multiyear contract period, but which, because of the cancellation, are not SO amortized and (ii) a reasonable profit on such costs. The cancellation charge shall be computed and claim therefor made as would be applicable under the "Termination for Convenience of the Government" clause of this contract. The claim may include reasonable preproduction and other nonrecurring costs, incurred by the prime contractor or his subcontractor, applicable to and which normally would be amortized in all items to be furnished under the multiyear requirements, such as plant rearrangement, special tooling, preproduction engineering, initial rework, initial spoilage and pilot runs, as well as costs not amortized by the level contract unit price solely because the cancellation had precluded anticipated benefits of contractor or subcontractor learning. The claim shall not include any amount for:

(i) Labor, materials, or other expenses incurred by the Contractor or its subcontractors for production of the canceled items;

(ii) Any item or cost for which payment has already been made to the Contractor; or (iii) Anticipated profit on the canceled items.

Where options are otherwise authorized, multiyear contracts may include an appropriate "Option to Increase Quantities" clause in which the period for exercise of the option is limited to the date set forth in the contract schedule for notifying the contractor that funds are available for the requirements of the next succeeding program year. If such an option is included, the following paragraph (f) should be added to the clause set forth above.

(f) The Contractor agrees not to include in the price for option quantities any costs of a startup or nonrecurring nature, which costs have been fully provided for in the unit prices of the firm quantities of the Program Years, and further agrees that the prices offered for option quantities will reflect only those recurring costs, and a reasonable profit thereon, which are necessary to furnish the additional option quantities. Therefore, any quantities added to the original contract quantities through exercise of the Government option in the "Option to Increase Quantities" clause of this contract shall not be subtracted from what would otherwise be considered the quantity canceled for the purpose of computing allowable cancellation charges.

[32 F.R. 501, Jan. 18, 1967, as amended at 34 F.R. 17883, Nov. 5, 1969]

§ 1.322-6 Multiyear procurement of

services.

(a) Description of procedure. Multiyear procurement of services is a method for competitive contracting for known

requirements for services and items of supply incidental to service contracts in quantities and total cost not in excess of planned requirements for 5 years, set forth in, or in support of, the 5-Year Defense Program, even though the total funds ultimately to be obligated by the contract are not available to the contracting officer at the time of entering into the contract. Under this method, requirements are budgeted for and financed in accordance with the program year for which each quantity is authorized. This procedure provides for solicitation of prices based either on award of the current 1-year requirements only, or, in the alternative, on total requirements representing the first and one or more succeeding years' requirements (multiyear). Award is made on whichever of these two alternative bases reflects the lowest prices to the Government. If award is made on the multiyear basis, funds are obligated only for the first year's quantity, with succeeding years' contract quantities funded annually thereafter. In the event funds are not made available to support one or more succeeding year's requirements, cancellation is effected. The contractor is protected against loss resulting from cancellation by contract provisions allowing reimbursement of unrecovered nonrecurring costs included in prices for canceled requirements.

(b) Objectives. The principal objectives of multiyear procurement of services are:

(1) Generation of realistic competition by increasing contractor interest in participating in procurements which involve substantial startup costs, investment in equipment or the incurrence of substantial contingent liabilities for the assembly, training, or transportation of a specialized work force;

(2) Lower costs and prices because of continuity of performance over longer periods of time by eliminating duplication of startup costs, make ready expenses, and phaseout costs including employee severance pay associated with annual turnover of contractors;

(3) Higher quality of performance because of unrealized labor learning, stabilization of work forces and improved quality control techniques; and

(4) Reduction of administrative cost and burden to the Government in preparing and issuing annual procurement solicitations and in the annual evaluation and award process.

(c) Limitations. Multiyear contracts for services shall not be used:

(1) When funds covering the procurement are limited by statute for obligation during the fiscal year in which the contract is executed (1-year funds); except that multiyear procurement may be employed with 1-year funds in the case of contracts to be performed outside the 48 contiguous States and the District of Columbia for the following services:

(i) Operation, maintenance, and support of facilities and installations;

(ii) Maintenance or modification of aircraft, ships, vehicles, and other highly complex military equipment;

(iii) Specialized training necessitating high quality instructor skills (for example, pilot and other aircrew members; foreign language training); and

(iv) Base services (for example, ground maintenance; in-plane refueling; bus transportation; refuse collection and disposal).

