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  • Question

    What are the best practices in determining the cancellation percentage/price and cancellation ceiling? Is there any additional guidance on establishing the ceiling beyond the FAR?


    Answer

    Here are a couple of things you may wish to consider:  decide what costs can be included in the cancellation charge, establish the points in time when the contract could be cancelled, evaluate the task of estimating a cancellation ceiling, estimate the nonrecurring cost incurred but not recovered, estimate the nonrecurring costs the contractor is committed to incur, estimate the recurring cost incurred for the canceled end items, estimate the recurring costs the contractor is committed to incur for the cancelled end items, assess the impact cancellation could have on the cost of end items already purchased, consider the offset potential of the work in process on the canceled end items, consider the offset potential of cancelable commitments, sum up the results of steps four through ten.
    I checked with the Navy folks and they shared that they consider Amount of Gov't Obligated EOQ
    Funding (the Long Lead Funding authorized over multiple lots under an MYP),
    2- Contractor Termination Liability, and 3- Line shut down or slow down
    Costs as a result of cancellation. Some people try to negotiate line shut
    down into the contract, while others will request a separate proposal for line shut down when that occurs.
    I will forward under separate cover a pretty good power point that DAU  created titled, "Multi-Year Strategizing, Planning and Contracting".  Check with both the AF and Navy as they have guides on Multi-Year Contracting.
     



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