(1) The balance sheet, the profit and loss statement and any other supporting financial statements, heretofore furnished to the Administering Office, fairly reflect the financial condition of the Contractor at the date shown on said balance sheet and the results of the operation for the period covered by the profit and loss statement, and since said date there has been no materially adverse change in the financial condition of the Contractor.

(2) No litigation or proceedings are presently pending or threatened against the Contractor, except as shown in the above

statements.

(3) The Contractor, apart from liability resulting from the renegotiation of defense production contracts, has no contingent liabilities not provided for or disclosed in the financial statements furnished to the Administering Office.

(4) None of the provisions herein contravenes or is in conflict with the authority under which the Contractor is doing busines or with the provision of any existing indenture or agreement of the Contractor.

(5) The Contractor has the power to enter into this contract and accept advance payments hereunder, and has taken all necessary action to authorize such acceptance under the terms and conditions of this contract.

(6) None of the assets of the Contractor is subject to any lien or encumbrance of any character except for current taxes not delinquent, and except as shown in the the financial statements furnished by the Contractor to the Administering Office. There has been no assignment of claims under any contract affected by these advance payment provisions, or if there has been any assignment, such assignments have been terminated. (7) All information furnished by the Contractor to the Administering Office in connection with each request for advance payments is true and correct.

(8) These representations and warranties shall be continuing and shall be deemed to have been repeated by the submission of each invoice for advance payments.

in

(q) Subadvances. Substantially the following provision shall be included the contract when subadvances are contemplated:

Subject to the prior written approval of the Administering Office, funds from the Special Bank Account may be used by the Contractor to make advance payments or downpayments to subcontractors and materialmen in advance of performance by the subcontractor or materialman. Such subadvances shall not exceed percent of

the subcontract price or estimated cost as the case may be, and the subcontractors or materialmen to whom such advances are made shall furnish adequate security therefor. Unless other security is required by

the Administering Office, covenants in subcontracts, expressly made for the benefit of the Government providing for a Special Bank Account for the subadvance with Government lien thereon, and providing for a Government lien, paramount to all other liens, on all property under such subcontract, and imposing upon the subcontractor and the depository bank substantially the same duties and giving the Government substantially the same rights as are provided herein (and in the agreement for Special Bank Account supplementary hereto) between the Government, the Contractor and the Bank, may be considered as adequate for such subadvance.

(r) Covenants. The following are examples of some special provisions (subject to modification to adapt to the circumstances of individual cases) that may be utilized when and to the extent deemed appropriate in particular cases.

During the period of time that advance payments may be made hereunder and so long as any such advance payments remain unliquidated, the Contractor shall not, without the prior written consent of the Administering Office

(1) Mortgage, pledge, or otherwise encumber, or suffer to be encumbered, any of the assets of the Contractor now owned or hereafter acquired by it, or permit any preexisting mortgages, liens or other encumbrances to remain on or attach to any assets of the Contractor which are allocated to the performance of this contract and with respect to which the Government has a lien hereunder;

(2) Sell, assign, transfer, or otherwise dispose of accounts receivable, notes or claims for money due or to become due;

(3) Declare or pay any dividends, except dividends payable in stock of the corporation, or make any other distribution on account of any shares of its capital stock, or purchase, redeem, or otherwise acquire for value any such stock, except as required by sinking fund or redemption arrangements reported to the Administering Office incident to the establishment of these advance payment provisions;

(4) Sell, convey, or lease all or a substantial part of its assets;

(5) Acquire for value the stock or other securities of any corporation, municipality, or governmental authority, except direct obligations of the United States;

(6) Make any advance or loan to or incur any liablity as guarantor, surety, or accommodation endorser for any other firm, person, or corporation;

(7) Permit a writ of attachment or any similar process to be issued against its property without procuring release thereof or bonding the same within 30 days after the entry of the writ of attachment or any similar process;

(8) Pay any salaries, commissions, bonuses, or other remuneration in any form

or manner to its directors, officers, or key employees in excess of existing rates of payments or of rates providing in existing agreements, in connection with which notice has been given to the Administering Office, or accrue such excess remuneration without first obtaining an agreement subordinating the same to all claims of the Government hereunder, or employ any person at a rate of compensation in excess of $---- per

annum;

