(iv) Cost of training maintenance personnel.

(v) Cost of repair manuals.

(vi) Cost of any applicable overhead. (5) Installation and dismantling costs.

(6) Residual value of equipment after expected use period, including possible continued use by the Government in another application or program.

(7) Operating costs (exclusive of maintenance costs) in those instances where, under the lease method, the vendor would perform part or all of the labor incident to the operation of the equipment.

(c) For equipments of small dollar value, the cost comparison can be limited to the cost of purchase and an estimate of installation and maintenance cost versus the cost of lease, as described in FPMR Subpart 101-25.5.

(a) The purchase method is preferred when all of the following conditions exist:

(1) There is little or no doubt that the equipment to be procured can be efficiently and effectively utilized, cost and other factors considered.

(2) A comparative cost analysis of the alternative methods of acquisition indicates that a cost advantage will accrue over the anticipated useful life of the equipment by using the purchase method.

(3) The capabilities of the equipment will continue to be needed and will be sufficient to satisfy the requirements of the Government, current and projected, for a period beyond the point in time at which the purchase method begins to provide a cost advantage. The possibility that future technological advances would make the selected equipment comparatively less desirable before the cost advantage point is reached should not rule out purchase if the selected equipment is expected to be able to satisfy the Government's requirements economically.

§ 12-1.5405-2 Lease-with-option-topurchase method.

The

lease-with-option-to-purchase method is preferred when it is reasonably anticipated that purchase may be justified, but it is desirable to defer this decision temporarily because the conditions necessary to indicate purchase are not fully satisfied. This situation might arise when it is determined that a short period of operational experience is desirable to prove the effectiveness of an equipment for which there is no previous experience, or where technical changes might substantially alter the requirements for the equipment.

§ 12-1.5405-3 Lease method.

The lease method, without option to purchase, is indicated when it has been established that neither the conditions in § 12-1.5405-1 nor § 121.5405-2 prevail.

§ 12-1.5406 Periodic cost comparisons on leased equipment.

For equipment under lease, the contracting officer shall compute cost comparisons periodically (at least once a year) to revalidate the original determination that the lease method is most advantageous to the Government.

Subpart 12-1.55-Multi-year Procurement

§ 12-1.5500 Scope of subpart.

This subpart contains the multi-year method of procurement for supplies.

§ 12-1.5501 Description of multi-year procedure.

Multi-year procurement is a method for competitive contracting for known requirements for supplies, in quantities and total cost not in excess of planned requirements for 5 years set forth in approved programs, 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, contract quantities are budgeted for and financed in accordance with the program year for

(a) Nonrecurring costs are distributed over a larger number of units, thus narrowing any price advantage of a firm already in production;

(b) There is greater assurance of depreciation recovery for capital investment; and

(c) The competitive base is broadened with better prospects for lower prices, where firms otherwise might be unwilling or unable to compete.

which each quantity is authorized. This procedure provides for solicitation of prices based either on award of the current 1-year program quantity only, or, in the alternative, on the total multi-year quantities. Award is made on whichever of these two alternative bases reflects the lowest unit prices to the Government. If award is made on the multi-year 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 quantities, 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 items.

§ 12-1.5502 Policy.

§ 12-1.5502-1 Principal advantages.

Multi-year procurement shall be used to the maximum extent consistent with §§ 12-1.5502-4, 12-1.5503, and 12-1.5511. Advantages of this method include, for example:

(a) Lower costs;

(b) Enhancement of standardization; (c) Reduction of administrative burden in the placement and administration of contracts;

(d) Substantial continuity of production;

(e) Stabilization of work forces; and (f) Broadening the competitive base with opportunity for participation by firms not otherwise willing or able to compete for lesser quantities, particularly in cases involving high startup costs.

§ 12-1.5502-2 Principal objective.

