Establishing alternate liquidation rates
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.