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  1. Today
  2. The primes bond payment is included under paragraph(g) in the progress estimate. It is not considered “work accomplished which meets the standards of quality established under the contract”. “b) Progress payments. The Government shall make progress payments monthly as the work proceeds, or at more frequent intervals as determined by the Contracting Officer, on estimates of work accomplished which meets the standards of quality established under the contract, as approved by the Contracting Officer.” Prime contractor incurred cost for bond payments are not “work accomplished. “ Incurred costs on their own are not “work accomplished” incurred costs on their own are not “progress.” Examples of incurred costs specifically authorized in the clause to be included in progress payments which are not “work accomplished and which are not “progress” include on-site stored materials, paid for off-site stored materials that are specifically authorized in the contract, prepatory work and prime contractor performance bond payments. Please read the bottom of the 1977 GAO decision for the reason you can’t count full payment of a bond premium as % of “progress” under the line item(s) for “work accomplished” before the “work is accomplished”. If you could do that there would have been no need to amend the “ payment” clauses in the first place to provide for up front “payment” of the bond premium. If you can’t do it for prime bonds you can’t do it for subcontract bonds, either. Examples: you make the first progress payment for primes bonds. You report 0% progress. The contractor hasn’t stepped foot on site. No work has been accomplished. The contractor sets up numerous shops, site office trailers and runs temp power to them - its prep work. There is no mob line item (IMO there should have been one).You still report 0% progress. The contractor starts bringing in piles of aggregate and sets up a batch plant for future concrete production for railroad trestle. It’s Prep work and stored material for aggregate.. There is no mob line item. (IMO, there should have been one). You still report 0% progress. None of the in place required work has been started or accomplished. The job site is in Mississippi . The sub contractor in Vincennes Indiana buys two million dollars of steel before beginning fabricating sections of a railroad bridge that will be fabricated up in Indiana You still report 0% progress on any bid items. You can make payment for all of these activities. However no permanent work has been accomplished yet on or off the site. I give up trying to explain this to you. We keep running in circles back to the beginning. Have a great Sunday.
  3. Yesterday
  4. I disagree. I recommend that you read the clause at FAR 52.232-5, Payments Under Fixed-Price Construction Contracts. In para. (g), the paragraph that allows for reimbursement of bond premiums, the text says, "In making these progress payments..." In my reading, bond premium reimbursements are part of the progress payments process. Again, I recommend that you read the clause. That's what I do in my practice -- I read the clause, and then I do what the clause says. It's simple, and it is fair because that is the bargain both parties agreed to in forming the contract. It has worked successfully for me for many years. I'm going to bow out now. Best wishes to you. To all WIFCON readers who are still paying attention, here's my simple advice: Read the clause, and then do what the clause says.
  5. Good afternoon, I'm curious to know if anyone on the forum has any further insight on this Washington Post article from 1984 about "excess profit" on a Firm-Fixed Price contract between the U.S. Air Force and Lockheed Martin Corporation? Specifically, what was the outcome? I have heard the outcome was that LMC had to negotiate a lower profit margin or something to that effect, and the it may have ended up at the CoFC, but have not found anything to support that claim. Also for reference it appears this contract (or contracts) was pre-FAR, as FAR was effective April 1, 1984. Thank you.
  6. ji, how about this as a simpler explanation of the concept: When there is not a separate line item for the prime contract bond, as work progress is earned (which includes allocated bond cost), the amounts shown for upfront prime contractor bond payment are “absorbed” into the reported progress of work performed until, at some point, the entire upfront payment is zeroed out. Would that be a clearer explanation?
