Multiyear Procurement Contracts

A multiyear (MY) contract is a type of contract where the Government buys the entire multiyear quantity at the outset, unlike what we do when we use options. The multiyear contract includes requirements covering 2-5 fiscal years.

Statutory criteria for use of a multiyear contract: (10 USC 2306b(a)):

• Substantial savings over annual buys.

• Stable funding.

• Stable design.

• Realistic estimates of contract cost and savings.

• Promotes national security.

Advantages of a Multiyear Contract:

• Lower costs.

• Stabilizing contractor plans and work forces.

• Continuity of production, avoiding annual startup and phase out costs, etc.

• Provides incentives for contractors to improve productivity.

• Reduced administrative burden.

• Broaden competitive bases - firms not otherwise willing or able to compete for lesser quantities, especially if high startup costs.

Unique features:

• Cancellation ceiling:

  • The Government's maximum liability in the event of cancellation.

• Includes non-recurring costs and sometimes includes recurring costs (i.e., economic order quantity (EOQ)).

Funding approach:

• Full funding:

  • Quantify worse case and hold funds in reserve.

Unfunded contingent liability:

Does not tie up large amount of Total Obligation Authority but if cancellation, program must find money to cover costs.

Congressional involvement:

• Require Congressional Approval :

  • If Multiyear Contract will be $500M or more.

    •  Congress makes tradeoff decision:

      •  Do advantages outweigh disadvantages of:

        • Loss of flexibility in future budget years, and Committing future Congresses. Notification if EOQ exceeds $20 M in any one year, unfunded contingent liability exceeds $20M, if cancellation ceiling exceeds $100M, etc.

http://www.acq.osd.mil/dpap/pacc/pa/multiyear_procurement.html

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