(d) HOW TO PLAN FOR THE POSSIBILITY OF CONTRACT CANCELLATION

(1) It is possible that your contemplated multi-year contract will be canceled. You must ensure that the estimating, budgeting, and contracting processes provide for this contingency. To do this, you should:

(i) Estimate each year's cancellation ceiling.

(ii) Decide early whether you will fund the cancellation ceiling or request authority to treat it as an unfunded contingent liability.

(iii) Ensure that the Total Obligation Authority amounts shown in the Multi-year Exhibits include an appropriate amount to fund each year's cancellation ceiling.

(iv) Draft cancellation clauses tailored to your specific situation and include them in the Request for Proposals and Model Contract.

(v) Carefully negotiate the cancellation clauses (which will include each year's cancellation ceiling and the way in which it will be funded) to ensure that there is an agreement on all aspects of this contractual language.