The principal objective of the multiyear procedure is to generate realistic competition by minimizing competitive disadvantage and by increasing contractor interest in participating in procurements which involve high startup costs and make-ready expense and which also may require substantial capital investment by contractors for expansion of their facilities. Under this procedure:

§ 12-1.5502-3 Cost savings factors to consider.

Another major objective is to obtain lower prices in those procurements which do not necessarily involve high startup cost but which do provide opportunity for substantial cost savings and other advantages through assurance of continuity of production over longer periods of time. In determining whether substantial cost savings and related advantages can be realized, consideration may be given to wheth

er:

(a) Production or performance closeout or shut-down costs, including employee severance pay, represent a substantial cost contingency in prices quoted on only 1 year's program;

(b) Stabilization of work forces will provide greater assurance of sustaining and improving production efficiency and quality;

(c) Substantial cost and quality advantage will accrue through avoidance of the possible need for establishing and "proving out" quality control techniques and procedures for a new contract each year;

(d) Costly preproduction or pilot testing will be avoided;

(e) The ability to recruit and retain highly skilled personnel will be enhanced through assurance to employees of longer periods of employment than would be the case in single-year procurement, thereby avoiding costs of repeated training of new personnel;

(f) The ability to vary production rates during peak and off-peak periods in each program year will result in economies; and

(g) Substantial in-house savings in maintenance and supply operations will accrue from standardization of supplies accomplished by procurement

from a single source throughout the multi-year period.

§ 12-1.5502-4 Set-asides.

Total small business set-asides are compatible with the multi-year method of procurement and may be used when both procedures are appropriate. Partial set-aside procedures (both small business and labor surplus area) generally are not compatible with the multi-year procedure when high startup costs are involved because of the potential duplication of such costs by the set-aside contractor and the non-set-aside contractor. However, when the multi-year procedure is based not on high startup costs but on the opportunity for cost savings through assurance of continuity of production over longer periods of time, partial set-aside procedures are compatible with the multi-year procedure. Furthermore, even where high startup costs are involved, use of partial setaside procedures together with the multi-year procedure may be appropriate in exceptional circumstances, such as where criteria for partial set-asides are met under FPR 1-1.7 or 1-1.8, and it is likely that broader or more realistic competition will result from a combination of both procedures, and this broader competition is likely to more than offset any duplication of startup costs. When reviewing a proposed procurement involving possible use of this procedure, in addition to consideration of the criteria established in this subpart, the contracting officer shall invite the advice and counsel of the activity's small business specialist and the SBA representative, if one is assigned to that activity, permitting either or both to review all pertinent facts and make recommendations thereon.

employ multi-year subcontracts selectively and only when:

(a) The subcontract item is of stable design and specification;

(b) The quantity required is known and firm;

(c) Effective competition is assured; and

(d) The use of multi-year subcontracts can reasonably be expected to result in reduced prices.

In such cases, the prime contractor is adequately protected against cancellation since appropriate cancellation charges for such multi-year subcontractors are included within the cancellation charge of the multi-year prime contract. Multi-year subcontracts may be particularly desirable under a sole source multi-year prime contract since effective competition at the subcontract level may thereby be enhanced and the attendant cost reductions realized by the prime contractor and the Government.

§ 12-1.5503 Application-criteria.

Except as provided in DOTPR 121.5511 below, the multi-year procurement method should be used when all of the following criteria are present:

(a) Reduced unit prices can reasonably be anticipated over annual buys by reason of continuity of production or elimination of repetitive substantial startup costs, including such costs as preproduction engineering, special tooling, plant rearrangement, initial rework, initial spoilage, and pilot runs;

(b) There is reasonable expectation that effective competition can be obtained;

(c) There are known requirements for the quantities to be purchased under the multi-year contract;

(d) The design and specifications of the item are not expected to change to an extent that would involve a major impact on contract price; and

(e) The items being procured are not regularly manufactured and offered for sale in substantial quantities in the commercial market, except that (1) when quantities to be procured by the Government represent a substantial portion of the total market and would require special manufacturing runs for all or substantially all of the Govern

§ 12-1.5505-2 Previous competition.

