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Permance Based Payments Contract with Fixed Price & Cost Type CLINs

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Need help please

I have a contract with both FFP and CPFF CLINs. The majority are CPFF and the entire award is in excess of $10 million. I was hoping to get agreement for Performance Based Payments for the FFP CLINs which are just shy of $2 million so we're not waiting until the end of the PoP (2 years) for payment. The contracting officer tells me that because the FFP CLINs are less than $2.5 million we're not eligible for PBPs. He cited 32.104 of the FAR which clearly indicates that the "contract price" should be $2.5 million or more. I'm confused by his determination.

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Try pushing for progress payments on the FFP CLINs. If your a larger company and don't have a need for contract financing and you just don't want to wait until the end of performance to receive payment (as stated in your post) I would not provide any type of financing if I'm the Government. See FAR 32.104(a)(1).

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You'd need to provide a bit more information if you're trying to get PBPs. Such as, why you need them, is it a deliverable end item with a long lead time, etc. There are specific criteria for the use of PBPs, and depending on which agency you are working with, even more criteria and scrutiny.

As for the definition of contract price, neither Part 2 or 32 defines it up front. Looking across FAR 32, Contract Price is defined for hte purpose of progress payments, which states that for the purpose of FFP contracts, contract price is the current amount fixed by the contract plus the NTE amount for unrpiced modifications. I think you'll run into some resistance in trying to prove you're eligible for the financing with the smaller amount. Specifically, 32.1001(e)(1) states they can't be used for cost reimbursement line items, so I'm not sure why you would think that the cost line items would be included in the contract price for the purpose of determining eligibility for contract financing on a fixed price line item(s).

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si, you haven't told us what the FFP CLINs cover. If 52.232-1 is in the contract, it might provide you an avenue for partial payments as the contract progresses.

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FAR 32.1004 permits use of PBPs on a deliver item (CLIN) basis, so long as agency regulation does not prohibit that application. So that's not the problem.

Your CO may be thinking that you don't qualify for contract financing. Your $10 million contract is 80% Cost Type, so you're getting $8 million reimbursed via monthly submission of public vouchers. What's left over ($2 million) may be under the contract financing threshold. Your CO cited the correct FAR rule (32.104). The problem I have is that I don't read the FAR that way.

I read 32.104 as discussing contract value, not CLIN value. It states that contract financing is not available unless the individual contract value is more than $2.5 million. Nothing I saw said anything about CLIN value -- though I admit I only read the FAR and didn't delve into the Supplements.

So I see your point. Still, you are getting $8 million.

Are you sure you can't find a way to negotiate smaller FFP deliverables with your CO, such that your cash flow is enhanced?

Hope this helps.

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Thanks for the feedback and yes, we are a large company. Yes 52.232-1 is included in the contract. I read the clause as requiring the CONTRACT VALUE to be $2.5. No where in the clause is there a requirement for the PBP-eligible value to be $2.5 million. The FFP clause is for EVMS and monthly reporting. There is a monthly deliverable which is the report. While we are a large company, not having the PBP will present a cash-flow problem for invoicing on a contract for which we are already substantially invested.

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Not withstanding that 52.232-1 seems to be an appropriate avenue for you to receive your reimbursement, I still contend that 32.104 was discussing Contract Price, not Contract value. When asking for Performance Based Payments, reading 32.1001(e) is pretty plain that they are not available for cost-reimbursement type contracts (or CLINs). So why would the value of the cost-reimbursement type CLINs be included in the contract price for determining if you are eligible for PBPs? Contract Price is not defined in Part 2 or 32 with respect to PBPs, but the reading of it with respect to other financing arrangements discussed in 32 (Progress) shows that they specifically only use the fixed value of the contract when determining contract price. Just trying to wrap my head around why you would use the cost portion to determine the value in this instance.

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I agree with dcarver. FAR 32.104 refers to contract price--not contract value. The FFP CLIN has a price of $2 million. The CPFF CLIN has an estimated cost and a fixed fee of $8 million--not a price.

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I would stay away from Contract Financing and look to getting permission to make monthly Progress Payments. Progress Payments are much more routine.

