[Federal Register: March 27, 2000 (Volume 65, Number 59)]
[Rules and Regulations]
[Page 16276-16285]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr00-16]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 32 and 52
[FAC 97-16; FAR Case 1998-400 (98-400); Item II]
RIN 9000-AI27
Federal Acquisition Regulation; Progress Payments and Related
Financing Policies
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
[[Page 16277]]
amending the Federal Acquisition Regulation (FAR) to reduce the burdens
imposed on contractors and contracting officers by the progress payment
type of financing; to permit the use of performance-based payments in
contracts for research and development, and contracts awarded through
competitive negotiation procedures; to expand the use of subcontractor
performance-based and commercial financing payments; and to simplify
and clarify related provisions.
DATES: Effective Date: March 27, 2000.
Applicability Date: The FAR, as amended by this rule, is mandatory
for solicitations issued on or after May 26, 2000. Contracting officers
may, at their discretion, include the clauses and provisions in this
rule in solicitations issued before May 26, 2000.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS
Building, Washington, DC, 20405, (202) 501-4755, for information
pertaining to status or publication schedules. For clarification of
content, contact Mr. Jeremy Olson, at (202) 501-0692. Please cite FAC
97-16, FAR case 1998-400.
SUPPLEMENTARY INFORMATION:
A. Background
The Director of Defense Procurement at the Department of Defense
established a special interagency team to review existing policies and
procedures related to progress payments to make them easier to
understand and to minimize the burdens imposed on contractors and
contracting officers. This Progress Payment Rewrite Team considered for
revision or elimination those regulatory requirements pertaining to
progress payments that were not required by statute, required to ensure
adequately standardized Government business practices, or required to
protect the public interest.
The Progress Payment Rewrite Team published an advance notice of
proposed rulemaking (ANPR) in the Federal Register on May 1, 1997 (62
FR 23740). The ANPR solicited comments from industry and Government
personnel on how the FAR could be revised to result in a simplified and
streamlined process of applying for and administering progress
payments.
After reviewing progress payment policies and public comments
received in response to the ANPR, the team identified potential changes
to the FAR. They published a second ANPR in the Federal Register on
March 5, 1998 (63 FR 11074), that solicited comments on the potential
changes identified in the notice. The ANPR also announced a public
meeting, that was subsequently held on April 23, 1998. After
considering written comments received in response to the two notices,
and verbal comments provided during the public meeting, the Progress
Payment Rewrite Team submitted a report including a draft proposed rule
for consideration by the Councils.
The Councils reviewed the team's recommendations and published a
proposed rule in the Federal Register on February 10, 1999 (64 FR
6758). Fifteen respondents submitted public comments to the proposed
rule. Several respondents expressed concern that the use of
performance-based payments in competitive negotiations may lengthen the
competitive process and complicate proposal evaluation. The Councils
believe that potential procedural impacts are among the factors (along
with such issues as the potential impact on small business
competitiveness) that the contracting officer may consider when
assessing the practicality of the use of performance-based payments
under FAR 32.1001. However, the Councils also believe that performance-
based payments can be used effectively in competitive negotiations, and
that their use may attract new sources, including small businesses,
whose accounting systems do not support cost-based financing.
Consequently, the Councils concluded the existing FAR prohibition
against use of performance-based payments in competitive negotiations
is inappropriate. The final rule differs from the proposed rule by
making a number of nonsubstantive, clarifying changes.
The final rule revises the FAR to:
1. Ensure consideration of performance-based payments. The rule
emphasizes that--
(a) Performance-based payments are the preferred method of
financing;
(b) Their use should be considered and deemed impracticable by the
contracting officer before a decision is made to provide customary
progress payments; and
(c) Each payment amount should represent what the contractor could
reasonably be expected to incur to achieve the payment event rather
than resemble an advance payment or a reward to the contractor for
achieving performance levels over and above what is required for
successful completion of the contract.
2. Increase the threshold for contract financing and establish a
threshold for individual progress payment requests. To reduce the
administrative burden that small dollar actions place on the contract
administration and payment process, the final rule--
(a) Raises the dollar threshold for use of contract financing with
large businesses from $1 million to $2 million; and
(b) Adds a minimum dollar threshold of $2,500 for individual
progress payment requests, unless a lower amount is authorized in
accordance with agency procedures.
3. Eliminate the ``paid cost rule.'' Prior to implementation of
this final rule, a large business was required to pay a subcontractor
before including the payment in its billings to the Government. This is
referred to as the ``paid cost rule.'' The final FAR rule allows a
large business to include, in its billings, subcontract costs that it
has incurred but not actually paid, provided the payment to the
subcontractor will be made in accordance with the terms and conditions
of a subcontract or invoice, and ordinarily prior to the submission of
the contractor's next payment request to the Government.
4. Permit subcontractor performance-based payments or commercial
financing payments under prime contracts that have progress payments or
cost-reimbursement type of financing. The final rule permits prime
contractors that receive progress payments or cost-reimbursement type
of payments to use performance-based payments or commercial financing
payments with their subcontractors.
5. Eliminate the limitation on general and administrative expenses.
The rule removes the limitation at FAR 32.503-7, which applies to only
those contractors that have established an inventory suspense account
under 48 CFR 9904.410, Allocation of Business Unit General and
Administrative Expenses to Final Cost Objectives. This provision dates
from 1979 and currently applies to very few remaining contractors.
6. Eliminate the contracting officer review of quarterly
statements. The rule removes the requirement for the contracting
officer to review quarterly statements under price revision or
redeterminable contracts. This requirement is unnecessary, as the
Government's interests are protected adequately by the contracting
officer that has the responsibility for administering progress
payments.
7. Permit the use of performance-based payments in contracts for
research and development, and in contracts awarded through competitive
negotiation procedures. The rule removes the prohibition against using
performance-based payments type of financing in contracts for research
and development, and contracts awarded
[[Page 16278]]
through competitive negotiation procedures.
8. Simplify and clarify. The rule also simplifies and clarifies the
concept that, on a loss contract, application of the loss ratio
constitutes the adjustment that ensures progress payments do not exceed
the value of work performed; deletes the authorization for the
Department of Defense to establish customary progress payment rates for
foreign military sales (FMS) and flexible progress payments that differ
from the customary rates cited in FAR 32.501-1(a) (DoD no longer uses
flexible progress payments and does not intend to establish alternate
rates for FMS); and makes a number of editorial changes.