When previous production procurements of the item have been made with competition

(a) Include a provision that a price may be submitted for the total requirements of the first program year, or for the total multi-year requirements, or both, or

(b) When competition in future procurements of the items would be impracticable after award of a contract covering the first program year quantity alone and the head of the 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-include provisions that a price may be submitted only for the total multi-year quantity and that prices on a single-year basis will not be considered for any purpose.

§ 12-1.5505-3 No previous competition. When there has been no previous competition for the production of the item

(a) Include 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 multi-year quantity, and that a bid or offer on the multi-year quantity only will be considered nonresponsive; and a provision that if only one responsive bid or offer on the multi-year requirements is received from a responsible bidder or offeror, the Government reserves the right to disregard the bid or offer on the multi-year quantity and to make an award only for the first program year requirements; or

(b) When competition in future procurements of the items would be impractical after award of a contract covering the first program year quantity alone and the head of the procuring activity determines that, in order to eliminate the possibility of a first program year "buy-in," these provisions will be in the best interest of the Government

(1) Include provisions that a price may be submitted only for the total multi-year quantity and that prices on a single-year basis will not be considered for any purpose, and

(2) A provision that if only one responsive bid or offer on the multi-year requirements is received from a responsible bidder or offeror, the Government reserves the right to cancel the solicitation and resolicit on a single-year basis by whatever procedures are then appropriate.

§ 12-1.5505-4 Pricing-unit price.

Include a provision that the unit price of each item in the multi-year requirement shall be the same for all program years included therein.

§ 12-1.5505-5 Comparison criteria.

Provide criteria for comparing the lowest evaluated submission on the first program year's requirement against the lowest evaluated submission on the multi-year requirements.

§ 12-1.5505-6 Single year and/or multiyear award.

When the solicitation permits bids or offers on either the first program year requirements or the multi-year requirements or both, include a provision that in the event the Government determines prior to award that only the first program year quantities 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.

§ 12-1.5505-7 Cancellation ceiling.

Include a provision setting forth a separate cancellation ceiling (on a percentage basis) applicable to each program year subject to cancellation (see § 12-1.5506).

§ 12-1.5505-8 Schedule provision.

Include a prominently placed provision directing attention to the multiyear features of the solicitation, and to

(a) The Limitation of Price and Contractor Obligations clause (see § 121.5514-1) 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;

(b) The Cancellation of Items clause (see § 12-7.151-14) which allows the Government to cancel, by a specified date or within a specified period, all remaining program years; and

(c) The cancellation ceiling set forth in the schedule.

§ 12-1.5505-9 Quantity obligation.

Include a statement that award will not be made on less than the quantity stated as the first program year requirements.

§ 12-1.5506 Establishment and revision of cancellation ceilings.

(a) The term "cancellation" as used in multi-year 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 nonavaila

bility 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 to all bidders alike. The reduction in the cancellation ceilings percentage for each program year shall be in direct proportion to the reduction in the quantity remaining subject to cancellation. For example, if the total nonrecurring costs are estimated at 10 percent of the total multi-year price and program year quantities for 5 years are 30, 30, 20, 10, and 10; the cancellation percentage after deducting 3 percent for the first program year would be 7 percent, 4 percent, 2 percent, and 1 percent of the total multi-year price applicable to the 2d, 3d, 4th, and 5th program years respectively. In determining cancellation ceilings, the contracting officer must estimate reasonable preproduction, 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 items to be furnished under the multi-year requirements. They include such costs as plant rearrangement, special tooling, preproduction engineering, initial rework, initial spoilage, pilot runs, 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 production of the items subject to cancellation for each program year. The total estimate must then be compared with the best estimate of the procurement cost to arrive at a reasonable percentage figure. To perform this calculation, it is essential that the contracting officer obtain in-house engi