costs shall not include (i) any costs incurred by subcontractors or suppliers, or (ii) any payments or amounts payable to subcontractors or suppliers, except for completed work (including partial deliveries) to which the Contractor has acquired title, and except for amounts paid or payable under cost-reimbursement or time and material subcontracts for work to which the Contractor has acquired title, or (iii) costs ordinarily capitalized and subject to depreciation or amortization except for the properly depreciated or amortized portion of such costs.

(3) The amount of unliquidated progress payments shall not exceed the lesser of (i) 85 percent of the costs mentioned in (a) (1) (i) of this clause, plus any progress payments mentioned in (a)(1)(ii), both of which are applicable only to the supplies and services not yet delivered and invoiced to and accepted by the Government, or (ii) -percent of the total contract price of supplies and services not yet delivered and invoiced to and accepted by the Government, less unliquidated advance payments. [For percentage here and in (a) (4), see the first bracketed instruction in (b) of this clause.]

(4) The aggregate amount of progress payments made shall not exceed percent of the total contract price.

(5) If at any time a progress payment or the unliquidated progress payments exceed the amount permitted by this paragraph (a), the Contractor shall pay the amount of such excess to the Government upon demand.

(b) Liquidation. Except as provided in the clause entitled "Termination for Convenience of the Government," all progress payments shall be liquidated by deducting from any payment under the contract, other than advance or progress, the amount of unliquidated progress payments or percent [insert a percentage which is to 85 percent as the amount of estimated costs forming the basis for progress payments is to the amount of the estimated total cost] of the gross amount invoiced, whichever is less. Repayment to the Government required by a retroactive price reduction will be made after recalculating liquidations and payments on past invoices at the reduced prices and adjusting the unliquidated progress payments accordingly. [For percentage for this paragraph, lower than the percentage computed pursuant to the above instruction and § 1-30.512-1 (b), see § 1-30.5122.]

(c) Reduction or suspension. The Contracting Officer may reduce or suspend progress payments, or liquidate them at a rate higher than the percentage stated in paragraph (b) above, or both, whenever he finds upon substantial evidence that the Contractor (i) has failed to comply with any material requirement of this contract, (ii) has so failed to make progress, or is in such unsatisfactory financial condition, as to en

danger performance of this contract, (iii) has allocated inventory to this contract substantially exceeding reasonable requirements; (iv) is incurring costs, whether or not of the kinds eligible for progress payments under paragraph (a)(1) of this clause, which are higher than the respective estimated costs used for establishing the liquidation percentage in paragraph (b) above, (v) is delinquent in payment of the costs of performance of this contract in the ordinary course of business, or (vi) has so failed to make progress that the unliquidated progress payments exceed the fair value of the work accomplished on the undelivered portion of this contract.

(d) Title. [Same as par. (d) of "Total costs" clause set forth in § 1-30.510-1(a).]

(e) Risk of loss. [Same as par. (e) of "Total costs" clause set forth in § 1-30.5101(a).]

(f) Control of costs and property. [Same as par. (f) of "Total costs" clause set forth in § 1-30.510-1(a).]

(g) Reports-access to records. [Same as par. (g) of "Total costs" clause set forth in § 1-30.510-1(a).]

(h) Special provisions regarding default. [Same as par. (h) of "Total costs" clause set forth in § 1-30.510-1(a).]

(i) Reservations of rights. [Same as par. (i) of "Total costs" clause set forth in § 130.510-1(a).]

(j) Progress payments to subcontractors. [Same as par. (j) of "Total costs" clause set forth in § 1-30.510-1(a).]

(b) Whenever it is estimated that the procurement will not exceed $100,000, and progress payments are to be based upon a percentage of direct labor and materials cost the following short form clause may be used.

PROGRESS PAYMENTS "SHORT FORM" CLAUSE BASED ON BOTH DIRECT LABOR AND MATERIAL COSTS OR WHEN LIMITED TO EITHER LABOR OR MATERIAL

Upon request of the Contractor, progress. payments shall be made to the Contractor from time to time as work progresses, in amounts approved by the Contracting Officer, upon the following terms and conditions: (a) Computation of amounts.