  7. ji, let me clarify, reiterate, state or whatever that upfront contractor bond premium reimbursement by the government isn’t considered “progress”. Incurred costs are NOT progress. Thus it can’t be paid as “progress” or included as a percentage of progress. If the bond is one percent of the cost of the contract, then the contract isn’t one percent complete nor is a line item one percent complete based upon the paid premium. See the long held GAO DecisionSSS references in the 1977 decision for verification. Thus, the payments clause allows a separate reimbursement for the contractors incurred bond premiums required by law. Bond premiums are based upon the total cost. I have never seen a contractor not spread the bond cost over the total contract amount because it is generally applicable and allocable to all costs and other markups in the price. Unless there is a separate line item for bonds, prime bonds are presumed to be spread per normal accounting practices across all line items proportionately. Once the contractor earns progress on acceptable work performed, the bond cost is included in the earned progress amounts (example 2% added to the cost plus other markups in the CLIN price). Unless already in a separate CLIN, 30% reported progress on a Lump sum CLIN will be presumed to include 30% of the bond cost allocated to that line item. For unit priced items, the 2% bond cost is presumed to be in the unit price. So bond is being counted as units are performed as work. So - if you reimbursed the primes bond premium upfront and then all reported progress includes 2% for bond premium, how do you handle the FACT that you already paid the bond that is now part of the reported work progress? •Do you subtract 2% from the reported work progress for lump sum items to avoid double payment? That would be an incorrect report of actual earned progress. •Do you reduce the number or amount of unit priced items to reduce the progress by 2% to insure no double payment? That would be lying. —————————————- For subcontract bonds - you can’t count the total subcontract premium as progress - as a percent of lump sum line items any more than you can for the prime contractor .Incurred cost isn’t earned progress. For unit priced items, you can’t add extra quantities to to pay upfront subcontractor bonds. As an aside, the Corps of Engineers was a leading member of the committee that made the recommendation to GAO. If the USACE doesn’t allow upfront subcontractor bond reimbursement, then it likely interpreted the GAO’s Decision the same way I do here.
  8. It seems to me that your focus is on costs incurred by the contractor. Your question here is based on that premise, which I see as faulty. Another seemingly faulty premise: that progress payments under the clause at FAR 52.232-5 must be liquidated against later payments. In a fixed-price construction contract using the clause at FAR 52.232-5, progress payments are not based on incurred costs; rather, they are based on "estimates of work accomplished which meets the standards of quality established under the contract, as approved by the Contracting Officer." See para. (b) of the clause. Sometimes I shorthand this as percent complete, or estimate complete, and so forth. As long as a contracting officer approves progress payments based on estimate complete, there is zero possibility of so-called double payments. In my practice, and amendable to the clause at FAR 52.232-5, Payments Under Fixed-Price Construction Contracts, incurred costs are not dispositive as a basis for progress payments, except as allowed by para. (g) of the clause. Even there, I tend to treat bond costs under para. (g) as contributing to completion under para. (b). Indeed, incurred costs are largely irrelevant and will never persuade me to approve a progress payment that goes beyond the work complete -- however, I note that sometimes, incurred costs and work complete may coincidentally (even serendipitously?) align. Regarding separate line items, a construction contract may have one CLIN and several progress payment pay item lines. p.s. I know my practice differs from yours, but it is wholly consistent with the clause at FAR 52.232-5, Payments Under Fixed-Price Construction Contracts. I didn't learn in USACE (an acknowledged expert in construction contracting) -- most of my learning was from FHWA (an acknowledged expert in construction contracting).
