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By
anon2
on Monday, January 29, 2001 - 07:44 am:
Progress Payments - What are the bases for making them? I am
not necessarily limiting my question to what the FAR states is
the proper time to use them. I am thinking more along the lines
of -- Should there be a deliverable associated with the payment?
Shouldn't it be based on the unit of order, such as -- each,
hours, Lot, days. Hope this makes enough sense to convey my
thoughts. In the past, I had been taught, you must associate an
invoice payment with a deliverable of some type. Any help you
can give is appreciated.
By
joel hoffman
on Monday, January 29, 2001 - 08:51 am:
Anon - please describe the contract type - supply, services,
etc. and , e.g., cost, firm fixed-price. Thanks. Happy Sails!
joel
By
anon2
on Monday, January 29, 2001 - 09:15 am:
Fixed price on IDIQ contract
Firm fixed price on GSA Schedule contract
T&M on GSA schedule contract
Joel - If you have an opinion on any of the above, would
appreciate your input
By
joel
hoffman on Monday, January 29, 2001 - 09:23 am:
Anon2, I'm out of town but will discuss with one of my KO's,
Wednesday and will E-mail her your question. She handles these,
daily, and will know the answers. Unfortunately, she may be too
busy to handle by E-mail.
I will assume you are referring to service contracts, not
supply. Happy Sails! Joel
By
Eric
Ottinger on Monday, January 29, 2001 - 09:51 am:
Anon2,
Progress payments are to be used with fixed price contracts.
Progress payments are based on costs. However, progress payments
may be cut back if the contractor is not making progress.
Under current doctrine, milestone billings are preferred, if
practicable.
Beyond that, you need to read the contracts and the
"Progress Payment" clause. If you need help on the
mechanics, you should get in touch with your Administrative
Contracting Officer.
Eric
By
joel
hoffman on Monday, January 29, 2001 - 03:43 pm:
Dear Anon2, here is my KO's answer to your question. Hope it
helps.
Eric, she said not to base progress payments on cost in a FP
contract. As you know, T&M type would be based on units, not
"cost", except for material costs or other
incidentals, priced at some type of "cost".
Happy Sails! Joel
Here is her answer:
"Joel - it would certainly be preferable to have a
deliverable associated with a progress payment. However, in the
real world that is not possible in most cases. In the current
economy, when the cost of money is as high as it currently is,
contractors need to be reimbursed for their cash expenditures on
a fairly regular basis. In the case of a production/fabrication
effort, an end product may not be available for delivery for an
extended period of time. Progress payments would be appropriate
in that case. Service type contract efforts would be the same.
As for the "basis" for making progress payments, FAR
Part 32 provides several different methods for calculation and
liquidation of progress payments. The rate of liquidation of the
progress payment (without a deliverable) must of course be
subjective. Progress payments are not normally associated with
hours, day, lots, etc. because the billing (request for
reimbursement) is based on cost incurred prior to completion of
a product or task. Where the contract provides for performance
of a quantifiable effort or defined events, payment should be
performance based, and partial payments would be authorized in
lieu of progress payment.
Hope this helps answer the question. Emily"
By
Eric
Ottinger on Monday, January 29, 2001 - 04:04 pm:
Joel,
Please refer your KO to FAR 52.232-16 Progress Payments.
(3/2000)
"(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."
If the contractor is in a loss position (i.e. not making
progress) payments may be cut back. In this regard, payments are
tied to progress rather than cost.
Like I said, ANON2 should read the clause.
Eric
By
joel
hoffman on Monday, January 29, 2001 - 04:45 pm:
Eric, you really need to read entire messages, as well as the
rest of the FAR before getting personal with folks.
My KO was advising to structure the contract for performance
based payments, in lieu of customary "progress
payments", which are based on "cost".
Clause 52.232-16 is not for negotiated services or negotiated
supply contracts. Performance based payments for negotiated
services or supply contracts are preferred. (Emily doesn't screw
around with IFB's, so didn't provide an answer from that
perspective. Sorry about that.) If the ID/IQ is for
construction, 52.232-16 doesn't apply. If the contract is for
time and materials, I'm pretty sure that unit prices are used to
compute partial payments.
Anon, please don't flat out assume that it is always necessary
to use the clause "Progress Payments", as Eric
implies.
Actually, much confusion surrounds the loose use of the term
"progress payments."
Someone else is free to join this discussion.
Happy Sails! Joel
By
joel
hoffman on Monday, January 29, 2001 - 04:46 pm:
Eric, you really need to read entire messages, as well as the
rest of the FAR before getting personal with folks.
My KO was advising to structure the contract for performance
based payments, in lieu of customary "progress
payments", which are based on "cost".
Clause 52.232-16 is not mandatory for negotiated services or
negotiated supply contracts. Performance based payments for
negotiated services or supply contracts are preferred. (Emily
doesn't screw around with IFB's, so didn't provide an answer
from that perspective. Sorry about that.) If the ID/IQ is for
construction, 52.232-16 doesn't apply. If the contract is for
time and materials, I'm pretty sure that unit prices are used to
compute partial payments.
