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Progress Payment - Delivery Delinqiuency

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Hello,

I am trying to locate a clear regulation that provides instructions as to how to proceed with progress payments when the contractor is delinquent on delivery.  I reviewed FAR 32 and there is some vague language.

I found an informal document that reads as follows:

Quote

"Whenever a contractor is delinquent, the ACO must determine if the contractor will correct the situation and complete the contract requirements within price. The PCO must be contacted about the delinquency and told that the ACO will continue progress payments, unless the PCO immediately informs the ACO the contracting office intends to terminate the contract.  If the ACO continues to authorize progress payments, he/she must notify the contractor (in writing) that progress payments can be stopped at any time if the delinquency (or failure to deliver conforming goods, failure to make progress, or other default) is not cured. It is also imperative than the contract delivery schedule be formally re-established ***"

I googled this language but it is not pulling up the reference/regulation.

Any input is greatly appreciated.

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You speak of progress payments, so I am supposing the contract includes the clause at FAR 52.232-16, Progress Payments.  Is that right?

If that is right, see para. (c) of the clause.  That paragraph gives the contracting officer three possible actions, or a combination of any or all of those actions.

If that is not right, please tell us what progress payments clause you are using.

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Guestsmith, you did not state what the cause of the so-called delinguency was.  You need to make sure that the contractor did not experience an excusable delay in performance before you take any action to reduce or suspend progress payments due to a failure to make progress.

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Proving once again that progress payments have no guaranteed correlation to making progress. Instead, they are correlated to the contractor's ability to spend money.

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The OP needs to provide more information in order to intelligently respond. 

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Good afternoon,

My apologies for being overly vague in my original post.  I hope this post will highlight what I am seeking. 

The PP is for FMS funds and as a result, DFARS 252.232-7002 is incorporated.

There has been a stop work order notice submitted as well as notification of delayed delivery.  I have reached out to the PCO to gain additional information as to whether they have concerns with the delinquency.  Unfortunately, I have received no response.

The contractor confirmed they did not obtain feedback from the PCO as to whether these delays were considered to be excusable.  The contractor also stated they did not seek out a request for a Mod to push back the delivery date of the supply.

My question stems from FAR 32.503-2 - Supervision of Progress Payments (Be advised I will underline the language that stands out to me)

(a) The extent of progress payments supervision, by prepayment review or periodic review, should vary inversely with the contractor’s experience, performance record, reliability, quality of management, and financial strength, and with the adequacy of the contractor’s accounting system and controls. Supervision shall be of a kind and degree sufficient to provide timely knowledge of the need for, and timely opportunity for, any actions necessary to protect Government interests.

The contractor has not provided a definitive timeline as to when the commodity will be delivered in accordance with the contract.  In my humble opinion, this is not protecting the Government's interests.  Furthermore, the contractor is displaying poor performance and lack of reliability by not seeking a solution in conjunction with the PCO.

FAR 32.503-6 -- Suspension or Reduction of Payments reads as follows:

 

(f) Fair value of undelivered work. Progress payments must be commensurate with the fair value of work accomplished in accordance with contract requirements. The contracting officer must adjust progress payments when necessary to ensure that the fair value of undelivered work equals or exceeds the amount of unliquidated progress payments. On loss contracts, the application of a loss ratio as provided at paragraph (g) of this subsection constitutes this adjustment.

 

Furthermore, DFARs 242.7503 specifies that suspension or reduction of payments may take place as a result of:

(b) Contractor noncompliance

 

Based on these statements above, I am under the assumption I have the ability to recommend either suspension or a reduction of payment to the ACO. 

 

My question is this, is my interpretation consistent with how others are reviewing progress payments?  As we all know, the FAR and DFARs can be very vague as it mentions language such as "contractor noncompliance."  I believe not receiving approval for an excusable delay or a mod to extend the delivery date is considered noncompliance.  Am I making a valid argument?

