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  1. Applicability of Multiyear Cancellation Ceilings for CPFF Overseas Services Field Contracting Officers of my civilian agency awarding multiyear contracts have been directed to negotiate cancellation ceilings in schedules of awards and incorporate FAR 52.217-2, Cancellation under Multiyear Contracts, into its contracts. Nevertheless, implementation guidance has not been provided and is solicited by this posting. Unlike major weapons system procurements, the guidance sought would apply principally to a subset of multiyear contracts within the meaning of FAR 17.103, namely, 5-year, incrementally funded CPFF completion type contracts for overseas services. Incorporating FAR 52.217-2, these contracts provide for cancellation arising from the circumstances described in FAR 52.217-2 (a) (1) and (2), namely, when “funds are not available for contract performance for any subsequent program year” or [the Government] “fails to notify the Contractor that funds are available for performance of the succeeding program year requirements.” FAR 52.217-2 (b) states in pertinent part that “except for cancellation under this clause or termination under the Default clause, any reduction in contract requirements shall be considered a termination for convenience. Cancellation charges up to yearly negotiated ceiling amounts may include only incurred and reasonably necessary costs “that would have been equitably amortized over the entire multiyear contract period, but, because of the cancellation, are not so amortized.” However, the meaning of unamortized costs in the context of CPFF completion contracts for overseas services is unclear. Phase-out costs, e.g., terminating leases, disposing property, and repatriating personnel would be anticipated, but may not fit the definition of “unamortized.” In sum, if such costs are not considered unamortized, then would not $0.00 be appropriate as a cancellation ceiling? My limited research indicates the cancellation clause has a narrow purpose. According to USAF Informational Guidance IG5317.1, Multiyear Contracting, dated October 2006, cancellation “was intended to deal with the situation in which Congress does not appropriate the funds needed to continue the multiyear contract.” Further, “if a future Congress does not appropriate adequate funds, the multiyear contract will have to be cancelled and cancellation charges will have to be paid to the contractor to reimburse for unrecovered costs, which the contractor was unable to amortize in the canceled years. In other words, there is a price to pay if the Government does not follow through on its multi-year commitment.” In addition to cancellation, two other clauses, Termination for the Convenience of the Government and Limitation of Funds, broadly govern the absence or unavailability of contract funds. The termination for convenience clause permits termination whenever it is in the Government’s interest. Thus, although only unamortized costs can be reimbursed under the cancellation clause, FAR 17.104 (d) states that a convenience termination “may apply to any Government contract, including multiyear contracts.” Therefore, it appears that in the event funds are not forthcoming at any time and for any reason, a convenience termination would permit the Contractor to recover allowable phase-out costs based on standard cost reimbursement rules without the need for a cancellation ceiling. Finally, many of the multiyear contracts issued by the agency are incrementally funded, and therefore, FAR 52.232-22, Limitation of Funds, is incorporated by reference. Under subparagraph (b) of the clause, the Contractor agrees to work on the contract up to the point “at which the total amount paid and payable by the Government …does not exceed the total amount actually allotted by the Government to the contract.” Thus, in this circumstance as well, when funding approaches exhaustion, the cancellation clause would not pertain. In view of the foregoing, it appears that the cancellation clause may not be applicable to the multiyear CPFF contracts discussed above. Thanks in advance for your comments.
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