Liquidation rates-alternate method
FAR 32.503-9 allows for an alternate liquidation rate method in progress payment contracts, provided strict conditions and ongoing certification are met, ensuring both contractor profit retention and government recoupment.
Overview
FAR 32.503-9 outlines the alternate method for adjusting liquidation rates on contracts with progress payments. The alternate method allows the contracting officer to reduce the liquidation rate, enabling contractors to retain the earned profit element of contract prices for completed items, provided specific conditions are met. These include a contractor request, no reduction in the past 12 months, a delivery schedule of at least 18 months, availability of actual cost data, and agreement between the parties. The regulation also requires annual certification from the contractor that the alternate rate remains compliant. The contracting officer must adjust the rate if profit rates change or if contract price/profit targets are modified, and all changes must be formalized through contract modification.
Key Rules
- Alternate Liquidation Rate Eligibility
- The contracting officer may reduce the liquidation rate if nine specific conditions are met, including contractor request, delivery schedule length, cost data availability, and annual certification.
- Mandatory Rate Adjustments
- The liquidation rate must be increased or decreased if actual profit rates or contract price/profit targets change.
- Contract Modification Requirement
- Any change to the liquidation rate must be documented via a contract modification specifying the new rate in the Progress Payments clause.
Responsibilities
- Contracting Officers: Evaluate requests, ensure all conditions are met, adjust rates as required, and issue contract modifications.
- Contractors: Request rate reductions, provide supporting cost data, agree to new rates, and certify ongoing compliance with alternate rate conditions.
- Agencies: Oversee compliance and ensure proper documentation and payment adjustments.
Practical Implications
This section provides flexibility in progress payment liquidation, helping contractors manage cash flow while protecting government interests. Contractors must maintain accurate records and be proactive in certification and communication. Failure to comply can result in payment issues or contract disputes.