Overview
FAR Part 17 prescribes policies and procedures for non-traditional procurement methods, specifically focusing on multi-year contracting, options, and interagency acquisitions. These methods are designed to provide the government with increased flexibility, continuity of services, and cost savings by leveraging long-term requirements and administrative efficiencies.
Key Rules
- Multi-year Contracting (Subpart 17.1):
- Limited to a maximum of five program years unless otherwise authorized by statute.
- Requires the establishment of a cancellation ceiling to cover unrecovered nonrecurring costs (startup, specialized training, etc.) if the contract is canceled due to lack of future funding.
- Differs from "multiple year" contracts in that it buys more than one year's requirement without requiring the exercise of an option for each subsequent year.
- Congressional Notification: For civil agencies, the CO must notify Congress if a cancellation ceiling exceeds $20 million. For DoD, NASA, and the Coast Guard, the threshold is $200 million.
- Options (Subpart 17.2):
- Options must be evaluated at the time of the initial award to be exercised later without further competition.
- The total duration of a contract (base plus options) generally cannot exceed 5 years for services, though Information Technology (IT) contracts may be exempt.
- Options cannot be used if the contractor would incur undue risks or if market prices for the supplies are likely to change substantially.
- Funding and Cancellation:
- Multi-year contracts are contingent upon the appropriation of funds for subsequent years; if funds are not available, the contract must be canceled.
- "Cancellation" applies specifically to the total requirements of all remaining program years, whereas "Termination for Convenience" can happen at any time for any portion of the contract.
Responsibilities
- Contracting Officers (CO):
- Must determine that a multi-year contract serves the best interests of the U.S. by encouraging competition or promoting economy.
- Establishing cancellation dates and ceilings for each program year.
- Justifying in writing the quantities/terms under option and ensuring funds are available before exercising an option.
- Agency Heads/Heads of Contracting Activity (HCA):
- Required to determine that the government's need for supplies or services is "reasonably firm and continuing" before authorizing a multi-year contract.
- Must provide written notification to Congressional committees for contracts exceeding the $20M/$200M cancellation ceiling thresholds.
- Program Managers/Requirement Owners:
- Responsible for providing realistic cost estimates and ensuring that designs (for supplies) are stable and technical risks are not excessive.
Practical Implications
- Industrial Base Stability: Multi-year contracting is a powerful tool for stabilizing a contractor's workforce and incentivizing capital investment (like new facilities or advanced technology) because the contractor has a guaranteed long-term horizon.
- Budgeting Risks: While multi-year contracts can lower unit prices, they create a "contingent liability" for the government via the cancellation ceiling. If a program is cut, the agency may still owe significant sums to the contractor for unrecovered startup costs.
- Administrative Efficiency: Using options allows the government to maintain continuity of operations (especially in service contracts) without the administrative burden and lead time of a full new solicitation and competition every 12 months.
- Pricing Strategy: In multi-year contracts, the government generally seeks level unit pricing, where the costs of startup are amortized over the entire 5-year period, preventing the first year from being disproportionately expensive.