 

My path forward is to not recommend processing the PP.  Ultimately I understand the ACO will make the final determination.  I wanted to ensure I am not missing languge in either the FAR or DFARS that specifically addresses progress payments and delinquency involving CLINs.  If the ACO decides to approve the PP, should I suggest a MFR?  That is my thought process but feedback I have received is that an email is sufficient.

Thank you for your time with reviewing my question.

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Pay careful attention to FAR 32.503-6(a)(1), (2), and (3).

What is your role?  You're not PCO or ACO, but I cannot tell your role.

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More importantly, read FAR 52.232-16 if it is in the contract.  That explains the contractual rights and obligations of the parties.  FAR 32.5 is not a part of the contract and there is an inconsistency between what it says about reduction of progress payments and what 52.232-16 says.

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On 2/5/2019 at 11:15 AM, Guestsmith83 said:

Good afternoon,

My apologies for being overly vague in my original post.  I hope this post will highlight what I am seeking.  

There has been a stop work order notice submitted as well as notification of delayed delivery.  I have reached out to the PCO to gain additional information as to whether they have concerns with the delinquency.  Unfortunately, I have received no response.

The contractor confirmed they did not obtain feedback from the PCO as to whether these delays were considered to be excusable.  The contractor also stated they did not seek out a request for a Mod to push back the delivery date of the supply.

I believe not receiving approval for an excusable delay or a mod to extend the delivery date is considered noncompliance.  Am I making a valid argument?

 

My path forward is to not recommend processing the PP. 

From a contractor view, I find it difficult to respond to the facts presented because there are no dates displayed to give appropriate context for me, and maybe for others. For example, did the Government issue a Stop Work Order to the contractor? When? What contract clause authorized it, FAR 52.242.15? Is the progress payment request for costs incurred prior to the Stop Work? Does the requested progress payment indicate the contractor is in a loss position? If not, I don't see any valid rationale to deny payment as requested. As an aside, like Contributing Member ji20874, I do not understand your role. It looks like your function is an advisor to the ACO and PCO regarding contract action and status. Were you asked to do that? Is that a requirement of your function? If the Stop Work is still in effect, perhaps it will be followed within 90 days by some Government action that will make your focus of this matter moot. Again, the time line concern for the facts. Finally, FYI, in my experience, excusable delay is not usually something that is responded to by the Government to the contractor like, "delays considered excusable" or "hererby approved."
 

Edited by Neil Roberts
typo in first sentence

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Good afternoon,

I am a contract administrator and part of my function is to provide a recommendation to the ACO.  I acknowledge that the ACO is the individual who will provide the final determination as they are the warrant holder.  Due to FAR 32, my responsibilities is to ensure progress payment surveillance is conducted in a manner that protects the government's best interests.

To breakdown the scenario, the contractor issued a memorandum detailing their decision to stop work.  The period of performance has lapsed by approximately three months.  Emails have been sent out by myself and the Industrial specialist requesting as to whether conversation occurred between the PCO and the vendor.  The vendor identified they did not seek out a formal/informal resolution.  From what I have previously observed, the PCO is expected to review information presented by the contractor and determine whether the delinquency is excusable.  The contractor has not specified a timeline as to when they will deliver.  It is all approximations.

The government did not issue a Stop Work Order.  The contractor stated they have not requested an extended delivery date.  The PCO has not acknowledged the receipt of the memorandum the contractor developed.  The PCO has not stated this was deemed as an excusable delay.  There are some disconnects with communication which further complicates the situation.  I have no doubt everyone has experienced this type of issue.

DFARS 252.232-7002 is in the contract and is applicable to this situation.  The PP in question is an FMS request.  However, FAR 52.232-16 is also within the contract.

FAR 52.249 – 14 (Excusable Delays) states:

(c) Upon request of the Contractor, the Contracting Officer shall ascertain the facts and extent of the failure. If the Contracting Officer determines that any failure to perform results from one or more of the causes above, the delivery schedule shall be revised, subject to the rights of the government under the termination clause of this contract.

As mentioned previously, I am not the PCO or ACO.  As a result, I respect their role and support their final decision.  My review is to provide a recommendation.  I understand that it does not need to be considered.  As a result, I want to ensure I am passing on information so the final determination can be made.

