52.216-26 Payments of Allowable Costs Before Definitization
Source: FAR 52.216-26 on acquisition.gov
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.
As prescribed in 16.603-4(c), insert the following clause:
Payments of Allowable Costs Before Definitization (Dec 2002)
(a) Reimbursement rate. Pending the placing of the definitive contract referred to in this letter contract, the Government will promptly reimburse the Contractor for all allowable costs under this contract at the following rates:
(1) One hundredpercent of approved costs representing financing payments to subcontractors under fixed-price subcontracts, provided that the Government’s payments to the Contractor will not exceed 80 percent of the allowable costs of those subcontractors.
(2) One hundredpercent of approved costs representing cost-reimbursement subcontracts; provided, that the Government’s payments to the Contractor shall not exceed 85 percent of the allowable costs of those subcontractors.
(3) Eighty-fivepercent of all other approved costs.
(b) Limitation of reimbursement. To determine the amounts payable to the Contractor under this letter contract, the Contracting Officer shall determine allowable costs in accordance with the applicable cost principles in part 31 of the Federal Acquisition Regulation (FAR). The total reimbursement made under this paragraph shall not exceed 85 percent of the maximum amount of the Government’s liability, as stated in this contract.
(c) Invoicing. Payments shall be made promptly to the Contractor when requested as work progresses, but (except for small business concerns) not more often than every 2 weeks, in amounts approved by the Contracting Officer. The Contractor may submit to an authorized representative of the Contracting Officer, in such form and reasonable detail as the representative may require, an invoice or voucher supported by a statement of the claimed allowable cost incurred by the Contractor in the performance of this contract.
(d) Allowable costs. For the purpose of determining allowable costs, the term "costs" includes-
(1) Those recorded costs that result, at the time of the request for reimbursement, from payment by cash, check, or other form of actual payment for items or services purchased directly for the contract;
(2) When the Contractor is not delinquent in payment of costs of contract performance in the ordinary course of business, costs incurred, but not necessarily paid, for-
(i) Supplies and services purchased directly for the contract and associated financing payments to subcontractors, provided payments determined due will be made-
(A) In accordance with the terms and conditions of a subcontract or invoice; and
(B) Ordinarily within 30 days of the submission of the Contractor’s payment request to the Government;
(ii) Materials issued from the Contractor’s stores inventory and placed in the production process for use on the contract;
(iii) Direct labor;
(iv) Direct travel;
(v) Other direct in-house costs; and
(vi) Properly allocable and allowable indirect costs as shown on the records maintained by the Contractor for purposes of obtaining reimbursement under Government contracts; and
(3) The amount of financing payments that the Contractor has paid by cash, check, or other forms of payment to subcontractors.
(e) Small business concerns. A small business concern may receive more frequent payments than every 2 weeks.
(f) Audit. At any time before final payment, the Contracting Officer may have the Contractor’s invoices or vouchers and statements of costs audited. Any payment may be-
(1) Reduced by any amounts found by the Contracting Officer not to constitute allowable costs; or
(2) Adjusted for overpayments or underpayments made on preceding invoices or vouchers.
(End of clause)