This rule was not subject to Office of Management and Budget review
under Section 6(b) of Executive Order 12866, Regulatory Planning and
Review, dated September 30, 1993. This rule is not a major rule under 5
U.S.C. 804.
B. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration stated in the
proposed rule that the rule was not expected to have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
because most contracts awarded to small entities have a dollar value
less than the simplified acquisition threshold, and, therefore, do not
require the progress payment or performance-based payment type of
financing. However, some of the commentors expressed the concern that
elimination of the ``paid cost rule'' may have a significant impact on
a substantial number of small entities. Accordingly, even though an
Initial Regulatory Flexibility Analysis had not been done, the Councils
prepared a Final Regulatory Flexibility Analysis (FRFA) as a result of
those comments. The FRFA is summarized as follows:
The small entities that may be impacted by elimination of the
``paid cost rule'' are subcontractors to large businesses. That is,
the current FAR requires large businesses to pay its subcontractors
by cash or check before the large business can request payment from
the Government under cost reimbursement contracts or progress
payments for amounts owed to subcontractors. The final rule will
permit prime contractors to request payment of those amounts from
the Government when it incurs a cost based on a request for payment
from its subcontractors.
We do not have any reporting mechanisms or central data
collections that reveal how many subcontractors may be impacted by
this rule. However, we have concluded that the number may be
substantial.
In order to mitigate any potential impact this portion of the
rule may have on small businesses, the Councils adopted a range of
safeguards to provide further assurances that payments to
subcontractors will not be delayed. These safeguards were adopted
rather than merely applying the policies previously used for small
businesses that permitted small business prime contractors to
recognize subcontract costs immediately after they were incurred,
even if they were not yet paid to the subcontractor. This final rule
requires that both large and small business prime contractors pay
these incurred subcontract amounts in accordance with the terms of
the subcontract and ordinarily before submittal of the next payment
request sent to the Government.
The FAR Secretariat has submitted a copy of the FRFA to the
Chief Counsel for Advocacy of the Small Business Administration.
C. Paperwork Reduction Act
The Paperwork Reduction Act (Pub. L. 104-13) applies because the
final rule contains information collection requirements.
1. Office of Management and Budget (OMB) Control Number 9000-0010.
The final rule decreases the collection requirements under the
previously approved OMB Control No. 9000-0010, since the rule raises
the threshold for permitting contract financing in the form of progress
payments based on costs, and establishes a dollar threshold for
contractor requests for progress payments. OMB approved the revised
information collection requirement through September 30, 2002.
Estimated number of respondents: reduced from 27,000 to 18,090; yearly
responses per respondent: 32 (unchanged); average time per response: 33
minutes (unchanged); total yearly burden hours: reduced from 475,000 to
318,384; frequency of report; on occasion.
2. Office of Management and Budget (OMB) Control Number 9000-0138.
There is no net impact to the collection requirements currently
approved under OMB Control No. 9000-0138. The increase in hours
associated with the addition of the provision at FAR 52.232-28,
Invitation to Propose Performance-Based Payments, is offset by the
decrease in hours resulting from raising the contract dollar threshold
for permitting performance-based payments.
List of Subjects in 48 CFR Parts 32 and 52
Government procurement.
Dated: March 20, 2000.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 32 and 52 as set
forth below:
1. The authority citation for 48 CFR parts 32 and 52 continues to
read as follows:
Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
PART 32--CONTRACT FINANCING
2. Revise section 32.104 to read as follows:
32.104 Providing contract financing.
(a) Prudent contract financing can be a useful working tool in
Government acquisition by expediting the performance of essential
contracts. Contracting officers must consider the criteria in this part
in determining whether to include contract financing in solicitations
and contracts. Resolve reasonable doubts by including contract
financing in the solicitation. The contracting officer must--
(1) Provide Government financing only to the extent actually needed
for prompt and efficient performance, considering the availability of
private financing and the probable impact on working capital of the
predelivery expenditures and production lead-times associated with the
contract, or groups of contracts or orders (e.g., issued under
indefinite-delivery contracts, basic ordering agreements, or their
equivalent);
(2) Administer contract financing so as to aid, not impede, the
acquisition;
(3) Avoid any undue risk of monetary loss to the Government through
the financing;
(4) Include the form of contract financing deemed to be in the
Government's best interest in the solicitation (see 32.106 and 32.113);
and
(5) Monitor the contractor's use of the contract financing provided
and the contractor's financial status.
(b) If the contractor is a small business concern, the contracting
officer must give special attention to meeting the contractor's
contract financing need. However, a contractor's receipt of a
certificate of competency from the Small Business Administration has no
bearing on the contractor's need for or entitlement to contract
financing.
(c) Subject to specific agency regulations and paragraph (d) of
this section, the contracting officer--
(1) May provide customary contract financing in accordance with
32.113; and
[[Page 16279]]
(2) Must not provide unusual contract financing except as
authorized in 32.114.
(d) Unless otherwise authorized by agency procedures, the
contracting officer may provide contract financing in the form of
performance-based payments (see subpart 32.10) or customary progress
payments (see subpart 32.5) if the following conditions are met:
(1) The contractor--
(i) Will not be able to bill for the first delivery of products for
a substantial time after work must begin (normally 4 months or more for
small business concerns, and 6 months or more for others), and will
make expenditures for contract performance during the predelivery
period that have a significant impact on the contractor's working
capital; or
(ii) Demonstrates actual financial need or the unavailability of
private financing.
(2) If the contractor is not a small business concern--
(i) For an individual contract, the contract price is $2 million or
more; or
(ii) For an indefinite-delivery contract, a basic ordering
agreement or a similar ordering instrument, the contracting officer
expects the aggregate value of orders or contracts that individually
exceed the simplified acquisition threshold to have a total value of $2
million or more. The contracting officer must limit financing to those
orders or contracts that exceed the simplified acquisition threshold.
(3) If the contractor is a small business concern--
(i) For an individual contract, the contract price exceeds the
simplified acquisition threshold; or
(ii) For an indefinite-delivery contract, a basic ordering
agreement or a similar ordering instrument, the contracting officer
expects the aggregate value of orders or contracts to exceed the
simplified acquisition threshold.
3. Amend section 32.106 in the introductory paragraph by removing
``shall'' and adding ``must'' in its place; and by revising paragraphs
(a) and (b) to read as follows:
32.106 Order of preference.
* * * * *
(a) Private financing without Government guarantee. It is not
intended, however, that the contracting officer require the contractor
to obtain private financing--
(1) At unreasonable terms; or
(2) From other agencies.
