to spend public money (FMA Regulations 7 to 12).