for Progress Payments in order to assure So far as reasonably possible that costs attributed to delivered items on the quarterly statements are excluded from the costs set forth as the basis for mliquidated progress payments on the DD Form 1195. If there is apparent disparity, request for completion of section II of the DD Form 1195 (§ 163.88) would e appropriate.

33 F.R. 10451, July 23, 1968]

163.93

Suspension or reduction of payments; general.

In the process of reviewing individual progress payments already existing or ereafter established, action to reduce r slow down progress payments or to ncrease liquidation rates (unless justiled on other grounds, such as overpaynents or unsatisfactory performance) hould be consistent with contract proisions, and never taken precipitately or rbitrarily. Any such reduction of progess payments on active contracts (other han liquidation pursuant to the conract) should be effected only after otice to and discussion with the conractor, and after full exploration of he contractor's financial condition, xisting or available credit arrangenents, projected cash requirements, ffect of progress payment reduction on he contractor's operations, and generlly on the equities of the particular sitation. Where contract performance is atisfactory, and there is neither overayment nor anticipated loss, proper rogress payments, adequately verified, will be paid promptly when earned and illed in accordance with contract proviions. § 163.79-1(c) provides that progess payments may be suspended or their ate of liquidation may be increased, whenever any of the circumstances there described are found to exist. The rights eserved to the Government by that pargraph are for the purpose of protecting the interests of the Government, fosterng satisfactory contract performance, and guarding against overpayments and losses. That paragraph will be administered with these purposes in mind. Action taken pursuant to that paragraph will be fair and reasonable under the circumstances of particular cases, and Supported by substantial evidence. Findings made under that paragraph will be in writing.

Except for the purpose of correcting overpayments or obtaining amounts due from the contractor, action will not be taken pursuant to § 163.79-1(c) (1) for failure to comply with a requirement of the contract, if such failure has resulted solely from causes beyond the control and without the fault or negligence of the contractor. For examples of such causes, see paragraph (c) of the Default clause in § 8.707 of this chapter. Compliance with the material requirements of the contract, within the meaning of § 163.79-1 (c) (i) includes compliance with all provisions of the Progress Payment clause.

[33 F.R. 10451, July 23, 1968] § 163.93-2

dition.

Unsatisfactory financial con

If unsatisfactory financial condition, or failure to make progress, endangering contract performance, as described in § 163.79-1(c) (ii) is found to exist, arrangements reasonably assuring contract completion without loss to the Government will be required in connection with the making of further progress payments and the making of other payments so long as progress payments are unliquidated. Within the meaning of § 163.79-1 (c) (ii), performance of the contract includes full liquidation of progress payments. Further payments will be withheld so long as any progress payments remain unliquidated, only upon full consideration of all pertinent facts, and upon concluding that further payments will serve to increase the probable loss to the Government. [33 F.R. 10451, July 23, 1968]

§ 163.93-3 Excessive inventory.

When inventory allocated to the contract is found substantially to exceed reasonable requirements (§ 163.79-1(c) (iii)), the simplest form of adjustment to correct or avoid overpayment will be to eliminate the costs of such excess inventory from the costs shown in item 7 of the contractor's request set out in DD Form 1195. If that is not regarded as sufficient in a particular case, or if the adjustment in item 7 of the request will not accomplish full correction, additional deductions, to the extent necessary for the correction, should be made,

to liquidate progress payments, incident to billings for payments other than progress payments. Transfer of such excess inventory from the contract should also be required. The expression "reasonable requirements" includes a reasonable accumulation of inventory for future use to assure continuity of operations. [33 F.R. 10451, July 23, 1968]

§ 163.93-4 Delinquency in payment of costs of performance.