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I agree with dcarver. FAR 32.104 refers to contract price--not contract value. The FFP CLIN has a price of $2 million. The CPFF CLIN has an estimated cost and a fixed fee of $8 million--not a price.

Don, what do you make of the fact that 32.104(d)(2)(ii) refers to as total value of $2.5 million? I am confused by the used of "contract price" in 32.104©(2)(i) and "total value" in (ii). If looking at orders against IDVs we used the $2.5M total value why would that be different for individual contracts. Reading the FAR literally I would agree with you but is this a matter of this section being poorly written?

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Blitz - If you read on to 32.104(d)(3), you'll see that they consistently are utilizing "price" for individual contracts or orders and "value" as a summarization term for the aggregate price of all orders under an ID/IQ or BOA.

Regardless, the poster would still need to meet the conditions of 32.104(d)(1) to get to 32.104(d)(2). The onus is on the contractor to prove that they won't be able to bill for products for a substantial amount of time (examples given) AND that the expenditures made for performance during the predelivery period will have a significant impact on working capital. After that, you get to the dollar value restrictions.

If the section entitled "Contract Price" did not exist (32.501-3), and if it wasn't plain that they were using price as a singular term and value as a plural term, I'd agree with you. But they do attempt, at least in one subpart, to define Contract Price, which excludes the cost reimbursement line items.

Again, this is getting down to a common sense thing here, why would you utilize the cost reimbursement value as a part of the contract price when it is not eligible for the PBP? Isn't it just common sense that when determining price for the use of PBPs that you would only use the items eligible for PBPs in the first place?

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Don, what do you make of the fact that 32.104(d)(2)(ii) refers to as total value of $2.5 million? I am confused by the used of "contract price" in 32.104©(2)(i) and "total value" in (ii). If looking at orders against IDVs we used the $2.5M total value why would that be different for individual contracts. Reading the FAR literally I would agree with you but is this a matter of this section being poorly written?

The use of "total value" makes things murkier. I tend to agree with dcarver's common-sense interpretation, but if someone were to argue that cost-reimbursement task orders should be counted toward the "total value" I would not be able to definitively prove them wrong. That would be consistent with FAR 1.108( c ).

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Blitz - If you read on to 32.104(d)(3), you'll see that they consistently are utilizing "price" for individual contracts or orders and "value" as a summarization term for the aggregate price of all orders under an ID/IQ or BOA.

Regardless, the poster would still need to meet the conditions of 32.104(d)(1) to get to 32.104(d)(2). The onus is on the contractor to prove that they won't be able to bill for products for a substantial amount of time (examples given) AND that the expenditures made for performance during the predelivery period will have a significant impact on working capital. After that, you get to the dollar value restrictions.

If the section entitled "Contract Price" did not exist (32.501-3), and if it wasn't plain that they were using price as a singular term and value as a plural term, I'd agree with you. But they do attempt, at least in one subpart, to define Contract Price, which excludes the cost reimbursement line items.

Again, this is getting down to a common sense thing here, why would you utilize the cost reimbursement value as a part of the contract price when it is not eligible for the PBP? Isn't it just common sense that when determining price for the use of PBPs that you would only use the items eligible for PBPs in the first place?

Ok yes, I do see 32.501-3, we may be in trouble. This is going to cause a serious cash flow issue as we will already be operating at $0 profit.

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If you have monthly reports to deliver, why can't you bill the government on a monthly basis for those reports?

That's what we're trying to do. I contacted the KO to ask if we could change the CLIN to reflect qty 24 at the lower dollar value, versus qty 1 at the higher dollar value for invoicing purposes. I'll let you know what happens.

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Ok yes, I do see 32.501-3, we may be in trouble. This is going to cause a serious cash flow issue as we will already be operating at $0 profit.

Like Don's post, I don't think 32.501-3 is the end all be all to stating you can't include the CPFF as a portion of the price, but you'd have to otherwise prove why they should be included I would think. I was pointing out that somewhere in FAR 32, they do attempt to define Contract Price since they don't up front or in Part 2.

I think your best bet would probably be persuading the KO to change it to a quantity of 24 rather than 1 lot (that appears to be what it is anyways).

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