32.503-10 Establishing alternate liquidation rates
Source: FAR 32.503-10 on acquisition.gov
Contracting officers must set and document a liquidation rate high enough to ensure the government recoups progress payments, using a specific calculation and rounding method.
Overview
FAR 32.503-10 outlines the procedures for establishing alternate liquidation rates for progress payments in government contracts. The regulation ensures that the liquidation rate is set high enough to allow the government to recoup progress payments with each billing and requires proper documentation in the contract file. It provides a formula for calculating the minimum liquidation rate, which is the expected progress payments divided by the contract price. The contracting officer must estimate the cost of contract performance and apply the progress payment rate, with adjustments allowed for authorized but unpriced work and economic changes, as long as these do not exceed the government’s estimate or obligated funds. The section also specifies how to round the liquidation rate to tenths of a percent, always rounding up to avoid underestimating the rate.
Key Rules
- Liquidation Rate Adequacy
- The liquidation rate must ensure the government recoups progress payments on each billing and be properly documented.
- Calculation Method
- The minimum liquidation rate is calculated as expected progress payments divided by the contract price, with adjustments for authorized work and economic changes.
- Rounding Requirement
- Liquidation rates are rounded up to the next highest tenth of a percent to ensure compliance.
Responsibilities
- Contracting Officers: Must calculate, document, and justify the liquidation rate, ensuring it meets regulatory requirements and is properly recorded in the contract file.
- Contractors: Must comply with the established liquidation rate and provide necessary information for accurate calculation.
- Agencies: Must oversee and ensure proper application and documentation of liquidation rates.
Practical Implications
- This section ensures the government does not lose money through under-recovered progress payments and provides a clear, auditable process for setting liquidation rates. Contractors should be aware of how these rates are calculated, as they directly impact payment flows and contract administration. Common pitfalls include miscalculating the rate, failing to document the process, or not rounding correctly, all of which can lead to compliance issues or payment disputes.
(a) The contracting officer must ensure that the liquidation rate is-
(1) High enough to result in Government recoupment of the applicable progress payments on each billing; and
(2) Supported by documentation included in the administration office contract file.
(b) The minimum liquidation rate is the expected progress payments divided by the contract price.Each of these factors is discussed below:
(1) The contracting officer must compute the expected progress payments by multiplying the estimated cost of performing the contract by the progress payment rate.
(2) For purposes of computing the liquidation rate, the contracting officer may adjust the estimated cost and the contract price to include the estimated value of any work authorized but not yet priced and any projected economic adjustments; however, the contracting officer’s adjustment must not exceed the Government’s estimate of the price of all authorized work or the funds obligated for the contract.
(3) The following are examples of the computation. Assuming an estimated price of $2,200,000 and total estimated costs eligible for progress payments of $2,000,000:
(i) If the progress payment rate is 80 percent, the minimum liquidation rate should be 72.7 percent, computed as follows:
(ii) If the progress payment rate is 85 percent, the minimum liquidation rate should be 77.3 percent, computed as follows:
(4) Minimum liquidation rates will generally be expressed to tenths of apercent. Decimals between tenths will be rounded up to the next highest tenth (not necessarily the nearest tenth), since rounding down would produce a rate below the minimum rate calculated.