(2) To procure requirements which are in excess of the 5-Year Defense Program;

(3) Until a written determination has been made that there will be a continuing requirement for the services and incidental supplies consonant with current plans for the proposed contract period, and the furnishing of such services and incidental supplies will require a substantial initial investment in plant or equipment, the incurrence of substantial contingent liabilities for the assembly, training, or transportation of a specialized work force, or other substantial startup costs, and the use of such a contract will promote the best interests of the United States by encouraging effective competition and promoting economies of operation. These determinations and findings shall be executed by:

(i) The Commanding Officer of the installation or activity, when the contract period will not exceed 2 years and the estimated annual expenditures thereunder do not exceed $350,000;

(ii) The head of the procuring activity when the contract period will exceed 2 years but not 3 years or when the contract period will not exceed 2 years but the estimated annual contract expenditure will exceed $350,000;

(iii) The Assistant Secretary for Installations and Logistics, of the respective Departments, or the Directors of Defense Agencies when the contract pe

(a) Formal advertising, including twostep formal advertising, is the preferred method for use in multiyear procurement.

(b) Solicitations shall include: (1) A statement of the requirements, separately identified, for

(i) The first program year; and

(ii) The multiyear procurement including the requirements for each program year thereunder;

(2) When previous procurements of the services have been made with competition

(i) A provision that a price may be submitted for the total requirements of the first program year, or for the total multiyear requirements, or both, or

(ii) When competition in future procurements would be impracticable after award of a contract covering the first program year alone and the head of a procuring activity determines that, in order to eliminate the possibility of a first program year “buy-in," these provisions will be in the best interests of the Government-provisions that a price may be submitted only for the total multiyear requirements and that prices on a single-year basis will not be considered for any purpose;

(3) When there has been no previous competition for the services

(i) (a) Provisions that a price must be submitted for the total requirements of the first program year, that a price may be submitted for the total multiyear requirements, and that a bid or offer on the multiyear requirements only will be considered nonresponsive; and

(b) A provision that if only one responsive bid or offer on the multiyear requirements is received from a responsible bidder or offeror, the Government reserves the right to disregard the bid or offer on the multiyear requirements and to make an award only for the first program year requirements; or

(ii) when competition in future procurements of the service would be impractical after award of a contract covering the first program year requirement alone and the head of a procuring activity determines that, in order to eliminate the possibility of a first program year "buy-in," these provisions will

(4) A provision that the unit price of each item in the multiyear requirement shall be the same for all program years included therein;

(5) Criteria for comparing the lowest evaluated submission on the first program year's requirement against the lowest evaluated submission on the multiyear requirements;

(6) When the solicitation permits bids or offers on either the first program year requirements or the multiyear requirements or both, a provision that in the event the Government determines prior to award (but see §§ 2.208 and 3.505 of this chapter) that only the first program year services are actually required), the Government may evaluate bids or offers and make award solely on the basis of prices bid or offered on the first program year requirements;

(7) A provision setting forth a separate cancellation ceiling (on a percentage basis) and dates applicable to each program year subject to cancellation (see paragraph (c) of this section);

(8) A prominently placed provision directing attention to the multiyear features of the solicitation; and to—

(i) The Limitation of Price and Contractor Obligations clause (see § 1.322-5 (a)) which limits the payment obligation of the Government to the requirements of the first program year and to those of such succeeding program years as may be funded by the Government (see paragraph (m) of this section).

(ii) The Cancellation of Items-Service Contracts clause (paragraph (m) of this section) which allows the Government to cancel, by a specified date or within a specified period, all remaining program years; and

(iii) The cancellation ceiling set forth in the schedule; and

(9) A statement in the solicitation schedule that award will not be made on

less than the service stated as the first program year requirements.