(b) Customary contract financing other than loan guarantees and
certain advance payments (see 32.113).
* * * * *
4. Add section 32.110 to read as follows:
32.110 Payment of subcontractors under cost-reimbursement prime
contracts.
If the contractor makes financing payments to a subcontractor under
a cost-reimbursement prime contract, the contracting officer should
accept the financing payments as reimbursable costs of the prime
contract only under the following conditions:
(a) The payments are made under the criteria in subpart 32.5 for
customary progress payments based on costs, 32.202-1 for commercial
item purchase financing, or 32.1003 for performance-based payments, as
applicable.
(b) If customary progress payments are made, the payments do not
exceed the progress payment rate in 32.501-1, unless unusual progress
payments to the subcontractor have been approved in accordance with
32.501-2.
(c) If customary progress payments are made, the subcontractor
complies with the liquidation principles of 32.503-8, 32.503-9, and
32.503-10.
(d) If performance-based payments are made, the subcontractor
complies with the liquidation principles of 32.1004(d).
(e) The subcontract contains financing payments terms as prescribed
in this part.
5. Revise the section heading at 32.112 to read as follows:
32.112 Nonpayment of subcontractors under contracts for noncommercial
items.
* * * * *
6. Revise section 32.113 to read as follows:
32.113 Customary contract financing.
The solicitation must specify the customary contract financing
offerors may propose. The following are customary contract financing
when provided in accordance with this part and agency regulations:
(a) Financing of shipbuilding, or ship conversion, alteration, or
repair, when agency regulations provide for progress payments based on
a percentage or stage of completion.
(b) Financing of construction or architect-engineer services
purchased under the authority of part 36.
(c) Financing of contracts for supplies or services awarded under
the sealed bid method of procurement in accordance with part 14 through
progress payments based on costs in accordance with subpart 32.5.
(d) Financing of contracts for supplies or services awarded under
the competitive negotiation method of procurement in accordance with
part 15, through either progress payments based on costs in accordance
with subpart 32.5, or performance-based payments in accordance with
subpart 32.10 (but not both).
(e) Financing of contracts for supplies or services awarded under a
sole-source acquisition as defined in part 6 and using the procedures
of part 15, through either progress payments based on costs in
accordance with subpart 32.5, or performance-based payments in
accordance with subpart 32.10 (but not both).
(f) Financing of contracts for supplies or services through advance
payments in accordance with subpart 32.4.
(g) Financing of contracts for supplies or services through
guaranteed loans in accordance with subpart 32.3.
(h) Financing of contracts for supplies or services through any
appropriate combination of advance payments, guaranteed loans, and
either performance-based payments or progress payments (but not both)
in accordance with their respective subparts.
7. Amend section 32.205 in the introductory text of paragraph (b)
by removing ``shall'' each time it is used (twice) and adding ``must''
in its place; and by revising the first sentence of paragraph (c)(4) to
read as follows:
32.205 Procedures for offeror-proposed commercial contract financing.
* * * * *
(c) * * *
(4) The contracting officer must calculate the time value of
proposal-specified contract financing arrangements using as the
interest rate the nominal discount rate specified in Appendix C of the
Office of Management and Budget (OMB) Circular A-94, ``Guidelines and
Discount Rates for Benefit-Cost Analysis of Federal Programs'',
appropriate to the period of contract financing. * * *
8. Amend section 32.500 by revising paragraph (a) to read as
follows:
32.500 Scope of subpart.
* * * * *
(a) Payments under cost-reimbursement contracts, but see 32.110 for
progress payments made to subcontractors under cost-reimbursement prime
contracts; or
* * * * *
9. Revise section 32.501-1 to read as follows:
32.501-1 Customary progress payment rates.
(a) The customary progress payment rate is 80 percent, applicable
to the total
[[Page 16280]]
costs of performing the contract. The customary rate for contracts with
small business concerns is 85 percent.
(b) The contracting officer must--
(1) Consider any rate higher than those permitted in paragraph (a)
of this section an unusual progress payment; and
(2) Not include a higher rate in a contract unless advance agency
approval is obtained as prescribed in 32.501-2.
(c) When advance payments and progress payments are authorized
under the same contract, the contracting officer must not authorize a
progress payment rate higher than the customary rate.
(d) In accordance with 10 U.S.C. 2307(e)(2) and 41 U.S.C. 255, the
limit for progress payments is 80 percent on work accomplished under
undefinitized contract actions. The contracting officer must not
authorize a higher rate under unusual progress payments or other
customary progress payments for the undefinitized actions.
10. Revise section 32.502-1 to read as follows:
32.502-1 Use of customary progress payments.
The contracting officer may use a Progress Payments clause in
solicitations and contracts, in accordance with this subpart. The
contracting officer must reject as nonresponsive bids conditioned on
progress payments when the solicitation did not provide for progress
payments.
11. Revise section 32.502-4 to read as follows:
32.502-4 Contract clauses.
(a)(1) Insert the clause at 52.232-16, Progress Payments, in--
(i) Solicitations that may result in contracts providing for
progress payments based on costs; and
(ii) Fixed-price contracts under which the Government will provide
progress payments based on costs.
(2) If advance agency approval has been given in accordance with
32.501-1, the contracting officer may substitute a different customary
rate for other than small business concerns for the progress payment
and liquidation rate indicated.
(3) If an unusual progress payment rate is approved for the prime
contractor (see 32.501-2), substitute the approved rate for the
customary rate in paragraphs (a)(1), (a)(5), and (b) of the clause.
(4) If the liquidation rate is changed from the customary progress
payment rate (see 32.503-8 and 32.503-9), substitute the new rate for
the rate in paragraphs (a)(1), (a)(5), and (b) of the clause.
(5) If an unusual progress payment rate is approved for a
subcontract (see 32.504(c) and 32.501-2), modify paragraph (j)(6) of
the clause to specify the new rate, the name of the subcontractor, and
that the new rate shall be used for that subcontractor in lieu of the
customary rate.
(b) If the contractor is a small business concern, use the clause
with its Alternate I.
(c) If the contract is a letter contract, use the clause with its
Alternate II.
(d) If the contractor is not a small business concern, and progress
payments are authorized under an indefinite-delivery contract, basic
ordering agreement, or their equivalent, use the clause with its
Alternate III.
