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  • Question

    Can the Government take title to the items acquired under the PBP clause anytime during contract performance, if they issue a bilateral mod incorporating a CLINN in the contract for the items of interest? If so, should there be any cost considerations since PBP payments were made or should the cost be set as "NSP" (no set price)?


    Answer

    1. The FAR references quoted below in pertinent part are applicable to this response.

    FAR 32.001 -- Definitions
    “Contract financing payment” means an authorized Government disbursement of monies to a contractor prior to acceptance of supplies or services by the Government.

    “Liquidate” means to decrease a payment for an accepted supply item or service under a contract for the purpose of recouping financing payments previously paid to the contractor.

    FAR 32.1001 -- Policy
    (b) Performance-based payments are contract financing payments that are not payment for accepted items.

    FAR 52.232-32 -- Performance Based Payments
    (d) Liquidation of performance-based payments
      (1) Performance-based finance amounts paid prior to payment for delivery of an item shall be liquidated by deducting a percentage or a designated dollar amount from the delivery payment.

    (f) Title.
    (6) When the Contractor completes all of the obligations under this contract, including liquidation of all performance-based payments, title shall vest in the Contractor for all property (or the proceeds thereof) not --
      (i) Delivered to, and accepted by, the Government under this contract; or
      (ii) Incorporated in supplies delivered to, and accepted by, the Government under this contract and to which title is vested in the Government under this clause.

    2. The premise of this inquiry appears to be that because the performance-based payments paid to the contractor happen to cover the purchase of items which are not expressly deliverable under the contract, then the Government should be able to acquire these items (i.e., take title) at no increase in the price of this FFP contract if the contractor agrees to the requested transfer of property under a separate NSP CLIN. While such an outcome may be possible, we do not believe that a savvy contractor would normally agree to such an arrangement because to do would be tantamount to forfeiting their rights to obtain “consideration” (i.e., a price increase) for providing additional deliverables that are outside the scope of the existing contract.

    3. As set forth in FAR 32.1001(b), performance-based payments (PBP’s) are contract financing payments that are not payment for accepted items, and therefore pursuant to the definition in FAR 32.001, such payments represent the disbursement of monies to the contractor prior to acceptance by the Government of the supplies expressly required to be delivered under the contract. Consistent with this general Government policy, clause FAR 52.232-32(f)(6) provides that, besides vesting title to any residual property that is not deliverable under the contract once all contract obligations (including the liquidation of PBP’s) is complete, the contractor is also entitled to retain the proceeds from the sale of such residual property and therefore would not be required to make any refunds to the Government under these terms and conditions.

    4. Therefore in direct response to this inquiry, because delivery of any “scrap production parts and carts” is outside the scope of the existing FFP contract, a new CLIN must be established via a bilateral contract modification that clearly defines and expressly provides for the delivery of these items, thereby making such items subject to the terms and conditions specified in clause FAR 52.232-32(f)(6)(i) which grants the Government title. However, because the contractor will be giving up the right to title in such property under the existing contract terms, the contracting activity should be prepared to negotiate a reasonable contract price increase and associated increased funding (vice an “NSP” arrangement) as part of this contract modification in order to compensate the contractor for relinquishing their rights to title and the attendant ability to benefit financially from the proceeds of the sale of this property.

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