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  • Question

    In a FFP contract with progress payments containing the subject clause, can you please explain the general process for what order DFAS should be liquidating on PPRs when shipments are submitted? At what point on each SCLIN will liquidation not be taken, and DFAS pays the remaining balance on each SCLIN?


    Answer

       Based on the information provided, there are multiple ACRNs within the SCLINs.  Funding associated with each deliverable at the SCLIN level will be used to make progress payments at the rate established by the contract and in accordance with DFARS 232.501-1 (80% or 90% depending on business size).  Typically the progress payment rate and the liquidation rate are the same.  The progress payment rate was not specified, only that the progress payment request is $600,000.  The Government recoups progress payments through the deduction of liquidations from payments that would otherwise be due to for delivered items.  Liquidation is a procedure where previous progress payments made to the contractor are subtracted from the contract price of a product or service in order to determine the final amount the customer pays to the contractor when it accepts that product or service.  The unliquidated amount (cumulative amount of progress payments made) will be gradually deducted as deliveries are made and will eventually reach a zero unliquidated amount. 

     

       If a contractor requests $600,000 based on incurred costs.  They would be paid $480,000 (80%).  That $480,000 is now the unliquidated amount.  If a $100,000 item is delivered, they would be paid $20,000 (thus liquidating 80%) and the unliquidated amount would be reduced by $80,000 (taking it to $400,000).  The unliquidated amount in this case would be "zeroed" with the subsequent delivery of 5 more $100,000 items.  However, additional progress paymnets could be requested, but not beyond the established percentage of total contract price (80% of 90% depending on contractor size).

     

       Regarding your question on how DFAS will prioritize payments--they will adhere to instructions that should have been provided in accordance with FAR and DFARS.  Based on the inclusion of DFARS PGI 204.7108, you would need to identify to DFAS the payment instruction as it applies.

     

                   PGI 204.7108 (c)(5):

     

                   "Shall state at what level (contract, contract line, subline, exhibit line, or ACRN) the payment instructions should be applied;"

     

       As you have included additional instructions at 252.204-0005, DFAS will pay progress payments and liquidate upon delivery from funding on ACRNs assigned to SCLINs based on the earliest cancellation date first.  Therefor DFAS will use the ACRNS associated with the SCLINs that expire in 2018 first. 

     

                   252.204-0005 Line Item Specific: by Cancellation Date. (SEP 2009):

     

                   "The payment office shall make payment using the ACRN with the earliest cancellation date first, exhausting all funds in that ACRN before disbursing funds from the next. In the event there is more than one ACRN associated with the same cancellation date, the payment amount shall be disbursed from each ACRN with the same cancellation date in the same proportion as the amount of funding obligated for each ACRN with the same cancellation date."

      

       That said, it is a contracting officer imperative to provide specific instructions for the pay office for payments under DFARS PGI 204.7108 (b) which states:

     

                   "For contracts and orders covered by this subpart, the contracting officer shall insert numbered instructions in Section G (Contract Administration Data), to permit the paying      office to charge the accounting classification citations assigned to that contract line item (see DFARS 204.7104-1(a)) in a manner that reflects the performance of work on the contract. When incorporating clauses by reference in Section G, cite the clause number, title, and date. If additional accounting classification citations are subsequently added, the payment instructions must be modified to include the additional accounting classification citations. Also, contracting officers shall not issue modifications that would create retroactive changes to payment instructions. All payment instruction changes shall be effective as of the date of the modification. When some, but not all, of the fixed price line items in a contract are subject to contract financing payments, the contracting officer shall clearly identify to which line items the payment clause(s) included in Section I apply."

      

       For further guidance it may be a good idea to contact your contracting officer and associated DFAS pay office and communicate with them regarding the specifics of this contract and the subsequent progress payments and liquidation process at the time of delivery.

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