Jump to content
The Wifcon Forums and Blogs

sme1102

Progress Payments Using DFARS Clause 252.217-7007 (Payments)

Recommended Posts

Can anyone tell me how progress payments will be calculated using DFARS clause 252.217-7007 (Payments)?  Some relevant paragraphs in the clause read:

 (a)  “Progress payments,” as used in this clause, means payments made before completion of work in progress under a job order.

 

      (b)  Upon submission by the Contractor of invoices in the form and number of copies directed by the Contracting Officer, and as approved by the Contracting Officer, the Government will make progress payments as work progresses under the job order.

 

              (1)  Generally, the Contractor may submit invoices on a semi-monthly basis, unless expenditures justify a more frequent submission.

 

              (2)  The Government need not make progress payments for invoices aggregating less than $5,000.

 

              (3)  The Contracting Officer shall approve progress payments based on the value, computed on the price of the job order, of labor and materials incorporated in the work, materials suitably stored at the site of the work, and preparatory work completed, less the aggregate of any previous payments.

 

              (4)  Upon request, the Contractor will furnish the Contracting Officer any reports concerning expenditures on the work to date that the Contracting Officer may require.

 

      (c)  The Government will retain until final completion and acceptance of all work covered by the job order, an amount estimated or approved by the Contracting Officer under paragraph (b) of this clause.  The amount retained will be in accordance with the rate authorized by Congress for Naval vessel repair contracts at the time of job order award.

 

Share this post


Link to post
Share on other sites

It's ambiguous to me.

 

1. Does this mean PPs will be paid based on the percentage of incurred labor and materials calculated using the contract price as the base?  For example, with a contract price of $10,000,000, incurred material cost of $1,000,000 and incurred labor cost of $1,000,000, the PP amount would be 20% of the contract price -- ($1,000,000 + $1,000,000)/ $10,000,000)

 

2. Or does it mean you pay based on the percent of materials and labor incurred to the total estimate of materials and labor.  For example,  the estimated total material cost for the contract is $2,000,000 and the total estimated labor cost is $5,000,000.  The total direct estimated direct cost to complete the contract is $7,000,000.  The first month the contractor incurs $300,000 material and $400,000 in labor, or $700,000.  $700,000 / $7,000,00 = 10%.  10%  x Price of $10,000,000 = $100,000 as the PP.

 

Share this post


Link to post
Share on other sites

My interpretation is closer to your #1.

A= Value of labor & material incorporated into work

B= Value of materials suitably stored at the site of the work

C= Value of preparatory work completed

D= Contract price

E= Amount of previous payments

PP= Progress Payment

PP=((A+B+C)/D)*D) - E

Share this post


Link to post
Share on other sites
21 minutes ago, Don Mansfield said:

My interpretation is closer to your #1.

A= Value of labor & material incorporated into work

B= Value of materials suitably stored at the site of the work

C= Value of preparatory work completed

D= Contract price

E= Amount of previous payments

PP= Progress Payment

PP=((A+B+C)/D)*D) - E

While I don't have a better answer, I think it unlikely that your equation is what is intended, because ((A+B+C)/D)*D = A+B+C, thus taking the contract price out of the calculation, and it seems to me that it wouldn't be described the way it is if that were the case.  Actually, I could come up with a complicated description for the payment problem, but I don't think I'd be able to determine the amount to be retained by paragraph (c), since it says " The Government will retain . . . an amount estimated or approved by the Contracting Officer under paragraph (b) of this clause," yet I find no mention of a retention in paragraph (b).  Possibly, someone who knows about DFARS 217.71 MARAVs, which I don't, can explain, but I think it would take a lot of explaining to get me to understand.

Share this post


Link to post
Share on other sites

I used to award job orders under MARAVs, but never took a close look at the Payment close until now. In practice, ACOs would make progress payments based on percentage of completion, which is authorized by DFARS 232.102(e)(2). 

I think "value, as computed on the price of the job order,..." is a clumsy way of communicating that the aggregate value of the listed items cannot exceed the price of the job order, regardless of what they actually cost.

Share this post


Link to post
Share on other sites

With regards to the formula, PP=((A+B+C)/D)*D) - E.  The part "((A+B+C)/D)*D" mathematically equates to PP=((A+B+C) - E.  It doesn't make sense to me because it means the company will be paid its costs with no reduction.  That effectively is a cost reimbursement type contract, not fixed-price with progress payments.

Consider paragraph (c) of the clause:

c)  The Government will retain until final completion and acceptance of all work covered by the job order, an amount estimated or approved by the Contracting Officer under paragraph (b) of this clause.  The amount retained will be in accordance with the rate authorized by Congress for Naval vessel repair contracts at the time of job order award.

