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§ 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 § 1-30.510-2(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.

§ 1-30.511-6 Other protective provisions.

When deemed reasonably necessary for the protection of the Government, the clauses set forth in §§ 1-30.510-1 and 1-30.510-2 may be supplemented by additional protective provisions, such as personal or corporate guarantees, subordinations or standbys of indebtedness, special bank accounts, and other protective covenants of the kinds outlined in item (r) of § 1-30.4142.

§ 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 0.715x$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 § 1-30.5123.)

§ 1-30.512-2 Alternate method.

(a) The above method for liquidation of progress payments (§ 1-30.5121) 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, and invoiced.

(b) However, when progress payments are made at 75 percent of the total costs, this percentage for liquidation of progress payments, lower than prescribed by 1-30.512-1, to the extent appropriate, shall not be fixed at a rate less than 70 percent except as provided in § 1-30.512-2(c). If the progress payment percentage of total costs is less than 75 percent, comparable relationship between the progress payment percentage and the above minimum liquidation percentage shall be maintained. Similar 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 establishment 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 § 1-30.5123.)

§ 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 (rounding this upward to 0.695), 0.695×$108=$75.06.

0.6944, and

(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). 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 paragraph (c)(1) of this section, 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 percentage 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 § 1-30.5123 (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÷108 64.815, and rounding this upward to 64.9, 0.649×$108=$70.09).

§ 1-30.513 Subcontracts.

(a) Subcontractors should be able to get progress payments from their customers on standards which are the same as those applicable to prime contracts. Contractors should be encouraged to extend progress payments to subcontractors on subcontracts which meet the standards for customary progress payments outlined in § 130.503.

(b) The policies and standards for "unusual" progress payments set forth in § 1-30.505 are equally applicable to situations where it is contemplated that contracts will provide for progress payments based on "unusual" progress payments made by a prime contractor to a subcontractor. In such

cases, when the inclusion of such unusual progress payments on the subcontracts has been approved in the manner set forth in § 1-30.505, appropriate revision will be made in paragraph (j)(2) of the Progress Payments clauses set forth in §§ 1-30.510-1(a) and 1-30.510-2(a) so as to permit inclusion of the unusual progress payments on the subcontract as part of the base for progress payments on the prime contract. Such revisions are deemed not to be deviations, and do not require the clearance called for by § 130.517(b). Paragraph (a)(2) of each of the clauses set forth in §§ 1-30.510-1(a) and 1-30.510-2(a) applies only to the "contractor's" cost mentioned in paragraph (a)(1)(i) of such clauses, and does not apply to the progress payments to subcontractors mentioned in paragraph (a)(1)(ii) of the subject clauses.

§ 1-30.513-1 Subcontractor progress payments.

When progress payments have been made by a prime contractor to a subcontractor pursuant to the provisions of the applicable prime contract and subcontract, the progress payment to the prime contractor to reimburse him for such progress payment to the subcontractor shall include the full amount of his progress payment made to the subcontractor. When a percentage less than 100 percent has been specified on existing contracts, this lesser percentage will control the amount of progress payments to be made pursuant to (a)(1)(ii) of the clauses set forth in §§ 1-30.510-1(a) and 1-30.510-2(a) and the maximum limit on unliquidated progress payments on account of unliquidated progress payments to subcontractors under (a)(3)(i) of such clauses.

§ 1-30.513-2 Adaptation of uniform clause for subcontracts.

Contracting officers are not required to review or approve subcontracts merely because they provide for progress payments. However, they shall check and review subcontracts providing for progress payments to the extent appropriate in the ordinary course of administration of the Progress Payments clause of prime con

tracts. The duty rests on the prime contractor to see to it that his subcontracts which provide for progress payments and which are to be included in the base for progress payments pursuant to the provisions of paragraph (j) of the clauses set forth in §§ 1-30.5101(a) and 1-30.510-2(a), conform to those provisions of the contract. In adapting the clauses set forth in §§ 130.510-1(a) and 1-30.510-2(a) for use in subcontracts, to conform to paragraph (j) thereof, the subcontract Progress Payments clause should have appropriate changes to reflect the position of the prime contractor as purchaser and of the subcontractor as vendor, and to indicate that the progress payments under the subcontract are being made and administered by the prime contractor. However, the title provision of the Progress Payments clause of the subcontract shall provide for the vesting of title directly in the Government, as set forth in paragraph (d) of the clauses provided in §§ 1-30.5101(a) and 1-30.510-2(a), and the subcontract will not substitute the prime contractor for the Government as the holder of title under that paragraph of the subcontract. In that title paragraph of the subcontract, references to the prime contractor should, however, be substituted for the word "Government" in the parenthetical expression concerning drawings and technical data, and also in the second sentence of the paragraph. In the subcontract counterpart of (g) of the clauses provided in §§ 1-30.510-1(a) and 1-30.510-2(a) entitled "ReportsAccess to Records" the references to "Contracting Officer" and "Government" should not be deleted, but may in each case be expanded so as to refer to the "Contracting Officer or the prime contractor," (see paragraph (g)(i)), and to the "Government or the prime contractor," (see paragraph (g)(ii)).

With regard to the subcontract counterpart of paragraph (h), entitled "Special Provisions Regarding Default", of the clauses provided in §§ 130.510-1(a), and 1-30.510-2(a) only the substance of the first 26 words of that paragraph (with a reference to the prime contractor having been substituted for "Government"), is required

in order to conform to the provisions of (j)(2) of the clauses.

§ 1-30.514 Progress payments on subcontracts under cost-reimbursement types of prime contracts.

The policies, standards, and procedures of this Subpart 1-30.5 and its references are applicable to progress payments to subcontractors and suppliers on fixed-price types of subcontracts under cost-reimbursement types of prime contracts. For the prime contractor to be reimbursed for such progress payments, it is required that the subcontracts involving progress payments conform to these regulations. Specifically, the case must meet the standards for customary progress payments (§ 1-30.503) and progress payment percentages must not exceed those authorized by § 1-30.503 (unless unusual progress payments to the subcontractor are approved in accordance with § 1-30.505), liquidation must conform to § 1-30.512, and one of the uniform clauses (§ 1-30.510) adapted for subcontract use (§ 1-30.513-2) must be utilized.

§ 1-30.515 Letter contracts.

When progress payments are to be made under letter contracts or similar preliminary contractual instruments, one of the clauses set forth in §§ 130.510-1(a) or 1-30.510-2(a) may be incorporated with the following modifications:

(a) Paragraph (a)(4) will be replaced by a provision limiting the aggregate amount of progress payments made under the letter contract to a stated amount, not exceeding the applicable uniform standard percentage of the maximum liability of the Government under the letter contract (or such lesser percentage as may be applicable in accordance with the last two sentences of § 1-30.511-4 if the clause set out in § 1-30.510-2(a) is to be used). Separate limits may be prescribed for separate parts of the work.

(b) Until unit delivery billing prices are specified, paragraph (b) of the clause concerning liquidation will not be operative, and will be supplemented by the additional provision set out below:

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