(1) Unless a smaller amount is requested, each progress payment shall be 85 percent of the Contractor's cumulative costs of direct labor performed and material acquired (strike out inapplicable language if limited to a single direct cost) for performance of this contract; less the sum of previous progress payments.

(2) Contractor's costs above mentioned must be reasonable, allocable to this contract and consistent with generally accepted accounting principles.

(3) At no time shall the amount of unliquidated progress payments exceed percent of the total contract price of items and services not yet delivered, invoiced to,

and accepted by the Government; also, the aggregate amount of progress payments made may not exceed percent of the total contract price. (These percentages shall be the same as in (b) below.)

(b) Recovery of progress payments. Except as otherwise provided in this contract, payments by the Government for materials delivered, invoiced to, and accepted by the Government shall be reduced by percent and the amount of the reduction applied against progress payments previously made until such time as the total of all progress payments has been liquidated. (The percentage to be inserted here and in (a) (3) above should be calculated as those in the following example: If the base for progress payments is 85 percent of the cost of direct labor and material and if estimated costs of direct labor and material are 80 percent of total estimated costs, liquidation would be at a rate not less than 68 percent (85X80) of the contract price of delivered items.)

(c) Reduction or suspension. The Government reserves the right to withhold or reduce progress payments and to increase the liquidation rate if in the opinion of the Contracting Officer the Contractor is in such unsatisfactory financial condition or has so failed to make progress as to endanger contract performance and recoupment of progress payments.

(d) Title to material and work. When any progress payment is made under this contract, title to material acquired and work performed under this contract shall vest in the Government, and title to all like property thereafter acquired or produced by the Contractor and properly chargeable to this contract under generally accepted accounting practices shall vest in the Government. The Contractor shall repay to the Government an amount equal to that portion of the unliquidated progress payments allocable to material lost, stolen, destroyed, or damaged. Upon completion of performance of all obligations of the Contractor under this contract, title to all property not delivered to and accepted by the Government under this contract and to which title had vested in the Government under this contract shall vest in the Contractor.

(e) Records and reports. The Contractor shall maintain reasonable controls for proper administration of this clause and shall furnish such statements and information as may reasonably be requested by the Contracting Officer. The Government shall be afforded reasonable opportunity to examine the Contractor's books, records, and accounts.

(f) Default. If this contract is terminated for default, the Contractor shall, upon demand, pay to the Government the amount of unliquidated progress payments, less any amounts payable to the Contractor in accordance with the Default clause.

(g) Reservation of rights. The rights and remedies of the Government provided in this clause shall not be exclusive and are in

addition to any other rights and remedies provided by law or under this contract.

§ 1-30.511

[End of clause]

General instructions for progress payment clauses.

The following instructions apply to the clauses required by § 1-30.510 and set forth in §§ 1-30.510-1 and 1-30.510-2. § 1-30.511-1 Contracting officer.

The term "contracting officer" as used in this Subpart 1-30.5 means the contracting officer as defined in § 1-1.207. § 1-30.511-2 Variation in percentages.

The percentages stated in paragraph (a)(1) of the clauses in §§ 1-30.510-1 and 1-30.510-2 are the normal percentages for the customary progress payments authorized by § 1-30.503. Higher percentages may be provided in the manner and to the extent authorized by § 1-30.505. Lower percentages may be used in (a) (1) of the clauses in §§ 1-30.510-1 and 1-30.510-2 when agreed, and will be used for unusual progress payments when found adequate in accordance with the standards set forth in § 1-30.505. Such lower percentages shall not be utilized for progress payments pursuant to § 1-30.504.

§ 1-30.511-3 Total cost basis-percentage other than 70 percent.

