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    What are the disadvantages and advantages of signing a Multi-Year Procurement contract?


    Thanks for your great question.

    Before I get into some of the advantages and disadvantages of multi-year procurements first I think it helpful to explain what they are as they are often confused with multiple year contracts.

    With the multi-year contract approach, it may be helpful for me to provide an example; the Government awards a contract in 2022 to acquire requirements from 2022 through 2024. Upon contract award, the Government is obligated to acquire the requirements of all three years, even though funding has not been appropriated for 2023 or 2024. 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 subpart 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.

    To summarize and succinctly answer your question, I would say some of the greatest disadvantages to executing this approach would be what can often be a lengthy approval process, and the risk that if the Government does not receive the future year funds the cancellation would ultimately provide less than the government needed unless the need changed.

    The advantages would be that it could present cost savings since it allows the contractor to spread out their costs which could lead to efficiencies.

    Thanks again for your question.


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