(9) Make any substantial change in management, ownership, or control of the corporation;

(10) Merge or consolidate with any other firm or corporation, change the type of its business or engage in any transaction outside the ordinary course of its business as presently conducted;

(11) Deposit any of its funds except in a bank or trust company insured by the Federal Deposit Insurance Corporation;

(12) Create or incur indebtedness for borrowed money or advances other than advances to be made hereunder, except as specified herein;

(13) Make or covenant itself to make capital expenditures exceeding in the aggregate $-;

(14) Permit its net current assets, calculated in accordance with generally accepted accounting principles, to become less than $------; or

(15) Make any payments on account of the obligations listed below, except in the manner and to the extent herein provided. § 1-30.415

[Reserved]

[Reserved]

§ 1-30.416

§ 1-30.417

[Reserved]

§ 1-30.418

§ 1-30.419

[Reserved]

Excluded advance payments. This Subpart 1-30.4 does not apply to advances authorized by law for payment of rent; payment of tuition; insurance of official motor vehicles in foreign countries; expenses of investigations in foreign countries; extension or connection of public utilities for Government buildings or installations; subscriptions to newspapers, magazines, periodicals, and other publications; small purchases of goods or services in foreign countries, when the purchase price does not exceed $2,500 (or equivalent amount of applicable foreign currency) and advance payment of the purchase price or a part thereof is required by and made in compliance with the laws or ministerial, i.e., governmental, regulations of the foreign country concerned; and the enforcement of the customs or narcotics laws.

Progress payments based on a percentage or stage of completion are ordinarily confined to contracts for construction, shipbuilding, ship conversion, alteration, or repair. For all other contracts, progress payment provisions shall be based on costs, as provided herein, except that when regulations of an agency permit, progress payments based on a percentage or stage of completion may be authorized by the head of the procuring activity when he determines that progress payments based on costs cannot be practically employed and that there are adequate safeguards provided for administration of the progress payment provisions. On existing contracts which provide for progress payments based on a percentage or stage of completion, it is not required that provision for progress payments based on costs be substituted in connection with future amendments, supplements, or modifications, if such substitution is found impracticable.

(a) Certain types of production contracts involve a long "lead time" or preparatory period, normally approximating 6 months or more between the beginning of work and the first delivery, and may require contractor's predelivery expenditures that will have a material impact on the contractor's working funds. Familiar examples include, among others, contracts for reactors, engines, complex items of electrical or electronics equipment, heavy industrial chemicals, spacecraft, boosters, aircraft or spacecraft ground-handling equipment, turbines, heavy machinery, and handling equipment, and radiological instruments. Progress payments have been traditional and customary on this class of contracts, on the basis of a percentage of total costs or of direct labor and material costs. Percentages for customary progress payments shall be not more than 70 percent of total costs or 85 percent of direct labor and material costs of the work done under the undelivered portion of the contract, except that for negotiated contracts with small business concerns and for procurement by "Small Business Restricted Advertising" (see § 1-1.701-9) or pursuant to 1-30.504-3, these percentages may be 75 percent of total costs or 90 percent of direct labor and material costs whenever deemed reasonably necessary. Higher percentages will be regarded as unusual, and not within the category of customary progress payments.

(b) The long lead time or preparatory period in these cases, and the accompanying predelivery expenditures that may have a material impact in the contractor's working funds, are regarded as making these customary progress payments reasonably necessary, and as making the general preference for private financing not applicable to this class of cases. Provision for customary progress payments should be made as a matter

of course when requested by contractors who are known (from experience or adequate preaward investigation) to be reliable, competent, capable of satisfactory performance, in satisfactory financial condition, and to have an adequate accounting system and controls. In such cases, it is not necessary to require projections of cash receipts and expenditures or other demonstration of actual reasonable need for progress payments. However, in order to minimize administrative effort and expense, progress payments will be discouraged on negotiated contracts of less than $1 million with the stronger and larger contractors who are not small business concerns, unless the circumstances of a group of such contracts for contemporaneous performance by a contractor, make such contracts the approximate equivalent of a larger contract that would have a material impact on the contractor's working funds. On the other hand, if a small business concern is involved and the contract meets these standards for customary progress payments, the smallness of the contract shall not deter the making of provision for progress payments to such small business concern.

