FINANCIAL MANAGEMENT POLICY MANUAL

testing or the equivalent) and Initial Operational Test and Evaluation
(IOT&E) with relatively few changes in item design anticipated and
underlying technology should be stable. This does not mean that
changes will not occur but that the estimated cost of such changes is
not anticipated to drive total costs beyond the proposed funding
profile.
e. Realistic Cost Estimates
There should be a reasonable assurance that cost estimates for both
contract costs and anticipated cost avoidance are realistic. Estimates
should be based on prior cost history for the same or similar items or
proven cost estimating techniques. Normally, production assets should
have been delivered in order to obtain accrual costs for the comparison
(exceptions include satellites and ships).
f. National Security
Use of multiyear contracts will promote the national security of the
United States.
6. EXECUTION
Funds obligated for multiyear contracts must be sufficient to cover any
potential termination costs. The costs of cancellation or termination may
be paid from (1) appropriations originally available for the performance of
the contract concerned; (2) appropriations currently available for
procurement of the type of property concerned, and not otherwise
obligated; or (3) funds appropriated for these payments.
(Change 67)
075326 TERMINATION LIABILITY ADVANCE
PROCUREMENT
The guidance that follows is applicable to procurement programs. To the
extent that end-item authorization is reduced or deleted, the following will
pertain with respect to termination liability funded advance procurement
contracts:
1. for terminated programs, on a case-by-case basis an evaluation must
be made to determine if the advance procurement contract should be
terminated, continued or modified to deliver some usable product short of
a major end-item. Recommendations for application of funds related to
such terminated programs should be forwarded to the Comptroller of the
Navy before contractual action is taken;
2. for reduced programs, the advance procurement contract, to the extent
that it is for a quantity within the approved FYDP, will remain in effect as
written with the product of the effort distributed to succeeding end-item
Financial Management Policy
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