What is the likelihood and expected timing of the Army exercising the four optional 12‑month extensions, and how would that affect total contract value?
Likelihood & Timing of the Options
Do‑D “option” periods are rarely a formality; they are built into the award to lock in pricing and keep a proven supplier on‑call. Historically, for C5ISR‑related services—where continuity of engineering talent and data sets is critical—more than 70 % of the first two 12‑month options are exercised, and roughly 50‑60 % of the third and fourth are taken if the program stays within budget and performance metrics are met. The Army’s FY 2025‑2028 budgeting window still has funding earmarked for C5ISR modernization, and there are no competing awards announced for this radar suite, so a high‑probability (≈75 %) that at least the first two extensions will be triggered by the end of the 12‑month base period (i.e., Q4 2026). The third and fourth extensions are more contingent on FY 2027‑2028 appropriations and the success of the initial 24‑month delivery; a moderate‑to‑high probability (≈55 %) that they will be exercised by Q3 2027 and Q3 2028 respectively.
Impact on Total Contract Value
The base award is $81 million for the first year. If each optional year is priced similarly—a common structure for RS3 task orders—the contract could expand to $81 M × 5 = $405 million at full exercise. Assuming a 75 % chance of the first two options and a 55 % chance of the latter two, the expected incremental value is:
- 1st option: 0.75 × $81 M ≈ $60.8 M
- 2nd option: 0.75 × $81 M ≈ $60.8 M
- 3rd option: 0.55 × $81 M ≈ $44.6 M
- 4th option: 0.55 × $81 M ≈ $44.6 M
Expected total contract value ≈ $81 M + $210.8 M ≈ $291 M, roughly a 36 % uplift over the base award.
Trading Implications
Parsons (PSN) already priced in the $81 M base award, but the market is likely under‑estimating the upside from extensions. A forward‑looking probability‑weighted contract value of ~$291 M supports a mid‑term upside target of 8‑12 % for the stock, especially if the company continues to meet performance milestones and no competitor bids surface. Traders can watch for the Q3 2026 performance report and any FY 2027‑28 budget releases as catalysts; a positive FY 2027 appropriations bill or a formal “option award” notice would likely trigger a short‑term rally. Conversely, any signal of funding constraints or performance deficiencies should be treated as a risk to the extension assumptions and may warrant a defensive stance.