(b) WHY MULTI-YEAR CONTRACTS PROVIDE FOR CANCELLATION

(1) Multi-year contracts provide for cancellation in situations where a multi-year contract that depends on future appropriations is awarded, and one of those appropriations is not made.

(2) Cancellation clauses provide an agreed-upon method for ending the contract in circumstances where future appropriations are not made.

(3) Because of the way in which they are funded, multi-year contracts depend on future appropriations. Consequently, they must provide that performance during the second and subsequent years of the contract is contingent upon the appropriation of funds. This means, simply, that all contract years except the first are subject to cancellation. The contract must contain procedures for dealing with a cancellation should it occur. All multi-year contracts do not have to contain cancellation provisions. 10 USC 2306b(c) allows for cancellation clauses to be included in multi-year contracts "to the extent that such provisions are necessary and in the best interests of the United States." As a general rule, however, cancellation clauses are necessary and in the best interests of the United States, for the reasons stated above.