52.217-2 Cancellation Under Multi-year Contracts
Source: FAR 52.217-2 on acquisition.gov
FAR 52.217-2 ensures contractors are fairly compensated for certain unrecovered costs if a multi-year contract is canceled due to lack of funding, but only if claims are timely and properly documented.
Overview
FAR 52.217-2 outlines the procedures and requirements for cancellation under multi-year contracts. It defines "cancellation" as the government's discontinuation of requirements for all supplies or services in program years after the year in which notice is given. The clause specifies when and how cancellation may occur, the calculation and limitations of cancellation charges, and the process for contractors to submit claims for such charges. It also distinguishes cancellation from termination for convenience or default and details what costs are allowable or excluded in cancellation claims. The clause ensures that contractors are compensated fairly for certain nonrecurring and amortized costs if the government cancels future years of a multi-year contract due to lack of funding or notification.
Key Rules
- Definition and Timing of Cancellation
- Cancellation occurs if the government notifies the contractor that funds are unavailable for future years or fails to confirm funding by a specified date.
- Distinction from Termination
- Reductions not covered by this clause are treated as terminations for convenience.
- Cancellation Charges
- Contractors may claim charges up to a ceiling specified in the contract, covering only certain costs and reasonable profit.
- Claim Submission
- Claims must be submitted within one year of cancellation notice or the specified funding notification date, unless extended in writing.
- Allowable and Excluded Costs
- Only specific nonrecurring, amortized, and certain facility or workforce costs are allowed; direct costs of canceled work, anticipated profit, and already-paid costs are excluded.
- Option Clause Impact
- Option quantities must exclude startup/nonrecurring costs and only include recurring costs and reasonable profit.
- Computation of Cancellation Charges
- Option quantities added to the contract are included in the cancellation charge calculation.
Responsibilities
- Contracting Officers: Must notify contractors about funding availability, process cancellations, and review/approve claims.
- Contractors: Must submit detailed, timely claims for allowable cancellation charges and exclude unallowable costs.
- Agencies: Oversee compliance with cancellation procedures and ensure proper compensation is provided.
Practical Implications
- This clause protects contractors from unrecovered costs if a multi-year contract is canceled due to funding issues, while limiting government liability to specified, reasonable charges. Contractors must carefully track and document costs, understand allowable charges, and submit claims within the required timeframe. Failure to comply with these requirements can result in denied claims or financial losses.
As prescribed in 17.109(a), insert the following clause:
Cancellation Under Multi-year Contracts (Oct 1997)
(a) "Cancellation," as used in this clause, means that the Government is canceling its requirements for all supplies or services in program years subsequent to that in which notice of cancellation is provided. Cancellation shall occur by the date or within the time period specified in the Schedule, unless a later date is agreed to, if the Contracting Officer-
(1) Notifies the Contractor that funds are not available 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.
(b) Except for cancellation under this clause or termination under the Default clause, any reduction by the Contracting Officer in the requirements of this contract shall be considered a termination under the Termination for Convenience of the Government clause.
(c) If cancellation under this clause occurs, the Contractor will be paid a cancellation charge not over the cancellation ceiling specified in the Schedule as applicable at the time of cancellation.
(d) The cancellation charge will cover only-
(1) Costs-
(i) Incurred by the Contractor and/or subcontractor;
(ii) Reasonably necessary for performance of the contract; and
(iii) That would have been equitably amortized over the entire multi-year contract period but, because of the cancellation, are not so amortized; and
(2) A reasonable profit or fee on the costs.
(e) The cancellation charge shall be computed and the claim made for it as if the claim were being made under the Termination for Convenience of the Government clause of this contract. The Contractor shall submit the claim promptly but no later than 1 year from the date-
(1) Of notification of the nonavailability of funds; or
(2) Specified in the Schedule by which notification of the availability of additional funds for the next succeeding program year is required to be issued, whichever is earlier, unless extensions in writing are granted by the Contracting Officer.
(f) The Contractor’s claim may include-
(1) Reasonable nonrecurring costs (see subpart 15.4 of the Federal Acquisition Regulation) which are applicable to and normally would have been amortized in all supplies or services which are multi-year requirements;
(2) Allocable portions of the costs of facilities acquired or established for the conduct of the work, to the extent that it is impracticable for the Contractor to use the facilities in its commercial work, and if the costs are not charged to the contract through overhead or otherwise depreciated;
(3) Costs incurred for the assembly, training, and transportation to and from the job site of a specialized work force; and
(4) Costs not amortized solely because the cancellation had precluded anticipated benefits of Contractor or subcontractor learning.
(g) The claim shall not include-
(1) Labor, material, or other expenses incurred by the Contractor or subcontractors for performance of the canceled work;
(2) Any cost already paid to the Contractor;
(3) Anticipated profit or unearned fee on the canceled work; or
(4) For service contracts, the remaining useful commercial life of facilities. "Useful commercial life" means the commercial utility of the facilities rather than their physical life with due consideration given to such factors as location of facilities, their specialized nature, and obsolescence.
(h) This contract may include an Option clause with the period for exercising the option limited to the date in the contract for notification that funds are available for the next succeeding program year. If so, the Contractor agrees not to include in option quantities any costs of a startup or nonrecurring nature that have been fully set forth in the contract. The Contractor further agrees that the option quantities will reflect only those recurring costs and a reasonable profit or fee necessary to furnish the additional option quantities.
(i) Quantities added to the original contract through the Option clause of this contract shall be included in the quantity canceled for the purpose of computing allowable cancellation charges.
(End of clause)