If a percentage other than 70 percent is specified in (a) (1) (i) of the Total Costs clause set forth in § 1-30.510-1(a), the percentage actually specified in (a) (1) (i) of the Progress Payments clause of the contract shall also be specified in (a) (3) (i), (a) (3) (ii), (a) (4), and (b) of the Progress Payments clause. (As to (b), see § 1-30.512.) Likewise if a percentage other than 70 percent is specified in (a)(1) of the short form Total Costs clause set forth in § 1-30.510-1(b), the percentage actually specified shall also be specified in (a)(3), (a) (4), and (b) of the short form Progress Payments clause.

§ 1-30.511-4 Limited cost basis-other percentages.

When the Progress Payments clause set forth in § 1-30.510-2(a) is used, the percentage actually specified in (a) (1) (i) of the Progress Payments clause of the contract will also be specified in (a) (3) (i). The percentage to be specified in (a) (3) (ii), (a) (4), and (b) of that clause

will be computed in the manner provided in § 1-30.512-1, except that a percentage higher than the percentage so computed may be specified in paragraph (b) if agreed. Subject to this exception permitting use of a higher percentage in (b) (or a lower percentage in (b) established pursuant to § 1-30.512-2) the percentage to be specified in (a) (3) (ii), (a) (4), and (b) will thus be a percentage which is to the percentage in (a) (1) as the amount of estimated costs forming the basis for progress payments is to the amount of estimated total cost of performance of the undelivered portion of the contract. This same principle will apply if a narrower cost basis, more limited than the cost basis stated in § 1-30.510-2, is utilized for progress payments. (See § 1-30.511-5.)

§ 1-30.511-5 Cost basis less than direct labor and material costs.

Instead of the direct labor and material cost basis provided in § 1-30.510-2, a narrower and more limited cost basis for progress payments may be utilized for that clause, such as direct labor only, direct material only, or direct labor or material costs applicable only to certain specified items, or specified direct costs other than direct labor or material costs. Appropriate changes will be made in (a) (1) (i) of the clause set forth in § 130.510-2(a) when such a narrower and more limited cost basis is to be used. For example, if eligible costs are to be limited to direct material costs, the words "labor and" should be deleted from (a) (1) (i); or, if eligible costs are to be limited to direct labor costs, the words "and material" should be deleted from (a) (1) (i). If the clause set forth in § 1-30.510-2(b) is used the appropriate changes are indicated in the body of the clause.

§ 1-30.512 Progress payment liquidation.

Controlling principles for liquidation of progress payments based on costs are set forth in this § 1-30.512.

§ 1-30.512-1 Ordinary method.

Except as authorized by § 1-30.512-2, the required method for liquidation and the applicable liquidation percentages

are:

(a) When costs other than for direct labor and material are in the base for progress payments, the percentage of the contract price of delivered items to be applied for liquidation of progress payments will be not less than the percentage of costs upon which progress payments are based, e.g., when progress payment are based on 75 percent of all costs, liquidation will be at a rate not less than 75 percent of the contract price of separate items as they are delivered, or when progress payments are based on 70 percent of all costs, liquidation will be at a rate not less than 70 percent of the contract price of separate items as they are delivered.

(b) When progress payments are based on 90 percent (or a specified lesser percentage) of the costs of direct labor and material, the rate of liquidation of progress payments will be not less than 90 percent (or the specified lesser percentage) of the percentage of estimated total costs represented by the estimated costs of direct if the estimated profit rate is less than 7.3 percent of total costs. If, for example, the estimated profit rate is 5 percent of total costs, the minimum liquidation percentage permitted by paragraphs (a) and (b) of § 1-30.512-2 would be approximately 71.5 percent. At this 5 percent profit rate, assuming (1) price $105, (2) costs $100, and (3) progress payments $75, this minimum liquidation rate of 71.5 percent would be necessary for recovery of the $75 of progress payments from the $105 delivery billing (75÷÷105=71.5 percent, and 0.715×$105=$75.07). The same principles are applicable when, pursuant to (c) of § 1-30.512-2, a liquidation rate lower than the 70 percent minimum is to be established. For example, assuming an established profit rate of 8 percent of total costs of items for which final prices have been established, the minimum liquidation rate for those items would be 69.5 percent when progress payments are at the rate of 75 percent of total costs. Assuming, (1) fixed price $108, (2) costs

$100, and (3) progress payments $75, the calculation would be: 75÷108-0.6944, and (rounding this upward to 0.695), 0.695 $108=$75.06.

