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HHS Reference Tool for Contract Funding, Formation and Appropriations Law Compliance



Regulations and

Case Studies

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Case Study - Amortizing Cancellation Ceiling under a Multi-Year Contract


The Food and Drug Administration is about to complete the second year of a 5-year multi-year contract under FAR 17.1. The Contracting Officer’s Technical Representative (COTR) is seeking advice on the required funding for the third program year (PY) and how the PY2 funding and cancellation ceiling relate to PY3 funding. The COTR indicates that only $8M was spent in PY2 and s/he wants to know if the remaining $2M or any part of the cancellation ceiling can be used as an offset for PY3 funding.

Following are the funding/cancellation ceiling amounts as included in the contract.

 Program Year

Program obligation$10M$10M$10M$10M$10M$50M
Obligation of cancellation ceiling$2.5MN/AN/AN/AN/A---
Amortized cancellation liabilityN/A$2M$1.5M$.5M00
Annual program performance level$10M$10M$10M$10M$10M$50M



  1. Regarding the funding for the program year, the $10M must be provided in full at the start of PY3 from the then-current appropriation. The $2M remaining from PY2 cannot be “carried over” to PY3. Additionally, the use of incremental funding in the manner prescribed in Subpart 332.7 is prohibited under a multi-year contract.
  2. No additional funding is required for the cancellation ceiling as it was fully funded in PY1. However, the decision to fund PY3 results in a reduced cancellation ceiling for PY3 and beyond (amortization) to reflect the decrease in the Government’s cancellation liability as subsequent program years are funded and performed. The $.5M "freed up" (difference between $2M and $1.5M) reverts to the originating appropriation and cannot be used as additional or offsetting funding within this contract.


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