Anon, please don't flat out assume that it is always necessary
to use the clause "Progress Payments", as Eric
implies.
Actually, much confusion surrounds the loose use of the term
"progress payments."
Someone else is free to join this discussion.
Happy Sails! Joel
By
joel
on Monday, January 29, 2001 - 04:50 pm:
Sorry folks, I typed over the word "mandatory" in
the third paragraph of the first post.
Didn't catch it until after I pushed the trigger finger. Happy
Sails! Joel
By
C
Mercy on Tuesday, January 30, 2001 - 09:34 am:
Are you sure ANON2 that you are asking about progress
payments or partial payments? In the first two you describe you
would be governed by the terns of the GSA schedule and I cannot
think of a way they could be structured as to call for progress
payments, but I can if they were calling for partial payment.
Have I misunderstood?
By
John Ford
on Tuesday, January 30, 2001 - 10:40 am:
Joel, while it is true that progress payments based on
performance are now preferable to progress payments based on
costs, I tend to agree with Eric that your KO either doesn't
understand progress payments or does not express herself well.
In either event, I found her reply disturbing.
Progress payments, in whatever form, are a type of contract
financing for fixed price type contracts and are not subject to
the Prompt Payment Act. They are not partial payments for
supplies or services delivered. As such, no deliverable is
required for either performance based progress payments or
progress payments based on costs. If there is a deliverable, the
contractor could submit a DD 250 or other acceptance document
for that deliverable and receive partial payment of the contract
price for that deliverable. Partial payments invoice payments
and are subject to the Prompt Payment Act. Progress payments
create a debt owed to the government by the contractor. That
debt is liquidated by the contractor delivering and the
government accepting supplies or services called for by the
contract. Partial payments for deliverables do not create a debt
that is subject to liquidation. Further, either type of progress
payments are appropriate for negotiated supply or service
contracts as well as sealed bid contracts.
Turning to T&M contracts, progress payments are not utilized
on this type of contract. As work progresses, the contractor
submits interim vouchers. In this regard, T&M contracts are
similar to cost type contracts. The voucher is based on the
contract labor rate for hours expended, material costs, and
subcontractor costs.
By
Eric
Ottinger on Tuesday, January 30, 2001 - 11:07
am:
Joel and All,
I was responding to the following:
“Eric, she said not to base progress payments on cost in a FP
contract.”
Of course, progress payments under the “Progress Payments”
clause are based on cost.
I had already stated that, “Under current doctrine, milestone
billings [I should have said “performance based.”] are
preferred, if practicable.” I didn’t “flat out assume that
it is always necessary ;” I stated clearly that other methods
are preferred.
The following memo signed by Under Secretary of Defense Gansler
is apropos.
http://www.acq.osd.mil/dp/PBP.pdf
The FAR distinguishes “contract financing methods”
(including advance payments, progress payments based on cost and
progress payments based on percentage of completion) from
performance based payments.
FAR 32.1000 Scope of subpart.
“This subpart provides policy and procedures for
performance-based payments under noncommercial purchases
pursuant to subpart 32.1. This subpart does not apply to--
(a) Payments under cost-reimbursement contracts;
(b) Contracts for architect-engineer services or construction,
or for shipbuilding or ship conversion, alteration, or repair,
when the contracts provide for progress payments based upon a
percentage or stage of completion; …”
In DoD, progress payments based on percentage or stage of
completion are authorized only for “construction (as defined
in FAR 36.102 ), shipbuilding, and ship conversion, alteration,
or repair.”
DFARS 232.102 Description of contract financing methods.
“(e)(2) Progress payments based on percentage or stage of
completion are authorized only for contracts for construction
(as defined in FAR 36.102 ), shipbuilding, and ship conversion,
alteration, or repair. However, percentage or state of
completion methods of measuring contractor performance may be
used for performance-based payments in accordance with FAR
Subpart 32.10."
(I will admit that I had all of this lumped in my mind under
“milestone billings.” This was incorrect insofar as the FAR
distinguishes “performance-based payments based on percentage
or stage of completion” from “performance-based payments”
using “percentage or state of completion methods of measuring
contractor performance.”)
I think C. Mercy has the right idea. Progress Payments (and
advance payments) are essentially a loan intended to take the
place of (more expensive) commercial financing (i.e. bank
loans).
Performance based payments are more like partial payments.
Thanks John.
Joel,
I meant to be to the point. I did not intend to be personal.
Eric
By
joel
on Tuesday, January 30, 2001 - 12:28 pm:
Folks, I believe we are in overall agreement. Happy Sails!
By
anon2
on Monday, February 05, 2001 - 08:41 am:
Thanks to all, I believe you have given me sufficient information on which to
base partial or interim payments. Appreciate all input.
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