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36 minutes ago, ji20874 said:

Joel,

Here are the facts as I understand them:

  1. 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).  
  2. 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.
  3. 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 1.102-2(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. 

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. 

Edited by joel hoffman
Added last paragraph

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25 minutes ago, ji20874 said:

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.

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????????????

15 minutes ago, joel hoffman said:

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.

Same way that you do for bonds if only provided by the prime.

15 minutes ago, joel hoffman said:

1977 GAO decision

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 …"

 

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4 minutes ago, C Culham said:

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 …"

 

“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. 

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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.

 

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1 hour ago, joel hoffman said:

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. 

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).

Edited by ji20874
Added notes about my practice. I want to maximize learning by allowing for diversity in contracting officer practice while being true to the FAR text.

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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. 

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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? 

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4 hours ago, joel hoffman said:

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.

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.

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3 hours ago, ji20874 said:

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.

To all WIFCON readers who are still paying attention, that's my simple advice:  Read the clause, and then do what the clause says.

I'm going to bow out now.

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.

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ji, it suddenly occurred to me that you might not be familiar with  the format of the USACE ENG Form 93 For payment estimates.  I don’t have time today (Sunday) to do it but I will illustrate what one looks like, ASAP.  

The running balance of Contractor Bonds, stored materials etc. are reflected in the form outside of the reported progress on the CLINs. The balances shown reflect increases and decreases for those items.

As progress is shown under the CLINs, the amounts shown for items outside the CLINs are absorbed into the CLINs. Newly added stored materials will also be reflected in the balance for that. 

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13 hours ago, joel hoffman said:

Prime contractor incurred cost for bond payments are not “work accomplished. “

I will restate what ji has stated, 52.232-5 has nothing, absolutely nothing to do with incurred costs, it has to do with "estimating" the amount of work.   Both the government and contractor agree to what "estimated" work has been accomplished and agree on invoice amount and payment is processed.

 

18 hours ago, joel hoffman said:

Once the contractor earns progress on acceptable work performed

Come on Joel you are digging a horrible hole that does not reflect common practice in Federal construction contracting to try to defend a position you have taken about bonding .  You know full well "progress payments" can be made without acceptance of work and 52.232-5 at (h) and  FAR 52.246-12 Inspection of Construction supports this. A practice that has been around forever.

Your bias is based on USACE procedures - payment for sub bonds not allowed, automated formats and forms, etc..

Here is how I have experienced/assisted firms in processing payments for construction contracts with the USACE, USDA, HHS, FHA, DoD, and various other agencies in my 50+ year career.

Assumptions - Up front the contractor and government agreed after contract award at the prework conference that material would be delivered to site, agreed where it would be stored and agreed what the cost of pipe would be versus the installation cost of the pipe.  They agreed how it would be handled with regard to para. (b)(2) of the payment clause.  It was also agreed that as bonds were required and the contractor was also requiring bonds of the subs that payment in accord with para. (g) of the clause would be made out of the mobilization CLIN.

 

INVOICE  NO. 1                 
    CONTRACT     EARNED THIS PERIOD   TOTAL PAID    
CLIN DESCRIPTION QTY/UNIT UNIT PRICE AMOUNT QTY/UNIT AMOUNT QTY/UNIT AMOUNT  
1 Mobilization 1 LS $1,000.00 $1,000.00 0 $500.00 0 $500.00  
2 Sewer Pipe Install FEET/500 $12.00 $6,000.00 0 $0.00 0 $0.00  
2a Sewer Pipe Delivered FEET/500 $3.00 $3,000.00 500 $3,000.00 500 $3,000.00  
2b Sewer Pipe Installed FEET/500 $3.00 $3,000.00 0 $0.00 0 $0.00  
                   
EXPLANATION AND REMARKS                
For CLIN 1 this period the $500 is for bonds received and substantiated.            
For CLIN 2 Delivered material payment based on invoice for materials delivered to site and confirmed        
                   
INVOICE NO. 2                 
    CONTRACT     EARNED THIS PERIOD   TOTAL PAID    
CLIN DESCRIPTION QTY/UNIT UNIT PRICE AMOUNT QTY/UNIT AMOUNT QTY/UNIT AMOUNT  
1 Mobilization 1 LS $1,000.00 $1,000.00 1 LS $500.00 1 LS $1,000.00  
2 Sewer Pipe Install FEET/500 $12.00 $6,000.00 0 $0.00 100 $0.00  
2a Sewer Pipe Delivered FEET/500 $3.00 $3,000.00 500 $3,000.00 500 $3,000.00  
2b Sewer Pipe Installed FEET/500 $3.00 $3,000.00 100 $300.00 100 $300.00  
                   
EXPLANATION AND REMARKS                
For CLIN 1 the contractor has completed mobilization to site.            
For CLIN 2 Contractor has installed 100 feet of pipe.              
                   
