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Progress payments made hereunder shall


81_20 516 be liquidated in the following manner,


$ 1-30.516 (Reserved) unless previously liquidated pursuant to $1-30.517 Contract financing office clearparagraph (b): (1) If this letter contract shall be super

ance. seded by a fixed-price type of contract, unli The following types of provisions for quidated progress payments made hereun progress payments shall in accordance der shall be liquidated by deducting the

with agency procedures, receive the amount thereof from the first progress or

prior approval by the agency's conother payments which shall be made under such contract.

tract financing office. (See § 1-30.212.) (2) If this letter contract shall be super

(a) Those involving progress payseded by a cost-reimbursement type con

ments at rates exceeding the applicatract, progress payments made hereunder ble uniform standard percentages aushall be liquidated by deducting the unliqui thorized by $$ 1-30.503 and 1-30.504. dated amount thereof from the first pay. (b) Those involving deviations, as dements which shall be made under such cost fined in 8 1-1.009-1: reimbursement contract.

(c) Those exceptional cases involving (3) If this letter contract shall not be su

unusual risks, described in g 1-30.212; perseded by a contract calling for the furnishing of all or part of the articles or serv

(d) Those involving contractors as to ices covered hereby, unliquidated progress

whom it is known that within the prepayments made hereunder shall be liquidat ceding 12 months, (1) request for aded by deducting the amount thereof from vance payments has been denied for fithe amount payable under the provisions of nancial reasons, or (2) application for the Termination clause for this letter con

guarantee of a loan to the contractor tract.

or for increase or extension of maturi(4) If this letter contract shall in part be terminated and shall in part be superseded

ty of a guaranteed loan has been disby a contract, the unliquidated progress

approved for financial reasons, or (3) payments made hereunder shall be allo- an approved application for guarantee cated by the Government for the purpose of of a loan or for advance payment to liquidation to the terminated portion of the the contractor has lapsed or has been letter contract and to the superseding con withdrawn; and tract in such proportions as the Govern (e) Those involving contractors ment shall deem to be equitable, and the

named on the consolidated list of conpart of such progress payments allocated to

tractors indebted to the United States, each shall be liquidated in accordance with the applicable provisions of subdivisions (1),

commonly known as the “Hold-Up(2), and (3) of this paragraph.

List." (5) If the method of liquidating progress

(29 FR 10356, July 24, 1964, as amended at payments provided above shall not result in

40 FR 43732, Sept. 23, 1975) the full liquidation thereof, the Contractor shall forthwith pay the unliquidated bal- &1-30.518 (Reserved) ance to the Government upon demand.

(c) Any superseding definitive con- § 1-30.519 Contractor's request. tract will contain appropriate provi- All invoices for progress payments sions, carried forward from the letter on contracts containing the Progress contract, for liquidation of progress Payment clause set out in § 1-30.510, payments made under the preliminary and on contracts containing any deviinstrument. When the superseding ation from that clause approved purcontract provides for progress pay. suant to $ 1-30.517, will be supported ments, the Progress Payments clause by a request substantially similar to will be supplemented by further provi- the Contractor's Request for Progress sion as follows:

Payment format set forth in $ 1

30.529, with any supporting informaThe costs, previous progress payments, ag.

tion that may be reasonably required. gregate progress payments, and unliquidated progress payments, mentioned in para

The reverse side of the format congraph (a) of this Progress Payments clause,

tains instructions for use. include the costs incurred and progress payments made under the letter contract which 81-30.520 Audit. has been superseded by this contract.

For the making of progress pay. 129 FR 10356. July 24, 1964, as amended at ments, principal reliance will be placed 40 FR 43732, Sept. 23, 1975)

on the adequacy of the contractor's ac

40-104 0479_-63

counting system and controls (f 1- ence to be weak, or who are encounter30.506) and on the reliability of the ing substantial difficulties in performcontractor's certificates. To conserve ance, full information concerning both administrative effort, hold down ex- the progress under the contracts inpense, and promote prompt payment volved (including the status of subconof proper progress billings, audit

tract), and concerning the contractor's before the making of progress pay.

other operations and financial condiments should be kept to the minimum

tion, should be obtained and analyzed necessary for the protection of the in

at frequent intervals, with a view to terest of the Government. Preaudit,

the better protection of the interest of that is, audit before the making of a

the Government and the taking of progress payment, should be limited to

such action as may be proper to make those situations in which there is reason to question the reliability or ac

contract performance more certain. If curacy of the contractor's certificate,

there is reason to doubt only minor or reason to believe that the contract

elements of the costs involved in a will involve a loss. Postreview or pos

progress billing, only the doubtful taudit will be made when considered amounts should be withheld, subject desirable by the contracting officer to to later adjustment, and the amount determine the validity of any progress clearly due should be paid without payment made on the contractor's cer awaiting resolution of the differences. tifications.

