32.503-9 Liquidation rates-alternate method
Source: FAR 32.503-9 on acquisition.gov
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.
(a) The liquidation rate determined under 32.503-8 shall apply throughout the period of contract performance unless the contracting officer adjusts the liquidation rate under the alternate method in this 32.503-9. The objective of the alternate liquidation rate method is to permit the contractor to retain the earned profit element of the contract prices for completed items in the liquidation process. The contracting officer may reduce the liquidation rate if-
(1) The contractor requests a reduction in the rate;
(2) The rate has not been reduced in the preceding 12 months;
(3) The contract delivery schedule extends at least 18 months from the contract award date;
(4) Data on actual costs are available-
(i) For the products delivered, or
(ii) If no deliveries have been made, for a performance period of at least 12 months;
(5) The reduced liquidation rate would result in the Government recouping under each invoice the full extent of the progress payments applicable to the costs allocable to that invoice;
(6) The contractor would not be paid for more than the costs of items delivered and accepted (less allocable progress payments) and the earned profit on those items;
(7) The unliquidated progress payments would not exceed the limit prescribed in paragraph (a)(5) of the Progress Payments clause;
(8) The parties agree on an appropriate rate; and
(9) The contractor agrees to certify annually, or more often if requested by the contracting officer, that the alternate rate continues to meet the conditions of subsections5, 6, and 7 of this section.The certificate must be accompanied by adequate supporting information.
(b) The contracting officer shall change the liquidation rate in the following circumstances:
(1) The rate shall be increased for both previous and subsequent transactions, if the contractor experiences a lower profit rate than the rate anticipated at the time the liquidation rate was associated with contract items already delivered, as well as subsequent progress payments.
(2) The rate shall be increased or decreased in keeping with the successive changes to the contract price or target profit when-
(i) The target profit is changed under a fixed-price incentive contract with successive targets; or
(ii) A redetermined price involves a change in the profit element under a contract with prospective price redetermination at stated intervals.
(c) Whenever the liquidation rate is changed, the contracting officer shall issue a contract modification to specify the new rate in the Progress Payments clause.Adequate consideration for these contract modifications is provided by the consideration included in the initial contract.The parties shall promptly make the payment or liquidation required in the circumstances.