INVOICE NO. 3                 
    CONTRACT     EARNED THIS PERIOD   TOTAL PAID    
CLIN DESCRIPTION QTY/UNIT UNIT PRICE AMOUNT QTY/UNIT AMOUNT QTY/UNIT AMOUNT  
1 Mobilization 1 LS $1,000.00 $1,000.00 1 LS $0.00 1 LS $1,000.00  
2 Sewer Pipe Install FEET/500 $12.00 $6,000.00 0 $0.00 110 $0.00  
2a Sewer Pipe Delivered FEET/500 $3.00 $3,000.00 500 $3,000.00 500 $3,000.00  
2b Sewer Pipe Installed FEET/500 $3.00 $3,000.00 10 $30.00 110 $330.00  
                   
EXPLANATION AND REMARKS                
                   

For CLIN 2 additional 10 feet of pipe installed this period.

And here is how it would be done if there was only one CLIN.  Use your imagination for any other scenarios.

INVOICE NO. 1               
    CONTRACT     EARNED THIS PERIOD   TOTAL PAID  
CLIN DESCRIPTION QTY/UNIT UNIT PRICE AMOUNT QTY/UNIT AMOUNT QTY/UNIT AMOUNT
1 Sewer Pipe Install FEET/500 $12.00 $6,000.00 0 $0.00 0 $0.00
1a Sewer Pipe Delivered FEET/500 $3.00 $3,000.00 500 $3,000.00 500 $3,000.00
1b Sewer Pipe Installed FEET/500 $3.00 $3,000.00 0 $0.00 0 $0.00
1c Bond Reimbursement             $500
                 
EXPLANATION AND REMARKS              
 CLIN 1 - Delivered material payment based on invoice for materials delivered to site and confirmed and $500 payment is for bond substantiated by contractor pursuant to FAR 52.232-5(g) as no other items in contract payment made from CLIN 1
                 
           
                   

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On 9/22/2019 at 6:00 AM, joel hoffman said:

ji, it suddenly occurred to me that you might not be familiar with  the format of the USACE ENG Form 93 For payment estimates.  I don’t have time today (Sunday) to do it but I will illustrate what one looks like, ASAP.  

The running balance of Contractor Bonds, stored materials etc. are reflected in the form outside of the reported progress on the CLINs. The balances shown reflect increases and decreases for those items.

As progress is shown under the CLINs, the amounts shown for items outside the CLINs are absorbed into the CLINs. Newly added stored materials will also be reflected in the balance for that. 

ji, I found the Mobile District Corps of Engineers implementing instructions for paragraph 5(e) of the ASPR Payments for Fixed Price Construction clause, which was in effect as of the date of the April 1980 policy directive. Paragraph 5(e) is now paragraph 5(g).

Earlier dated files with instructions and sample Pay Estimates that I found in a folder only mentioned separate lines for:

•mobilization and prepatory work if there was no separate bid items for those,  and

•stored materials. 

I found another document dated in late 1984, which referenced paragraph 5(e) of the newly effective FAR clause 52.232-5(e).

Both the 1980 and 1984 directives said to include  prime contractor bond payments as a separate line in the Engineer Form 93. That form has been the USACE payment format since at least as far back as the 1970’s.

Both instructions also said not to pay subcontract bonds.

The overall contract amount is shown on the first line of the ENG Form 93 with total percentage and dollars of work accomplished to date. This number came from pay estimate backup sheets broken down by bid item numbers and sometimes breakdowns of lump sum bid items by activities.

Below that first line were separate lines for:

•Materials on-site not incorporated into the work,

•off-site materials (only when specifically authorized in the contract) 

•mobilization and prep work (only for activities that couldn’t be directly associated with any bid item(s). 

•Payments for initial performance and payment bond premiums.

Below the bond premium was a line for reduction of the bond payment based upon the overall percentage complete of all bid items, which reflected that percentage of the bond premium. Thus, like stored materials, what is reduced there moves into earned progress of work accomplished.

The sum of all of the above was “total earnings to date”. 

The rest of the Form dealt with the math calculations for previous earnings, previous payments, previous retainage if any, any other deductions, etc. to reach the amount to be paid. 