(c) Paragraph (b) of § 1-30.512-1 provides the standards, and gives an example for establishing the minimum liquidation percentage when progress payments are to be at 90 percent of costs of direct labor and material (or lesser percentages of more limited costs). Thus, for example, if the base for progress payments is 90 percent of the costs of direct labor and material, and if estimated costs of direct labor and material are 70 percent of total estimated costs, liquidation will be at a rate not less than 63 percent (90×70) of the contract price of separate items as they are delivered. (See § 1-30.512-3.)

§ 1-30.512-2 Alternate method.

(a) The above method for liquidation of progress payments (§ 1–30.512-1) will not apply if, at the inception of a contract (on the basis of satisfactory cost estimates) or thereafter by amendment (based on satisfactory data on cost experience and estimated future costs) the parties shall agree on a percentage rate of liquidation which will (1) effect liquidation of the amount of progress payments involved in each invoice from which liquidation of progress payments is to be made (i.e., recovery of the portion of costs for which progress payments have been made), (2) permit payment to the contractor of not more than the cost of items delivered and accepted (less allocable progress payments) and his earned profit on those items, and (3) insure that unliquidated progress payments will not exceed the percentage specified in the contract, of the costs forming the base for progress payments, applicable only to that portion of the contract which has not been delivered, accepted, invoiced.

and

99-187-69-37

lar principles as to minimum liquidation percentages shall be applied when progress payments are to be made at 90 percent of the cost of direct labor and material, or on a more limited cost base, or at lesser percentages of limited costs. For example, when progress payments are made at 70 percent of the total costs, this percentage for liquidation of progress payments, lower than that prescribed by § 1-30.512-1, to the extent appropriate, shall not be fixed at a rate less than 65.3 percent except as provided in § 1-30.512-2(c).

(c) With regard only to items for which final prices have been established under contracts, progress payment liquidation percentages conforming to the standards stated in paragraph (a) of this § 1-30.512-2, but less than the minimum liquidation percentages stated and outlined in paragraph (b) of this § 1-30.512-2 (e.g., less than 70 percent when progress payments are based on 75 percent of total costs or less than 65.3 percent when progress payments are based on 70 percent of total costs) may be established by amendment of contracts upon submission of satisfactory information by the contractor showing separately (1) the cost of items that have been delivered, accepted, and invoiced, (2) the cost of work not delivered, accepted, and invoiced, (3) the estimated costs of completion, and (4) an applicable profit on the items for which final prices have been established that is higher than the amount of profit permitted to be released by application of the progress payment liquidation percentage than specified in the contract.

(d) Liquidation percentage rates as described herein, less than those prescribed by § 1-30.512-1 will not be established initially or by amendment except on the basis of satisfactory cost data and estimates furnished by the contractor. Contracts may be amended to reduce the liquidation rate not more frequently than once in each period of 12 months. (See § 1-30.512-3.) § 1-30.512-3 Liquidation percentages.

(a) Liquidation percentages shall conform to § 1-30.512-1, except as authorized by § 1-30.512-2.

