32.501-1 Customary progress payment rates
Source: FAR 32.501-1 on acquisition.gov
Customary progress payment rates are capped at 80% (85% for small businesses), and higher rates require advance agency approval.
Overview
FAR 32.501-1 establishes the standard (customary) progress payment rates for government contracts. The default rate is 80% of incurred costs, but contracts with small business concerns are eligible for a higher rate of 85%. Any rate above these thresholds is considered unusual and requires advance agency approval. The regulation also prohibits authorizing a progress payment rate above the customary rate when both advance and progress payments are used in the same contract. For undefinitized contract actions, the progress payment limit is strictly 80%, and no higher rate may be authorized, even under unusual circumstances. These rules ensure consistency and fiscal responsibility in the government's payment practices during contract performance.
Key Rules
- Customary Progress Payment Rates
- Standard rate is 80% of costs; 85% for small businesses.
- Unusual Progress Payments
- Rates above customary levels require advance agency approval.
- Combined Advance and Progress Payments
- Progress payment rates cannot exceed the customary rate when both payment types are authorized.
- Undefinitized Contract Actions
- Progress payments are capped at 80%, with no exceptions for higher rates.
Responsibilities
- Contracting Officers: Must apply the correct progress payment rates, seek agency approval for higher rates, and ensure compliance for undefinitized actions and combined payment types.
- Contractors: Should be aware of the applicable progress payment rate and ensure claims do not exceed these limits.
- Agencies: Must review and approve any requests for unusual progress payment rates.
Practical Implications
- This section standardizes progress payment practices, supporting cash flow while protecting government interests.
- Contractors should not expect more than the customary rate unless specifically approved.
- Common pitfalls include unauthorized higher rates or misapplying the small business rate.
(a) The customary progress payment rate is 80 percent, applicable to the total costs of performing the contract. The customary rate for contracts with small business concerns is 85 percent.
(b) The contracting officer must-
(1) Consider any rate higher than those permitted in paragraph (a) of this section an unusual progress payment; and
(2) Not include a higher rate in a contract unless advance agency approval is obtained as prescribed in 32.501-2.
(c) When advance payments and progress payments are authorized under the same contract, the contracting officer must not authorize a progress payment rate higher than the customary rate.
(d) In accordance with https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-section3804&num=0&edition=prelim" target="_blank">10 U.S.C. 3804(b) and http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section4504(b)&num=0&edition=prelim" target="_blank">41 U.S.C. 4504(b), the limit for progress payments is 80 percent on work accomplished under undefinitized contract actions. The contracting officer must not authorize a higher rate under unusual progress payments or other customary progress payments for the undefinitized actions.