  9. Joel, LIQUIDATING PROGRESS PAYMENTS So, I'm understanding that there is no USACE manual that teaches USACE contracting officers why and how to liquidate progress payments on fixed-price construction contracts. And, I'm understanding that there is no USACE or home-made clause that provides liquidation instructions, including, most importantly, a liquidation rate. One might think that establishing the liquidation rate would be very important in forming the contract. I'm glad you don't apply 52.232-16 principles, but I'm still in the blind as to where your procedures are written, if not in the contract and if not in USACE manuals. I understand you do it based on 1977 and 1980 practices and other understandings you have picked up along the way. I'm okay with that. For my own practice, this discussion has not convinced me to start liquidating progress payments on fixed-price construction contracts, and I'm certainly within FAR 1.102-4(d). SUBCONTRACTOR BONDS I note that the USACE manual I referenced earlier expressly prohibits USACE contracting officers from reimbursing subcontractor bond premiums under para. (g) of the clause, and I agree that USACE contracting officers should follow USACE instructions. However, it doesn't prohibit considering subcontractor bond premiums for progress payments under para. (b) of the clause, and in any case it isn't dispositive on non-USACE contracting officers. I can give my own answer to the question you asked Carl. I would handle each subsequent progress payment request exactly as stated in the 52.232-5 clause (I'm big on staying in my lane). For me, any progress payment has to be based on my agreement with the contractor's estimate of work complete. Based on the clause (I'm big on staying in my lane), I never make progress payments based on incurred costs (except for bond premiums as allowed by para. (g), where I see delivered bonds as contributing towards completion); rather, I make progress payments based on either on (1) percent estimate complete; or (2) agreed-to pay items specified in the contract, which is a construct of work complete. So, regarding subcontractor bonds and para. (b) of the clause-- (1) If the contract did not have agreed-to pay items, then I might (not definitely would, but might) take the fact of subcontractor bond delivery (not the incurred cost of the bonds) into consideration when coming to my percent estimate of completion. (2) If the contract did have agreed-to pay items, then a progress payment for subcontractor bonds would be appropriate only if one of those pay items reached that far.
  10. “Total” vs.” paid contractor bond premiums as earned in progress payments”. That what they Were talking about sorry that you keep reading that out of the context of the Decision and keep ignoring the rest of the digest as well as the totality of the GAO position, including prior decisions which still were valid, except as clarified . The words as “they are...required by law” don’t appear to mean anything to you.
  11. Agreed. Interesting that there is no argument that a "contractor" can be paid for material delivered to site, even if delivered under a subcontact, but by golly do not pay contractor for a bond delivered by a subcontractor???????????? Same way that you do for bonds if only provided by the prime. Geez Joel haven't your exhausted this yet. There is an alternative way to emphasize the Digest just to humor you but my hope is that you look at the matter in the here and now of the FAR. "MATTER Reimbursements of TOTAL performance or payment bond premiums to contractor in first progress payment. DIGEST: Reimbursement to Government contractors of the TOTAL AMOUNT OF PAID PERFORMANCE AND PAYMENT BOND PREMIUMS …"
  12. Geez, ji, we aren’t using 52.232-16 procedures. The method of transferring unliquidated balances for those type of activities into the CLIN items has been used for stored materials, mobilization and prepatory work and for bonds for decades, including years before the FAR was published - for hundreds of billions of dollars of construction contracts. Unless the USACE RMS automated contract admin software has been recently changed, that is how progress payments are processed. Since some of you have pointed out the recommendation of the committee to the GAO back in 1977 their proposed practice for (insert your preferred term here) that GAO referred to was the same one that I am referring to. so, in your experience, ji, how do you (insert your preferred term here) so that you aren’t double paying for stored materials, bonds, mobilization and predatory work, etc.? As far as I know, one cannot administratively revise the CLIN amounts in payment estimated to separate bond premiums, stored materials, mobilization and prep work from the rest of the contract amounts. One would have to establish separate line items, unless you (insert your preferred term here to avoid double payment and to accurately measure earned progress of in-place work.
  13. Unfortunately, Carl still fails to recognize that the digest of the 1977 GAO decision explains what the bond payment is for and why; and that the body of the decision explains why the GAO said that upfront payments don’t qualify as mobilization or prepatory work and that they are a requirement of the law. Notwithstanding that, Carl - how would you administratively handle subsequent progress payments on contracts with when subcontractor bonds are handled aAs upfront payments with one or more line items for progress. When a construction contract has several line items, individual subcontracts generally aren’t included (spread over) all line items. Would you establish a separate line item that would include all bonds, including those that do not benefit or protect the government?
  14. Carl, I agree that progress payments made under FAR 52.232-5 are not contract financing payments, and I appreciate your raising this fact. This is another reason why I am not ready to agree that those progress payments require liquidation. Joel has been trying to convince me, but this is another hurdle I will have to overcome before I can agree. We're a long way from the original posting.
