52.216-26
Payments of Allowable Costs Before Definitization
FAR 52.216-26 allows interim reimbursement of allowable costs before contract definitization, but imposes strict limits and documentation requirements to protect government interests.
Overview
FAR 52.216-26 outlines the procedures and limitations for reimbursing contractors for allowable costs incurred before a letter contract is definitized. This clause ensures that contractors are paid for work performed and costs incurred, but sets specific reimbursement rates and limits to protect government interests until the contract terms are finalized.
Key Rules
- Reimbursement Rates
- Contractors are reimbursed at different rates depending on the type of subcontract: 100% for approved costs to fixed-price and cost-reimbursement subcontractors (with caps of 80% and 85% of allowable costs, respectively), and 85% for all other approved costs.
- Limitation of Reimbursement
- Total reimbursement cannot exceed 85% of the government's maximum liability stated in the contract, and all costs must comply with FAR Part 31 cost principles.
- Invoicing Requirements
- Contractors may invoice as work progresses, but not more than every two weeks (except for small businesses), and must provide detailed supporting documentation.
- Definition of Allowable Costs
- Allowable costs include paid and certain incurred costs for direct and indirect expenses, as well as financing payments to subcontractors, subject to specific conditions.
- Small Business Exception
- Small businesses may receive payments more frequently than every two weeks.
- Audit Rights
- The Contracting Officer may audit invoices and adjust payments for unallowable costs or previous payment errors before final payment.
Responsibilities
- Contracting Officers: Approve invoices, ensure compliance with cost principles, and conduct audits as needed.
- Contractors: Submit timely, detailed invoices, comply with reimbursement limits, and maintain accurate records of costs.
- Agencies: Oversee payment processes and ensure regulatory compliance.
Practical Implications
This clause provides a framework for interim payments on letter contracts, balancing the need for contractor cash flow with government oversight. Contractors must carefully track costs, adhere to reimbursement caps, and be prepared for audits. Common pitfalls include exceeding reimbursement limits or failing to provide adequate documentation.