[Code of Federal Regulations]

[Title 48, Volume 1]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 48CFR17.106-1]



[Page 331-332]

 

            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 ``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.



[[Page 332]]



    (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]