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Upfront full payment for of Bond premiums were not “work accomplished”, which is covered under paragraph 5(b) of ASPR  and FAR clauses. They weren’t mobilization or prepatory work. 

All that was stated in the GAO decision. 

As an aside, the USACE progress payment procedures were refined, in great part, after a USACE Engineer Inspection General (EIG) inspection sometime during the 1970’.s. 

The EIG reported that the Corps (two Districts under two Divisions) weren’t  adequately assuring accuracy of and documenting the basis for civil works construction contract progress payments on the massive Tennessee-Tombigbee Waterway Project, which was a politically controversial program. The Mobile District Office instructions to the field in April 1980 said that the procedures would be uniformly applied to all Mobile District construction contracts, both Military and Civil funded. 

Those payment procedures, for the most part have been adopted across the South Atlantic Division and are also consistent with the Corps-wide contract administration Resident Management System (RMS) procedures. 

When I worked in Saudi Arabia in the mid 1980’s, The Middle East Division had essentially adopted the Mobile District CAB Manual, which I think we’re the first USACE detailed CAB manual procedures.  After I returned from overseas assignments  to the Mobile District HDQTRs, other Districts would ask for copies. We kept it up to date. In 1997, i moved to another Corps Division level office on a $24 billion Major DoD Level I Acquisition program, which had copied and adapted the Mobile CAB manual. 

The South Atlantic Division Districts, as Part of its ISO 9001 Certification process, adapted and updated the Mobile Manual for Division -wide use, as the basis for its standard operating procedures.  The SADDM is familiar to me from what was the SAM District Manual version that I had been responsible for revising and updating back in the 1990’s. 

Of course, the USACE  procedures aren’t government m-wide, but they have been used on well over $100 billion worth of construction contracts over the years.

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8 hours ago, joel hoffman said:

Of course, the USACE  procedures aren’t government m-wide, but

And so the answer is while USACE does not allow inclusion of subcontractor bonds in a bond premium reimbursement you have not found definitive support to the general statement that -

"...(T)he  contractor can’t request reimbursement for subcontractor bond costs under paragraph 5(g)."

In fact pursuant to the FAR such reimbursement may be and has been allowed at individual agency discreation.

Please private message me when you do as I think this thread has run its course.

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16 hours ago, C Culham said:

CIn fact pursuant to the FAR such reimbursement may be and has been allowed at individual agency discreation.

Yes such reimbursements have been allowed at individual agency discretion. Doesn’t mean that it may be or is lawful to do it pursuant to the FAR. 

You have conveniently overlooked, ignored  or taken out of context to misinterpret two very basic points made by the GAO in its decision. 

The GAO definitively explained why total reimbursement is allowed for prime contractor’s bonds that are required by law, not bonds required by bonding companies and/or by primes.

“Such reimbursements are not payments for future performance but are reimbursements to the contractor for his costs in providing a surety satisfactory to the Government as required by law, and therefore. are not prohibited by 31 U.S.C. I 529. Prior Comptroller General decisions clarified.”

The other point is that full payment refers to “when” the payment is allowed not “what” the payment is for. 

I read a 1978 report of the BRAB Committee, which included a critique review of the Study Group 13-C of the Commission on Government Procurement.  

The Study Group 13-C  recommendation No.5. was payment of the full premium of payment and performance bonds upon submission of evidence of receipted actual amount of payment to the surety versus  the practice of considering such premium as part of the contractor’s general overhead expenses on a prorata basis over the course of construction. 

The committee agreed with the recommendation and said it believed that the immediate payment of the bonds would be justified since the bonds would be obtained for the benefit of the government and the government would the full benefit of the bonds on the first day they go into effect 

The committee recommended revisions to the ASPR and FOR payment clause to provide for reimbursement of full payment of actual bond premiums in addition to material delivered and work performed  in the making of progress payments. 

“Full premium” meant not prorating over the course of the contract  The term “ full payment” had nothing to do with allowing immediate subcontractor bond reimbursement. 

https://books.google.com/books?id=-JMrAAAAYAAJ&pg=PA1&lpg=PA1&dq=Study+Group+13-C+of+the+Commission+on+Government+Procurement&source=bl&ots=_jdu3oCoD2&sig=ACfU3U2g7rBG0f4Hw5IW-Sra_ht1e2mnNA&hl=en&sa=X&ved=2ahUKEwjIgLXMsujkAhVihOAKHVtUBPIQ6AEwAHoECAMQAQ#v=onepage&q=Study Group 13-C of the Commission on Government Procurement&f=true

But, you can’t be convinced, so let’s leave it at that. 

