Progress Payments
FAR 52.232-16 allows contractors to receive progress payments as work advances, but only under strict cost, documentation, and compliance controls to safeguard government interests.
Overview
FAR 52.232-16 establishes the rules and procedures for progress payments to contractors as work progresses on government contracts. Progress payments are a form of contract financing, typically paid monthly, based on costs incurred and subject to strict limitations and oversight. The clause details how payments are calculated, the maximum allowable rates (generally 80% of incurred costs, or 85% for small businesses), requirements for liquidation, and the conditions under which payments may be reduced, suspended, or repaid. It also addresses title to property, risk of loss, reporting, and special terms for subcontractor financing and undefinitized contract actions. Alternate versions of the clause apply to small businesses, letter contracts, and orders below the simplified acquisition threshold.
Key Rules
- Progress Payment Calculation
- Payments are generally 80% of incurred costs (85% for small businesses), excluding certain costs and subject to approval and documentation.
- Liquidation of Progress Payments
- Progress payments are liquidated by deducting them from subsequent payments for delivered items, ensuring the government does not overpay for incomplete work.
- Reduction or Suspension
- The Contracting Officer may reduce or suspend payments if the contractor fails to comply with contract requirements or if performance is endangered.
- Title and Risk of Loss
- Title to property acquired with progress payments vests in the government, and the contractor bears the risk of loss until delivery and acceptance.
- Reporting and Documentation
- Contractors must submit requests on Standard Form 1443 (or electronic equivalent) and provide supporting documentation and estimates to complete.
- Subcontractor Financing
- Special requirements apply to progress payments made to subcontractors, especially for small businesses and commercial items.
- Limitations on Undefinitized Contract Actions
- Progress payments for undefinitized actions are capped at 80% of incurred costs until definitization.
Responsibilities
- Contracting Officers: Approve progress payments, monitor compliance, and may reduce/suspend payments if necessary.
- Contractors: Submit accurate, timely requests with required documentation, maintain proper accounting, and comply with all cost and property controls.
- Agencies: Ensure oversight, enforce compliance, and process payments according to the clause and agency-specific timelines.
Practical Implications
- This clause provides cash flow to contractors but imposes strict controls to protect government interests.
- Contractors must maintain robust accounting and documentation systems to support payment requests and avoid payment delays or reductions.
- Failure to comply can result in reduced or suspended payments, repayment obligations, or loss of future contract opportunities.