FINANCIAL MANAGEMENT POLICY MANUAL

075321 DEFINITIONS
Terms and definitions used for investment procurement actions follow:
Advance EOQ Procurement (Multiyear Procurement)
An exception to the full funding policy that allows the use of expanded
advance procurement in conjunction with a multiyear contract to budget
and purchase more than one fiscal year's program increment of
components, materials, and parts in order to obtain the maximum
economic advantages of multiyear procurement.
Advance Procurement (Long Lead-time Items)
An exception to the full funding policy that allows budgeting of long leadtime
components, material, parts, and effort in a fiscal year(s) before that
in which the related end-items is to be budgeted.
Cancellation
A procedure unique to multiyear contracts that involves the unilateral right
of the Government to discontinue contract performance for subsequent
fiscal years' quantities of items. Cancellation is effective only upon the
failure of the Government to fund successive fiscal year quantities under a
multiyear contract.
Cancellation Ceiling
The maximum amount the Government will pay the contractor as a result
of a cancellation. This amount shall reflect the incurred costs that the
contractor would have recovered as a part of the unit price of subsequent
fiscal year canceled items. The amount paid to the contractor upon
settlement for unrecovered costs (which can only be equal to or less than
the ceiling) is referred to as the cancellation charge.
Economic Order Quantity (EOQ)
When used in connection with multiyear procurement, the procurement of
material for future-year production quantities of items that is not required
by procurement lead-times but is desirable for economic reasons. When
used in annual contracts, EOQ is the procurement of more than one year's
requirement to achieve economic efficiencies at a lower unit price based
on production economies.
Effort
As related to advance procurement, the costs associated with the further
processing of components, parts, and material or the preparation for such
processing.
Full Funding
At the time of contract award, funds are available to cover the total
Financial Management Policy
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