32.501-3 Contract price
Source: FAR 32.501-3 on acquisition.gov
Contract price calculations for progress payments must align with contract type and cannot exceed the funds currently obligated under the contract.
Overview
FAR 32.501-3 defines how the contract price is determined for the purposes of making and limiting progress payments under various types of fixed-price contracts. It clarifies what constitutes the contract price in different scenarios, such as firm-fixed-price, redeterminable, fixed-price incentive, letter contracts, and unpriced orders. The section also specifies that any cost-reimbursement portions are excluded from the contract price calculation for progress payments. Additionally, it prohibits contracting officers from authorizing progress payments or increasing the contract price beyond the funds currently obligated under the contract, ensuring fiscal responsibility and compliance with funding limitations.
Key Rules
- Firm-Fixed-Price Contracts
- The contract price includes the fixed amount plus any not-to-exceed amounts for unpriced modifications.
- Redeterminable/Economic Price Adjustment Contracts
- The initial contract price is used until formally modified.
- Fixed-Price Incentive Contracts
- The contract price is the target price plus not-to-exceed amounts for unpriced modifications; provisional increases up to the ceiling are allowed if costs exceed the target price.
- Letter Contracts
- The contract price is the maximum amount obligated, as modified.
- Unpriced Orders Against BOAs
- The contract price is the maximum amount obligated by the order, as modified.
- Exclusion of Cost-Reimbursement Portions
- Any cost-only reimbursement portions are excluded from the contract price for progress payment purposes.
- Limitation on Progress Payments
- Progress payments cannot exceed the funds obligated under the contract.
Responsibilities
- Contracting Officers: Must calculate contract price according to contract type, exclude cost-reimbursement portions, and ensure payments do not exceed obligated funds.
- Contractors: Must understand how their contract type affects progress payment calculations and ensure compliance with funding limitations.
- Agencies: Must oversee that progress payments and contract price adjustments adhere to funding and regulatory requirements.
Practical Implications
- This section ensures clarity and consistency in determining the contract price for progress payments, reducing risk of overpayment or funding violations.
- Contractors must be aware of how contract modifications and types affect their cash flow and payment eligibility.
- Common pitfalls include miscalculating the contract price or requesting payments beyond obligated funds, which can result in payment delays or compliance issues.
(a) For the purpose of making progress payments and determining the limitation on progress payments, the contract price shall be as follows:
(1) Under firm-fixed price contracts, the contract price is the current amount fixed by the contract plus the not-to-exceed amount for any unpriced modifications.
(2) If the contract is redeterminable or subject to economic price adjustment, the contract price is the initial price until modified.
(3) Under a fixed-price incentive contract, the contract price is the target price plus the not-to-exceed amount of unpriced modifications. However, if the contractor’s properly incurred costs exceed the target price, the contracting officer may provisionally increase the price up to the ceiling or maximum price.
(4) Under a letter contract, the contract price is the maximum amount obligated by the contract as modified.
(5) Under an unpriced order issued against a basic ordering agreement, the contract price is the maximum amount obligated by the order, as modified.
(6) Any portion of the contract specifically providing for reimbursement of costs only shall be excluded from the contract price.
(b) The contracting officer shall not make progress payments or increase the contract price beyond the funds obligated under the contract, as amended.