(ii) Step Two: Fund the Recurring Cost Portion. (if you decided to in Step One D)

(A) Step Two A: Fund the First Year Cancellation Ceiling. If the cancellation ceiling is for a cancellation occurring at the end of year one of a multi-year contract, you should:

(1) Include the recurring cost portion of the cancellation ceiling in the Advanced Funding Total on Exhibit MYP-4, Present Value Analysis, for year one of the multi-year contract, and

(2) Include this amount in the Advance Procurement funds requested for year one in your budget submission.

This means that you intend to have these funds appropriated for year one and ultimately committed, at the product division level, for their intended purpose.

(B) Step Two B: Fund the Second Year Cancellation Ceiling.

If the cancellation ceiling is for a cancellation occurring at the end of year two of a multi-year contract, you should fund this amount with the advance procurement dollars reserved the previous year to fund the recurring cost portion of the first cancellation ceiling. Because multi-year contracts are treated in their "entirety;" the bona fide need of the cancellation costs, if any, remains in the same year as the need for the product the contract was awarded to deliver. Therefore, reserve funds for this contingent liability as long as there is a potential cancellation charge.

(1) If the amount reserved in the first year was greater than the amount needed in this (the second) year, then it will completely fund the recurring cost portion of this year's cancellation ceiling. Any funds, which were reserved, but are no longer needed to cover potential cancellation costs, may be used for any purpose allowed by the appropriation, which provided the funding.

(2) If the amount reserved in the first year was less than the amount needed in this (the second) year (a highly unusual occurrence), then it will only partially fund the recurring cost portion of this year's cancellation ceiling, and the difference between the amount you need and the amount available from the year must be included in (i) the Advanced Funding on Exhibit MYP 4, Present Value Analysis, for year two of the multi-year contract, and (ii) the Advance Procurement funds requested for year two in your budget submission.

(C) Step Two C: Fund Subsequent Year Cancellation Ceilings.

For a cancellation ceiling that applies to a cancellation occurring at the end of the third or a subsequent year of the multi-year contract, follow the guidance in Step Two B. If you have a cancellation ceiling in the fourth year, consult with your supporting financial management office to ensure that funds previously reserved are still available for obligation.