I am very appreciative of the feedback I have received.  Due to research, feedback, etc,., my decision is that I am recommending the PP be paid with reservation.  What I mean by this is that I believe it is necessary for the contractor/PCO to come full circle to decide how the delinquency is resolved.  I am not the PCO but I feel there should be some talk as to whether consideration is warranted.  If this occurs this will change the value of the contract which requires a reevaluation of the PP surveillance plan.

My primary concern is that the contractor has provided an aloof answer as to their attempts to rectify the delinquency.    I believe it is important for this information to be passed along to ensure noncompliance does not consistently occur. 

Thank you all as it has been most helpful.

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The contract clause at FAR 52.232-16 is the actionable clause, not the clause at DFARS 252.232-7002.

Have you read para. (c) of the clause at FAR 52.232-16 yet?  You should.  Both (c)(1) and (c)(2)(i) seem to apply and may be the basis for immediately suspending progress payments.

Forget all the excusable delay stuff and forget about resolving the delinquency -- it is irrelevant to you right now.  If the contractor has failed to comply with any material requirement of the contract [that's (c)(1)], you should recommend immediate suspension of progress payments.  If contract performance is endangered by the contractor's failure to make progress [that's (c)(2)(i)], you should recommend immediate suspension of progress payments.  The ACO will decide whether your facts are correct and will do what he or she will, but the single fact of the contractor's unilateral decision to stop or abandon the work is sufficient reason for you to make this recommendation to the ACO.  The ACO will be mindful of FAR 32.503-6(a)(1), (2), and (3).

From Hamlet, Act 4 Scene 3:  "Do it, England!"

[Note:  In making this comment, I know that you have more knowledge than I do about the facts on the ground -- my comment is based only on what I have read here and my experience with progress payments, and is provided only to encourage dialogue and thinking.]

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52 minutes ago, Guestsmith83 said:

...my decision is that I am recommending the PP be paid with reservation...

Paid with reservation?  What does that mean?  I cannot find any such term in the clause at FAR 52.232-16.  Where does this come from? 

As far as I know, your choices are to reduce or suspend progress payments, or to increase the liquidation rate, or a combination of these.  See para. (c) of the clause at FAR 52.232-16.

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Ji20874,

Please excuse the possible errors in my response.  I am typing from my phone.

Your two recent posts have been quite enlightening.  They coincided with my initial interpretation and gut instinct.  I became somewhat hesitant as there were other perspectives that did not remain consistent with my initial train of thought.  In the future I understand that I should explain my position without doubting my thought process.

In terms of my contemplated decision,  the approval with reservation is more to communicate I would proceed with caution when processing the PP.  In reality, this recommendation will be explicitly elaborated through issuance of a MFR detailing the concerns I have noted. I do intended to quote

"If the contractor has failed to comply with any material requirement of the contract [that's (c)(1)], you should recommend immediate suspension of progress payments.  If contract performance is endangered by the contractor's failure to make progress [that's (c)(2)(i)], you should recommend immediate suspension ofprogress payments."

I apologize if my reservation comment was confusing. It was my way to simplify developing a comprehensive memo with my recommendations. My current office is rather nervous about suspending or reducing the PP. That is a different matter which I will set aside for another day. However, I feel it is necessary to document any action as we all know the importance of recording these decisions. 

My reservation comment was more to briefly describe that the ACO may want to revisit reviewing FAR 52.232-16. 

I did have a further question. It was pointed out that FAR 52.232-16 is actionable but DFARS 252.232-7002 is not. 

I was also going to support my position through citing "232.503-6  Suspension or reduction of payments." This section states contractor noncompliance is sufficient to suspend or reduce PP.  As the reviewer, I analyzed both the FAR and DFARS and assumed both clauses are actionable if applicable.  Is that poor practice?

As mentioned, these responses have been extremely helpful.  Thank you all for taking time out of your day to respond. 

 

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Your reliance on the DFARS is misplaced.

