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[33 F.R. 10448, July 23, 1968]

§ 163.82 Subcontracts.

(a) Subcontractors ought to be able t get progress payments from their cus tomers on standards which are the sam as those applicable to prime contracts Contractors should be encouraged t extend progress payments to subcontrac tors on subcontracts which meet the standards for customary progress pay ments outlined in § 163.72.

(b) The policies and standards fo "unusual" progress payments set forth in § 163.74 are equally applicable to situ ations where it is contemplated tha contracts will provide for progress pay ments based on "unusual" progress pay. ments made by a prime contractor to a subcontractor. In such cases, when the inclusion of such unusual progress pay ments on the subcontracts has been ap proved in the manner set forth in § 163.74, appropriate revision will be

SO

made in paragraph (j) (2) of the Progress Payment clause (§ 163.79-1) 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 163.86(b). Sections 163.79-1(a) (2) applies only to the "contractor's" costs mentioned in § 163.79-1(a)(1) (i). Section 163.79-1(a)(2) does not apply to the progress payments to subcontractors mentioned in § 163.79-1(a) (1) (ii). (33 F.R. 10450, July 23, 1968]

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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.

[33 F.R. 10450, July 23, 1968]

$163.82-2 Adaptation of uniform clause for subcontracts.

(a) 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 Payment clause of prime contracts. The duty rests on the prime contractor to see to it that his subcontracts providing the progress payments, to be included in the base for progress payments pursuant to the provisions of $163.79-1 (j) conform to those provisions of the contract. In adapting the clause set forth in § 163.79-1 for use in subcontracts, to conform to § 163.79-1(j) the subcontract Progress Payment 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 Payment clause of the subcontract shall provide for the

vesting of title directly in the Government, as set forth in § 163.79–1(d), 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, reference 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 § 163.79-1(g) entitled "Reports-Access 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," (§ 163.79-1(g) (i)) and to the "Government or the prime contractor" (§ 163.79-1(g) (ii).

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(b) With regard to the subcontract counterpart of the "Special Provisions Regarding Default" (§ 163.79-1(h)) only the substance of the first 26 words of that paragraph (with reference to the prime contractor substituted for "Government"), is required for conformity to the provisions of § 163.79–1(j) (2). [33 F.R. 10450, July 23, 1968]

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

The policies, standards, and procedures of this subpart 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 this part. Specifically, the case must meet the standards for customary progress payments (§ 163.72) and progress payment percentages must not exceed those authorized by § 163.72 (unless unusual progress payments to the subcontractor are approved by the procedure described in § 163.74), liquidation must conform to 163.81, and the uniform clause in § 163.79-1 adapted for subcontract use (§ 163.82-2) must be utilized. [33 F.R. 10450, July 23, 1968]

§ 163.84 Letter contracts.

When progress payments are to be made under letter contracts or similar

contractual instruments (§§ 163.72 and 163.72-2), incorporation of the clause set forth in § 163.79-1 is required. See §§ 163.78-7, 163.80-2 and 163.80-3. Procedures for later events are outlined below.

(a) When the superseding definitive contract provides for progress payments (§§ 163.72 and 163.72-2) the letter contract costs, progress payments and unliquidated progress payments will be carried over to the definitive contract the same as if initially covered by the definitive contract instead of the letter contract. For the various percentages, see §§ 163.72-2, 163.80-2, 163.80-3, 163.80-4, and 163.81.

(b) If the letter contract is not superseded by a definitive contract providing for progress payments, for whatever reason, the unliquidated progress payments on the letter contract will be deducted from amounts otherwise payable to the contractor. If not so fully liquidated, the amount of unliquidated progress payments will be payable to the Government upon demand. See Subpart F of this part.

[33 F.R. 10450, July 23, 1968]

§ 163.85 Delivery payments on letter

contracts.

