FAR 17.106-2—Solicitations.
Plain-English Summary
FAR 17.106-2 explains what must be included in solicitations for multi-year contracts so offerors can compete on a common, transparent basis and the Government can evaluate whether a multi-year approach is better than buying only the first program year. It requires the solicitation to state the requirements for the first program year and for the full multi-year period, including the requirements for each program year, and to provide the criteria for comparing the lowest evaluated submission for the first-year requirements against the lowest evaluated submission for the multi-year requirements. It also requires a provision that limits evaluation to the first program year if the Government decides before award that only that year is needed, a separate cancellation ceiling for each program year subject to cancellation, and a statement that award will not be made for less than the first program year requirements. The section further addresses when the Government’s administrative costs of annual contracting may be used as an evaluation factor and makes clear that the cancellation ceiling itself may not be used as an evaluation factor. In practice, this section is about solicitation design, price evaluation transparency, and protecting the Government’s ability to compare alternatives without distorting competition or improperly weighting cancellation risk.
Key Rules
State all program-year requirements
The solicitation must identify the requirements by item of supply or service for the first program year and for the multi-year contract, including the requirements for each program year. This ensures offerors know exactly what is being bought over time and can price the full effort accurately.
Provide comparison criteria
The solicitation must explain how the Government will compare the lowest evaluated submission for the first program year against the lowest evaluated submission for the multi-year requirements. The evaluation method must be stated up front so offerors understand how the Government will decide whether the multi-year approach is advantageous.
Limit evaluation if only first year is needed
If the Government determines before award that only the first program year requirements are needed, the evaluation of price or estimated cost and fee must consider only the first year. This prevents the Government from evaluating or paying for unneeded future-year quantities when the acquisition decision changes before award.
Include separate cancellation ceilings
The solicitation must specify a separate cancellation ceiling, expressed as a percentage or dollar amount, and the dates applicable to each program year subject to cancellation. This gives offerors a clear picture of the Government’s potential liability if the contract is canceled in later years.
Require at least first-year award
The solicitation must state that award will not be made for less than the first program year requirements. This protects the integrity of the multi-year procurement structure and prevents award on an incomplete basis that would undermine the evaluation and pricing assumptions.
Use annual contracting costs only if justified
The Government’s administrative costs of annual contracting may be used as an evaluation factor only if those costs can be reasonably established and are stated in the solicitation. Agencies cannot rely on vague or unsupported administrative savings to influence the evaluation.
Do not evaluate the cancellation ceiling
The cancellation ceiling itself may not be used as an evaluation factor. It must be disclosed, but it is not a scored or compared element in the source selection or price evaluation.
Responsibilities
Contracting Officer
Draft the solicitation to include all required multi-year requirements, evaluation criteria, cancellation ceilings, and the statement that award will not be made for less than the first program year. The contracting officer must also ensure any use of administrative costs as an evaluation factor is supportable, stated in the solicitation, and that the cancellation ceiling is not improperly used as an evaluation factor.
Agency
Determine the acquisition strategy and whether a multi-year contract is appropriate, then provide the data and business justification needed to define program-year requirements, cancellation ceilings, and any administrative cost factor. The agency must ensure the solicitation reflects the actual needs and evaluation approach before release.
Offerors/Contractors
Review the solicitation’s program-year requirements, cancellation ceilings, and evaluation criteria and prepare pricing based on the stated structure. Offerors must understand that the Government will compare first-year and multi-year submissions under the disclosed method and that award will not be made for less than the first program year requirements.
Practical Implications
This section is mainly about getting the solicitation right before it goes out; if the evaluation method or year-by-year requirements are unclear, the competition can be challenged or the Government may have to amend the solicitation.
A common pitfall is failing to separate the first program year from later years in the pricing structure, which can make evaluation inconsistent or impossible to defend.
Another frequent mistake is treating the cancellation ceiling as if it were a price discriminator; FAR 17.106-2 says it must be stated, but not evaluated.
If the agency wants to count annual contracting administrative savings, it must be able to support those costs with reasonable data and disclose the factor in the solicitation; unsupported estimates can undermine the evaluation.
Contractors should pay close attention to whether the solicitation allows award only on the first year or on the full multi-year basis, because that affects pricing strategy, risk allocation, and how cancellation exposure is reflected in the proposal.
Official Regulatory Text
Solicitations for multi-year contracts shall reflect all the factors to be considered for evaluation, specifically including the following: (a) The requirements, by item of supply or service, for the- (1) First program year; and (2) Multi-year contract including the requirements for each program year. (b) Criteria for comparing the lowest evaluated submission on the first program year requirements to the lowest evaluated submission on the multi-year requirements. (c) A provision that, if the Government determines before award that only the first program year requirements are needed, the Government’s evaluation of the price or estimated cost and fee shall consider only the firstyear. (d) A provision specifying a separate cancellation ceiling (on a percentage or dollar basis) and dates applicable to each program year subject to a cancellation (see 17.106-1 (c) and (d)). (e) A statement that award will not be made on less than the first program year requirements. (f) The Government’s administrative costs of annual contracting may be used as a factor in the evaluation only if they can be reasonably established and are stated in the solicitation. (g) The cancellation ceiling shall not be an evaluation factor.