Customary progress payment rates
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.