Overview
FAR Subpart 17.1 provides the policies and procedures for multi-year contracting, a specialized method for acquiring known requirements for up to five years without needing to exercise annual options. It allows the government to commit to multiple years of requirements while providing "cancellation" protections to contractors if future funding is not appropriated.
Key Rules
- Contract Duration: Multi-year contracts are limited to a maximum of five program years.
- Cancellation vs. Termination: "Cancellation" occurs specifically when the Contracting Officer notifies the contractor that funds are unavailable for subsequent years. "Termination for Convenience" can occur at any time for any quantity and follows different procedures.
- Funding Requirements: Agency funding must conform to OMB Circular A-11. Funds obligated must be sufficient to cover potential cancellation or termination costs.
- Cancellation Ceilings: The Contracting Officer must establish a maximum "ceiling" for cancellation charges for each program year (except the first). This ceiling is reduced proportionally as the contract progresses.
- Allowable Costs in Cancellation: Charges are generally limited to nonrecurring costs (startup, special tooling, plant rearrangement, labor learning) that would have been amortized over the full contract term.
- Congressional Notification:
- Civilian Agencies: Requires 30-day written notification to Congressional committees if the cancellation ceiling exceeds $20 million.
- DoD, NASA, and Coast Guard: Requires 30-day written notification if the cancellation ceiling exceeds $200 million.
- Contract Types: For DoD, NASA, and the Coast Guard, these must be firm-fixed-price, fixed-price with economic price adjustment (EPA), or fixed-price incentive contracts.
Responsibilities
- Agency Head: Authorizes modifications to the standard cancellation clause; for DoD/NASA/CG, determines if the use of a multi-year contract will result in "significant savings" and provides Congressional notifications.
- Head of Contracting Activity (HCA): (For civilian agencies) Determines if the need for supplies/services is firm and if the contract serves the best interest of the U.S. The HCA also approves the use of variable unit prices or solicitations requesting only multi-year prices.
- Contracting Officer (CO):
- Establishes cancellation ceilings and dates.
- Obtains in-house engineering cost estimates to identify recurring vs. nonrecurring costs.
- Limits the government's payment obligation to available funds and modifies the contract as funds become available.
- Ensures proper clauses (e.g., FAR 52.217-2) are included in the solicitation and contract.
- Program Managers/Engineering: Provide the technical basis for "stable design" and "realistic cost estimates," which are prerequisites for approval.
Practical Implications
- Lower Unit Prices: This method is primarily used to drive down costs. By guaranteeing 3–5 years of work, contractors can amortize high startup costs (like specialized tooling or workforce training) across a larger volume, resulting in lower unit prices than annual contracts.
- Industrial Base Stability: It is a powerful tool for maintaining the defense industrial base, as it provides contractors with the predictability needed to invest in capital facilities and advanced technology.
- Administrative Efficiency: While the initial solicitation and "cancellation ceiling" calculations are complex, the method reduces the recurring administrative burden of exercising annual options or recompeting requirements every year.
- Budgetary Risk: The government takes on the risk of "cancellation charges." If a program is defunded in Year 3, the government must pay the contractor for the unrecovered nonrecurring costs defined in the cancellation ceiling, which can be a significant budgetary hit.
- Strict Evaluation: Solicitations often require offerors to submit both "annual" and "multi-year" quotes so the government can mathematically verify that the multi-year approach actually saves money.