The "authorized by Congress" refers to 10 USC 2307  (Contract Financing). See: https://www.law.cornell.edu/uscode/text/10/2307

10 USC 2307 (g) reads:

(1) The Secretary of the Navy shall provide that the rate for progress payments on any contract awarded by the Secretary for repair, maintenance, or overhaul of a naval vessel shall be not less than—

(A) 95 percent, in the case of a firm considered to be a small business; and
(B) 90 percent, in the case of any other firm.

Being a large business, perhaps the progress payment amount would equal PP=(A+B+C) x 90% - E.

The problem I have with the contracting activity using 10 USC 2307 (g) is the contracting activity is not Navy and the work is not for a Navy vessel.  It is for the U.S. Army Landing Craft Utility (LCU) 2000 vessel.   The contract has been awarded with the only terms in the contract being DFARS cause 252.217-7007.  There is no clause mentioning 90% or any other rate.

If you haven't guessed, I am with DCMA and we been delegated the contract for administration and payment.

So far, I see the payments during the contract as being (A+B+C) x 90% - E, with the cumulative to date not exceeding the contract price.  After the work is completed and accepted, the contractor would submit an invoice for the remaining amount which has not been paid. 

But what happens if the contractor's performance costs exceed the contract price?  Do we pay the company the full price without all work being performed or delivered?  With the standard Progress Payment clause 52.232-16, when costs exceed price, we reduce the payment amount using a loss-ratio factor in accordance with FAR 32.503-6(g).  I might infer from paragraph (3) of 252.217-7007 that I could reduce the payment in a loss situation in a similar way as when there are normal  progress payments in a loss contract.

 (3)  The Contracting Officer shall approve progress payments based on the value, computed on the price of the job order ...

Assume the price is $1,000,000 and the contract cost is $2,000,000.  The value of the completed work to the Government would be 50% of the incurred cost ($1,000,000 / $2,000,000). To the Government, the value of the work cannot exceed the contract price.  Hence, we must reduce the incurred cost to reflect the true value to the Government. The periodic progress payment would then equal:

 ((A+B+C) x 50%) x 90% - E

 

Share this post


Link to post
Share on other sites

I think that DFARS 252.217-7007 simply provides for progress payments based on the price value of the physical progress of the work. It works much like progress payments in a construction contract.

Quote

(b)(3) The Contracting Officer shall approve progress payments based on the value, computed on the price of the job order, of labor and materials incorporated in the work, materials suitably stored at the site of the work, and preparatory work completed, less the aggregate of any previous payments

You don't need a complicated formula. The clause simply provides that the CO keeps a record of the value of work as included in the contract price -- labor and materials. Based on that value, he or she then determines how much work has been done (labor and materials incorporated in the work, materials stored at the site, but not yet incorporated in the work, and preparations completed) at the time of invoicing. He or then pays the price value of that work less the amount of progress payments previously made.

The clause does not provide for progress payments based on incurred costs.

Share this post


Link to post
Share on other sites

Thanks Vern.  But how is the "price value" determined? Are you saying the ACO should look at the physical work accomplished and estimate the percentage of work completed, then multiply that percentage by the contract price?

That makes sense to me.  But it also seems very subjective and arbitrary.

 

Share this post


Link to post
Share on other sites

When you award a job order, you get a breakdown of the price in terms of the labor and material costs of each element of the work. As the work is completed, you credit the contractor with those costs, as opposed to the actual costs of performance.

Suppose that the total price is $1,000,000 and that the job consists of six work elements. You break the labor and material cost of each work element down as follows:

1. $50,000 ($40,000 labor and $10,000 materials)

2. $100,000

3. $250,000

4. $400,000

5. $150,000

6. $50,000

As each element is completed, the contractor is credited with the appropriate amount.

Yes, it is somewhat subjective, which is why the CO must analyze the breakdown before he or she accepts it.

 

 

Share this post


Link to post
Share on other sites

Vern,

 

I fully understand now.  Thanks

 

 

Thanks Vern.  But how is the "price value" determined? Are you saying the ACO should look at the physical work accomplished and estimate the percentage of work completed, then multiply that percentage by the contract price?

That makes sense to me.  But it also seems very subjective and arbitrary.

 

Share this post


Link to post
Share on other sites
Quote

But how is the "price value" determined?

Once the job order price has been established, the contractor must develop a budget for each work element of the job. The price value of each work element should be based on those budgets. The CO must review the work elements and their budgets to ensure that the contractor does not front load them, thereby earning money in advance of actual accomplishment, which would be advance payments instead of progress payments. The work element descriptions and the budgets accepted by the PCO or ACO should be the basis for progress payments.

Quote

Are you saying the ACO should look at the physical work accomplished and estimate the percentage of work completed, then multiply that percentage by the contract price?

Not quite. The ACO and contractor should determine the percentage of completion of each work element at the end of each billing period, then calculate the corresponding percentage of the budget for that work element. That result is the amount to be paid.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×