Subpart 32.10
Performance-Based Payments
Performance-based payments link contract financing to the achievement of measurable milestones, incentivizing contractor performance and reducing administrative oversight.
Overview
FAR Subpart 32.10 establishes the regulatory framework for performance-based payments (PBPs) as a method of contract financing in federal acquisitions. PBPs are payments made to contractors based on the achievement of specific performance milestones or measurable outcomes, rather than on incurred costs. This subpart outlines the policy favoring PBPs, the bases and criteria for their use, required procedures, solicitation provisions, contract clauses, and the administration, suspension, or reduction of such payments. It also addresses issues of title and risk of loss associated with PBPs. The subpart is designed to encourage efficient contractor performance and reduce administrative burden by linking payments to results rather than process.
Key Rules
- Policy Favoring PBPs
- PBPs are preferred over progress payments when the contract and contractor are suitable, as they incentivize performance and reduce government oversight.
- Bases and Criteria for PBPs
- PBPs must be based on objective, measurable events or outcomes, and their use is subject to specific criteria, including risk assessment and mutual agreement.
- Procedures and Clauses
- Contracting officers must follow prescribed procedures, include required solicitation provisions and contract clauses, and ensure proper administration of PBPs.
- Administration and Adjustments
- The subpart details how PBPs are to be administered, including the process for payment, suspension, reduction, and handling of title and risk of loss.
Responsibilities
- Contracting Officers: Must determine suitability, negotiate milestones, include required clauses, and administer PBPs in accordance with regulations.
- Contractors: Must propose and achieve agreed-upon performance milestones, maintain documentation, and comply with contract terms.
- Agencies: Oversee proper use of PBPs, ensure compliance, and manage risk.
Practical Implications
- PBPs streamline contract financing by tying payments to results, reducing administrative burden and financial risk for both parties.
- Contractors must carefully define and document milestones to ensure timely payment.
- Failure to meet milestones or comply with requirements can result in suspension or reduction of payments, impacting cash flow.