(b) PRINCIPLE DIFFERENCES BETWEEN THE TWO METHODS
(1) Figure 13.B outlines the principal differences between level unit pricing and variable unit pricing.
Unit Pricing Difference | ||
LEVEL | VARIABLE | |
Unit Prices | Identical for each unit under the MY contract. | Different in one or more program years. Usually highest in 1st year and trends downward. |
End-Item Funding Requirements | The same in each year of the MY contract (except for effect of any EPA provisions and advance EOQ requirement). | Varies for each program year. Usually higher in 1st year than level unit pricing method but lower in out‑years. |
Cancellation Exposure | Usually higher than variable method. | Usually lower than level method. |
Total Program Price | Usually same as variable method. | Usually same as level method. |
Financial Impact | Present value of MYP savings will probably be higher than it would be with variable method. | Present value of MYP savings will probably be lower than it would be with level method. |
Figure 13.B |
(2) FAR 17.106 states that multi-year contract procedures provide for identical (level) unit prices for all items under the multi-year contract. It acknowledges that level unit pricing may not always be in the Government's interest, however, and allows the Head of the Contracting Activity (HCA) or designee to authorize use of variable unit pricing in such cases. The purpose of the requirement for approval to use the variable method is to insure that prior to using it, you have thought out how you will evaluate variable unit prices in a competition.