On letter contracts contemplating a definitive fixed price type of contract, provision may be made for provisional billings and payments for items delivered to and accepted by the Government. These provisional delivery billing prices should of course be without prejudice to definitive contract pricing, and should be set conservatively so as to cover no more than the costs fairly attributable to items to be delivered and accepted, taking into account prospective total costs and quantities contemplated for the latter contract and the definitive contract. Provisional billings for deliveries are of course subject to deductions for liquidation of progress payments (§ 163.79-1(b)).

[33 F.R. 12732, Sept. 7, 1968] § 163.86

ance.

Contract financing office clear

The following types of provisions for progress payments require submission through channels and prior approval by the contract financing office (§ 163.26):

(a) Those involving progress pa ments at rates exceeding the unifor standard rates authorized by §§ 163. and 163.73.

(b) Those involving deviations, as d fined in § 163.78-9;

(c) Those exceptional cases, involvi unusual risks, described in § 163.26;

(d) Those involving contractors as whom it is known that within the pr ceding 12 months (1) request for a vance payments has been denied for nancial reasons by the contract financi office, or (2) application for guarant of a loan to the contractor or for increa or extension of maturity of a guarante loan, has been disapproved for financi reasons, or (3) an approved applicati for guarantee of a loan or for advan payment to the contractor has laps or has been withdrawn; and

(e) Those involving contractors nam on the consolidated list of contracto indebted to the United States, common known as the "Hold-Up List."

[25 F.R. 14420, Dec. 31, 1960, as amended 33 F.R. 10450, July 23, 1968]

§ 163.87 Coordination.

The coordination described in th paragraph (c) § 163.74 is required for a cases mentioned in paragraphs (a) an (b) of § 163.86.

§ 163.87-1 Control lists.

To give effect to § 163.86(d), pertine information will be exchanged betwee the several contract financing offices, an distributed through normal channels 1 contracting officers.

§ 163.87-2 Hold-up list.

To give effect to § 163.86(e), and fo other proper purposes, the "Hold-U List" there mentioned will be distribute through normal channels to contractin officers.

§ 163.88 Contractor's request.

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For the making of progress payments, principal reliance will be placed on the adequacy of the contractor's accounting system and controls (§ 163.75) and on the reliability of the contractor's certificates. To conserve administrative effort, hold down expense, and promote prompt payment of proper progress billings, audit before the making of progress payments will be kept to the minimum necessary for the protection of the interest of the Government. Preaudit, that is, audit before the making of a progress payment, will be limited to those situations in which there is reason to question the reliability or accuracy of the contractor's certificate, or reason to believe that the contract will involve a loss. Where the adequacy and reliability of the contractor's accounting system and controls have been established in accordance with § 163.75, there shall be no requirement for preaudit of the first progress billing under new contracts. Postreview or postaudit will be made when considered desirable by the contracting offcer to determine the validity of any progress payment made on the contractor's certifications.

[33 F.R. 10450, July 23, 1968]

163.90

Administration; general.

Progress payment clauses cannot be self-executing, and require careful administration to insure against overpayments and losses. In all cases the physical progress of the work should be evaluated periodically to assure that the progress payments are fairly supported by the value of the work actually accomplished on the undelivered portion of the contract in conformity with the contract requirements. Also, the unliquidated progress payments should not be permitted to exceed the percentage specified in the contract, of the costs forming the base for progress payments, applicable only to the partially finished undelivered portion of the contract. It is necessary for adequate supervision of progress payments that the administering office keep

itself informed concerning the contractor's overall operations and financial condition, since difficulties encountered and losses suffered in operations outside the particular progress payment contract may affect adversely the performance of that contract and the liquidation of the progress payments. For contracts with those contractors whose financial condition is doubtful or not strong in relation to progress payments outstanding or to be outstanding, or whose management is of doubtful capacity or whose accounting controls are found by experience to be weak, or who are encountering substantial difficulties in performance, full information concerning both the progress under the contracts involved (including the status of subcontracts), and concerning the contractor's other operations and financial condition, should be obtained and analyzed at frequent intervals, with a view to the better protection of the interest of the Government and the taking of such action as may be proper to make contract performance more certain. If there is reason to doubt only minor elements of the costs involved in a progress billing, only the doubtful amounts should be withheld, subject to later adjustment, and the amount clearly due should be paid without awaiting resolution of the differences. So far as practicable in each case, all cost problems, particularly those involving indirect costs, of a kind likely to create disagreements in future administration of the contract, should be identified and resolved at the inception of the contract.

