(1) There are circumstances that may make variable unit pricing better suited to a particular multi-year effort. When such circumstances arise making variable unit pricing clearly in the Government's best interest, you should not hesitate to request approval to use it.

(2) There are a number of factors to consider in deciding which pricing method to use. The following represent some of the more important considerations that should enter into your decision.

(i) The size and complexity of the program will greatly affect the method chosen. Generally speaking, large complex programs of the F-16 variety should probably employ variable unit pricing. Complex learning scenarios, multitudes of major subcontractors, and high nonrecurring costs up front are difficult to accommodate in a level unit pricing scheme. Smaller, less complex, mature programs involving little nonrecurring costs are better suited to level unit pricing.

(ii) The offerors'/contractors' willingness to carry costs incurred early in the program for several years will dictate, to some degree, the method used. The higher the nonrecurring costs that will be spread out, the less likely your chances of getting the offerors/contractors to accept level unit pricing. This is especially true where there is a lack of competition on the program. Competition is probably your greatest ally if level unit pricing makes good business sense for your program.

(iii) The funding profile expected under each method should be calculated and compared. Consider the approach that generates the greatest cost savings, provided those savings have a positive present value.

Note: Cost savings are ultimately shown in the Exhibit MYP-3, Contract Funding Plan, included in the multi-year savings validation package. The present value of those savings is ultimately shown in the Exhibit MYP-4, Present Value Analysis, in the multi-year savings validation package.

(3) There is no set rule on how to treat the nonrecurring costs. Some alternatives are:

(i) Assign them to the year in which they are expected to be incurred with all end items being acquired in that year carrying an equal share. (This would be consistent with variable unit pricing).

(ii) If you want to enable the contractor to get paid for a large up-front investment (bona fide nonrecurring costs) without spreading this cost over each end-item, you may fashion a CLIN that allows you to reimburse the contractor for the agreed upon cost of the investment.

(4) How to obtain approval to use variable unit pricing. The letter requesting approval to use variable unit pricing must:

(i) State its purpose is to request the approval to use variable unit pricing, as required by FAR 17.106-3(g);

(ii) Explain why level unit pricing is not in the Government's interest; and

(iii) Describe the method to be used in evaluating price proposals if the MYC will be competitive.