When are milestone schedule payments and progress payments not acceptable and on what type of contracts are they allowed/not allowed?
Great question, one we have not received here at AAP in long time. A phone call with the question submitter provided additional information and context. This included: not a commercial contract, not construction or A-E, and not cost-reimbursement.
The submitter was directed to FAR part 32 (and DFARS part 232 and AFFARS part 5332) and walked through the following areas:
FAR 32.001 Definitions. First to clarify what contract financing entails and then how to distinguish between and use the correct terminology. The term “milestone payment” is not used in the FAR or DFARS. The terms used are “percentage”, “stage of completion”, or “event” when applying FAR part 32 (see FAR 32.1004(a)). Finally, to show the difference between progress payments (PP) and performance-based payments (PBP).
FAR 32.002 Applicability of subparts. To guide the individual to where PP and PBP are addressed.
FAR 32.102 Description of contract financing methods. For more clarity on PP and PBP.
DFARS 232.102(e)(2). To rule out their ability to use PP based on a percentage or stage of completion.
FAR subpart 32.5 and FAR subpart 32.10 (including implementing and supplementing areas in the DFARS and AFFARS).
Conclusion: the acquisition team has a choice of using PP based on costs (FAR subpart 32.5) or PBP (FAR subpart 32.10). To determine what the PBP should be based on, they were referred to FAR 32.1002 to identify how to map their use of the term “milestones” to the FAR’s terminology.