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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: September 18, 2000

FROM: Barry McVay, CPCM

SUBJECT: Federal Acquisition Regulation (FAR); Financing Policies

SOURCE: Federal Register, September 18, 2000, Vol. 65, No. 181, page 56453

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA)

ACTION: Proposed Rule

SYNOPSIS: It is proposed to amend the FAR to permit the use of the performance-based payments type of financing on fixed-price contracts prior to definitization, and to establish a standard time period of 30 days that contractors have to pay their vendors after the contractors have billed the government for incurred vendor costs.

EDITOR'S NOTE: This proposed rule would supplement the "Progress Payments and Related Financing Policies" final rule that was published as part of Federal Acquisition Circular (FAC) 97-16. For more on this, see the March 27, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-16, Small Business Competitiveness Demonstration Program and Progress Payments and Related Financing Policies."

DATES: Comments should be submitted on or before November 17, 2000.

ADDRESSES: Submit comments to General Services Administration, FAR Secretariat (MVR), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405; e-mail: farcase.2000-007@gsa.gov. Cite FAR case 2000-007 in all correspondence related to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Jeremy Olson, 202-501-0692.

SUPPLEMENTAL INFORMATION: On March 27, 2000, FAC 97-16 was published, and it contained a final rule that revised progress payments and related financing policies to make them easier to understand and to minimize the burdens imposed on contractors and contracting officers. This proposed rule would supplement the March 27, 2000, final rule as follows:

• Paragraph (b) of FAR 32.1003, Criteria For Use, would be revised by deleting the word "definitized" from "the contract is a definitized fixed-price type contract". This would permit the use of performance-based payments type of financing on fixed-price contracts prior to definitization.
  
  
• The "paid cost rule" restriction would be deleted from FAR 52.216-26, Payments of Allowable Costs Before Definitization, and FAR 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts (the "paid cost rule" required large contractors to pay their subcontractors before including the payment in its progress payment billings, not merely to incur the costs (this restriction did not apply to small businesses). The intent of FAC 97-16 was to remove the paid cost rule from all the payments clauses if contractors met certain conditions, but this restriction was not removed in its entirety from FAR 52.216-26(d)(2) and FAR 52.232-7(b)(3). The proposed rule would correct this oversight by: (1) adding "and associated financing payments to subcontractors" to the definition of "allowable costs" in FAR 52.216-26(d)(2)(i) so that it states "supplies and services purchased directly for the contract and associated financing payments to subcontractors, provided payments will be made..."; and (2) adding to FAR 52.232-7(b)(3) that the government will reimburse the contractor when the contractor "will make such payments in accordance with the terms and conditions of a subcontract or invoice..."
  
  
• To establish a standard time period that contractors have to pay their vendors after the contractors have billed the government for incurred vendor costs, the phrase "ordinarily prior to the submission of the contractor's next payment request to the government" to "not later than 30 days after the submission of the contractor's payment request to the government" in paragraph (b)(2) of FAR 32.504, Subcontracts Under Prime Contracts Providing Progress Payments; paragraph (b)(1) of FAR 52.216-7, Allowable Cost and Payment; FAR 52.216-26(d)(2); FAR 52.232-7(b)(3) and (b)(4); and paragraph (a)(2) of FAR 52.232-16, Progress Payments. This change is considered necessary because a large business prime contractor is allowed to submit cost vouchers on cost-reimbursement contracts every 14 days, but can bill no more frequently than every 30 days when billing progress payments on a fixed-price contract. To eliminate the timing differences (and the need to maintain different systems and procedures), a single standard time period of 30 days seems appropriate.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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