The contractor's delinquency in payment of costs of contract performance in the ordinary course of business (§ 163.79(c) (iv)) may be an indication of unsatisfactory financial condition or other circumstances endangering contract performance and involving probability of loss to the Government. If such delinquency is not connected with poor financial condition that is so unsatisfactory as to endanger contract performance or to involve reasonably foreseeable loss to the Government, further progress payments and other payments will not necessarily be denied to protect the unliquidated progress payments and minimize risks of additional losses, and payments may be continued at the contract rate, or in reduced amounts, in connection with appropriate arrangements to (a) cure the contractor's delinquencies in payment of his costs of contract performance, (b) avoid further delinquencies, and (c) reasonably assure completion of the contract without loss to the Government. (See also § 163.93– 3.) Amounts claimed by subcontractors, suppliers and others, but disputed in good faith by the contractor, should not be considered delinquent until determined due by a court (or by arbitration if applicable). However, any such disputed amounts shall be excluded from costs of performance so long as they are disputed.

[33 F.R. 10451, July 23, 1968]

engineering, inspection, and cost analy services) will give full consideration the degree of completion of contract pe formance, the quality and amount work performed on the undelivered po tion of the contract, the amount of wo remaining to be done and the estimat costs of completion of performance, a the amount remaining unpaid under t contract. If the contracting officer fin that the fair value of the work done u der the undelivered portion of the co tract, in relation to the contract pri is less than the unliquidated progre payments, his actions will be govern by the principles stated in §§ 163.93 and 163.93-4. This fair value could n exceed the contract price of undeliver work under the contract, less the est mated total future costs of completi of the contract. When this fair value found to be less than the amount of t unliquidated progress payments, all fu ther payments on the contract will controlled in such a manner as to ho the unliquidated progress paymen within the fair value of the work do on the undelivered portion of the co tract. See also § 163.94-1.

[33 F.R. 10452, July 23, 1968]

§ 163.94 Government title.

Since the clause in § 163.79 gives t Government title to all of the materia work in process, and finished goods und contracts, care should be taken to assur to the extent reasonably necessary, th the title to the Government will be fr of all encumbrances. The procedure this respect will necessarily vary with t particular circumstances of individu cases. Ordinarily, in the absence of re son to believe that the Government tit may be subject to encumbrance, the co tractor's certificate will be relied on. any arrangements or conditions a found that would impair the contracto right of disposition of the proper affected by the progress payments, a propriate arrangements should be ma to establish and protect the Governme title. The existence of any such encun brance is a violation of the contracto obligations under the contract. [33 F.R. 10452, July 23, 1968]

§ 163.94-1 Loss, theft, destruction, damage.

Section 163.79-1(e) is not intended apply to normal spoilage. The risk

loss as to property affected by the Progress Payment clause is on the contractor, except to the extent that by some special provision of the contract (such as that relating to aircraft in the open) the Government shall have expressly assumed the risk of loss. Such express assumption of risk by the Government is not made in the Progress Payment clause, the Default clause, or the Termination clause. Because of problems of administering the contract, especially those connected with property responsibility and inventory control, the risk of loss on property to which the Government holds title because of progress payments must be on the contractor to the same extent that it would be if the contractor held title to the property. This risk of loss carries with it the accompanying duty to repay to the Government the amount of unliquidated progress payments based on cost allocable to lost, stolen, or destroyed property or to the damaged portion of the property. If the Government has expressly assumed particular risks of loss, then, to the extent of such express asumption of risk by the Government, the contractor would not be obligated to repay to the Government the amount of unliquidated progress payments based on costs allocable to such lost, stolen, destroyed, or damaged property. See, however, § 163.78–1(c) (v), as to future payments on the contract after such loss, damage, theft, or destruction.

[33 F.R. 10452, July 23, 1968] $163.94-2

Government property.

Contract provisions referring to or defining liability for Government property do not apply to property to which the Government has title solely pursuant to the provisions of the Progress Payment clause (§ 163.79-1(d)). Property to which the Government has title solely pursuant to the Progress Payment clause is not subject to §§ 30.2 and 30.3 of this chapter.

[33 F.R. 10452, July 23, 1968] $163.94-3

Special tooling.

