49.112-1 Partial payments
Source: FAR 49.112-1 on acquisition.gov
FAR 49.112-1 establishes strict procedures and limits for partial payments after contract termination, requiring proper documentation, TCO approval, and safeguards to protect government interests.
Overview
FAR 49.112-1 outlines the procedures and requirements for partial payments to contractors and subcontractors following the termination of a government contract. It details how and when partial payments can be requested, the documentation required, the limits on payment amounts, and the responsibilities of both contractors and the Termination Contracting Officer (TCO). The regulation ensures that partial payments are made fairly, securely, and in accordance with the government’s interests during the settlement process after contract termination.
Key Rules
- Requesting Partial Payments
- Prime contractors may request partial payments using the prescribed form after submitting interim or final settlement proposals. Subcontractors must apply through the prime contractor.
- Limits on Payment Amounts
- The TCO may authorize partial payments up to specified percentages of contract price, subcontract settlements, termination inventory, and allowable costs.
- Assignment of Claims
- If claims are assigned, partial payments must be made to the assignee unless written consent is provided.
- Security for Payments
- The TCO must secure the government’s interest in completed items or inventory through title, liens, or other means.
- Deductions and Overpayments
- Deductions for unliquidated advances and credits must be made, and any overpayments must be repaid with interest.
- Certification and Approval
- Contractors must certify partial payment requests, and the TCO must approve them in writing.
Responsibilities
- Contracting Officers (TCOs): Review and approve partial payment requests, ensure proper deductions, secure government interests, and monitor overpayments.
- Contractors: Submit certified requests for partial payments, ensure proper documentation, and repay any overpayments with interest if required.
- Agencies: Oversee compliance with payment procedures and protect government financial interests.
Practical Implications
- This section provides a structured process for contractors to receive partial payments after contract termination, helping maintain cash flow during settlement. It protects the government from overpayment and ensures proper handling of claims, inventory, and documentation. Common pitfalls include failing to secure proper documentation, not making required deductions, or mishandling assignments of claims.
(a) General. If the contract authorizes partial payments on settlement proposals before settlement, a prime contractor may request them on the form prescribed in 49.602-4 at any time after submission of interim or final settlement proposals. The Government will process applications for partial payments promptly. A subcontractor shall submit its application through the prime contractor which shall attach its own invoice and recommendations to the subcontractor’s application. Partial payments to a subcontractor shall be made only through the prime contractor and only after the prime contractor has submitted its interim or final settlement proposal. Except for undelivered acceptable finished products, partial payments shall not be made for profit or fee claimed under the terminated portion of the contract. In exercising discretion on the extent of partial payments to be made, the TCO shall consider the diligence of the contractor in settling with subcontractors and in preparing its own settlement proposal.
(b) Amount of partial payment. Before approving any partial payment, the TCO shall obtain any desired accounting, engineering, or other specialized reviews of the data submitted in support of the contractor’s settlement proposal. If the reviews and the TCO’s examination of the data indicate that the requested partial payment is proper, reasonable payments may be authorized in the discretion of the TCO up to-
(1) 100 percent of the contract price, adjusted for undelivered acceptable items completed before the termination date, or later completed with the approval of the TCO (see 49.205);
(2) 100 percent of the amount of any subcontract settlement paid by the prime contractor if the settlement was approved or ratified by the TCO under 49.108-3(c) or was authorized under 49.108-4;
(3) 90 percent of the direct cost of termination inventory, including costs of raw materials, purchased parts, supplies, and direct labor;
(4) 90 percent of other allowable costs (including settlement expense and manufacturing and administrative indirect costs) allocable to the terminated portion of the contract and not included in paragraphs (b)(1), (2), or (3) of this section; and
(5) 100 percent of partial payments made to subcontractors under this section.
(c) Recognition of assignments. When an assignment of claims has been made under the contract, the Government shall not make partial payments to other than the assignee unless the parties to the assignment consent in writing (see 32.805(e)).
(d) Security for partial payments. If any partial payment is made for completed end items or for costs of termination inventory, the TCO shall protect the Government’s interest. This shall be done by obtaining title to the completed end items or termination inventory, or by the creation of a lien in favor of the Government, paramount to all other liens, on the completed end items or termination inventory, or by other appropriate means.
(e) Deductions in computing amount of partial payments. The TCO shall deduct from the gross amount of any partial payment otherwise payable under 49.112-1(b)-
(1) All unliquidated balances of progress and advance payments (including interest) made to the contractor, which are allocable to the terminated portion of the contract; and
(2) The amounts of all credits arising from the purchase, retention, or sale of property, the costs of which are included in the application for payment.
(f) Limitation on total amount. The total amount of all partial payments shall not exceed the amount that will, in the opinion of the TCO, become due to the contractor because of the termination.
(g) Effect of overpayment. If the total of partial payments exceeds the amount finally determined due on the settlement proposal, the contractor shall repay the excess to the Government on demand, together with interest. The interest shall be computed at the rate established by the Secretary of the Treasury under 50 U.S.C. App.1215(b)(2) from the date the excess payment was received by the contractor to the date of repayment. However, interest will not be charged for any-
(1) Excess payment attributable to a reduction in the settlement proposal because of retention or other disposition of termination inventory, until 10 days after the date of the retention or disposition, or a later date determined by the TCO, or
(2) Overpayment under cost-reimbursement research and development contracts without profit or fee if the overpayments are repaid to the Government within 30 days after demand.
(h) Certification and approval of partial payments.
(1) The contractor shall place the following certification on vouchers or invoices for partial payments:
The payment covered by this voucher is a partial payment on the Contractor’s settlement proposal under contract No. _______________ under part 49 of the Federal Acquisition Regulation.
(2) The TCO shall approve the invoice or voucher by noting on it the following:
Payment of $ ____________ is approved.