32.110 Payment of subcontractors under cost-reimbursement prime contracts
Source: FAR 32.110 on acquisition.gov
Only financing payments to subcontractors that strictly follow FAR-prescribed criteria and payment terms are reimbursable under cost-reimbursement prime contracts.
Overview
FAR 32.110 outlines the conditions under which a contracting officer may accept financing payments made by a prime contractor to its subcontractors as reimbursable costs under cost-reimbursement prime contracts. The regulation ensures that such payments are only reimbursed if they adhere to specific criteria regarding progress payments, performance-based payments, and commercial product/service purchase financing. It also requires that the subcontract includes appropriate financing payment terms and that all payment and liquidation practices align with referenced FAR subparts and sections. This section is designed to prevent improper or excessive reimbursement of subcontractor financing payments and to maintain consistency with federal payment standards.
Key Rules
- Criteria for Reimbursable Payments
- Financing payments to subcontractors are only reimbursable if they meet the criteria in FAR subpart 32.5 (progress payments), 32.202-1 (commercial purchase financing), or 32.1003 (performance-based payments).
- Progress Payment Limits
- Customary progress payments must not exceed the rate specified in FAR 32.501-1 unless higher rates are approved per FAR 32.501-2.
- Liquidation Principles
- Subcontractors must comply with liquidation requirements in FAR 32.503-8, 32.503-9, and 32.503-10 for progress payments, or FAR 32.1004(d) for performance-based payments.
- Financing Terms in Subcontracts
- Subcontracts must include financing payment terms as prescribed in FAR Part 32.
Responsibilities
- Contracting Officers: Ensure all subcontractor financing payments claimed as reimbursable meet the specified FAR criteria and are properly documented.
- Contractors: Make financing payments to subcontractors only under compliant terms and ensure subcontracts include required payment provisions.
- Agencies: Oversee and audit compliance with these payment requirements to prevent improper reimbursement.
Practical Implications
- This section exists to safeguard government funds by ensuring only legitimate, properly structured subcontractor financing payments are reimbursed.
- Contractors must be diligent in structuring subcontracts and documenting payments to avoid disallowance of costs.
- Common pitfalls include exceeding allowable progress payment rates or failing to include required financing terms in subcontracts.
If the contractor makes financing payments to a subcontractor under a cost-reimbursement prime contract, the contracting officer should accept the financing payments as reimbursable costs of the prime contract only under the following conditions:
(a) The payments are made under the criteria in subpart 32.5 for customary progress payments based on costs, 32.202-1 for commercial product or commercial service purchase financing, or 32.1003 for performance-based payments, as applicable.
(b) If customary progress payments are made, the payments do not exceed the progress payment rate in 32.501-1, unless unusual progress payments to the subcontractor have been approved in accordance with 32.501-2.
(c) If customary progress payments are made, the subcontractor complies with the liquidation principles of 32.503-8, 32.503-9, and 32.503-10.
(d) If performance-based payments are made, the subcontractor complies with the liquidation principles of 32.1004(d).
(e) The subcontract contains financing payments terms as prescribed in this part.