When the contractor furnishes special tooling as defined in § 13.101-5 of this chapter, pursuant to a special tooling clause (see § 13.704 of this chapter), and such special tooling is not to be delivered to the Government as an end item under the contract, the handling and disposition of such special tooling will be governed by the Special Tooling clause of

the contract, even though title to such special tooling is held by the Government pursuant to the progress payment clause of the contract.

[30 F.R. 1978, Feb. 12, 1965]

§ 163.94-4 Termination for convenience of the Government.

After the giving of notice of termination under contract provision for Termination for the Convenience of the Government, the property to which the Government has title pursuant to the Progress Payment clause and which is a part of termination inventory will be acquired or disposed of in accordance with the provisions of the termination clause of the contract and of applicable laws and regulations. The acquisition or disposition of such termination inventory shall be governed by the termination clause, even though title to all or a portion of such inventory is in the Government pursuant to the progress payment clause of the contract.

§ 163.94-5 Scrap; excess property.

(a) In the course of proper performance of contracts, contractors are permitted to sell or otherwise dispose of current production scrap in the ordinary course of business, notwithstanding the Government's title under the progress payment clause. Permission of the contracting officer for such disposal of scrap is not required. With the permission of the contracting officer and on terms approved by him, contractors may also acquire or dispose of materials, inventories, or work in process to which the Government has acquired title pursuant to the progress payment clause of the contract, including transfer of such property to other work of the contractor. Proceeds of scrap disposal will be credited against the costs of contract performance. Costs allocable to property, other than scrap, so transferred from the contract will be eliminated from the costs of contract performance, and the contractor shall be required to repay to the Government (by cash or credit memorandum) an amount equal to the unliquidated progress payments allocable to the property so transferred from the contract.

(b) When (1) the contractor has completed all work called for by the contract, and (2) such work has been delivered to and accepted by the Government, and (3) progress payments made

under the contract have been fully liquidated, and (4) the contractor has fully performed all his obligations under the contract (including the making of any payments to which the Government may be entitled under the contract, and including compliance with any other provisions of the contract, such as the Termination clause or the Special Tooling clause or the Government property clause), any excess property remaining is to be regarded as having not been allocated or properly chargeable to the contract under sound and generally accepted accounting principles and practices, and thus outside the scope of the Progress Payment clause which would have vested title in the Government. Accordingly, the contractor holds title to such excess property and may deal with it as he desires.

[25 F.R. 14420, Dec. 31, 1960, as amended at 30 F.R. 1978, Feb. 12, 1965]

§ 163.95 Consideration for progress payments; awards.

When a Progress Payment clause is included at the inception of a contract, there shall be no separate consideration for the Progress Payment clause. The worth of the Progress Payment clause to the contractor is expected to be reflected in one or both of (a) a bid or negotiated price that will be lower than such price would have been if provision had not been made for progress payments, or (b) contract terms and conditions, other than price, that are more beneficial to the Government than they would have been if provision had not been made for progress payments.

[33 F.R. 10452, July 23, 1968]

§ 163.96

Amendments to provide progress payments.

There should be ordinarily no occasion to amend contracts to provide for progress payments unless there has been material change from the circumstances contemplated by the parties when invitations for bids were issued or the contract was entered into without progress payment provisions. However, cases do occur in which the actual lead time or preparatory period between the beginning of work and the first delivery substantially exceeds the estimated lead time and in fact runs or will run over 6 months (§ 163.72) or in which unusual circumstances bring about unexpected substantial accumulation of predelivery costs having material impact on the con

