(v)  Step Five: Estimate the nonrecurring costs the contractor is committed to incur.

(A)  The contractor may be committed to incur nonrecurring costs that its accounting system will not identify as "incurred" as of the time the contract is canceled. This Step Five is intended to make sure you recognize any additional nonrecurring costs the contractor may be committed to incur.

(B)  Because a cancellation cannot happen until the multi-year contract has been in force for at least a year, the contractor's activities (that generate nonrecurring costs) are likely to be well underway. The subcontractors and vendors will charge the prime contractor for the work they have done up to the time of cancellation. To the extent the prime contractor has not already paid them for that effort through partial or progress payments, the prime contractor has a commitment to pay.

(C)  Review your Step Four worksheet. Did you already take such commitments into consideration? If so, go to Step Six. If not, estimate the dollar amount of nonrecurring costs the contractor will be committed to incur at the time of the cancellation. Enter this estimate in Figure 6.A. This is the second building block of the cancellation-ceiling estimate.