(c) The term "cancellation" as used in multiyear procurement refers only to the cancellation of the total requirements of all remaining program years. Such cancellation results from (1) notification from the contracting officer to the contractor of nonavailability of funds for contract performance for any subsequent program year, or (2) failure of the contracting officer to notify the contractor that funds have been made available for performance of the succeeding program year requirement. For each program year except the last, the contracting officer shall establish a cancellation ceiling applicable to the remaining program years which are subject to cancellation. Cancellation ceilings will be lower for each succeeding program year in that such ceilings must exclude all amounts allocable to items included in prior program years. Such ceilings shall be expressed in the Schedule and shall apply alike to all bidders or offerors. The reduction in the cancellation ceiling percentage for each program year shall be in direct proportion to the reduction in the requirements remaining subject to cancellation. For example, consider that the total nonrecurring costs are estimated at 10 percent of the total multiyear price and the total multiyear requirements for 5 years are 30 percent in the first year, 30 percent in the second, 20 percent in the third, 10 percent in the fourth, and 10 percent in the fifth. The cancellation ceiling contained in the first through fourth program years should be 7 percent (100 percent less 30 percent times 10 percent), 4 percent, 2 percent, and 1 percent respectively. In determining cancellation ceilings, the contracting officer must estimate reasonable startup, labor learning, and other nonrecurring costs, to be incurred by an "average" prime or subcontractor which would be applicable to and which normally would be amortized in all services to be furnished under the multiyear requirements. They include such costs as the following, where applicable: plant or equipment relocation costs; the costs of special tooling and special equipment; 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 of a specialized work force to and from the jobsite; 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 or performance of subsequent program year requirements. The total estimate must then be compared with the best estimate of the procurement cost to arrive at a reasonable percentage figure. Cancellation dates for each program year's requirements shall be established, as appropriate, and shall always be prior to expiration of the preceding program year, giving due regard to phaseout time required by the contractor.

(d) Original cancellation ceilings and dates may be revised from information developed after issuance if a solicitation discloses that such ceilings and dates are not realistic. In the case of formal advertising, such changes shall be by amendment of the invitation for bids prior to bid opening. In two-step formal advertising, discussion conducted during the first step may indicate the need for revised ceilings and dates in step two. Negotiations with offerors in a negotiated procurement may provide information requiring a change in cancellation ceilings and dates for all offerors, prior to final negotiation and contract award. In order to assure that all interested sources of supply are thoroughly aware of how multiyear procurement is accomplished, use of presolicitation or prebid conferences may be advisable.

(e) Escalation: When labor escalation provisions are considered appropriate, the clause in § 7.107(d) may be used. That clause may be modified in overseas contracts to allow escalation when laws, regulations, or international agreements require contractors to pay higher wage rates.

(f) For each program year requirement, funds shall be obligated to cover performance thereunder. Funds to cover cancellation charges will be committed in accordance with DoD Directive 7220.7 "Accounting for Commitments."

(g) In the event of a cancellation, the contractor is entitled to payment as consideration therefor in accordance with the terms of the Cancellation of ItemsService Contracts clause (see paragraph (m) (2) of this section) in an amount not to exceed the cancellation ceiling.

(h) The schedule shall contain a provision limiting the payment obligation of the Government to a monetary amount there described as being available for contract performance. Such amount for the first program year requirements shall be inserted by the contracting officer

upon award of the contract and shall be modified for successive program years upon availability of funds for such years (see § 1.322-5(a)).

(i) In the event the contract is terminated for the convenience of the Government in whole, including items subject to cancellation, the Government's obligation shall not exceed the amounts set forth in the schedule as available for contract performance, plus the applicable amount established as the cancellation ceiling.

(j) Options: Consideration should be given to the desirability of obtaining an option to increase quantities and an option to renew the contract for a reasonable period at prices not to include (1) charges for plant and equipment already amortized, or (2) such other nonrecurring charges as startup costs, make ready expenses, and phaseout costs which were included in and already recovered under the basic contract price. Any such option provision shall not exceed a period equal to the basic contract period or 3 years, whichever is less. The exercise of an option to extend the contract period will require a determination and finding executed by that level of authority set forth in § 1.322-6(c)(3) as would have been required had the basic contract included the option period contemplated. (See also § 1.322-1(e).) Consideration shall be given to the inclusion of a provision which would allow the Government the option, upon payment of the unamortized portion of the cost of the plant or equipment, to take title thereto.

