performance based payments and progress payments bryant, wilson, wheeler, lyons october 29, 2015...

Performance Based Payments And

Progress Payments

Bryant, Wilson, Wheeler , Lyons October 29, 2015 Overall Classification

Unclassified // None

Contract Financing

What is Contract Financing?•Interim payments on contracts•Disbursement prior to delivery/performance•Most common form is Progress Payments•Newest form is Performance Based Payments•Progress Payments and Performance Based Payments are only offered on fixed-priced type contracts under certain conditions.

Unclassified // None2

Progress Payments

What are Progress Payments?•A no interest “loan” or line of credit, from the Government to a Contractor to finance a specific contract•The “loan” (progress payment) is paid to the Contractor after contract specific costs have been incurred.•The collateral for the “loan" is the work in progress associated with the production of individual contract items.•Liquidation is accomplished by DFAS withhold a percentage of each contractor invoice, for that specific contract until the “loan” is paid in full.•The PCO may limit progress payments to a stated amount or percentage until the First Article is approved (FAR 32.501-5(e) (Reference (u))


Progress Payments

Progress Payments Steps: Ensure the following for Progress Payments

• 1. Ensure the payment clause 52.232-16 Progress Payments is in the contract

• 2. Ensure contractor has an approved Accounting System• 3. Determine if contract includes Foreign Military Sales (FMS)• 4. Confirm contractor is registered in Invoicing, Receipt,

Acceptance, and Property Transfer (iRAPT) and System for Award Management (SAM)


Progress Payments

FMS Progress Payments•Contract contains both US and FMS progress payments

• Use separate numbering systems• If the contract is a mixed (firm fixed price and cost type contract)

submission must be for the fixed portion only.• Supplier must identify ACRN(s) on submission if contract

contains FMS or is mixed type contract• DFARS 252.232-7002, Progress Payments for Foreign Military

Sales Acquisitions

The contractor is not required to identify the ACRN on a US firm fixed price only contracts.


Progress Payments

Progress Payments Computation•Progress payments are limited to the contract price multiplied by the applicable progress payment rate.•Progress payment rate depend on business size and clause used.•Contract price is generally the same as the obligated amount.•Contractor submits payment request using iRAPT.•Contracting Officer may limit the maximum amount of Progress Payments based on anticipated costs


Excluded Costs

• The Contractor shall not include the following in total costs for progress payment purposes in paragraph (a)(1) of this clause:• (i) Costs that are not reasonable, allocable to this contract, and

consistent with sound and generally accepted accounting principles and practices.

• (ii) Costs incurred by subcontractors or suppliers.• (iii) Costs ordinarily capitalized and subject to depreciation or

amortization except for the properly depreciated or amortized portion of such costs.

• (iv) Payments made or amounts payable to the subcontractors or suppliers, except for--

• (A) completed work, including partial deliveries, to which the Contractor has acquired title; and

• (B) Work under cost-reimbursement or time-and-material subcontracts to which the Contractor has acquired title.


Progress Payments

Progress Payments Rates

Large Business 80% (FAR 32.501-1) Small Business 90% (DFARS 252.232-7004)

Note: Small Disadvantage Businesses are not financed at a different rate (DFARS 252.232-7004)


Progress Payments

Contractor’s Evaluation•Before Authorizing the First Payment DCMA Performs a Risk Assessment and a Technical Baseline. The assessment includes:

• Adequate experience or capability in producing contracted item• Satisfactory performance record• Sufficient financial strength• Company management and exercise of sound business

judgment• Adequate accounting systems and controls

FAR 32.503-3


Progress Payments

Eligible vs. Ineligible Contracts

Method of financing Not authorized for cost type fixed-price contracts contracts or cost type line or fixed-price items portion of a mixed type contract Can’t be used with Performance-Based Payments


Performance Based Payments

• What PBPs ARE:• Method of providing financing to contractors performing under

fixed-price, non-commercial contracts, or fixed price items on a mixed type contract

• Payments are based upon contractor performance of definitive criteria uniquely established in each contract

• Payment amounts should represent expenses that contractor could reasonably be expected to incur in order to achieve completion of each defined criteria or event



• PBP Steps: • 1. Ensure clause 52.232-32 Performance Based Payments is in

contract, as well as 252.232-7012, PBP-Whole Contract Basis or 252.232-7013, PBP—Deliverable-Item Basis

• 2. Ensure adequacy of Contractor’s Accounting System and controls

• 3. DCMA involvement with the PCO and contractor in the PBP event planning stage is strongly encouraged. However, at both stages the plan will be reviewed for:

• 4. PBP events – meaningful, • 5. Completion Criteria, definite and objective for each event • 6. Event Values - need expenditure profile to establish.



• PBPs cannot exceed 90% of the contract price• When are they used?• When regulatory conditions are met

• Fixed-price, non-commercial contract, including R&D• Not for architect-engineer services of construction• Not for ship building or ship conversion, alteration, or repair• Not awarded through sealed bid procedures• Contract is valued at >$2.5M large business• Contractor is not expected to be able to bill for delivery of products

for substantial time after work begins• Contracting Officer and contractor agree upon terms



• Two kinds of payment events FAR 32.1004(a)(2)• Severable or cumulative

• Contracts may include more than one series of severable and/or cumulative event criteria

• General characteristics of good payment events• Clear accomplishments• May represent a physical change in the product• Indicate added value• Not surrogates for incurred costs



• Payment Administration:• Request

• ACRN identification is required in order to process• One of eleven Payment Instructions must be included in the contract• The contractor’s certification required by FAR 52.232-32 must be

signed by an individual previously identified by separate documentation as authorized to bind the contractor

• Validate Payment• PBP disbursements are recorded as a Progress Payment

Unliquidated Obligation, and are a contingent liability• Credit PBP requests cannot be processed, any overpayments must

be returned


Comparison Chart Progress Payments Performance-Based Payments

Order of Preference Customary Contract Financing Historically Preferred over other forms

Approval Level KO KO

Criteria for Use>$2.5 M contract, large business>$150K contract small business (SAT)

>$2.5 M contract, large business>$150K contract small business (SAT)FAR 32.104(d)(2)&(3)

Basis for PaymentBased on actual, incurred costs (eligible,

allowable & allocable)Based on lesser of predetermined

amounts, or actual costs

Entitlement to PaymentSubmission of allowable costs which is

commensurate with progress madeSuccessful and verifiable completion of

performance event

Profit Excluded from payment Some profit may be included

Combining Financing Cannot be combined with PBPs Cannot be combined with PPs

Contract TypeFixed Price/FPIF/Fixed Price portion of a

mixed contractFixed Price/FPIF/Fixed Price portion of a

mixed contract

Accounting System Must be approved Policy change requires consideration or approval

Frequency of Payment Not more than monthly Not more than monthly, but invoice can have multiple events

Recoverable in Case of Default Yes Yes

Alternate Liquidation Rate Applicable Yes, with circumstances No


The End…for now

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performance based payments and progress payments bryant, wilson, wheeler, lyons october 29, 2015...

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