TEXT OF CLAUSE FAR 52.217-2: ALTERNATIVE LANGUAGE WHEN
EOQ ITEMS ARE INCLUDED (ALTERNATIVE WORDS ARE IN BOLD)

Paragraph FAR 52.217-2(d)

"The cancellation charge will cover only (1) costs (i) incurred by the contractor and/or subcontractor, (ii) reasonably necessary for performance of the contract, and (iii) that would have been equitably amortized over the entire multi-year contract period but, because of the cancellation, are not so amortized; (2) a reasonable profit or fee on the costs; (3) labor, material, and other associated recurring costs incurred for the production of the canceled items in accordance with the clause of this contract entitled 'Limitation of Price and Contractor Obligations'; and (4) the cost impact on non-canceled items."

ALTERNATIVE LANGUAGE RATIONALE:

Subparagraph (3) allows the cancellation charge to cover recurring costs incurred for the production of canceled items (i.e., costs associated with EOQ effort).

Subparagraph (4) should only be used if, due to the nature of the particular program, a cancellation would be likely to affect the cost of non-canceled items. For example, if the multi-year contract is a major component of the contractor's overall business base,
the cancellation of one or more years of requirements under the
multi-year contract could drastically affect overhead
rates. Those unit prices would have (appropriately) been based on the parties'
mutual assumption that the contractor's business base would include the
entire multi-year quantity. To the extent that the base shrinks, overhead costs per unit grow.
(If this language is used, the solicitation and/or contract file should explain the
specific circumstances that make it necessary and appropriate.)

Paragraph FAR 52.217-2(f)

"The Contractor's claim may include: (1) Reasonable nonrecurring costs (see FAR 15.4) which are applicable to and normally would have been amortized in all supplies or services which are multi-year requirements; … (5) Labor, material, and other costs incurred for the production of the canceled items in accordance with the clause of this contract entitled "Limitation of Price and Contractor Obligations"; (6) The cost impact on non-canceled items; and (7) A reasonable profit on such incurred costs."

Note: There is nothing wrong with (2) through (4) for an EOQ multi-year contract.
They should be retained, unless not applicable to the program. Paragraph (f) is
the counterpart to
paragraph (d) above. This paragraph must be consistent with paragraph (d) since the
cancellation charge (what the Government will pay) and the cancellation claim (what the
contractor will request) must have a common basis.

ALTERNATIVE LANGUAGE RATIONALE:

Subparagraph (1) provides a reference to FAR 17.1, which contains an applicable definition of "nonrecurring costs".

Subparagraph (5) allows the claim to include recurring costs incurred for the production of canceled items (i.e., costs of EOQ effort), consistent with subparagraph (d)(3).

Subparagraph (6) should be used only if its counterpart is used in paragraph (d)(4).

Subparagraph (7) recognizes that the contractor is entitled to a reasonable profit on
recognized incurred costs. This is consistent with paragraph (d)(2).

Paragraph FAR 52.217-2(g)

"The claim shall not include-- (1) Labor, material, or other expenses incurred by the Contractor or subcontractors for performance or the canceled work; (2) Any cost already paid to the Contractor; (3) Anticipated profit or unearned fee on the canceled work; or (4) For service contracts, the remaining useful commercial life of facilities. "Useful commercial life" means the commercial utility of the facilities rather than their physical life with due consideration given to such factors as location of facilities, their specialized nature, and obsolescence."

ALTERNATIVE LANGUAGE RATIONALE:

FAR 52.217-2(g) is revised to delete subparagraph (2), which would preclude recognition of recurring costs and contradict language added to paragraphs (d) and (f).

Figure 12.A