  15. Joel, Here are the facts as I understand them: “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." See FAR 32.001 (emphasis added). The clause at FAR 52.232-5, Payments Under Fixed-Price Construction Contracts, neither requires nor contemplates liquidation of construction progress payments. See FAR 52.232-5. In contrast, the clause at FAR 52.232-16, Progress Payments, does require liquidation of progress payments where progress payments are based on incurred costs. However, that clause is not applicable to fixed-price construction contracts. See FAR 32.500. For 1, I'm understanding that you want to read fixed-price construction into the definition of "liquidate." I prefer not to. For 2, I'm understanding that your point is that liquidation is not prohibited, and is therefore allowable if it is seen as a sound business practice. I wholly agree with FAR 1.102-4(d), but I'm not convinced it is a sound business practice, so I have two questions-- In your practice, do you have a USACE or home-made clause that provides liquidation instructions, including, most importantly, a liquidation rate? I found the USACE CONTRACT ADMINISTRATION MANUAL FOR CONSTRUCTION CONTRACTS, SOUTH ATLANTIC DIVISION, SADDM 1110-1-1, on the internet. The entire Chapter 4 is about administering progress payments for construction contracts -- Chapter 4 has 20 pages of text on administering progress payments and additional many pages of very detailed how-to exhibits for administering and computing and making progress payments, but there is zero discussion, not a single word, about liquidating progress payments. Does USACE have another manual that teaches why and how to liquidate progress payments on fixed-price construction contracts? For 3, I am hopeful that we agree, inasmuch as you already said we do. However, I am concerned that you might be using 52.232-16 procedures in your practice of liquidating progress payments payable under 52.232-5, as I do not know where else the procedures for that process come from.
  16. FACTS – Bond premiums of a subcontractor are an allowable cost. (FAR 31.205-4) therefore they may be a direct cost. There is no Federal regulation as to where a contractor when pricing a Federal contract must place this allowable cost in their pricing and in an instant contract CLIN structure. Likewise there is no privity of the government to stipulate to a prime contractor the terms and conditions of a subcontract with regard to subcontractor bond premiums and how such bond cost will be placed subcontractor pricing. Therefore a subcontract agreement can stipulate that the prime contractor will reimburse a subcontractor for subcontractor bond premiums upon presentation/substantiation of the subcontractor’s payment for bonds and the prime contractor can show this cost as a direct cost in their contract pricing. Payments under FAR 52.232-5 are not contract financing payments (FAR 32.001) As a payment under 52.232-5 is an invoice payment it is subject to the Prompt Payment Act (FAR 32.001). Subject to the Prompt Payment Act FAR 52.232-27 prescribes certain requirements for placing prompt payment terms in subcontracts and recognizes the ability of a prime contractor and its subcontractors to address payment for subcontractor bonds. 52.232-5 as well as 52.232-27 requires the prime contractor to certify that invoice payments received have been used to pay subcontractors and that timely payments will be made from the instant payment requested in accordance with subcontract agreements. As a subcontractor agreement can provide for reimbursement of bond premiums the prime contractor can therefore certify a subcontractor bond premium payment. 52.232-5(g) provides that bond premiums may be reimbursed after the Contractor has furnished evidence of full payment to the surety and that retainage provisions do not apply to the reimbursement. 52.232-27 provides a nexus to the 52.232-5(g) reference on reimbursement of bond premiums with no retainage as relating to subcontractor bonds where at 52.232-27(d)(1) it states “Retainage permitted. Permit the Contractor or a subcontractor to retain (without cause) a specified percentage of each progress payment otherwise due to a subcontractor for satisfactory performance under the subcontract without incurring any obligation to pay a late payment interest penalty, in accordance with terms and conditions agreed to by the parties to the subcontract, giving such recognition as the parties deem appropriate to the ability of a subcontractor to furnish a performance bond and a payment bond.” 52.232-5(g) does not provide that only contractor bonds provided under the Miller Act will be reimbursed what it does provide is that the government will “reimburse the Contractor for the amount of premiums paid for performance and payment bonds” These facts from the FAR substantiate that a prime may require subcontractors to provide bonds, that the cost for such bonds is an allowable and direct cost to a contract; that payment for such cost is not contract financing (nor advance payment) but an invoice payment and as such the prime can be reimbursed upon invoice substantiation of subcontractor bonds.
