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Liquidating Contract Finance Payments

ACON 042

DAU GLOSSARY DEFINITION

Alternate Definition

"Contract financing payment" means an authorized Government disbursement of monies to a contractor prior to acceptance of supplies or services by the Government. The specific methods of Government contract financing payment liquidation discussed in this article are: Commercial advance and interim payments, Progress Payments based on cost under the clause at FAR 52.232-16, Progress Payments, and Performance-Based Payments. 1
"Delivery payment" means a payment for accepted supplies or services, including payments for accepted partial deliveries. Financing payments are liquidated by deductions from these payments.
"Invoice payment" means a Government disbursement of monies to a contractor under a contract or other authorization for supplies or services accepted by the Government.
"Liquidate" means to decrease a [delivery or invoice] payment for an accepted supply item or service under a contract for the purpose of recouping financing payments previously paid to the contractor.
[Reference: FAR 32.001]
1The process for liquidating contract financing payments applies to fixed-price type contracts. Other methods of contract financing applicable for fixed-price contracts are (1) noncommercial Advance Payments [see FAR 32.412(d) for additional guidance pertaining to liquidation of advance payments], and Progress payments based on a percentage or stage of completion [there is no additional specific guidance in the FAR pertaining to the liquidation of such contract financing payments].

General Information

FAR Subpart 32.2 -- Commercial Item Purchase Financing

 

"Commercial interim payment" means any payment that is not a commercial advance payment or a delivery payment. A commercial interim payment is given to the contractor after some work has been done. These payments are contract financing payments. [FAR 32.001]

 

"Commercial advance payment," means a payment made before any performance of work under the contract. These payments are contract financing payments. [FAR 32.202-2]

 

FAR 32.206(b)(1)(iii). Each contract financing clause shall include a description of the Liquidation of those financing payments by delivery payments (see paragraph (e) of this section).

 

FAR 32.206(e) Liquidation. Liquidation of contract financing payments shall be on the same basis as the computation of contract financing payments; that is, financing payments computed on a whole contract basis shall be liquidated on a whole contract basis; and a payment computed on a line item basis shall be liquidated against that line item. If liquidation is on a whole contract basis, the Contracting Officer shall use a uniform liquidation percentage as the liquidation method, unless the contracting officer obtains the concurrence of the cognizant payment office that the proposed liquidation provisions can be executed by that office, or unless agency regulations provide alternative liquidation methods.

 

FAR Subpart 32.5 -- Progress Payments Based on Costs

 

FAR 32.501 -- General

 

Customary progress payments are those made under the general guidance in this subpart, using the customary progress payment rate, the cost base, and frequency of payment established in the Progress Payments clause, and either the ordinary liquidation method or the alternate method as provided in subsections FAR 32.503-8 and FAR 32.503-9.

 

FAR 32.503-8 -- Liquidation Rates -- Ordinary Method

 

The Government recoups progress payments through the deduction of liquidations from payments that would otherwise be due to the contractor for completed contract items. To determine the amount of the liquidation, the contracting officer applies a liquidation rate to the contract price of contract items delivered and accepted. The ordinary method is that the liquidation rate is the same as the progress payment rate. At the beginning of a contract, the contracting officer must use this method.

 

FAR 32.503-9 -- Liquidation Rates -- Alternate Method

 

  • The liquidation rate determined under FAR 32.503-8 shall apply throughout the period of contract performance unless the contracting officer adjusts the liquidation rate under the alternate method. The objective of the alternate liquidation rate method is to permit the contractor to retain the earned profit element of the contract prices for completed items in the liquidation process.
  • The process for establishing an alternate liquidation rate is described in FAR 32.503-10 -- Establishing Alternate Liquidation Rates. The contracting officer must ensure that the liquidation rate is (1) High enough to result in Government recoupment of the applicable progress payments on each billing, and (2) Supported by documentation included in the administration office contract file.

 

FAR Subpart 32.10 -- Performance-Based Payments

 

FAR 32.1004 -- Procedures

 

(d) Liquidating performance-based finance payments. Performance-based amounts shall be liquidated by deducting a percentage or a designated dollar amount from the delivery payments. The Contracting Officer must specify the liquidation rate or designated dollar amount in the contract. The method of liquidation must ensure complete liquidation no later than final payment.

 

  1. If the contracting officer establishes the performance-based payments on a delivery item basis, the liquidation amount for each line item is the percent of that delivery item price that was previously paid under performance-based finance payments or the designated dollar amount.
  2. If the performance-based finance payments are on a whole contract basis, liquidation is by pre-designated liquidation amounts or liquidation percentages.