So glad you asked this question. Your ACO and yourself are definitely correct! The answer below is for you, but mostly additional readers who may be researching progress payments.

Unfortunately, the line you referenced in the Acquipedia article was a little bit misleading.

When doing progress payments based on costs; profit is never part of the progress payment, only incurred costs are (as you already knew). The contractor earns profit (if any) by invoicing the government for delivery and first liquidating any outstanding financing (progress payments) and then any remaining monies would be costs not covered in financing and profit earned. You will notice on the SF 1443 there is no block for any profit.

Profit is only used in calculating any new liquidation rates that might be required in the event the contractor is in a loss situation or the government is going to start using alternate liquidation rates. That's what that line in the article was referring to.

Reference FAR 52.232-16(a) and 52.232-16(c)(6) and FAR 32.503-9. Note, nothing in the DFARS changes this.