(e) If the nature of the contract necessitates separate progress
payment rates for portions of work that are clearly severable and
accounting segregation would be maintained (e.g., annual production
requirements), describe the application of separate progress payment
rates in a supplementary special provision within the contract. The
contractor must submit separate progress payment requests and
subsequent invoices for the severable portions of work in order to
maintain accounting integrity.
12. Revise section 32.503-1 to read as follows:
32.503-1 Contractor requests.
Each contractor request for progress payment must--
(a) Be submitted on Standard Form 1443, Contractor's Request for
Progress Payment, in accordance with the form instructions and the
contract terms;
(b) Include any additional information reasonably requested by the
contracting officer; and
(c) Be $2,500 or more, unless agency procedures authorize a lower
amount.
13. Amend section 32.503-5 by revising paragraph (c) to read as
follows:
32.503-5 Administration of progress payments.
* * * * *
(c) Under indefinite-delivery contracts, the contracting officer
should administer progress payments made under each individual order as
if the order constituted a separate contract, unless agency procedures
provide otherwise.
14. Amend section 32.503-6 in paragraph (e)(3) by removing
``paragraph (a)(2)'' and adding ``paragraph (a)(3)'' in its place; and
by revising paragraphs (f) and (g)(4) to read as follows:
32.503-6 Suspension or reduction of payments.
* * * * *
(f) Fair value of undelivered work. Progress payments must be
commensurate with the fair value of work accomplished in accordance
with contract requirements. Governed by the principles of paragraphs
(c) and (e) of this subsection, the contracting officer must adjust
progress payments when necessary to ensure that the fair value of
undelivered work equals or exceeds the amount of unliquidated progress
payments. On loss contracts, the application of a loss ratio as
described in paragraph (g) of this subsection constitutes this
adjustment.
(g) * * *
(4) The following is an example of the supplementary analysis
required in paragraph (g)(3) of this subsection:
Section I
Contract price.......................................... $2,850,000
Change orders and unpriced orders (to extent funds have 150,000
been obligated)........................................
Revised contract price.................................. 3,000,000
Section II
Total costs incurred to date............................ 2,700,000
Estimated additional costs to complete.................. 900,000
Total costs to complete................................. 3,600,000
[GRAPHIC] [TIFF OMITTED] TR27MR00.000
Total costs eligible for progress payments.............. 2,700,000
Loss ratio factor....................................... x 83.3%
Recognized costs for progress payments.................. 2,249,100
Progress payment rate................................... x 80.0%
Alternate amount to be used............................. 1,799,280
Section III
Factored costs of items delivered*...................... 750,000
Recognized costs applicable to undelivered items 1,499,100
($2,249,100-750,000)...................................
* This amount must be the same as the contract price of the items
delivered.
32.503-7 [Reserved]
15. Remove and reserve section 32.503-7.
16. Revise section 32.503-8 to read as follows:
32.503-8 Liquidation rates--ordinary method.
The Government recoups progress payments through the deduction of
liquidations from payments that would otherwise be due to the
contractor for completed contract items. To determine the amount of the
liquidation, the contracting officer applies a liquidation rate to the
contract price of contract
[[Page 16281]]
items delivered and accepted. The ordinary method is that the
liquidation rate is the same as the progress payment rate. At the
beginning of a contract, the contracting officer must use this method.
17. Amend section 32.503-10 in the introductory text of paragraph
(a) by removing ``shall'' and adding ``must'' in its place; by revising
paragraph (b)(1); in paragraph (b)(2) by removing ``shall'' and adding
``must'' in its place; and by revising paragraph (b)(3) to read as
follows:
32.503-10 Establishing alternate liquidation rates.
* * * * *
(b) * * *
(1) The contracting officer must compute the expected progress
payments by multiplying the estimated cost of performing the contract
by the progress payment rate.
* * * * *
(3) The following are examples of the computation. Assuming an
estimated price of $2,200,000 and total estimated costs eligible for
progress payments of $2,000,000:
(i) If the progress payment rate is 80 percent, the minimum
liquidation rate should be 72.7 percent, computed as follows:
[GRAPHIC] [TIFF OMITTED] TR27MR00.001
(ii) If the progress payment rate is 85 percent, the minimum
liquidation rate should be 77.3 percent, computed as follows:
[GRAPHIC] [TIFF OMITTED] TR27MR00.002
* * * * *
32.503-13 [Reserved]
18. Remove and reserve section 32.503-13.
19. Revise the section heading and text of section 32.504 to read
as follows:
32.504 Subcontracts under prime contracts providing progress payments.
(a) Subcontracts may include either performance-based payments,
provided they meet the criteria in 32.1003, or progress payments,
provided they meet the criteria in subpart 32.5 for customary progress
payments, but not both. Subcontracts for commercial purchases may
include commercial item purchase financing terms, provided they meet
the criteria in 32.202-1.
(b) The contractor's requests for progress payments may include the
full amount of commercial item purchase financing payments,
performance-based payments, or progress payments to a subcontractor,
whether paid or unpaid, provided that unpaid amounts are limited to
amounts that the contractor will pay--
(1) In accordance with the terms and conditions of a subcontract or
invoice; and
(2) Ordinarily prior to the submission of the contractor's next
progress payment request to the Government.
(c) If the contractor is considering making unusual progress
payments to a subcontractor, the parties will be guided by the policies
in 32.501-2. If the Government approves unusual progress payments for
the subcontract, the contracting officer must issue a contract
modification to specify the new rate in paragraph (j)(6) of the clause
at 52.232-16, Progress Payments, in the prime contract. This will allow
the contractor to include the progress payments to the subcontractor in
the cost basis for progress payments by the Government. This
modification is not a deviation and does not require the clearance
prescribed in 32.502-2(b).
(d) The contractor has a duty to ensure that financing payments to
subcontractors conform to the standards and principles prescribed in
paragraph (j) of the Progress Payments clause in the prime contract.
Although the contracting officer should, to the extent appropriate,
review the subcontract as part of the overall administration of
progress payments in the prime contract, there is no special
requirement for contracting officer review or consent merely because
the subcontract includes financing payments, except as provided in
paragraph (c) of this section. However, the contracting officer must
ensure that the contractor has installed the necessary management
control systems, including internal audit procedures.
