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    Can a firm fixed priced contract with multiple performance years (4 years) be written like this. Is this in compliance with the FAR; or should this contract have been written with option years to allow the Government the option whether or not to exercise future years. Can you provide me a FAR reference to support. Thank You!


    Answer

    The Service Contract Act generally limits service contracts, like A&AS, to a maximum five year period. The FAR permits a 5 year ordering period, versus a one year contract with 4 one year options.     It is not a multi-year contract- it is a "multiple-year contract". Multi-year contracts must be specifically authorized by Congress and have some special provisions, like cancellation fees, which are reduced every year (through negotiations at the time of the original award). "Multiple-year contracts just cross fiscal years.Here is more information from a previous post:

    The IDIQ contract in the scenario above is a multiple-year contract.  The explanation is presented in the following narrative and slide.   1.  Multi-year contracting is a special contracting method described in FAR 17.1 and  DFARS 217.1, which is used to acquire known requirements for up to five years, unless otherwise authorized by statute.  Note:  the reference to “five years” is not a limitation on the duration of a multi-year contract.  Instead, refers to buying bona fide requirements of up to five years with a single contract.     For example, the Army’s Tank and Automotive Command needs 9 tanks over the next three years.  They have stated their bona fide need as 3 tanks in FY17, 3 tanks in FY18, and 3 tanks in FY19.  A multi-year contract would enable them to award 1 contract in FY17 to buy all 9 tanks.  Under normal circumstances, this would violate the “bona fide needs” rule (pursuant to 31 U.S.C., Section 1502(a), which prohibits the obligation of an appropriation in advance of the need), because the Contracting Officer is obligating the Government to buy FY18 and FY19 requirements, at least in-part, with FY17 money.  In addition, this process would violate the Anti Deficiency Act (pursuant to 31 U.S.C. Section 1341, which prohibits obligating the Government with appropriations in advance of or exceeding the funding within an appropriation), because the Government is obligating itself to buy requirements in FY18 and FY19 in advance of securing FY18 and FY19 funds from Congress.  For these reasons, the Government buying office must obtain Congressional approval before awarding a multi-year contract.    This is distinctly different than contracts we commonly call “multiple-year” contracts.  Here are two examples of “multiple-year” contracts.     Multiple Year Ex 1:  In FY17, the Government awards a contract with a period of performance of three years to acquire a bona fide, FY17 requirement.  In this case, the Contracting Officer awarded a contract in 2017 for a bona fide FY17 aircraft requirement, with FY17 procurement funds.  The airplane takes 3 years to build and deliver.  This process does not violate the bona fide needs rule, or the Anti-Deficiency Act, for we are spending current year funds on a current year requirement.     Multiple Year Ex 2:  The Government awards a one-year basic contract with 4 option years to order supplies.  This contract enables us to acquire a valid supply requirement in each year, one year at a time.  We order FY17 requirements in FY17, with FY17 money.  If we have a valid need in FY18, we exercise the option, and begin ordering FY18 requirements in FY18 with FY18 money.  Each year’s requirement is ordered in its current year, with current year funds.  Even if delivery occurs in the following fiscal year (due to production lead time or delivery time), this is process is consistent with the bona fide need rule, and is within the limitations of the Anti-deficiency Act.      Multiple Year Ex 3 (as presented in this AAP question above): The Government awards an IDIQ contract as a single contract, no annual options, with a 5 year ordering period.  Though the ordering period covers several fiscal years, each order will acquire a bona fide need of the current fiscal year, using current year funds of the ordering period.  This process is consistent with the bona fide needs rule, and is within the limitations of the Anti-Deficiency Act.  Therefore, this example is a multiple-year contract, not a multi-year contract.   2.  The slide at  and narrative further illustrate the difference between a “multiple-year” and “multi-year” contracting approach.   The Air Force requires 3 aircraft each year, from 2013, 2014, and 2015.  Contractors estimate it takes between 2 and 3 years after award to build and deliver an aircraft.   ­­­­­   With the multiple-year contract approach (see the rows labeled in the middle, left hand column): ·  The Government acquires the 2013 requirements with a single contract, or perhaps a basic contract with options for the requirements in 2014 and 2015.  ·  The Government is under no obligation to acquire or exercise options for the 2014 and 2015 requirements. ·  This approach enables the Government to use 2013 funds for the entire 2013 requirement, then use 2014 and 2015 year funding for the respective, subsequent requirements, when those funds become available.  ·  This approach is within the limitations of: o  the bona-find needs rule; and, o  the Anti-deficiency Act. ·  This approach forces the contractor to its up-front costs, such as plant and equipment, hiring and training workers, and ordering raw materials across only the 2013 requirements.  Planning to spread such costs over the single year of requirements would be extremely costly and risky, but would be necessary because the contractor has no guarantees of being awarded the follow-on years’ requirements.   With the multi-year contract approach (see the rows labeled in the lower, left-hand column): The Government awards a contract in 2013 to acquire requirements from 2013 through 2015. Upon contract award, the Government is obligated to acquire the requirements of all three years, even though funding has not been appropriated for 2014 or 2015. Without special approval from Congress, this approach would violate the bona-fide needs rule, as well as the Anti-Deficiency Act.  Therefore, pursuant to FAR 17.1 and DFARS 217.170 through 217.174, this “multi-year” contract approach (in DoD) would require Congressional approval in advance. This approach enables the contractor to spread the up-front costs across all three years of requirements.  Spreading the up-front costs over more units, and over a longer time period typically lowers unit costs and increases operating efficiency (see FAR 17.105-2).   Multi-year contracting is appropriate when requiring goods and services which require long-lead items, when it is in the Government’s best interest to amortize up-front production and labor costs over more delivery items (such as aircraft, ships or launch vehicles), and when doing so would yield efficiencies with respect to initial procurement costs.   Before pursuing a multi-year contracting approach, FAR 17.105 and DFARS 217.170 require the contracting officer to conduct a detailed cost and price analysis, including present value analysis, in order to estimate the potential benefits and dollar savings with a multi-year strategy over the typical multiple year approach.   The multi-year contracting method can be employed even though the total contract funds ultimately to be obligated are not available at the time of contract award.  However, if funds are not appropriated to support the succeeding year's requirements, the agency must cancel or restructure the contract.  Generally, multi-year contracts provide for a cancellation payment to be made to the contractor in the event the contract is terminated.  The amount of this payment is subject to negotiation, but must be budgeted for at the time of contract award, and adjusted each year as appropriate.

     

     

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