HHS Reference Tool for Contract Funding, Formation and Appropriations Law Compliance
Annual Appropriation and Use of Options
Will the base period and each subsequent option be limited to one year or less?
Option means a unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract within the existing term of the contract, or may elect to extend the term of the contract. This definition expands on the definition in FAR 2.101. Please also see FAR Subpart 17.2.
NOTE: When severable services will cover more than one year, it is HHS policy [HHSAR 332.702-70(b)] to structure contracts with a base period (not to exceed 1 year) and annual options. This approach is preferred over the use of incremental funding because the use of options limits the Department’s liability, i.e., ending a contract by not exercising an option would not incur termination costs.