Cancellation Under Multi-year Contracts
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.