(e) When financing payments are in the form of progress payments,
the Progress Payments clause at 52.232-16 requires that the subcontract
include the substance of the Progress Payments clause in the prime
contract, modified to indicate that the contractor, not the Government,
awards the subcontract and administers the progress payments. The
following exceptions apply to wording modifications:
(1) The subcontract terms on title to property under progress
payments shall provide for vesting of title in the Government, not the
contractor, as in paragraph (d) of the Progress Payments clause in the
prime contract. A reference to the contractor may, however, be
substituted for ``Government'' in paragraph (d)(2)(iv) of the clause.
(2) In the subcontract terms on reports and access to records, the
contractor shall not delete the references to ``Contracting Officer''
and ``Government'' in adapting paragraph (g) of the Progress Payments
clause in the contract, but may expand the terms as follows:
(i) The term ``Contracting Officer'' may be changed to
``Contracting Officer or Prime Contractor.''
(ii) The term ``the Government'' may be changed to ``the Government
or Prime Contractor.''
(3) The subcontract special terms regarding default shall include
paragraph (h) of the Progress Payments clause in the contract through
its subdivision (i). The rest of paragraph (h) is optional.
(f) When financing payments are in the form of performance-based
payments, the Performance-Based Payments clause at 52.232-32 requires
that the subcontract terms include the substance of the Performance-
Based Payments clause, modified to indicate that the contractor, not
the Government, awards the subcontract and administers the performance-
based payments, and include appropriately worded modifications similar
to those noted in paragraph (e) of this section.
(g) When financing payments are in the form of commercial item
purchase financing, the subcontract must include a contract financing
clause structured in accordance with 32.206.
20. Amend section 32.1000--
a. In the introductory paragraph by removing the word ``non-
commercial'' and adding ``noncommercial'' in its place;
b. At the end of paragraph (b) by adding ``or'' after the
semicolon;
c. By removing paragraph (c) and redesignating paragraph
(d) as paragraph (c); and
d. By revising newly designated (c) to read as follows:
32.1000 Scope of subpart.
* * * * *
(c) Contracts awarded through sealed bid procedures.
21. Revise section 32.1001 to read as follows:
32.1001 Policy.
(a) Performance-based payments are the preferred Government
financing method when the contracting officer finds them practical, and
the contractor agrees to their use.
(b) Performance-based payments are contract financing payments that
are not payment for accepted items.
(c) Performance-based payments are fully recoverable, in the same
manner as
[[Page 16282]]
progress payments, in the event of default. Except as provided in
32.1003(c), the contracting officer must not use performance-based
payments when other forms of contract financing are provided.
(d) For Government accounting purposes, the Government should treat
performance-based payments like progress payments based on costs under
subpart 32.5.
(e) Performance-based payments are contract financing payments and,
therefore, are not subject to the interest-penalty provisions of prompt
payment (see subpart 32.9). However, each agency must make these
payments in accordance with the agency's policy for prompt payment of
contract financing payments.
32.1003 [Amended]
22. Amend section 32.1003 in paragraph (b) by removing ``(but see
32.1005(b))''.
23. Revise the section headings and text of sections 32.1004 and
32.1005 to read as follows:
32.1004 Procedures.
Performance-based payments may be made either on a whole contract
or on a deliverable item basis, unless otherwise prescribed by agency
regulations. Financing payments to be made on a whole contract basis
are applicable to the entire contract, and not to specific deliverable
items. Financing payments to be made on a deliverable item basis are
applicable to a specific individual deliverable item. (A deliverable
item for these purposes is a separate item with a distinct unit price.
Thus, a contract line item for 10 airplanes, with a unit price of
$1,000,000 each, has 10 deliverable items--the separate planes. A
contract line item for 1 lot of 10 airplanes, with a lot price of
$10,000,000, has only one deliverable item--the lot.)
(a) Establishing performance bases. (1) The basis for performance-
based payments may be either specifically described events (e.g.,
milestones) or some measurable criterion of performance. Each event or
performance criterion that will trigger a finance payment must be an
integral and necessary part of contract performance and must be
identified in the contract, along with a description of what
constitutes successful performance of the event or attainment of the
performance criterion. The signing of contracts or modifications, the
exercise of options, or other such actions must not be events or
criteria for performance-based payments. An event need not be a
critical event in order to trigger a payment, but the Government must
be able to readily verify successful performance of each such event or
performance criterion.
(2) Events or criteria may be either severable or cumulative. The
successful completion of a severable event or criterion is independent
of the accomplishment of any other event or criterion. Conversely, the
successful accomplishment of a cumulative event or criterion is
dependent upon the previous accomplishment of another event. A contract
may provide for more than one series of severable and/or cumulative
performance events or criteria performed in parallel. The contracting
officer must include the following in the contract:
(i) The contract must not permit payment for a cumulative event or
criterion until the dependent event or criterion has been successfully
completed.
(ii) The contract must specifically identify severable events or
criteria.
(iii) The contract must identify which events or criteria are
preconditions for the successful achievement of each cumulative event
or criterion.
(iv) Because performance-based payments are contract financing,
events or criteria must not serve as a vehicle to reward the contractor
for completion of performance levels over and above what is required
for successful completion of the contract.
(v) If payment of performance-based finance amounts is on a
deliverable item basis, each event or performance criterion must be
part of the performance necessary for that deliverable item and must be
identified to a specific contract line item or subline item.
(b) Establishing performance-based finance payment amounts. (1) The
contracting officer must establish a complete, fully defined schedule
of events or performance criteria and payment amounts when negotiating
contract terms. If a contract action significantly affects the price,
or event or performance criterion, the contracting officer responsible
for pricing the contract modification must adjust the performance-based
payment schedule appropriately.
(2) Total performance-based payments must--
(i) Reflect prudent contract financing provided only to the extent
needed for contract performance (see 32.104(a)); and
(ii) Not exceed 90 percent of the contract price if on a whole
contract basis, or 90 percent of the delivery item price if on a
delivery item basis.
(3) The contract must specifically state the amount of each
performance-based payment either as a dollar amount or as a percentage
of a specifically identified price (e.g., contract price, or unit price
of the deliverable item). The payment of contract financing has a cost
to the Government in terms of interest paid by the Treasury to borrow
funds to make the payment. Because the contracting officer has wide
discretion as to the timing and amount of the performance-based
payments, the contracting officer must ensure that--
(i) The total contract price is fair and reasonable, all factors
considered; and
(ii) Performance-based payment amounts are commensurate with the
value of the performance event or performance criterion, and are not
expected to result in an unreasonably low or negative level of
contractor investment in the contract. To confirm sufficient
investment, the contracting officer may request expenditure profile
information from offerors, but only if other information in the
proposal, or information otherwise available to the contracting
officer, is expected to be insufficient.
