FAR 17.106-3—Special procedures applicable to DoD, NASA, and the Coast Guard.
Plain-English Summary
FAR 17.106-3 sets special procedures for multi-year contracting used by DoD, NASA, and the Coast Guard. It addresses how these agencies should use multi-year contracts to broaden the defense industrial base by encouraging subcontractor, supplier, and vendor participation and by ensuring payments and benefits flow to those participants as quickly as practicable. It also protects the Government’s ability to terminate deficient prime contracts, requires cancellation or termination if funding is not available, and limits the types of contract pricing arrangements that may be used. In addition, it covers when recurring costs may be included in cancellation ceilings, when agencies may solicit only multi-year prices instead of both annual and multi-year offers, and when level unit pricing is required or variable unit pricing may be approved. In practice, this section is about balancing long-term procurement efficiencies against fiscal control, competition, pricing fairness, and the Government’s ability to stop poor performance or walk away if funding disappears.
Key Rules
Broaden industrial base
Multi-year contracting must be used, to the maximum extent practicable, to seek, retain, and promote participation by subcontractors, suppliers, and vendors. The goal is to strengthen the defense industrial base, not just to lock in a long-term prime contractor arrangement.
Prompt pass-through of benefits
Any payment or other benefit that accrues under the multi-year contract to a participating subcontractor, supplier, or vendor must be delivered to that company as expeditiously as practicable. Agencies and primes should not delay the flow of contract-related benefits to lower-tier participants.
Preserve termination authority
Multi-year contracting may not be structured, to the extent practicable, so as to reduce the agency’s existing ability to terminate a prime contract for deficient cost, quality, or schedule performance. The Government must retain meaningful remedies for poor performance.
Funding shortfall ends contract
If funds are not made available to continue a multi-year contract awarded under these procedures, the contract must be canceled or terminated. The contract structure must account for the possibility that future funding may not materialize.
Fixed-price only
Contracts awarded under the multi-year procedure must be firm-fixed-price, fixed-price with economic price adjustment, or fixed-price incentive. Other pricing arrangements are not authorized under this section.
Recurring costs need approval
Including recurring costs in cancellation ceilings is an exception to normal contract financing arrangements and requires approval by the agency head. This is a higher-level control because it affects the Government’s potential cancellation liability.
Dual offers usually preferred
Obtaining both annual and multi-year proposals is generally beneficial because it allows an annual award if the multi-year award is not in the Government’s interest and supports savings analysis. However, the head of a contracting activity may authorize a solicitation for only multi-year prices if that approach is in the Government’s interest and dual proposals are not needed to satisfy the objectives of FAR 17.105-2.
Level prices unless approved otherwise
Multi-year procedures generally use level unit prices by amortizing certain costs over the full contract quantity, except where economic price adjustment applies. Variable unit prices may be used only if the head of a contracting activity approves and, for competitive proposals, there is a valid evaluation method.
Responsibilities
Contracting Officer
Structure and administer the solicitation and contract in accordance with the multi-year procedures, including ensuring the pricing arrangement is an authorized fixed-price type, preserving termination rights, and handling funding contingencies and cancellation/termination actions if funds are unavailable.
Head of Contracting Activity
May authorize a solicitation requesting only multi-year prices instead of dual annual and multi-year offers when that is in the Government’s interest and dual proposals are unnecessary. May also approve variable unit pricing when level unit pricing is not in the Government’s interest, provided a valid evaluation method exists for competitive proposals.
Agency Head
Must approve inclusion of recurring costs in cancellation ceilings, since that is an exception to normal contract financing arrangements.
DoD, NASA, and Coast Guard Program/Acquisition Officials
Use multi-year contracting to broaden the industrial base, preserve the Government’s ability to terminate deficient performance, and ensure the contract structure supports funding, pricing, and competition requirements.
Prime Contractor
Pass through payments or other benefits to participating subcontractors, suppliers, and vendors as expeditiously as practicable and maintain contract performance consistent with cost, quality, and schedule requirements.
Subcontractors, Suppliers, and Vendors
Participate in the multi-year contract structure as intended beneficiaries of the industrial-base policy, and receive payments or benefits promptly when they accrue under the contract.
Agency Funding Authority / Appropriations Process
Provide funds for continuation of the multi-year contract when available; if funds are not made available, the contract must be canceled or terminated.
Practical Implications
This section is especially important for large defense-related buys where long-term pricing and production stability matter, but the Government still needs flexibility if performance slips or funding changes.
Contracting officers should be careful not to assume multi-year contracting allows broader pricing freedom; the allowable contract types are limited, and level pricing is the default unless properly approved otherwise.
If recurring costs are built into cancellation ceilings, that decision needs agency-head approval and should be documented carefully because it increases the Government’s potential financial exposure.
For competitive acquisitions, variable unit pricing cannot be used casually; the solicitation must include a valid evaluation method, or the pricing approach may be vulnerable to challenge.
A common pitfall is designing a multi-year contract that unintentionally weakens termination rights or delays benefits to lower-tier participants, which conflicts with the section’s policy goals and procedural limits.
Official Regulatory Text
(a) Participation by subcontractors, suppliers, and vendors. In order to broaden the defense industrial base, to the maximum extent practicable- (1) Multi-year contracting shall be used in such a manner as to seek, retain, and promote the use under such contracts of companies that are subcontractors, suppliers, and vendors; and (2) Upon accrual of any payment or other benefit under such a multi-year contract to any subcontractor, supplier, or vendor company participating in such contract, such payment or benefit shall be delivered to such company in the most expeditious manner practicable. (b) Protection of existing authority . To the extent practicable, multi-year contracting shall not be carried out in a manner to preclude or curtail the existing ability of the Department or agency to provide for termination of a prime contract, the performance of which is deficient with respect to cost, quality, or schedule. (c) Cancellation or termination for insufficient funding . In the event funds are not made available for the continuation of a multi-year contract awarded using the procedures in this section, the contract shall be canceled or terminated. (d) Contracts awarded under the multi-year procedure shall be firm-fixed-price, fixed-price with economic price adjustment, or fixed-price incentive. (e) Recurring costs in cancellation ceiling . The inclusion of recurring costs in cancellation ceilings is an exception to normal contract financing arrangements and requires approval by the agency head. (f) Annual and multi-year proposals. Obtaining both annual and multi-year offers provides reduced lead time for making an annual award in the event that the multi-year award is not in the Government’s interest. Obtaining both also provides a basis for the computation of savings and other benefits. However, the preparation and evaluation of dual offers may increase administrative costs and workload for both offerors and the Government, especially for large or complex acquisitions. The head of a contracting activity may authorize the use of a solicitation requesting only multi-year prices, provided it is found that such a solicitation is in the Government’s interest, and that dual proposals are not necessary to meet the objectives in 17.105-2 . (g) Level unit prices . Multi-year contract procedures provide for the amortization of certain costs over the entire contract quantity resulting in identical (level) unit prices (except when the economic price adjustment terms apply) for all items or services under the multi-year contract. If level unit pricing is not in the Government’s interest, the head of a contracting activity may approve the use of variable unit prices, provided that for competitive proposals there is a valid method of evaluation.