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10 hours ago, joel hoffman said:

But, you can’t be convinced, so let’s leave it at that. 

Good Lord Joel! 

Neither the BRAB nor the GAO's decision was with regard to an interpretation of the Miller Act as applicable to the now FAR clause 52.232-5 specifically at (g).   Rather it was about whether a Federal contract could allow reimbursement for TOTAL BOND premiums to a contractor up front and not be considered an advance payment.  The GAO concluded the bonding cost for performance and payment bond could be reimbursed if appropriately stated in a contract clause.

Here is the factual read of the BRAB and GAO decision that you with USACE bias are overlooking that support the position that ALL, TOTAL, EVERY  performance and payment bond premium is addressed by GAO.

The BRAB report and page 21 recommendation No. 5 opening sentences is this.  Note that in no where in the continuing discussion is the Miller Act mentioned specifically.

“The issue here is not whether a contractor should be reimbursed for performance and payment  bond premiums but rather when he should be reimbursed.”

As to the GAO Decision and specifically the Digest and "Matter Of" I have already pointed out to you both address "TOTAL"  bond premiums.  To reinforce this view note this opening paragraph of the Decision and the emphasis I have added.  The GAO did not address only Miller Act bonds but all bonds.

“This decision is in response to an inquiry submitted by

Robert J. Robortory on behalf of the National Research Council,

Building Research Advisory Board, Standing Committee on Procurement

Policy (BRAB Committee), asking 'whether our Office would object to

revising the Armed.Services Procurement Regulations (ASPR) and the

Federal Procurement Regulations (FPR) to authorize the consideration

of paid performance bond and payment bond premiums in computing

progress payments under Government contracts.

 

MOST of the bonds in question are required pursuant to…..”

 PS - If premium reimbursement as I have noted is not allowed as you continue to state why does the USACE find it necessary to so state in its own policy?

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“Corps of Engineers Bias”... probably true.

That is because the Chairman of the Committee 13-C that made the recommendation in 1972 was by a high level Army Corps of Engineers Headquarters official and the Federal Construction Council’s Standing Committee who reviewed and critiqued the 1972 report in 1977 for the OFPP also contained a Hqtrs USACE official. In fact, the Corps of Engineers was involved in the revision of the ASPR Payments clause. 

My former supervisor in Mobile District in the early 90’s was one of the high level inner circle of USACE Contract Administration policy officials and was in close contact and coordination with Hqtrs when policies were Developed and issued. Our Chief of Office of Council was in direct contact with HQTRS USACE Office of Council. 

In fact, essentially all HQTRs and lower Commands’ policies were and are coordinated between Contracting, Engineering, Construction and Office of Council before formal issuance. 

I kinda feel like they knew what the report and the GAO meant and definitely knew what the ASPR clause meant. 

 

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2 hours ago, joel hoffman said:

“Corps of Engineers Bias”... probably true.

That is because the Chairman of the Committee 13-C that made the recommendation in 1972 was by a high level Army Corps of Engineers Headquarters official and the Federal Construction Council’s Standing Committee who reviewed and critiqued the 1972 report in 1977 for the OFPP also contained a Hqtrs USACE official. In fact, the Corps of Engineers was involved in the revision of the ASPR Payments clause. 

My former supervisor in Mobile District was one of the high level inner circle of USACE Contract Administration policy officials and was in close contact and coordination with Hqtrs when policies were Developed and issued. Our Chief of Office of Council was in direct contact with HQTRS USACE Office of Council. 

In fact, essentially all HQTRs and lower Commands’ policies were and are coordinated between Contracting, Engineering, Construction and Office of Council before formal issuance. 

I kinda feel like they knew what the report and the GAO meant and definitely knew what the ASPR clause meant. 

 

Hear say IS NOT a substantive reference.  Give me one that is PLEASE!

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I worked directly for and with the Hdqtrs level Policy makers, Carl. Once I found out who were on those committees and being very  familiar with the policy making system and coordination that goes on within DoD and with industry, I’m confident that the contract clauses for construction contracts are consistent with USACE policies that date back to the updated ASPR clauses and subsequent updates in FAR. The ASPR clauses were adopted into the DAR and subsequently, into the FAR.

I don’t really care one way or another how You administer construction contracts because I can’t do anything about it one way or the other. The people in USACE awarding and administering billions of dollars worth of construction contracts seem to know what they are doing for the most part. 

I worked with policy makers and even with the attorney in HQUSACE who was the Chairperson of the DAR 36 committee in the 1990’s. 