  17. See my edited response to your point number two above. Actually, it also addresses your point number 1 for the same reason. In addition to the above, for points Numbers 1 and 2, The FAR isn’t a cookbook for every aspect and step by step procedure for C.A.. As is often pointed out by Contracting Officers and others in this forum, please see 1.102(d). I didn’t see your edited post which added point number three. Regarding your point number three, I agree that it isn’t relevant to fixed price construction progress or final payments.
  18. So, am I right in thinking that you don't agree with the three facts? I'm not the problem. Okay. But if you do want to continue, please, let's limit it to whether I have presented the facts correctly in 1, 2, and 3 above. I will be unable to see any merit in your position so long as those three facts stand in the way.
  19. Definition of recoup from Merriam -Webster: “Definition of recoup transitive verb 1a: to get an equivalent for (losses) : make up for b: REIMBURSE, COMPENSATErecoup a person for losses 2: REGAINan attempt to recoup his fortune intransitive verb : to make good or make up for something lost” Well, we aren’t “recouping” any financing payments. Maybe there is a better term but it is simply an accounting exercise. As the unliquidated balances of reimbursed stored materials, paid bond premiums, mobilization and predatory work, etc. decrease, the values are incorporated into the progress of inplace work, when there are not separate line items for those items. It balances out and the contractor isn’t paying anything back or losing any pay. The committe that recommended and sought GAO approval to pay the bond premiums up front actually proposed to use that method. What is so hard to understand about that? People need to understand that the FAR doesn’t have the answer to every aspect and detail of good contract administration procedures. Thus, in response to your point number 2., the clause doesn’t have to specifically provide step by step instructions or specifically “require” or “contemplate” liquidating upfront payments for bonds, stored materials, mobilization and predatory work, etc. someone had to figure out a way to do it so that we don’t double pay for such items. as for difficult? I was once the office engineer (contract administrator) for a resident engineer office with 20 active ongoing contracts. Some contracts had upwards of 80 line items. I processed monthly Payment Estimates during a certain two or three day period every month - it was all done by hand on calculators and IBM Selectric typewriters. We had programmable Monroe calculators for the big contracts, which handled the math equations. Our jobsite QA personnel jointly reviewed and confirmed the contrActor’s reported progress for the contractor to submit with its payment request My actual math and hand write up only took a couple of hours for all 20 contracts. The secretaries’ typing and the paperwork preparation and our monthly reports consumed most of the time during that three day period. With computerized contract admin software nowadays, it takes a matter of minutes for each contract after the field agrees on progress. In many USACE offices these days the same person assigned to a contract handles both CA and QA duties. It’s not difficult or cumbersome. The programmers have written the logarithms.
  20. I'll accept that as your opinion. I cannot speak to USACE practices in 1977 and 1980, but I will accept your assertions that USACE had a practice of liquidating progress payments on fixed-price construction contracts in those days. I hope you will accept the following as facts-- “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." See FAR 32.001 (emphasis added). The clause at FAR 52.232-5, Payments Under Fixed-Price Construction Contracts, neither requires nor contemplates liquidation of construction progress payments. See FAR 52.232-5. In contrast, the clause at FAR 52.232-16, Progress Payments, does require liquidation of progress payments where progress payments are based on incurred costs. However, that clause is not applicable to fixed-price construction contracts. See FAR 32.500. Because on these facts, and consistent with my understanding that progress payments based on percent complete are wholly different from progress payments based on incurred costs (notwithstanding the similar use of "progress payments" as a term), I do not liquidate progress payments in fixed-price construction contracts in my contracting officer practice. I simply administer the clause at FAR 52.232-5 as it is written. I see this as good contract administration. You aren't going to persuade me to change my practice. If you want to continue the exchange, can we limit it to whether I have presented the facts correctly in 1, 2, and 3 above?
