Title 10 of the U.S. Code, Section 2306b, authorizes the Department of Defense, Department of Homeland Security, and NASA to enter into multi-year contracts for the acquisition of property. Such advance commitments can last up to five years with a maximum value of $100 million per year ($500 million total). The statute also allows these contracts to include termination liability of up to $20 million.
The following are key excerpts of the statute (as of 2014), outlining some of the conditions for use of the multi-year authority.
§2306b. Multiyear contracts: acquisition of property
(a) In General. – To the extent that funds are otherwise available for obligation, the head of an agency may enter into multiyear contracts for the purchase of property whenever the head of that agency finds each of the following:
- (1) That the use of such a contract will result in substantial savings of the total anticipated costs of carrying out the program through annual contracts.
- (2) That the minimum need for the property to be purchased is expected to remain substantially unchanged during the contemplated contract period in terms of production rate, procurement rate, and total quantities.
- (3) That there is a reasonable expectation that throughout the contemplated contract period the head of the agency will request
funding for the contract at the level required to avoid contract cancellation.
- (4) That there is a stable design for the property to be acquired and that the technical risks associated with such property are not excessive.
- (5) That the estimates of both the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic.
- (6) In the case of a purchase by the Department of Defense, that the use of such a contract will promote the national security of the United States.
(b) Regulations. -
- (1) Each official named in paragraph (2) shall prescribe acquisition regulations for the agency or agencies under the jurisdiction of such official to promote the use of multiyear contracting as authorized by subsection (a) in a manner that will allow the most efficient use of multiyear contracting.
- (A) The Secretary of Defense shall prescribe the regulations applicable to the Department of Defense.
- (B) The Secretary of Homeland Security shall prescribe the regulations applicable to the Coast Guard, except that the regulations prescribed by the Secretary of Defense shall apply to the Coast Guard when it is operating as a service in the Navy.
- (C) The Administrator of the National Aeronautics and Space Administration shall prescribe the regulations applicable to the National Aeronautics and Space Administration.
(c) Contract Cancellations. – The regulations may provide for cancellation provisions in multiyear contracts to the extent that such provisions are necessary and in the best interests of the United States. The cancellation provisions may include consideration of both recurring and nonrecurring costs of the contractor associated with the production of the items to be delivered under the contract.
(f) Cancellation or Termination for Insufficient Funding. – In the event funds are not made available for the continuation of a contract made under this section into a subsequent fiscal year, the contract shall be canceled or terminated. The costs of cancellation or termination may be paid from -
- (1) appropriations originally available for the performance of the contract concerned;
- (2) appropriations currently available for procurement of the type of property concerned, and not otherwise obligated; or
- (3) funds appropriated for those payments.
(g) Contract Cancellation Ceilings Exceeding $100,000,000. -
- (1) Before any contract described in subsection (a) that contains a clause setting forth a cancellation ceiling in excess of $100,000,000 may be awarded, the head of the agency concerned shall give written notification of the proposed contract and of the proposed cancellation ceiling for that contract to the congressional defense committees, and such contract may not then be awarded until the end of a period of 30 days beginning on the date of such notification.
- (2) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (1), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall, as part of the certification required by subsection (i)(1)(A), give written notification to the congressional defense committees of -
- (A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned;
- (B) the extent to which costs of contract cancellation are not included in the budget for the contract; and
- (C) a financial risk assessment of not including budgeting for costs of contract cancellation.
(i) Defense Acquisitions Specifically Authorized by Law. -
- (1) A multiyear contract may not be entered into for any fiscal year under this section for a defense acquisition program that has been specifically authorized by law to be carried out using multiyear contract authority unless each of the following conditions is satisfied:
- (A) The Secretary of Defense certifies to Congress that the current future-years defense program fully funds the support costs associated with the multiyear program.
- (B) The proposed multiyear contract provides for production at not less than minimum economic rates given the existing tooling and facilities.
- (3) In the case of the Department of Defense, a multiyear contract in an amount equal to or greater than $500,000,000 may not be entered into for any fiscal year under this section unless the contract is specifically authorized by law in an Act other than an appropriations Act.
(l) Various Additional Requirements With Respect to Multiyear Defense Contracts. -
- (A) The head of an agency may not initiate a contract described in subparagraph (B) unless the congressional defense committees are notified of the proposed contract at least 30 days in advance of the award of the proposed contract.
- (B) Subparagraph (A) applies to the following contracts:
- (i) A multiyear contract -
- (I) that employs economic order quantity procurement in excess of $20,000,000 in any one year of the contract; or
- (II) that includes an unfunded contingent liability in excess of $20,000,000.
- (ii) Any contract for advance procurement leading to a multiyear contract that employs economic order quantity procurement in excess of $20,000,000 in any one year.
- (i) A multiyear contract -
- (2) The head of an agency may not initiate a multiyear contract for which the economic order quantity advance procurement is not funded at least to the limits of the Government’s liability.
- (3) The head of an agency may not initiate a multiyear procurement contract for any system (or component thereof) if the value of the multiyear contract would exceed $500,000,000 unless authority for the contract is specifically provided in an appropriations Act.
- (4) Not later than the date of the submission of the President’s budget request under section 1105 of title 31, the Secretary of Defense shall submit a report to the congressional defense committees each year, providing… information with respect to each multiyear contract…
- (5) The head of an agency may not enter into a multiyear contract (or extend an existing multiyear contract), the value of which would exceed $500,000,000 (when entered into or when extended, as the case may be), until the Secretary of Defense submits to the
congressional defense committees a report containing the information described in paragraph (4) with respect to the contract (or contract extension).
- (6) The head of an agency may not terminate a multiyear procurement contract until 10 days after the date on which notice of the proposed termination is provided to the congressional defense committees.
- (7) The execution of multiyear contracting authority shall require the use of a present value analysis to determine lowest cost compared to an annual procurement.