that prices on a single-year basis will not be considered for any purpose;

(3) When there has been no previous competition for the production of the item

(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 quantity; and that a bid or offer on the multiyear quantity 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 quantity and to make an award only for the first program year requirements; or

(ii) 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 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

(a) Provisions that a price may be submitted only for the total multiyear quantity and that prices on a singleyear basis will not be considered for any purpose, 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 cancel the solicitation and resolicit on a single-year basis by whatever procedures are then appropriate;

(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 (see § 1.322-3 (c));

(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 quantities are actually required, the Government may evaluate bids or offers

36-070-704

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) applicable to each program year subject to cancellation (see paragraph (d) 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 § 1.3225(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 § 1.322–5(b));

(ii) The Cancellation of Items clause (see § 1.322-5(b)) which allows the Government to cancel, by a specified date or within a specified period, all remaining program years; and

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

(9) A statement in the solicitation schedule that award will not be made on less than the quantity stated as the first program year requirements.

(d) 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 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 multiyear price and program year quantities for 5 years are 30, 30, 20, 10, and 10,

the cancellation percentages after deducting 3 percent for the first program year would be 7 percent, 4 percent, 2 percent, and 1 percent of the total multiyear price applicable to the second, third, fourth, and fifth 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 multiyear 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 engineering cost estimates which will identify the detailed recurring and nonrecurring costs, and indicate labor learning implications. Cancellation dates for each program year's requirements shall be established with due regard for production lead time and the date by which funding therefor can reasonably be accomplished.

(e) Original cancellation ceilings may be revised from information developed after issuance of a solicitation discloses that such ceilings are not realistic. In the case of formal advertising, such changes shall be by amendment of the invitation for bid prior to bid opening. In two-step formal advertising, discussion conducted during the first step may indicate the need for revised ceilings in step two. Negotiations with offerors in a negotiated procurement may provide information requiring a change in cancellation ceilings 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. During such conferences the contracting officer should ascertain whether escalation provisions

are appropriate (see § 2.104-3 of this chapter) and whether the proposed cancellation ceiling is adequate.

(f) For each program year requirement, funds shall be obligated to cover the quantities to be delivered thereunder. There is presently no requirement to fund cancellation charges.

(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 Items clause (see § 1.322-5(b)) 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 amount set forth in the Schedule as available for contract performance, plus the applicable amount established as the cancellation ceiling.

(j) Limitations:

Multiyear procure

ment of supplies 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;

(2) For quantities or total costs in excess of the planned requirements for 5 years set forth in, or in support of, the 5-Year Defense Program; or

(3) When any one of the criteria set forth in paragraph (a) of this section is not present.

[34 F.R. 17881, Nov. 5, 1969]

§ 1.322-3 Evaluation.

(a) Evaluation of offers in a multiyear procurement involves not only determination of the lowest overall 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 fac

tors to be considered for the various evaluations involved shall be set forth in the solicitation.

(b) 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 quantities are actually required, the procurement will no longer be evaluated on a multiyear basis:

(1) 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

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

(c) 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.

(d) Delivery destinations may be unknown for certain quantities due to the extended duration of contract performance. In such cases, destinations shall be developed on the basis of best estimates; a definite place or places shall be designated in the solicitation as the point to which transportation costs will be computed (but only for the purpose of evaluating bids or proposals); and the solicitation shall contain the notice required under §2.201(b) (30) of this chapter.

(e) 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.

(f) When the solicitation requires the submission of prices on the first program

year requirements in accordance with § 1.322-2(c) (3) (i), bids or offers which submit prices on the multiyear requirements only shall be rejected as nonresponsive.

(g) When the solicitation provides for submission of prices only for the total multiyear quantity in accordance with § 1.322-2 (c) (2) (ii) and (c) (3) (ii) (a), submission of prices for the single-year quantity will be disregarded for any purpose but will not render the bid or offer nonresponsive as to any alternate multiyear submission by the same bidder or offeror.

(h) 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:

(1) 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

(2) 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

(3) Compare this result against the total evaluated price of the lowest bid or offer on the multiyear alternative. [34 F.R. 17882, Nov. 5, 1969]

(a) Except as provided in paragraphs (b) and (c) of this section, award shall be made on the basis of the lowest evaluated unit price determined in accordance with § 1.322-3, whether that price is on a single-year basis or a multiyear basis. (b) 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:

(1) 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 paragraph (a) of this section;

(2) If the solicitation required the submission of prices on the first program year requirements in accordance with § 1.322-2 (c) (3) (i), 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;

(3) 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.

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

[34 F.R. 17882, Nov. 5, 1969]

The following clauses shall be included in all contracts under the multiyear procurement method.

(a) Limitation of price and contractor obligations.

LIMITATION OF PRICE AND CONTRACTOR OBLIGATIONS (OCTOBER 1966)

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

(b) Funds are available for performance of this contract in the amount specifically described in the Schedule, as available for contract performance. The amount of funds so described at the time of award is not considered sufficient for the contract performance required by and described in the Schedule for any Program Year other than the First Program Year. Upon availability to the Contracting Officer of additional funds sufficient for performance of the full requirements for the next succeeding Program Year, the Contracting Officer shall, not later than the date specified in the Schedule, unless a later date is agreed to by the parties, so notify the Contractor in writing and the amount of funds described in the Schedule as available for contract performance shall be modified accordingly. This procedure shall apply for each successive Program Year.

(c) The Government is not obligated to the Contractor for contract performance in any monetary amount in excess of that described in the Schedule or modifications thereto, as available for contract performance.

(d) The Contractor is not obligated to incur costs for the performance required for any Program Year after the first unless and until he has been notified in writing by the Contracting Officer of an increase in availability of funds in accordance with paragraph (b) of this clause. If so notified, the Contractor's obligation shall be increased only

to the extent contract performance is required for the additional Program Year for which funds have been made available.

(e) In the event of termination pursuant to the "Termination for Convenience of the Government" clause of this contract, the terms "total contract price" as used in that clause refers to the amount available for performance of this contract, as provided for in this clause, plus the applicable amount established as the cancellation ceiling, and the term "work under the contract" as used in that clause refers to the work under Program Year requirements for which funds have been made available. In the event of termination for default, the Government's rights under this contract shall apply to the entire multiyear requirements.

(f) Notification to the Contractor of an increase or decrease in the funds available for performance of this contract as a result of a clause other than this clause (e.g.,. exercise of an option for increased quantities or the "Changes" clause) shall not constitute the notification contemplated by paragraph (b) of this clause.

(b) Cancellation of items.

CANCELLATION OF ITEMS (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 cancelling, 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 only if, by the date or within the time period specified in the Schedule, or such further time as may be agreed to, the Contracting Officer (1) notifies the Contractor that funds will not be available for contract performance for any subsequent Program Year; or (i) fails to notify the Contractor that funds have been made available for performance of the Program Year requirement for the succeeding Program Year.

(c) Except for cancellation pursuant to this clause or for termination pursuant to the "Default" clause, any reduction by the Contracting Officer in the quantities called for under this contract shall be considered a termination in accordance with the "Termination for Convenience of the Government" clause of this contract.

(d) In the event of cancellation pursuant to this clause, the Contractor will be paid, as consideration therefor, a cancellation charge not to exceed the cancellation ceiling described and separately set forth in the Schedule as being applicable at the time of cancellation.

(e) The cancellation charge is intended to cover (1) only costs reasonably necessary for production which would have been equitably amortized in the unit prices for the entire

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:

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