This is a common problem for employees who work on "Contract" or are employed in "Contract to hire" positions. I think the best solution to this is to speak with your current boss honestly and let him know your position. I recommend having a verbal discussion instead of sending a written message but if you decide to write email below text can be used with some changes,
I really appreciate your willingness to extend my contract but before
we move forward I want to share my situation with you. Since I was not
sure about my contract being extended after <<-date->>. Recently I started
applying for few open positions suiting my skill set and I have
received an offer from one of the company. However since this is very
early stage of their hiring process I am still not sure about the
final outcome of this.
While I love working here I would still like to compare both offers
before making a final decision. So can you give me time till <<-date
here->> to decide on my extension. I promise to let you know as soon as
I am ready with my decision.
I am sure you will be able to understand my situation.
Optionally You can also let the other requiter know that you need to decide on extension of your current contract and need a final offer/decision by <<-date->>.
Now below things can happen,
- If this company really likes you they may probably come with a better offer or at least extend the date.
- The other offer doesn't work and you ultimately accept the extension from this company in this case your current manager will appreciate your honesty and will be willing to have you for longer.
- You get the offer from dream company and ultimately leave this company but if you have told the manager in advance you are not burning the bridge and you can leave without disappointing the manager.
- The other company doesn't offer and this manager is pissed off and refused to extend your offer. Well in that case this company was not worth staying for longer.
Hopefully this helps,