The clause at DFARS 252.232-7002 supplements, but does not replace, the clause at FAR 52.232-16.  It (the DFARS clause) has no text that supplants or supplements the FAR clause text on Government actions in the case of contractor noncompliance.  The actionable clause is the FAR clause.  Read both clauses, and you will agree.  

DFARS 232.503-6 is not a contract clause.  Both FAR 32.503-6 and DFARS 232.503-6 are guidance to government employees, but DFARS 232.503-6 has no text for your situation.  My DFARS 232.503-6 does not say that contractor noncompliance is sufficient to suspend or reduce progress payments -- are we reading the same DFARS?  The actionable contract text is in the contract clause at FAR 52.232-16, para. (c), and the actionable guidance for government employees is in FAR 32.503-6.  

It sounds like even though the contractor has unilaterally stopped work, nonetheless you are recommending continued progress payments.  Read the contract clause at FAR 52.232-16, para. (c).  Remember, you and your office are supposed to be on the Government's side and protecting the Government's interests.  The contractor can protect its own interests, but your office is protecting the contractor's interests instead of the Government's interests.  Based on what you have shared, I say make the recommendation to the ACO to immediately suspend progress payments, based on the contract that both parties agreed to -- that seems to me to be your job.  The Government needs men and women of integrity, conviction, and action -- not wishy-washy hand-wringing worrywarts.  You have indicated nothing that would justify continuing progress payments.

It seems your job is just to make the recommendation to the ACO -- the ACO will act, or not, as he or she wishes, hopefully mindful of FAR 32.503-6(a)(1), (2), and (3) -- but the ACO cannot act if you keep him or her in the dark by not making a clear recommendation based on the facts.  Sooner is better than later.

But first, read FAR 52.232-16 and FAR 32.503-6 -- read it carefully.  You can also read DFARS 252.232-7002 and DFARS 232.503-6, but I don't think there is anything relevant there.  But for sure, read FAR 52.232-16 and FAR 32.503-6.

I'm glad WIFCON is here, so that contracting professionals can get advice from the broader community.  Your office culture may not allow you to do your job (that's a shame but it is so common), but hopefully you can learn correct principles.

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A word of caution.  One on the inconsistencies between FAR 32.503-6 and 52.232-16 is that 32.503-6 makes suspension or reduction of progress payments mandatory through the use of the word "shall."  However, FAR 52.232-16 says the contracting officer "may" reduce or suspend progress payments.  This indicates that such action is discretionary on the part of the contracting officer.  Because 52.232-16 is a contract term, that is what the contracting officer must follow.  Therefore, if a reduction or suspension is to occur, the rationale for doing so must be clearly documented to avoid such action being determined to be an abuse of discretion.  Remember, if a reduction or suspension occurs and the contractor contests it under the Disputes clause,  the reduction or suspension is a government claim for which the government bears the burden of proof.

Finally, 52.232-16 goes into fixed price contracts while 52.249-14 goes into cost reimbursement contracts.  They both should not be n the same contract for the same work.

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21 hours ago, Guestsmith83 said:

the contractor issued a memorandum detailing their decision to stop work.

 

21 hours ago, Guestsmith83 said:

whether conversation occurred between the PCO and the vendor.

 

22 hours ago, Guestsmith83 said:

the PCO is expected to review information presented by the contractor and determine whether the delinquency is excusable.

 

22 hours ago, Guestsmith83 said:

I am a contract administrator

Not that I disagree with the ideal of a recommendation but I do notice a lack of reference to a "Contracting Officers Representative".   I am confused with regard to where a "contract administrator" fits in with regard to authority under the contract.  Noting as the ACO/PCO have not seemed to share anything with regard actions regarding the memorandum sent by the contractor.  This is not to impugn  anyone or anything in this thread but in my experience as a CO with both PCO and ACO responsibilities I had lots of folks second guessing my decisions that were not in the official, and actual authority, responsibility loop.    Therefore I am not ready to agree that the OP is in the responsible organizational line to make the recommendation with out first seeing the actual authority assigned to the OP and even the actual memorandum by the contractor before I draw a conclusion.

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