(k) Evaluation:

(1) Evaluation of offers in a multiyear procurement involves not only the determination of the lowest evaluated cost to the Government for both alternatives, the multiyear procurement and the first program year procurement; it also involves the comparison of the cost of buying the total requirement under a multiyear procurement with cost of buying the total requirement in successive independent procurements. All the factors to be considered for the various evaluations involved shall be set forth in the solicitation.

(2) In the event the Government determines prior to award (but see §§ 2.208 and 3.505 of this chapter) that only the first program year services are actually required, the procurement will no longer be evaluated on a multiyear basis:

(i) When the solicitation permits bids or offers on either the first program year requirements or the multiyear requirements or both, only bids or offers on the first program year requirements will be evaluated; and

(ii) When the solicitation does not permit the submission of prices on a single-year basis, the single year requirement will be resolicited.

(3) The cancellation ceiling shall not be a factor for evaluation. Unless Government administrative costs incident to annual procurement methods and contract administration can be reasonably established and supported, they shall not be used as a factor for evaluation. When administrative costs are to be used in evaluation, the dollar amount to be used shall be stated in the solicitation.

(4) When Government production and research property is provided pursuant to Subpart C, Part 13 of this chapter, the use of such property may be on a rentfree basis under the policies contained in Subpart E, Part 13 of this chapter. In this event, the solicitation shall set forth a detailed description of the procedure to be followed and the factors to be considered in accordance with Subpart E, Part 13 of this chapter, for the elimination of competitive advantage. The amount added for evaluation to each offeror's unit price for the first program year requirement shall also be added to his unit price for the multiyear requirements.

(5) To determine the lowest evaluated unit price, compare the lowest evaluated bid or offer on the first program year alternative against the lowest evaluated bid or offer on the multiyear alternative as follows:

(i) Multiply the evaluated unit price for each item of the lowest evaluated bid or offer on the first program year alternative times the total number of units of that item required by the multiyear alternative, and then

(ii) Take the sum of these products for all the items, plus the dollar amount of any administrative costs of the Government which are to be used in the evaluation, and finally

(iii) Compare this result against the total evaluated price of the lowest bid or offer on the multiyear alternative. (1) Award:

(1) Except as provided in subparagraphs (2) and (3) of this paragraph, award shall be made on the basis of the lowest evaluated unit price determined in

accordance with paragraph (k) of this section, whether that price is on a singleyear basis or a multiyear basis.

(2) If only one responsive bid or offer is received on the multiyear requirements from a responsible bidder or offeror, then award shall be made as follows:

(i) If the solicitation gave the bidder or offeror the choice of submitting prices on a single-year basis or multiyear basis or both, then award shall be made in accordance with subparagraph (1) of this paragraph;

(ii) If the solicitation required the submission of prices on the first program year requirements in accordance with paragraph (b) (3) (i) of this section, award shall be made to the lowest evaluated bidder or offeror on the single-year basis, even though the multiyear price submission may represent the lowest evaluated price submission, except that if the multiyear price offers distinct advantages to the Government, a multiyear award may be made with the advance approval of the head of a procuring activity;

(iii) If the solicitation restricted the submission of prices to the multiyear basis only, the solicitation shall be canceled and a new solicitation issued by whatever procedures are then appropriate, except that if the multiyear price offers distinct advantages to the Government, a multiyear award may be made with the advance approval of the head of a procuring activity.

(3) In no event shall award be made at an unreasonable price (see §§ 2.404-1 and 3.801 of this chapter).

(m) Clauses: The following clauses shall be included in all contracts for the procurement of services under the multiyear procurement method.

(1) Limitation of price and contractor obligations. Insert the clause at § 1.3225(a).

(2) Cancellation of contracts.

items-service

CANCELLATION OF ITEMS- -SERVICE CONTRACTS

(AUGUST 1968)

(a) This clause applies only in the event this contract is awarded on the alternative basis for award described in the Schedule as "Multi-Year Procurement."

(b) As used herein, the term "cancellation" means that the Government is canceling, pursuant to this clause, its Program Year requirements for items as set forth in the Schedule for all Program Years subsequent to that in which notice of cancellation is provided. Such cancellation shall occur