And USACE  are still coordinating within DoD , other major government agencies, Congressional committees and with industry.

You don’t appear to know how construction contract policy, related acquisition regulations or even the related legislation is formulated and vetted. I can assure you that the USACE is involved in the process.

I don’t really care if you don’t believe that. 

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Please delete this post. Thought I was texting my wife! 

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21 hours ago, C Culham said:

PS - If premium reimbursement as I have noted is not allowed as you continue to state why does the USACE find it necessary to so state in its own policy?

USACE’s own policy dates back to when the ASPR clause was updated, so that people like you wouldn’t misinterpret it . April 1980 when it was new. People retire, newbies need policy procedural guidance, continuity and some traceability.

I didn’t write the policy. When my 1102 Contract specialist retired in the mid 1990’s, she gave me some file folders for historical internal District CAB policies. Some of the roots of which were traceable as far back as the 1960’s. 

I happened to notice that the bond reimbursement policy was issued the same month as when I joined the USACE in a field office for that District. Nine years later, I returned from overseas Districts to the Mobile District Headquarters to supervise CAB oversight for Construction Division and the District’s field offices, District construction contracting policy and guidance, new contract negotiations, changes,  claims, Terminations, other mods, A-E Liability investigations and determinations,  claims, District source selections, etc.

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14 hours ago, joel hoffman said:

so that people like you wouldn’t misinterpret it

Joel - Just to clarify my career in the Federal government started in 1972.  I again do not appreciate your unknowing prejudice and ask you to retract your "people like you" bias immediately as you see people like me have been successful acquisition professionals for many years.

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Carl, If you began your Federal Government career in 1972, then you should have “substantive references” for your personal opinion about the 1979 or 1980 ASPR/FPR  revisions. You were working for the government then. 

You said you “weren’t so sure” on September 14th...and seem to have based your opinion upon “a close reading” of the clause at 52.232-5 and reading the GAO Decision and a non relevant GSBCA Appeal Decision.  

I started working on Air Force construction contracts in1971, including contract admin and negotiating mods to contracts, I took a four year hiatus after my five year commitment in 1976 to do other design work and construction contracting. Actually, I joined the Air Force in 1967, although it wasn’t in construction contracting.

I didn’t demand that you back up your opinion with substantive references and don’t really care. 

I do appreciate your contributions to WIFCON and thanks for your service. We just disagree on this particular topic. 

 

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On 9/18/2019 at 10:18 AM, ALAL said:

I don't think anyone has mentioned one thing that is possibly relevant to this discussion.  That is the definition of "Bond" in the FAR (at FAR 28.001).  It covers only bonds "executed by a bidder or contractor" and "a second party (the 'surety' or 'sureties') . . .." (Emphasis added.)  Therefore, bonds executed by a subcontractor would not be "bonds" for FAR purposes, and presumably not covered by FAR 52.232-5(g).

As for Don’s statement that the definition of performance bonds in Part 28 are not applicable to the bonds referred to in 52.232-5(g). , that is wrong. Clause 52.228-15,  Performance and Payment Bonds - Construction defines the contract requirements for performance and payment bonds. One must read the contract as a whole.

The clause at 52.232-5(g) is referring to the Payment Bond (Standard Form 25A) and Performance Bond (Standard Form 25) specifically required for the construction contract by contract clause 52.228-15   “Performance and Payment Bonds—Construction”. Co-insurance or reinsurance also pertain to those bonds when applicable.

-Nothing more and nothing less - unless the government requires additional, separate bonds in the solicitation and contract. 

52.232-5(g)

“(g) Reimbursement for bond premiums. In making these progress payments, the Government shall, upon request, reimburse the Contractor for the amount of premiums paid for performance and payment bonds (including coinsurance and reinsurance agreements, when applicable) after the Contractor has furnished evidence of full payment to the surety. The retainage provisions in paragraph (e) above shall not apply to that portion of progress payments attributable to bond premiums.”

52.232-5 is consistent with in harmonious with 52.228-15. 

The government is the obligee. 

Here is the performance bond form: https://www.gsa.gov/cdnstatic/SF25-16c.pdf?forceDownload=1

Note that the bond premium is listed on the performance bond. There is no separate premium for the payment bond. The cost generally covers both performance and payment bonds.

Subcontractor performance and/or payment bonds are commercial bonds and would rarely, if ever, be required by the government in the contract. 

Sorry that I didn’t remember that earlier. I don’t use my desktop anymore and don’t keep a printed set of the contract clauses. That the trouble with electronic contracts and particularly true for IBR (inclusion by reference). 

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