(4) Unless agency procedures prescribe the bases for establishing
performance-based payment amounts, contracting officers may establish
them on any rational basis, including (but not limited to)--
(i) Engineering estimates of stages of completion;
(ii) Engineering estimates of hours or other measures of effort to
be expended in performance of an event or achievement of a performance
criterion; or
(iii) The estimated projected cost of performance of particular
events.
(5) When subsequent contract modifications are issued, the
contracting officer must adjust the performance-based payment schedule
as necessary to reflect the actions required by those contract
modifications.
(c) Instructions for multiple appropriations. If there is more than
one appropriation account (or subaccount) funding payments on the
contract, the contracting officer must provide instructions to the
Government payment office for distribution of financing payments to the
respective funds accounts. Distribution instructions must be consistent
with the contract's liquidation provisions.
(d) Liquidating performance-based finance payments. Performance-
based amounts must be liquidated by deducting a percentage or a
designated dollar amount from the delivery payments. The contracting
officer must specify the liquidation rate or
[[Page 16283]]
designated dollar amount in the contract. The method of liquidation
must ensure complete liquidation no later than final payment.
(1) If the contracting officer establishes the performance-based
payments on a delivery item basis, the liquidation amount for each line
item is the percent of that delivery item price that was previously
paid under performance-based finance payments or the designated dollar
amount.
(2) If the performance-based finance payments are on a whole
contract basis, liquidation is by predesignated liquidation amounts or
liquidation percentages.
(e) Competitive negotiated solicitations. (1) If a solicitation
requests offerors to propose performance-based payments, the
solicitation must specify--
(i) What, if any, terms must be included in all offers; and
(ii) The extent to which and how offeror-proposed performance-based
payment terms will be evaluated. Unless agencies prescribe other
evaluation procedures, if the contracting officer anticipates that the
cost of providing performance-based payments would have a significant
impact on determining the best value offer, the solicitation should
include an adjustment of proposed prices to reflect the estimated cost
to the Government of providing each offeror's proposed performance-
based payments (see Alternate I to the provision at 52.232-28).
(2) The contracting officer must--
(i) Review the proposed terms to ensure they comply with this
section; and
(ii) Use the adjustment method in 32.205(c) if the price is to be
adjusted for evaluation purposes in accordance with paragraph
(e)(1)(ii) of this section.
32.1005 Solicitation provision and contract clause.
(a) Insert the clause at 52.232-32, Performance-Based Payments,
with the description of the basis for payment and liquidation as
required in 32.1004 in--
(1) Solicitations that may result in contracts providing for
performance-based payments; and
(2) Fixed-price contracts under which the Government will provide
performance-based payments.
(b)(1) Insert the solicitation provision at 52.232-28, Invitation
to Propose Performance-Based Payments, in negotiated solicitations that
invite offerors to propose performance-based payments.
(2) Use the provision with its Alternate I in competitive
negotiated solicitations if the Government intends to adjust proposed
prices for proposal evaluation purposes (see 32.1004(e)).
32.1006 [Removed and Reserved]
24. Remove and reserve section 32.1006.
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
25. Amend section 52.216-7 by--
a. Revising the date of the clause;
b. In the introductory text of paragraph (b)(1) by removing
``subparagraph (2) below'' and adding ``paragraph (b)(2) of the
clause'' in its place;
c. Redesignating paragraphs (b)(1)(ii)(A) through (b)(1)(ii)(E) as
(b)(1)(ii)(B) through (b)(1)(ii)(F);
d. Adding a new paragraph (b)(1)(ii)(A); and
e. Revising paragraphs (b)(1)(iii), (b)(2), and (c) to read as
follows:
52.216-7 Allowable Cost and Payment.
* * * * *
ALLOWABLE COST AND PAYMENT (MAR 2000)
* * * * *
(b) * * *
(1) * * *
(ii) * * *
(A) Supplies and services purchased directly for the contract
and associated financing payments to subcontractors, provided
payments will be made--
(1) In accordance with the terms and conditions of a subcontract
or invoice; and
(2) Ordinarily prior to the submission of the Contractor's next
payment request to the Government;
* * * * *
(iii) The amount of financing payments that have been paid by
cash, check, or other forms of payment to subcontractors.
(2) Accrued costs of Contractor contributions under employee
pension plans shall be excluded until actually paid unless--
(i) The Contractor's practice is to make contributions to the
retirement fund quarterly or more frequently; and
(ii) The contribution does not remain unpaid 30 days after the
end of the applicable quarter or shorter payment period (any
contribution remaining unpaid shall be excluded from the
Contractor's indirect costs for payment purposes).
* * * * *
(c) Small business concerns. A small business concern may
receive more frequent payments than every 2 weeks.
* * * * *
26. Amend section 52.216-26 by--
a. Revising the introductory paragraph and the date of the clause;
b. Removing ``shall'' and adding ``will'' in the introductory text
of paragraph (a) of the clause; and
c. Revising paragraphs (a)(1), (d)(2), (d)(3), and (e) of the
clause to read as follows:
52.216-26 Payments of Allowable Costs Before Definitization.
As prescribed in 16.603-4(c), insert the following clause:
PAYMENTS OF ALLOWABLE COSTS BEFORE DEFINITIZATION (MAR 2000)
* * * * *
(a) * * *
(1) One hundred percent of approved costs representing financing
payments to subcontractors under fixed-price subcontracts, provided
that the Government's payments to the Contractor will not exceed 80
percent of the allowable costs of those subcontractors.
* * * * *
(d) * * *
(2) When the Contractor is not delinquent in payment of costs of
contract performance in the ordinary course of business, costs
incurred, but not necessarily paid, for--
(i) Supplies and services purchased directly for the contract,
provided payments will be made--
(A) In accordance with the terms and conditions of a subcontract
or invoice; and
(B) Ordinarily prior to the submission of the Contractor's next
payment request to the Government;
(ii) Materials issued from the Contractor's stores inventory and
placed in the production process for use on the contract;
(iii) Direct labor;
(iv) Direct travel;
(v) Other direct in-house costs; and
(vi) Properly allocable and allowable indirect costs as shown on
the records maintained by the Contractor for purposes of obtaining
reimbursement under Government contracts; and
(3) The amount of financing payments that the Contractor has
paid by cash, check, or other forms of payment to subcontractors.
