Multiyear Procurement

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

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

Substantial savings over annual buys.
• Stable funding.
• Stable design.
• Realistic estimates of contract cost and savings.
• Promotes national security.

Advantages:

• 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 MY 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.