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tunity for any action that may be appropriate for the protection of the Government. Particular care must be taken to assure that the unpaid balance of the contract price will be adequate to cover the anticipated cost of completion, or that the contractor has adequate resources to complete the contract if the unpaid balance of the contract price is inadequate to cover costs of completion. § 163.90-2 Use of progress payments by

contractors.

It is expected that the contractor will use the progress payments made by the Government, or equivalent amounts of money, to pay the costs incurred in the performance of the contract under which progress payments are made.

§ 163.91

Adjustments; retroactive price reduction; refunds.

When a retroactive price reduction has been made effective, i.e., by supplemental agreement or by unilateral determination pursuant to the price redetermination provision of the contract, the last sentence of § 163.79-1(b) requires adjustments so that the amount of unliquidated progress payments and the amounts paid or payable for supplies or services accepted will give effect to the price reduction. In this situation, the retroactive price reduction means that too much has been paid or billed for deliveries, and that from those delivery billings too much has been applied as a reduction of the unliquidated progress payment balance. The necessary adjustments would be (a) recomputation of total cash delivery payments on the basis of the reduced billing price resulting from the retroactive price reduction, and repayment by the contractor of the difference between the total recomputed payments and the total cash delivery payments that had been made, and (b) increase of the unliquidated progress payment balance by the excess of the total amounts previously applied to reduce the unliquidated progress payment balance over the amounts that would have been applied to reduce the unliquidated progress payment balance if the reduced delivery prices had been in effect from the date from which the redetermination is applicable. This same principle of upward adjustment of the unliquidated progress payment balance is also applicable in connection with interim refunds made by con

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When the contract price is sufficie to cover all costs of complete perfor ance, and liquidation of progress pa ments is effected by the ordinary meth (§ 163.81-1), the amount of unliquidat progress payments should automatical stay within the maximum limits stat in § 163.79-1(a)(3). For either meth of liquidation (§§ 163.81-1, 163.81-2, a 163.81-3) whenever the rate or quali of performance is unsatisfactory, or t rate of rejections is unduly high, there is excessive wastage or spoilag or a loss to the contractor is indicate careful examination should be made determine whether or not the unliqu dated progress payments exceed t maximum amounts permitted by § 163 79-1(a)(3). Also, when the alterna method of liquidation is used (§§ 163 81-2 and 163.81-3), it may occur th actual costs and future costs of pe formance are higher than the estimate costs used to establish a liquidation rat In such cases (§ 163.79–1(c)(iv)), al propriate increase of the liquidation pe centage, with or without reduction the rate of progress payments or susper sion of progress payments (§ 163.93) w be necessary to adjust for any und liquidation that may have occurred, bring the amount of unliquidated pro ress payments within the limits § 163.79-1(a) (3), and to assure the ad quacy of future liquidations. As require the services of Defense Contract Aud Agency should be utilized to the fulle extent available, together with th services of qualified cost analysis ar engineering personnel. See § 163.88 ar section III, General Instructions, D Form 1195 set forth in F200.1195. [33 F.R. 10451, July 23, 1968]

§ 163.92-1 Quarterly statements price revision contracts.

Quarterly statements submitted t contractors pursuant to the Limitatio on Payments provisions of price revisio contracts (§§ 7.108 and 7.109 of th chapter) should be compared from tim to time with the Contractor's Reque

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