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Progress Payments

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FAR 32.503-6(g) addresses the situation where progress payments are being used for a contract that is in a loss position. ("If the sum of the total costs incurred under a contract plus the estimated costs to complete the performance are likely to exceed the contract price, the contracting officer shall compute a loss ratio factor and adjust future progress payments to exclude the element of loss.")

Question: How does the loss ratio calculation work in a FPIF (firm target) situation? May the contractor use the agreed-upon formula to offset some of the estimated costs to complete for purposes of reducing the loss ratio, even though the final price has not yet been negotiated?

I've looked through my reference library and couldn't find an answer to that question. I'm hoping others can assist.

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2 hours ago, Retreadfed said:

H2H, before you go down that path, have you compared 32.503-6(g) with FAR 52.232-16(c)?

Yes. The contractor does not anticipate an at-completion variance greater than 20%. Unless I'm missing something, that means the CO should not reduce the progress payments on that basis. On the other hand, the contractor does anticipate an at-completion variance, some of which will be shared with the government customer. The question at hand is whether the loss ratio calculation associated with current period progress payment requests should anticipate the government's participation in the loss, which will reduce the final at-completion variance and thus reduce the loss ratio.

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