  21. Payment for mobilization and prepatory work is sometimes liquidated into the multiple earned progress line items if there isn’t a separate line item and where it can’t be identified with specific line items. A separate line item was also clunky in practice. Contractors often front end loaded that line item for early payment. Different methods were used to allow payment and many were controversial.
  22. It has been done for decades on hundreds of billions of dollars of construction contracts for stored materials and for upfront bond payments since sometime after 1977. They were doing it in 1980, when I started with USACE. Stored materials are materials and equipment that have been reimbursed up front prior to incorporation into the work . The paid inventory is liquidated (the cumulative amount of stored materials is zeroed out) as the material is incorporated into the work. Look at bond reimbursement similarly as the unliquidated bond premium is subsequently incorporated into the cumulative earned progress on in place work. Another way is to use a separate line item which is paid for based upon paid receipts. However, it is clunky in my opinion - I’ve used that method during a USACE trial period in the early 90’s. The line item didn’t always match the actual cost of the bonds, so the contractor had to wait until the end of the contract to be paid the full line item amount. And it raised eyebrows like in the GSBCA defective pricing claim. The separate line item skewed earned progress too. Liquidating bond payments were mentioned in the GAO decision on page 5, in reference to earlier GAO decisions. So, it was either proposed or being done prior to that. its not rocket science. It’s good contract administration. 😃
  23. Well, I think you are making it too hard. Liquidation is required for "normal" progress payments in contracts for supplies and services using the Progress Payments clause, but applying that approach to construction progress payments seems to me to be unnecessary and is neither required nor contemplated by the FAR or the Payments Under Fixed-Price Construction Contracts clause.
  24. tj, what you found is non compliant by any standard it sounds like a poorly written and executed BOA. A BOA is not a contract, so the company that hired you would need a unique PO number for every "work order" for invoice tracking and accounting, or conflict resolution. Very strange. The BOA will contain general terms and conditions, ordering (FAR 16.703). The example you found is apparently lacking what it should be this is from Acqnotes.com : Contains contract clauses applying to future contracts between the parties during its term Contemplates separate future contracts that will incorporate by reference or attachment the required and applicable clauses agreed upon in the basic ordering agreement. Contains methods for pricing, issuing and delivering future orders Contains a description of supplies and services to be provided
  25. Oh - ji, we still disagree about up front payment for any subcontractor bond premiums unless they are required by the contract - AND show the government as the obligee. That would be a VERY rare occurrence.
  26. ji, by “liquidated”, the GAO (in the 1977 Decision) and I don’t mean that the government is taking back the bond premium money that it paid up front. What happens is this- as the contractor reports, for example , 10% progress in a subsequent payment estimate. Thus, 10% progress will include 10% of the bond premium which has already been paid. The payment estimate form that we use will show for that payment estimate a cumulative 90% for the bond and 10% progress. That plus stored materials is total earnings to date. Then we subtract previous payments from the latest cumulative total earnings to calculate the amount of the progress payment. It looks weird but since we are subtracting previous total earnings from current earnings it works out. This goes on the same way for each progress payment request until bond payment shows zero and progress shows 100% The trick is basically total current earnings minus previous total earnings. I mentioned how stored materials are handled only to use a an example. As stored materials come out of the inventory they go into the work progress so that there is no double payment for the same materials. Each pay estimate includes the updated value of overall stored materials. Eventually that is reduced or liquidated to zero as materials are incorporated into the work. (Zeroed Out as progress accumulates.) I’m simplifying that a bit for materials but am explaining it that way for illustrative purposes. That what I meant by liquidating the bond payment it is absorbed into the line items that comprise total progress to date. The overall amount paid isn’t affected by this method. It. looks more complicated than it is. In an early assignment, I used to prepare all the monthly construction payment estimates by hand, using my trusty TI-30 calculator.
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