17.103 Definitions
Source: FAR 17.103 on acquisition.gov
In multi-year contracting, understanding when cancellation occurs and which unrecovered costs may be covered—subject to the cancellation ceiling—is essential to pricing risk and administering future program years correctly.
Overview
- FAR 17.103 defines the core terms used in Subpart 17.1 on multi-year contracting. These definitions establish how agencies and contractors should understand funding contingencies, cancellation events, and the cost concepts that drive pricing and risk allocation in multi-year contracts.
- The section is important because these terms determine when a contract is considered multi-year, when a cancellation has occurred, and what costs may be recoverable if future-year funding is not provided.
Key Rules
- Cancellation
- Cancellation occurs when the Government ends the total requirements for all remaining program years within the contractually specified time, either by notifying the contractor that funds are unavailable for a later year or by failing to notify that funds are available.
- Cancellation ceiling and cancellation charge
- The cancellation ceiling is the maximum amount the contractor may recover if cancellation occurs. The cancellation charge covers unrecovered costs that would have been amortized over the full contract term, including canceled years.
- Multi-year contract; recurring and nonrecurring costs
- A multi-year contract covers more than 1 but not more than 5 program years and may make later-year performance contingent on appropriations. Nonrecurring costs are one-time startup-type costs, while recurring costs vary with production quantity.
Responsibilities
- Contracting Officers: define funding contingencies, provide required notices on fund availability, and establish any cancellation ceiling.
- Contractors: understand which costs are recoverable upon cancellation and structure pricing to distinguish recurring from nonrecurring costs.
- Agencies: use these definitions consistently when planning and administering multi-year acquisitions.
Practical Implications
- This section exists to create a common vocabulary for multi-year contracting.
- It affects pricing, proposal strategy, cancellation risk, and administration of future program years.
- A common pitfall is confusing a true multi-year contract with a contract that simply uses annual options.
As used in this subpart-
Cancellation means the cancellation (within a contractually specified time) of the total requirements of all remaining program years. Cancellation results when the contracting officer-
(1) Notifies the contractor of nonavailability of funds for contract performance for any subsequent program year; or
(2) Fails to notify the contractor that funds are available for performance of the succeeding program year requirement.
Cancellation ceiling means the maximum cancellation charge that the contractor can receive in the event of cancellation.
Cancellation charge means the amount of unrecovered costs which would have been recouped through amortization over the full term of the contract, including the term canceled.
Multi-year contract means a contract for the purchase of supplies or services for more than 1, but not more than 5, program years. A multi-year contract may provide that performance under the contract during the second and subsequent years of the contract is contingent upon the appropriation of funds, and (if it does so provide) may provide for a cancellation payment to be made to the contractor if appropriations are not made. The key distinguishing difference between multi-year contracts and multiple year contracts is that multi-year contracts, defined in the statutes cited at 17.101, buy more than 1 year’s requirement (of a product or service) without establishing and having to exercise an option for each program year after the first.
Nonrecurring costs means those costs which are generally incurred on a one-time basis and include such costs as plant or equipment relocation, plant rearrangement, special tooling and special test equipment, preproduction engineering, initial spoilage and rework, and specialized work force training.
Recurring costs means costs that vary with the quantity being produced, such as labor and materials.