[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR17.106-1]

[Page 320-321]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 17_SPECIAL CONTRACTING METHODS--Table of Contents
 
                   Subpart 17.1_Multiyear Contracting
 
Sec.  17.106-1  General.

    (a) Method of contracting. The nature of the requirement should 
govern the selection of the method of contracting, since the multiyear 
procedure is compatible with sealed bidding, including two-step sealed 
bidding, and negotiation.
    (b) Type of contract. Given the longer performance period associated 
with multiyear acquisition, consideration in pricing fixed-priced 
contracts should be given to the use of economic price adjustment terms 
and profit objectives commensurate with contractor risk and financing 
arrangements.
    (c) Cancellation procedures. (1) All program years except the first 
are subject to cancellation. For each program year subject to 
cancellation, the contracting officer shall establish a cancellation 
ceiling. Ceilings must exclude amounts for requirements included in 
prior program years. The contracting officer shall reduce the 
cancellation ceiling for each program year in direct proportion to the 
remaining requirements subject to cancellation. For example, consider 
that the total nonrecurring costs (see 15.408, Table 15-2, Formats for 
Submission of Line Items Summaries C(8)) are estimated at 10 percent of 
the total multiyear price, and the percentages for each of the program 
year requirements for 5 years are (i) 30 in the first year, (ii) 30 in 
the second, (iii) 20 in the third, (iv) 10 in the fourth, and (v) 10 in 
the fifth. The cancellation percentages, after deducting 3 percent for 
the first program year, would be 7, 4, 2, and 1 percent of the total 
price applicable to the second, third, fourth, and fifth program years, 
respectively.
    (2) In determining cancellation ceilings, the contracting officer 
must estimate reasonable preproduction or startup, labor learning, and 
other nonrecurring costs to be incurred by an

[[Page 321]]

``average'' prime contractor or subcontractor, which would be applicable 
to, and which normally would be amortized over, the items or services to 
be furnished under the multiyear requirements. Nonrecurring costs 
include such costs, where applicable, as plant or equipment relocation 
or rearrangement, special tooling and special test equipment, 
preproduction engineering, initial rework, initial spoilage, pilot runs, 
allocable portions of the costs of facilities to be acquired or 
established for the conduct of the work, costs incurred for the 
assembly, training, and transportation to and from the job site of a 
specialized work force, and unrealized labor learning. They shall not 
include any costs of labor or materials, or other expenses (except as 
indicated above), which might be incurred for performance of subsequent 
program year requirements. The total estimate of the above costs must 
then be compared with the best estimate of the contract cost to arrive 
at a reasonable percentage or dollar figure. To perform this 
calculation, the contracting officer should obtain in-house engineering 
cost estimates identifying the detailed recurring and nonrecurring 
costs, and the effect of labor learning.
    (3) The contracting officer shall establish cancellation dates for 
each program year's requirements regarding production lead time and the 
date by which funding for these requirements can reasonably be 
established. The contracting officer shall include these dates in the 
schedule, as appropriate.
    (d) Cancellation ceilings. Cancellation ceilings and dates may be 
revised after issuing the solicitation if necessary. In sealed bidding, 
the contracting officer shall change the ceiling by amending the 
solicitation before bid opening. In two-step sealed bidding, discussions 
conducted during the first step may indicate the need for revised 
ceilings and dates which may be incorporated in step two. In a 
negotiated acquisition, negotiations with offerors may provide 
information requiring a change in cancellation ceilings and dates before 
final negotiation and contract award.
    (e) Payment of cancellation charges. If cancellation occurs, the 
Government's liability will be determined by the terms of the applicable 
contract.
    (f) Presolicitation or pre-bid conferences. To ensure that all 
interested sources of supply are thoroughly aware of how multiyear 
contracting is accomplished, use of presolicitation or pre-bid 
conferences may be advisable.
    (g) Payment limit. The contracting officer shall limit the 
Government's payment obligation to an amount available for contract 
performance. The contracting officer shall insert the amount for the 
first program year in the contract upon award and modify it for 
successive program years upon availability of funds.
    (h) Termination payment. If the contract is terminated for the 
convenience of the Government in whole, including requirements subject 
to cancellation, the Government's obligation shall not exceed the amount 
specified in the Schedule as available for contract performance, plus 
the cancellation ceiling.

[61 FR 39204, July 26, 1996, as amended at 62 FR 51270, Sept. 30, 1997]