(vii)  Step Seven: Estimate the Recurring Costs the Contractor is Committed to Incur for the Canceled End Items.

(A)  This Step Seven is intended to make sure you recognize any additional recurring costs not booked as ''incurred" in the contractor's accounting system at the time of cancellation that the contractor may be committed to incur.

(B)  Because a cancellation cannot happen until the multi-year contract has been in force for at least a year, the contractor's multi-year subcontracts and purchase orders are likely to be well underway. The subcontractors and vendors will charge the prime contractor for the work they have done up to the time of cancellation. To the extent the prime contractor has not already paid them for that effort through partial or progress payments, the prime contractor has a commitment to pay.

(C)  Review your Step Six worksheet. Did you already take such commitments into consideration? If so, go on to Step Eight. If not, estimate the dollar amount of recurring costs the contractor is, at the time of the cancellation, committed to incur. Enter your estimate in Figure 6.A. This is the fourth building block of your cancellation-ceiling estimate.