So far as practicable in each case, all

cost problems, particularly those in$ 1-30.521 Administration-general.

volving indirect costs, of a kind likely Progress Payments clauses cannot be to create disagreements in future adself-executing, and require careful ad ministration of the contract, should be ministration to insure against overpay identified and resolved at the incepments and losses. In all cases the phys- tion of the contract. ical progress of the work should be evaluated periodically to assure that $ 1-30.521-1 Extent of supervision. the progress payments are fairly sup

The extent of supervision required, ported by the value of the work actu

whether for loss prevention or for ally accomplished on the undelivered

avoidance of overpayments, should portion of the contract in conformity

vary inversely with the experience, with the contract requirements. Also, the unliquidated progress payments

performance record, reliability, quality should not be permitted to exceed the

of management, and financial percentage specified in the contract,

strength of contractors, and with the of the costs forming the base for prog.

adequacy of their accounting system ress payments, applicable only to the and controls. Review should be of a partially finished undelivered portion kind and degree that will be sufficient, of the contract. It is necessary for ade consistent with the circumstances of quate supervision of progress pay individual cases, to provide timely ments that the administering office knowledge of circumstances that keep itself informed concerning the would adversely affect contract percontractor's overall operations and fi- formance and the liquidation of prog. nancial condition, since difficulties en ress payments, and timely opportunity countered and losses suffered in oper for any action that may be appropriations outside the particular progress ate for the protection of the Governpayments contract may affect adverse

ment. Particular care must be taken to ly the performance of that contract

assure that the unpaid balance of the and the liquidation of the progress

contract price will be adequate to payments. For contracts with those

cover the anticipated cost of complecontractors whose financial condition

tion, or that the contractor has adeis doubtful or not strong in relation to

quate resources to complete the conprogress payments outstanding or to

tract if the unpaid balance of the conbe outstanding, or whose management

tract price is inadequate to cover costs is of doubtful capacity or whose accounting controls are found by experi

of completion.

$ 1-30.521-2 Use of progress payments by $ 1-30.523 Maximum unliquidated amount. contractors.

In all cases where the contract price It is expected that the contractor is sufficient to cover all costs of comwill use the progress payments made plete performance, and liquidation of by the Government, or equivalent

progress payments is effected in acamounts of money, to pay the costs in

cordance with paragraph (b) of the curred in the performance of the con

clause provided in $ 1-30.510-1(a) or tract under which progress payments

§ 1-30.510-2 the amount of unliquidatare made.

ed progress payments will never $ 1-30.522 Adjustments-retroactive price

exceed the maximum limit provided reduction-refunds.

by paragraph (a)(3)(i) of the clause,

unless liquidation percentages have When a retroactive price reduction

been based on cost estimates that are has been made effective, i.e., by sup

less than actual costs. In such cases, if plemental agreement or by unilateral

the contract involves a profit to the determination pursuant to the price

contractor, the actual unliquidated redetermination provision of the con

progress payment amount will always tract, the last sentence of paragraph

be less than the maximum limit stated (b) of the clause prescribed in either

in paragraph (a)(3)(i) after the first $ 1-30.510-1(a) or $ 1-30.510-2(a) re

delivery payment, unless liquidation quires adjustments so that the amount

percentages have been based on cost of unliquidated progress payments and

estimates that are less than actual the amounts paid or payable for supplies or services accepted will give

costs. So long as performance is satiseffect to the price reduction. In this

factory and there is no reason to besituation, the retroactive price reduc

lieve that the contract will involve a

loss to the contractor or that a liquidation means that too much has been paid or billed for deliveries, and that