(e) Small business concerns. A small business concern may
receive more frequent payments than every 2 weeks.
* * * * *
27. Amend section 52.232-7 by revising the date of the clause; in
the introductory paragraph by removing ``shall'' and adding ``will'' in
its place; and by revising paragraph (b) and Alternate I of the clause
to read as follows:
52.232-7 Payments under Time-and-Materials and Labor-Hour Contracts.
* * * * *
PAYMENTS UNDER TIME-AND-MATERIALS AND LABOR-HOUR CONTRACTS (MAR 2000)
* * * * *
(b) Materials and subcontracts. (1) The Contracting Officer will
determine allowable costs of direct materials in accordance with
Subpart 31.2 of the Federal Acquisition Regulation (FAR) in effect
on the date of this contract. Direct materials, as used in this
clause, are those materials that enter directly
[[Page 16284]]
into the end product, or that are used or consumed directly in
connection with the furnishing of the end product.
(2) The Contractor may include reasonable and allocable material
handling costs in the charge for material to the extent they are
clearly excluded from the hourly rate. Material handling costs are
comprised of indirect costs, including, when appropriate, general
and administrative expense allocated to direct materials in
accordance with the Contractor's usual accounting practices
consistent with Subpart 31.2 of the FAR.
(3) The Government will reimburse the Contractor for items and
services purchased directly for the contract only when payments of
cash, checks, or other forms of payment have been made for such
purchased items or services.
(4)(i) The Government will reimburse the Contractor for costs of
subcontracts that are authorized under the subcontracts clause of
this contract, provided that the costs are consistent with paragraph
(b)(5) of this clause.
(ii) The Government will limit reimbursable costs in connection
with subcontracts to the amounts paid for items and services
purchased directly for the contract only when the Contractor has
made or will make payments of cash, checks, or other forms of
payment to the subcontractor--
(A) In accordance with the terms and conditions of a subcontract
or invoice; and
(B) Ordinarily prior to the submission of the Contractor's next
payment request to the Government.
(iii) The Government will not reimburse the Contractor for any
costs arising from the letting, administration, or supervision of
performance of the subcontract, if the costs are included in the
hourly rates payable under paragraph (a)(1) of this clause.
(5) To the extent able, the Contractor shall--
(i) Obtain materials at the most advantageous prices available
with due regard to securing prompt delivery of satisfactory
materials; and
(ii) Take all cash and trade discounts, rebates, allowances,
credits, salvage, commissions, and other benefits. When unable to
take advantage of the benefits, the Contractor shall promptly notify
the Contracting Officer and give the reasons. The Contractor shall
give credit to the Government for cash and trade discounts, rebates,
scrap, commissions, and other amounts that have accrued to the
benefit of the Contractor, or would have accrued except for the
fault or neglect of the Contractor. The Contractor shall not deduct
from gross costs the benefits lost without fault or neglect on the
part of the Contractor, or lost through fault of the Government.
* * * * *
(End of clause)
Alternate I (Mar 2000). If the nature of the work to be
performed requires the Contractor to furnish material that the
Contractor regularly sells to the general public in the normal
course of business, and the price is under the limitations
prescribed in 16.601(b)(3), add the following paragraph (6) to
paragraph (b) of the basic clause:
(b)(6) If the nature of the work to be performed requires the
Contractor to furnish material that the Contractor regularly sells
to the general public in the normal course of business, the price to
be paid for such material, notwithstanding the other requirements of
this paragraph (b), shall be on the basis of an established catalog
or list price, in effect when the material is furnished, less all
applicable discounts to the Government, provided that in no event
shall such price be in excess of the Contractor's sales price to its
most favored customer for the same item in like quantity, or the
current market price, whichever is lower.
* * * * *
28. Amend section 52.232-16 by--
a. Removing the introductory text, consisting of paragraphs (a)
through (e) and adding in its place a prescription;
b. Revising the date of the clause;
c. Revising the introductory text of the clause;
d. Revising paragraphs (a)(1) and (a)(2) of the clause;
e. Redesignating paragraphs (a)(3) through (a)(6) of the clause as
(a)(4) through (a)(7) and adding new paragraphs (a)(3) and (a)(8);
f. Revising the introductory text of newly redesignated paragraph
(a)(4);
g. Revising paragraph (j) of the clause; and
h. Revising Alternate I and adding Alternate III to read as
follows:
52.232-16 Progress Payments.
As prescribed in 32.502-4(a), insert the following clause:
PROGRESS PAYMENTS (MAR 2000)
The Government will make progress payments to the Contractor
when requested as work progresses, but not more frequently than
monthly, in amounts of $2,500 or more approved by the Contracting
Officer, under the following conditions:
(a) Computation of amounts. (1) Unless the Contractor requests a
smaller amount, the Government will compute each progress payment as
80 percent of the Contractor's total costs incurred under this
contract whether or not actually paid, plus financing payments to
subcontractors (see paragraph (j) of this clause), less the sum of
all previous progress payments made by the Government under this
contract. The Contracting Officer will consider cost of money that
would be allowable under FAR 31.205-10 as an incurred cost for
progress payment purposes.
(2) The amount of financing and other payments for supplies and
services purchased directly for the contract are limited to the
amounts that have been paid by cash, check, or other forms of
payment, or that will be paid to subcontractors--
(i) In accordance with the terms and conditions of a subcontract
or invoice; and
(ii) Ordinarily prior to the submission of the Contractor's next
payment request to the Government.
(3) The Government will exclude accrued costs of Contractor
contributions under employee pension plans until actually paid
unless--
(i) The Contractor's practice is to make contributions to the
retirement fund quarterly or more frequently; and
(ii) The contribution does not remain unpaid 30 days after the
end of the applicable quarter or shorter payment period (any
contribution remaining unpaid shall be excluded from the
Contractor's total costs for progress payments until paid).
(4) The Contractor shall not include the following in total
costs for progress payment purposes in paragraph (a)(1) of this
clause:
* * * * *
(8) Notwithstanding any other terms of the contract, the
Contractor agrees not to request progress payments in dollar amounts
of less than $2,500. The Contracting Officer may make exceptions.
* * * * *
(j) Financing payments to subcontractors. The financing payments
to subcontractors mentioned in paragraphs (a)(1) and (a)(2) of this
clause shall be all financing payments to subcontractors or
divisions, if the following conditions are met:
(1) The amounts included are limited to--
(i) The unliquidated remainder of financing payments made; plus
(ii) Any unpaid subcontractor requests for financing payments.