(b) In the application of paragraphs (a) and (b) of § 1-30.512-2, when progress payments are at a rate of 75 percent of all costs, the minimum liquidation percentage of 70 percent would not

apply if the estimated profit rate is less than 7.3 percent of total costs. If, for example, the estimated profit rate is 5 percent of total costs, the minimum liquidation percentage permitted by (a) and (b) of § 1-30.512-2 would be approximately 71.5 percent. At this 5 percent profit rate, assuming (1) price $105, (2) costs $100, and (3) progress payments $75, this minimum liquidation rate of 71.5 percent would be necessary for recovery of the $75 of progress payments from the $105 delivery billing (75÷105 =71.5 percent, and 0.715×$105=$75.07). The same principles are applicable when, pursuant to (c) of § 1-30.512–2, a liquidation rate lower than the 70 percent minimum is to be established. For example, assuming an established profit rate of 8 percent of total costs of items for which final prices have been established, the minimum liquidation rate for those items would be 69.5 percent when progress payments are at the rate of 75 percent of total costs. Assuming, (1) fixed price $108, (2) costs $100, and (3) progress payments $75, the calculation would be: 75÷108-0.6944, and (rounding this upward to 0.695), 0.695 $108=$75.06.

(c) Subparagraph (b) of § 1–30.512–1 provides the standards, and gives an example for establishing the minimum liquidation percentage when progress payments are to be at 90 percent of costs of direct labor and material (or lesser percentages of more limited costs). In the application of paragraphs (a) and (b) of § 1-30.512-2, when progress payments are at the rate of 90 percent of costs of direct labor and material, examples of the minimum liquidation rates

are:

(1) When costs of direct labor and material are 70 percent of total costs, and the profit rate is 5 percent of total costs, the minimum liquidation percentage would be 60 percent. Assuming price $105, costs $100, costs of direct labor and material $70, and progress payments $63, then 63÷105-60 percent. Application of the 60 percent liquidation percentage to the delivery price of $105 recovers the $63 of progress payments.

(2) On assumptions the same as in the example in subparagraph (1) of this paragraph, except that costs of direct labor and material are computed at 80 percent of total costs ($80 of the total costs of $100), so that progress payments on the item are $72 (90 percent of $80), the minimum liquidation per

centage would be 68.6 percent (72÷105 =68.6 percent, i.e., 68.57 percent rounded upward to 68.6 percent). Application of this 68.6 percent liquidation percentage to the delivery price of $105 recovers $72.03 against $72 of progress payments.

(d) In line with the standards set for progress payments based on 75 percent of all costs, calculation of minimum liquidation rates pursuant to paragraphs (a) and (b) of § 1-30.512-2, when progress payments are at 90 percent (or lesser percentage) of costs of direct labor and material (or cost more limited, will not take into account any amount of profit that exceeds 7.3 percent of total costs. Thus, in example (1) of paragraph (c) of this § 1-30.512-3 (assuming profit rate 7.3 percent of costs or any greater rate), the minimum liquidation percentage would be 58.72 percent (63 +107.3 58.72 percent).

(e) The above principles ((a), (b), (c), (d)) apply when progress payments are at the rate of 70 percent of all costs or 85 percent of costs of direct labor and material, or at other percentages. In conformity to the above pattern, liquidation rates would be lower than those set out in (b), (c), and (d), to harmonize with percentages for progress payments that are lower than those mentioned in (b), (c), and (d). Thus, for instance, with regard to paragraph (a) of this § 1-30.512-3, if progress payments are at the rate of 70 percent of all costs (instead of 75 percent), the minimum liquidation rate comparable to the 70 percent liquidation rate mentioned in paragraph (b) of § 1-30.512-2, would be 65.3 percent (or a higher percentage if the estimated profit rate is less than 7.3 percent of all costs). In the first example given in paragraph (b) of this § 1-30.512-3, with progress payments at 70 percent of total costs, assuming (1) price $105, (2) costs of $100, and (3) progress payments $70, a minimum liquidation percentage of 66.7 percent would be necessary for recovery of the $70 of progress payments from the $105 delivery billing (70÷105= 66.7 percent, and 0.667×$105=70.03). In the second example given in paragraph (b) of this §1-30.512-3, for application of (c) of § 1-30.512-2, assuming (1) fixed price $108, (2) costs $100, and (3) progress payments $70, the minimum liquidation rate for the finally priced items would be 64.9 percent (70