32.1004
Procedures
Performance-based payments must be tied to clearly defined, verifiable performance events or criteria, with payment amounts and liquidation methods fully documented and compliant with regulatory limits.
Overview
FAR 32.1004 outlines the procedures for establishing and administering performance-based payments (PBPs) in government contracts. It details how PBPs can be structured either on a whole contract or deliverable item basis, and provides specific requirements for defining performance events or criteria, setting payment amounts, and ensuring proper liquidation and distribution of payments. The section also addresses procedures for contracts funded by multiple appropriations and requirements for competitive solicitations involving PBPs.
Key Rules
- Basis for PBPs
- PBPs may be based on either the entire contract or specific deliverable items, with clear definitions for each approach. Events or criteria triggering payments must be integral to contract performance and verifiable.
- Defining Events and Criteria
- Events/criteria must be meaningful, specifically described, and not simply administrative milestones. Severable and cumulative events must be clearly identified, with dependencies and preconditions documented.
- Establishing Payment Amounts
- Payment schedules and amounts must be fully defined in the contract, not exceed 90% of the contract or deliverable item price, and reflect prudent financing. Payment amounts must be commensurate with the value of the performance event.
- Liquidation of PBPs
- PBPs are liquidated by deducting amounts from delivery payments, with the method and rate specified in the contract to ensure full liquidation by final payment.
- Multiple Appropriations
- When multiple appropriations fund a contract, the contracting officer must provide payment distribution instructions consistent with liquidation provisions.
- Competitive Solicitations
- Solicitations must specify required PBP terms and evaluation methods. Proposed terms must comply with regulations, and price evaluations may include adjustments for the cost of PBPs.
Responsibilities
- Contracting Officers: Define and document performance events/criteria, set payment schedules, ensure compliance with limits, provide liquidation and distribution instructions, and review/evaluate proposed PBP terms.
- Contractors: Propose and comply with defined performance events/criteria, provide expenditure profiles if requested, and ensure deliverables align with payment triggers.
- Agencies: Oversee compliance, prescribe additional procedures if needed, and ensure proper evaluation of PBPs in solicitations.
Practical Implications
- This section ensures PBPs are tied to meaningful, verifiable contract performance, protecting government interests and ensuring prudent financing. Contractors must carefully structure proposals and documentation to align with these requirements. Common pitfalls include using administrative milestones as payment triggers, exceeding payment limits, or failing to properly document dependencies and liquidation methods.