§ 1-30.503-1 Applicability of percent

ages.

The standard percentages authorized by §§ 1-30.503 and 1-30.504 should apply to new contracts, new procurement effected by supplements, amendments or modifications of existing contracts, definitive contracts superseding letter contracts, instruments effecting new procurement under basic or master agreements, and to all supplements, amendments, or modifications which affect or provide for progress payments as well as to any outstanding contracts which contain optional provision as to progress payment percentages, after due notice by the contracting officer (see § 1-30.524). § 1-30.503-2 Indefinite quantity con

tracts.

Ordinarily progress payments will not be undertaken in indefinite quantity contracts which do not provide for payments and liquidation by a single office. Otherwise, for indefinite quantity contracts, contemplating requisitions, delivery orders, work orders, task orders, job orders, or their equivalent, if the contractor meets all other requirements for customary progress payments, the decision

as to whether progress payments come within the customary category will depend upon estimates of the amount of work expected to be done, and the production lead time expected to be necessary for the major part of the work anticipated. In these cases, provision for progress payments in the indefinite quantity contract may be deemed customary if the amounts involved, and the production lead time, will result in the substantial equivalent of the customary progress payments. The standards for unusual progress payments govern when progress payments are not of the customary type. § 1-30.503-3 Administration.

When progress payments are provided in the cases mentioned in § 1-30.503-2, such as indefinite quantity contracts for overhaul or maintenance, (a) the contract price is deemed to be the total of the amount of requisitions, delivery orders, work orders, task orders, or their equivalent issued under the basic contract, (b) costs for progress payment purposes are the costs allocable to all such requisitions, etc., and (c) payments and liquidations will be handled in the same way as if all such requisitions, etc., constituted work under a single fixed-price type contract.

§ 1-30.504 Formal advertising—small business restricted advertising.

Incident to formal advertising, invitations for bids shall provide for progress payments in the manner and under the circumstances stated in this § 1-30.504. § 1-30.504-1

Progress payment provi

sion in invitations for bids.

(a) Provision for progress payments shall be included in invitations for bids in accordance with the following criteria.

(1) The invitations for bids shall, except as provided in subparagraph (2) of this paragraph, include provision for progress payments whenever the contracting officer:

(i) Considers that the period between the beginning of work and the required first production delivery will exceed 6 months, or

(ii) Considers that progress payments will be useful or necessary by reason of circumstances that will involve substantial accumulation of predelivery costs that may have a material impact on a contractor's working funds (including but not limited to substantial small business set-asides expected to involve a relatively large predelivery accumulation

of materials, purchased parts or components), or

(iii) Estimates that the procurement will involve approximately $100,000 or more and that bids are likely to be submitted by one or more small business concerns.

(2) Provision for progress payments ordinarily will not be made invitations for bids when the procurement is estimated to be less than $10,000, or is for quick turnover items of kinds for which predelivery financing by progress payments is not the custom or practice on sales by members of the industry to private commercial customers, such as (i) subsistence, (ii) clothing and apparel, (iii) "off-the-shelf" items, and (iv) standard commercial items or equivalent items (including medical and dental supplies), not requiring substantial accumulation of predelivery expenditures.

(3) Reasonable doubts should be resolved in favor of inclusion of progress payment provisions in invitations for bids, in order to (i) facilitate necessary contract financing assistance to small suppliers, and (ii) avoid the necessity for rejecting, as nonresponsive, bids conditioned on progress payments when the invitations for bids do not provide for progress payments.

