Initiation of progress payments and review of accounting system
Progress payments are routinely approved only for contractors with proven reliability, adequate accounting systems, and sound finances; others require additional review and safeguards.
Overview
FAR 32.503-3 outlines the requirements for initiating progress payments to contractors and the review of their accounting systems. The regulation distinguishes between contractors with a proven track record and adequate systems, and those without such assurances. For reliable contractors with adequate accounting systems and sound financial condition, progress payments should be approved routinely. For all other contractors, the Administrative Contracting Officer (ACO) must first determine the contractor’s ability to liquidate progress payments or ensure the government is otherwise protected, and confirm the adequacy of the contractor’s accounting system. The ACO should utilize audit agency services as much as possible, but a full audit may not always be required if the auditor advises otherwise.
Key Rules
- Routine Approval for Reliable Contractors
- Contractors with a satisfactory performance history, adequate accounting systems, and sound finances are eligible for routine progress payment approval.
- Additional Scrutiny for Other Contractors
- For contractors lacking these assurances, the ACO must assess financial capability and accounting adequacy before approving payments, using audit support as needed.
Responsibilities
- Contracting Officers: Must evaluate contractor reliability, accounting systems, and financial condition before approving progress payments; use audit resources as appropriate.
- Contractors: Must maintain adequate accounting systems and demonstrate financial soundness to qualify for routine progress payments.
- Agencies: Should provide audit support and guidance to ACOs in evaluating contractors.
Practical Implications
- This section ensures that government funds are protected by requiring due diligence before releasing progress payments, especially to less-established contractors.
- Contractors with strong systems and histories benefit from streamlined payment processes, while others face additional scrutiny.
- Common pitfalls include inadequate accounting systems or insufficient financial documentation, which can delay payments.