32.504
Subcontracts under prime contracts providing progress payments
Contractors must ensure subcontract financing terms and payments comply with FAR requirements, flow down the correct clauses, and maintain robust management controls to protect government interests.
Overview
FAR 32.504 outlines the requirements for including financing payments, such as progress payments, performance-based payments, or commercial product/service purchase financing, in subcontracts under prime contracts that provide for progress payments. It establishes the conditions under which these payments may be made, the obligations of the contractor regarding payment timing and management controls, and the necessary flow-down clauses and modifications to ensure compliance with government requirements. The section also details how unusual progress payments to subcontractors are handled and clarifies the responsibilities for title to property and access to records under such arrangements.
Key Rules
- Types of Subcontract Financing
- Subcontracts may include either performance-based payments or progress payments (not both), provided they meet the relevant FAR criteria. Commercial subcontracts may use commercial financing if compliant with FAR 32.202-1.
- Inclusion in Progress Payment Requests
- Contractors may include both paid and unpaid financing payments to subcontractors in their progress payment requests, but unpaid amounts must be due and payable within 30 days of the request.
- Unusual Progress Payments
- If unusual progress payments are approved for a subcontractor, a contract modification is required to adjust the prime contract’s progress payment rate, but this is not considered a deviation.
- Contractor Oversight and Controls
- Contractors must ensure their payments to subcontractors comply with the standards in the Progress Payments clause and maintain adequate management controls and internal audits.
- Required Flow-Down Clauses
- Subcontracts must include the substance of the Progress Payments or Performance-Based Payments clauses, with specific modifications regarding title to property, access to records, and default provisions.
- Commercial Financing Clauses
- Subcontracts using commercial financing must include a clause structured per FAR 32.206.
Responsibilities
- Contracting Officers: Review and approve unusual progress payments, ensure contractors have proper management controls, and issue contract modifications as needed.
- Contractors: Ensure subcontract financing terms comply with FAR, flow down required clauses, pay subcontractors timely, and maintain internal controls.
- Agencies: Oversee contractor compliance and review management systems as part of contract administration.
Practical Implications
- This section ensures that government interests are protected in subcontract financing arrangements and that contractors maintain proper oversight and timely payment to subcontractors. Failure to flow down required clauses or to maintain adequate controls can result in noncompliance, payment delays, or audit findings.