(b) When progress payments are contemplated, the invitations for bids shall state (1) that the need for progress payments conforming to regulations will not be considered as a handicap or adverse factor in the award of contracts, and that bids including requests for progress payments will be evaluated on an equal basis with bids not including requests for progress payments, and (2) that upon written request by the prospective contractor a progress payment clause (to be included in the invitations for bids or identified by appropriate reference therein, and to be the appropriate one of the contract clauses at 70 percent of total costs or 85 percent of costs of direct labor and material) will be inIcluded in the contract at the time of awards. (See § 1-30.504-4(a) for notice to bidders.) This latter statement may be modified as provided in paragraph (c) of this section.

(c) In unusual circumstances, the Contracting Officer may consider it to be in the interest of the Government to contemplate progress payments but to provide for application of the criteria specified in § 1-30.504-1(a) (1) after the

opening of bids, and to select, at the time of award, a progress payment clause appropriate for the prospective contractor. In such event the invitations shall (in lieu of the requirement set forth in paragraph (b)(2) of this section) state that upon written request by the prospective contractor a progress payment clause, of a type considered appropriate to the circumstances, will be included in the contract at the time of award if the Contracting Officer considers the contractor eligible under applicable regulations. (See § 1-30.5044(b) for appropriate notice to bidders.) § 1-30.504-2 Small business restricted

advertising.

The above policy and standards also apply to procurement by "Small Business Restricted Advertising," except that in "Small Business Restricted Advertising" (and also for procurement pursuant to § 1-30.504-3), when deemed reasonably necessary, provision may be made for progress payment percentages up to 75 percent of total costs or 90 percent of costs of direct labor and material. § 1-30.504–3 Progress payments exclusively for small business.

A stated purpose of Public Law 85800, 72 Stat. 966, is "to improve opportunities for small business concerns to obtain a fair proportion of Government purchases and contracts." One of the sections of this statute amended section 305 of the Property Act, and 10 U.S.C. 2307 by providing that contracting agencies "may-insert in bid solicitations—a provision limiting to small business concerns-progress payments." In furtherance of the purposes of this statute, whenever provision for progress payments is to be made in invitations for bids (as provided by §§ 1-30.504-1 and 1-30.504-4), careful consideration shall be given as to whether or not the contemplated availability of progress payments shall be restricted to small business concerns only. If it is considered by the contracting officer that progress payments should not be reasonably necessary for prospective bidders other than small business concerns, the provision for progress payments (§ 1-30.504-1) and the notice to bidders (§ 130.504-4) will be supplemented by a limitation to the effect that

The Progress Payments clause will be available to small business concerns only, and will not be included for Contractors who are not small business concerns.

The need for progress payments conforming to applicable regulations (Part 1-30, Federal Procurement Regulations) will not be considered as a handicap or adverse factor in the award of contracts hereunder. Bidders desiring progress payments in accordance with the Progress Payments clause attached hereto, shall include a written request therefor in their bids, and bids including requests for progress payments will be evaluated on an equal basis with bids not including such a request. Blanks, if any, in the attached Progress Payments clause, will be filled in by the Contracting Officer, before award, in conformity with regulations.* If a bid does not contain a request for progress payment provision, the Progress Payments clause will not be included in the contract as awarded.

[* Omit the third sentence, above, when either Total Costs clause of § 1-30.510-1 is used.]

(b) Those invitations for bids that make provision for progress payments pursuant to § 1-30.504-1(c) should contain substantially the following notice to bidders:

PROGRESS PAYMENTS

The need for progress payments conforming to applicable regulations (Part 1-30, Federal Procurement Regulations) will not be considered as a handicap or adverse factor in the award of contracts hereunder. Bidders desiring progress pyments shall include a written request therefor in their bids, and bids including requests for progress payments will be evaluated on an equal basis with bids not including such a request. If the Contracting Officer considers the Contractor eligible for progress payments under applicable regulations an appropriate Progress Payment clause will be included in the contract as awarded. If the bid does not contain a request for progress payment provision, the Progress Payments clause will not be included in the contract as awarded.

§ 1-30.504-5 Total costs clause preferable.

The Total Costs clause (§ 1-30.510–1) is preferable to the Direct Labor and Materials Cost clause (§ 1-30.510-2) in