32.1003
Criteria for use
Performance-based payments can only be used for fixed-price contracts or orders when both parties agree and no progress payments are provided for the same work.
Overview
FAR 32.1003 establishes the criteria under which contracting officers may authorize performance-based payments (PBPs) for government contracts and orders. PBPs are a method of contract financing where payments are made based on the achievement of specific performance milestones, rather than on incurred costs. This section outlines the necessary conditions that must be met before PBPs can be used, focusing on agreement between parties, contract type, and the exclusion of progress payments.
Key Rules
- Agreement on Terms
- Both the contracting officer and the offeror must mutually agree on the terms for performance-based payments.
- Fixed-Price Requirement
- PBPs can only be used for contracts, orders, or line items that are of a fixed-price type.
- No Progress Payments (Indefinite Delivery Contracts)
- For indefinite delivery contracts, PBPs are only allowed if the individual order does not provide for progress payments.
- No Progress Payments (Other Contracts)
- For all other contracts, PBPs are only allowed if the contract itself does not provide for progress payments.
Responsibilities
- Contracting Officers: Must ensure all criteria are met before authorizing PBPs and must negotiate and document agreement on payment terms.
- Contractors: Must agree to the PBP terms and ensure their contract or order does not include progress payments if PBPs are to be used.
- Agencies: Should oversee compliance with these criteria and ensure proper contract administration.
Practical Implications
- This section ensures PBPs are only used when both parties agree and when the contract structure supports milestone-based payments, reducing risk of double financing (PBPs and progress payments). Contractors should carefully review contract terms to ensure eligibility and avoid conflicts between payment methods.