tion rate fixed by paragraph (b) of the from those delivery billings too much

clause or pursuant to $ 1-30.512-2, is has been applied as a reduction of the

too low, there will be no need or unliquidated progress payment bal

reason to verify the relationship of ance. The necessary adjustments

the amount of unliquidated progress would be (a) recomputation of total

payments to the maximum limit precash delivery payments on the basis of scribed by paragraph (a)(3)(i) of the the reduced billing price resulting clause. However, when the rate or from the retroactive price reduction, quality of performance is unsatisfacand repayment by the contractor of tory, or the rate of rejections is the difference between the total re unduly high, or there is excessive computed payments and the total cash wastage or spoilage, or it appears that delivery payments that had been unduly low costs have been attributed made, and (b) increase of the unliqui. by the contractor to delivered items, dated progress payment balance by or a loss to the contractor is otherwise the excess of the total amounts previ indicated, or that the liquidation rate ously applied to reduce the unliquidat is too low, careful examination should ed progress payment balance over the be made to determine whether or not amounts that would have been applied the unliquidated progress payments to reduce the unliquidated progress exceed the maximum amount permitpayment balance if the reduced deliv- ted by paragraph (a)(3)(i) of the Prog. ery prices had been in effect from the ress Payment clause. The services of date from which the redtermination is the agency audit organization should applicable. This same principle of be utilized to the fullest extent, toupward adjustment of the unliquidat gether with the services of qualified ed progress payment balance is also cost analysis and engineering personapplicable in connection with interim nel as required. (See 1-30.519; Secrefunds made by contractors pursuant tion III of Instructions of the format to the provisions of incentive and price for Contractor's Request for Progress redetermination contracts, and in con Payments set forth in $ 1-30.529(b); nection with voluntary refunds on and § 1-30.524-6.) such contracts.

§ 1-30.524 Suspension or reduction of pay. 81-30.524-1 Failure to comply with conments-general.

tract. In the process of reviewing individu. Except for the purpose of correcting al progress payments already existing overpayments or obtaining amounts or hereafter established, action to due from the contractor, action will reduce or slow down progress pay not be taken pursuant to paragraph ments or to increase liquidation rates (c)(i) of the clause provided in $ 1(unless justified on other grounds, 30.510-1(a) or $ 1-30.510-2(a) for failsuch as overpayments or unsatisfac ure to comply with a requirement of tory performance) should be consist the contract, if such failure has resultent with contract provisions, and ed solely from causes beyond the connever taken precipitately or arbitrar- trol and without the fault or negliily. Any such reduction of progress gence of the contractor. For examples payments on active contracts (other of such causes, see paragraph (c) of than normal liquidation pursuant to the Default clause in § 1-8.707. Comthe contract) should be effected only pliance with the material require. after notice to and discussion with the ments of the contract, within the contractor, and after full exploration meaning of paragraph (c)(i) includes of the contractor's financial condition, compliance with all provisions of the existing or available credit arrange

Progress Payment clause. ments, projected cash requirements, effect of progress payment reduction

$ 1-30.524-2 Unsatisfactory financial con

dition. on the contractor's operations, and generally on the equities of the partic If unsatisfactory financial condition, ular situation. Where contract per- or failure to make progress, endangerformance is satisfactory, and there is ing contract performance, as described neither overpayment nor anticipated in paragraph (c)(ii) of the clause preloss, proper progress payments, ade

scribed in 8$ 1-30.510-1(a) or 1-30.510quately verified should be paid 2(a), is found to exist, arrangements promptly when earned and billed in reasonably assuring contract compleaccordance with contract provisions,

tion without loss to the Government even though the terms of the particu will be requried in connection with the lar contract may make the payment making of further progress payments discretionary rather than mandatory, and the making of other payments so and such proper payments should not long as progress payments are unliquibe held up or denied because of the dated. Within the meaning of this contractor's lack of need for the pay. paragraph (c)(ii), performance of the ment. Paragraph (c) of each clause contract includes full liquidation of prescribed in $ 1-30.510 provides the progress payments. Further payments Government the right to reduce, sus- should be withheld so long as any pend, or increase the rate of liquida- progress payments remain unliquidattion of progress payments, whenever ed, only upon full consideration of all

of the circumstances there de pertinent facts, and upon concluding scribed are found to exist. The rights that further payments will serve to inreserved to the Government by these crease the probable loss to the Govparagraphs are for the purpose of pro

ernment. tecting the interests of the Government, fostering satisfactory contract