(2) The subcontract or interdivisional order is expected to
involve a minimum of approximately 6 months between the beginning of
work and the first delivery; or, if the subcontractor is a small
business concern, 4 months.
(3) If the financing payments are in the form of progress
payments, the terms of the subcontract or interdivisional order
concerning progress payments--
(i) Are substantially similar to the terms of this clause for
any subcontractor that is a large business concern, or this clause
with its Alternate I for any subcontractor that is a small business
concern;
(ii) Are at least as favorable to the Government as the terms of
this clause;
(iii) Are not more favorable to the subcontractor or division
than the terms of this clause are to the Contractor;
(iv) Are in conformance with the requirements of FAR 32.504(e);
and
(v) Subordinate all subcontractor rights concerning property to
which the Government has title under the subcontract to the
Government's right to require delivery of the property to the
Government if--
(A) The Contractor defaults; or
(B) The subcontractor becomes bankrupt or insolvent.
(4) If the financing payments are in the form of performance-
based payments, the terms of the subcontract or interdivisional
order concerning payments--
(i) Are substantially similar to the Performance-Based Payments
clause at FAR 52.232-32 and meet the criteria for, and definition
of, performance-based payments in FAR Part 32;
(ii) Are in conformance with the requirements of FAR 32.504(f);
and
(iii) Subordinate all subcontractor rights concerning property
to which the Government has title under the subcontract to the
Government's right to require delivery of the property to the
Government if--
[[Page 16285]]
(A) The Contractor defaults; or
(B) The subcontractor becomes bankrupt or insolvent.
(5) If the financing payments are in the form of commercial item
financing payments, the terms of the subcontract or interdivisional
order concerning payments--
(i) Are constructed in accordance with FAR 32.206(c) and
included in a subcontract for a commercial item purchase that meets
the definition and standards for acquisition of commercial items in
FAR Parts 2 and 12;
(ii) Are in conformance with the requirements of FAR 32.504(g);
and
(iii) Subordinate all subcontractor rights concerning property
to which the Government has title under the subcontract to the
Government's right to require delivery of the property to the
Government if--
(A) The Contractor defaults; or
(B) The subcontractor becomes bankrupt or insolvent.
(6) If financing is in the form of progress payments, the
progress payment rate in the subcontract is the customary rate used
by the contracting agency, depending on whether the subcontractor is
or is not a small business concern.
(7) Concerning any proceeds received by the Government for
property to which title has vested in the Government under the
subcontract terms, the parties agree that the proceeds shall be
applied to reducing any unliquidated financing payments by the
Government to the Contractor under this contract.
(8) If no unliquidated financing payments to the Contractor
remain, but there are unliquidated financing payments that the
Contractor has made to any subcontractor, the Contractor shall be
subrogated to all the rights the Government obtained through the
terms required by this clause to be in any subcontract, as if all
such rights had been assigned and transferred to the Contractor.
(9) To facilitate small business participation in subcontracting
under this contract, the Contractor shall provide financing payments
to small business concerns, in conformity with the standards for
customary contract financing payments stated in FAR 32.113. The
Contractor shall not consider the need for such financing payments
as a handicap or adverse factor in the award of subcontracts.
* * * * *
(End of clause)
Alternate I (Mar 2000). If the contract is with a small business
concern, change each mention of the progress payment and liquidation
rates excepting paragraph (k) to the customary rate of 85 percent
for small business concerns (see FAR 32.501-1).
* * * * *
Alternate III (Mar 2000). As prescribed in 32.502-4(d), add the
following paragraph (l) to the basic clause. If Alternate II is also
being used, redesignate the following paragraph as paragraph (n):
(l) The provisions of this clause will not be applicable to
individual orders at or below the simplified acquisition threshold.
29. Add section 52.232-28 to read as follows:
52.232-28 Invitation to Propose Performance-Based Payments.
As prescribed in 32.1005(b)(1), insert the following provision:
Invitation to Propose Performance-Based Payments (Mar 2000)
(a) The Government invites the offeror to propose terms under
which the Government will make performance-based contract financing
payments during contract performance. The Government will consider
performance-based payment financing terms proposed by the offeror in
the evaluation of the offeror's proposal. The Contracting Officer
will incorporate the financing terms of the successful offeror and
the FAR clause, Performance-Based Payments, at FAR 52.232-32, in any
resulting contract.
(b) In the event of any conflict between the terms proposed by
the offeror and the terms in the clause at FAR 52.232-32,
Performance-Based Payments, the terms of the clause at FAR 52.232-32
shall govern.
(c) The Contracting Officer will not accept the offeror's
proposed performance-based payment financing if the financing does
not conform to the following limitations:
(1) The Government will make delivery payments only for supplies
delivered and accepted, or services rendered and accepted in
accordance with the payment terms of this contract.
(2) The terms and conditions of the performance-based payments
must--
(i) Comply with FAR 32.1004;
(ii) Be reasonable and consistent with all other technical and
cost information included in the offeror's proposal; and
(iii) Their total shall not exceed 90 percent of the contract
price if on a whole contract basis, or 90 percent of the delivery
item price if on a delivery item basis.
(3) The terms and conditions of the performance-based financing
must be in the best interests of the Government.
(d) The offeror's proposal of performance-based payment
financing shall include the following:
(1) The proposed contractual language describing the
performance-based payments (see FAR 32.1004 for appropriate criteria
for establishing performance bases and performance-based finance
payment amounts).
(2) A listing of--
(i) The projected performance-based payment dates and the
projected payment amounts; and
(ii) The projected delivery date and the projected payment
amount.
(3) Information addressing the Contractor's investment in the
contract.
(e) Evaluation of the offeror's proposed prices and financing
terms will include whether the offeror's proposed performance-based
payment events and payment amounts are reasonable and consistent
with all other terms and conditions of the offeror's proposal.
(End of provision)
Alternate I (Mar 2000). As prescribed in FAR 32.1005(b)(2), add
the following paragraph (f) to the basic provision:
(f) The Government will adjust each proposed price to reflect
the cost of providing the proposed performance-based payments to
determine the total cost to the Government of that particular
combination of price and performance-based financing. The Government
will make the adjustment using the procedure described in FAR
32.205(c).
[FR Doc. 00-7309 Filed 3-24-00; 8:45 am]
BILLING CODE 6820-EP-U