tractor's working funds (§ 163.74). The cases may arise from occurrences suc as (a) uncertainties or errors in specif cations, (b) contract change notices, ( Government delays in testing, inspe tion, furnishing of material or equip ment, furnishing of stock number packaging or shipping instructions shipping documents, or completion contract supplements, (d) stretch-ou or stop-work orders, (e) performan difficulties of subcontractors or supplier and (f) causes beyond the control ar without the fault or negligence of th contractor, of the kinds mentioned paragraph (c) in § 8.707 of this chapte In these kinds of cases, requests of co tractors for amendments to provi progress payments should be considere promptly, in the light of the circum stances then existing. If the circun stances then existing approximate co ditions under which progress paymen would have been properly provided conformity with this part at contra inception, if the new circumstances ha been foreseen, progress payments shou be provided by amendment. In this con nection, see particularly §§ 163.15, 163.1 163.18, 163.19, 163.20, 163.23, 163.23163.74, and 163.97. In conformity wit the standards and procedures of § 163.7 unusual progress payments may be pr vided by amendment.

[33 F.R. 10452, July 23, 1968]

§ 163.97 Consideration for amendmen concerning progress payments.

Contracts may not be modified excer in the interest of the Government. Con tracts may be amended to provide fo progress payments or larger progres payments or reduced liquidation rate only when the amendment provides ne and valuable consideration moving to th Government. Appropriate price redu tion may provide this consideration. I the varying circumstances of individu cases, the consideration for progres payments need not necessarily be mone tary. Agreements by the contracto incorporated in such an amendment, fo the benefit of and substantially advan tageous to the Government, may consti tute sufficient consideration for a amendment providing for progress pay ments. When estimated financing cost have been included as an elemen (whether or not identified) in the con tract price, it is fair to expect elimina tion of the applicable portion of tha element of the price when progress pay

ments or larger progress payments or reduced liquidation rates are provided by amendment. The fair and reasonable Consideration for the progress payment amendment should approximate in a value as nearly as practically ascertainable the amount by which the contract price would have been smaller if the progress payment amendment had been ontained in the contract in the first nstance. In the absence of definite information on this point, pertinent factors for estimating the fair and reasonble amount of consideration would nclude (a) the amounts of progress paynents expected to be outstanding for estimated periods of time, (b) the cost of quivalent working funds to the conractor, and (c) the estimated profit rate expected to be earned by contract performance. If not accomplished by a contract price reduction, other concesions or agreement by the contractor, advantageous to the Government and ncorporated in the amendment, may be fairly evaluated and accepted as being of value reasonably equivalent to a price reduction. This consideration should be such as is fair, equitable and reasonable In the light of the circumstances of each tase. See § 163.96. This consideration should be for the progress payment amendment, and there shall be no provision for interest or other specific charge for progress payments.

[33 F.R. 10452, July 23, 1968]

Subpart F-Contract Debts; Interest; Deferred Payments

AUTHORITY: §§ 163.98 to 163.122 issued under secs. 2301-2314, 70A Stat. 127-133; 10 U.S.C. 2301-2314.

SOURCE: The provisions of this Subpart F appear at 27 F.R. 2831, Mar. 28, 1962, unless otherwise noted.

Insofar as possible, this subpart shall be applied to subcontractors who are indebted to the Government, the same as to prime contractors. Accordingly, for the purpose of this subpart (except §§ 163.118 and 163.102-1) the terms "contract" and "contractor" include subcontracts and subcontractors, and the terms "debt" and "indebtedness" include the debts of subcontractors to the Government.

§ 163.98-3 Purchasers, lessees, bailees, and others.

For the purpose of this subpart, the term "contract" includes agreements or arrangements for the sale or use of Government property of any kind, or for the receipt of Government services, and the term "contractor" includes the parties to such arrangements or agreements relating to Government property or services.

§ 163.99 Examples.

Indebtedness to the Government occurs in various ways. Examples include:

(a) Damages or excess costs incident to defaults in performance;

(b) Breach of contract obligations concerning progress payments, advance payments, or Government-furnished property or material;

(c) Delinquency in rentals;

(d) Delinquency in payment of price of property purchased from the Government;

(e) Expense of correction of defects; (f) Overpayments incident to errors in quantity, deficiencies in quality, or errors in billing;

(g) Retroactive price reductions resulting from contract provisions for price