(1) The time to build estimates of cancellation ceilings is when you are estimating the cost of the contemplated multi-year contract. Part of that cost estimating process is estimating the cancellation ceiling applicable to each year of the multi-year contract. If possible, the contractor should furnish data points that the cost analyst can use in developing the cancellation-ceiling estimate. This estimate is a Government task, which will require contractor input.

Note: The cancellation ceilings will not be finally established until the multi-year contract is negotiated.

(2) This subsection will take you through eleven (11) steps to develop sound cancellation ceiling estimates.

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(i) Step One: Decide What Costs Can Be Included In the Cancellation Charge.
(ii) Step Two: Establish the Points in Time When the Contract Could be Canceled.
(iii) Step Three: Evaluate the Task of Estimating a Cancellation Ceiling.
(iv) Step Four: Estimate the nonrecurring costs incurred but not recovered.
(v) Step Five: Estimate the nonrecurring costs the contractor is committed to incur.
(vi) Step Six: Estimate the Recurring Costs Incurred for the Canceled End Items.
(vii) Step Seven: Estimate the Recurring Costs the Contractor is Committed to Incur for the Canceled End Items.
(viii) Step Eight: Assess the Impact Cancellation Could Have on the Cost of End Items Already Purchased.
(ix) Step Nine: Consider the Offset Potential of the Work in Process on the Canceled End Items.
(x) Step Ten: Consider the Offset Potential of Cancelable Commitments.
(xi) Step Eleven: Sum up the Results of Steps Four through Ten.