$ 1-30.524-3 Excessive inventory. performance, and guarding against When inventory allocated to the overpayments and losses. The para contract is found substantially to graphs should be administered with exceed reasonable requirements (see these purposes in mind. Action taken paragraph (c)(iii) of clauses prescribed pursuant to these paragraphs should in $ $ 1-30.510-1(a) and 1-30.510-2(a)) be fair and reasonable under the cir- the simplest form of adjustment to cumstances of particular cases, and correct or avoid overpayment will be supported by substantial evidence. to eliminate the costs of such excess Findings made under the paragraphs inventory from the costs shown in should be in writing.

item 7 of the format for the contrac


tor's request (§ 1-30.529). If that is not ered delinquent until determined due regarded as sufficient in a particular by a court (or by arbitration if applicacase, additional deductions, to the ble). However, any such disputed extent necessary for the correction, amounts shall be excluded from costs should be made, to liquidate progress of performance so long as they are dispayments, incident to billings for pay- puted. The standards in paragraph (a) ments other than progress payments. of the clauses set forth in § 1-30.510Transfer of such excess inventory 1(a) and (b) for the exclusion of penfrom the contract should also be re- sion contribution costs from progress quired. The expression “reasonable re- payment computations will govern a quirements” includes a reasonable ac determination of delinquency in the cumulation of inventory for future use ordinary course of business with reto assure continuity of operations. spect to these pension contribution

costs, without regard to other provi8 1-30.524-4 Delinquency in payment of sions of § 1-30.524. costs of performance.

[40 FR 14917, Apr. 3, 1975, as amended at 40 The contractor's delinquency in pay- FR 43732, Sept. 23, 1975) ment of costs of contract performance in the ordinary course of business (see $ 1-30.524-5 Fair value of undelivered paragraph (c)(iv) of the clause pre work. scribed in § 1-30.510-1(a) and para In connection with determining the graph (c)(v) of the clause prescribed in

relation of the amount of unliquidated 8 1-30.510-2(a)) may be an indication progress payments to the fair value of of unsatisfactory financial condition

the work accomplished on the undelivor other circumstances endangering ered portion of the contract (see paracontract performance and involving graph (c)(v) of clauses prescribed in probability of loss to the Government. $81-30.510-1(a) and 1-30.510-2(a)) the If such delinquency is not connected principles stated in § 1-30.523 are apwith poor financial condition that is so plicable. In determining action, if any, unsatisfactory as to endanger contract to be taken, the contracting officer performance or to involve reasonably (utilizing available audit, engineering, foreseeable loss to the Government, inspection, and cost analysis services) further progress payments and other will give full consideration to the payments should not necessarily be degree of completion of contract perdenied to protect the unliquidated formance, the quality and amount of progress payments and minimize risks work performed on the undelivered of additional losses, and payments portion of the contract, the amount of may be continued at the contract rate, work remaining to be done and the esor in reduced amounts in connection timated costs of completion of perwith appropriate arrangements to (a) formance, and the amount remaining cure the contractor's delinquencies in unpaid under the contract. If the conpayment of his costs of contract per tracting officer finds that the fair formance, (b) avoid further delinquen- value of the work done under the uncies, and (c) reasonably assure comple delivered portion of the contract, in tion of the contract without loss to the relation to the contract price, is less Government. (See also $ 1-30.524-3.) than the unliquidated progress pay. The standards set forth in paragraph ments, his actions will be governed by (a)(1) of the clauses set forth in 81 the principles stated in $$ 1-30.524-2 30.510-1(a) and (b) for the exclusion of and 1-30.524-4. This fair value could pension contribution costs from prog- not exceed the contract price of underess payment computations will livered work under the contract, less govern a determination of delinquency the estimated total future costs of in the ordinary course of business with completion of the contract. When this respect to these pension contribution fair value is found to be less than the costs, without regard to other provi- amount of the unliquidated progress sions in § 1-30.524. Amounts claimed payments, all further payments on the by subcontractors, suppliers, and contract will be controlled in such a others, but disputed in good faith by manner as to hold the unliquidated the contractor, should not be consid- progress payments within the fair

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