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Under a prime contract that includes the Progress Payments clause at 52.232-16, how is a contract financing payment request or non-financing payment request from an affiliate who does not qualify for transfers at price under the FAR Material Cost Principle at 31.205-26(e) supposed to be treated in the Prime's payment request? Must every billing that includes a payment request from the affiliate adjust the affiliates billing to be on the basis of actual allowable costs? (Even if the contractural arrangement with affiliate is not Cost Type).

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Govtacct02,

I'm confused. If the affiliate does not qualify under 31.205-26(e) for transfers at price, then the transfers must be made on the basis of allowable cost. Right? So if that's true, then what kind of contractual arrangement can the two affiliated entities have, other than a cost-type one?

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Govtacct02,

I'm confused. If the affiliate does not qualify under 31.205-26(e) for transfers at price, then the transfers must be made on the basis of allowable cost. Right? So if that's true, then what kind of contractual arrangement can the two affiliated entities have, other than a cost-type one?

Is it possible to have a Fixed price contractual arrangement with an affiliate, but treat the cost as if it were cost reimburseable ?

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Is it possible to have a Fixed price contractual arrangement with an affiliate, but treat the cost as if it were cost reimburseable ?

govtacct02, yes I suppose one could have a FP type contract for financial reporting but a CP type for government contract cost accounting. That said, I don't see the advantages in doing so. To comply with FAR, you still need to calculate "total cost" as that term is defined in FAR Part 31. That value must include allocable credits as well as direct and indirect costs, and that value must be adjusted to identify and segregate unallowable costs. Moreover, that value must also be adjusted for changes to actual allocated indirect costs at the affiliate.

My point is, you're going to do all the work anyway. Plus, the inter-company profit will be eliminated in consolidation for GAAP purposes. So I don't see any advantage in pretending it's an FP contract for one set of books, while treating it as a CP type contract (which you must do) for FAR compliance purposes) on the set of books you show DCAA.

Hope this helps.

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Under a prime contract that includes the Progress Payments clause at 52.232-16, how is a contract financing payment request or non-financing payment request from an affiliate who does not qualify for transfers at price under the FAR Material Cost Principle at 31.205-26(e) supposed to be treated in the Prime's payment request? Must every billing that includes a payment request from the affiliate adjust the affiliates billing to be on the basis of actual allowable costs? (Even if the contractural arrangement with affiliate is not Cost Type).

Why do you think the cost principles apply to the costs that can be recovered under the Progress Payments clause?

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Why do you think the cost principles apply to the costs that can be recovered under the Progress Payments clause?

I understand that the Progress Payments Clause does not reference the cost principles, with the exception of 31.205-10 . Here are two excerpts from the Progress Payments Clause:

52.232-16(a)(1) "(1) Unless the Contractor requests a smaller amount, the Government will compute each progress payment as 80 percent of the Contractor?s total costs incurred under this contract whether or not actually paid, plus financing payments to subcontractors (see paragraph (j) of this clause), less the sum of all previous progress payments made by the Government under this contract. The Contracting Officer will consider cost of money that would be allowable under FAR 31.205-10 as an incurred cost for progress payment purposes."

52.232-16 (a) (4)" The Contractor shall not include the following in total costs for progress payment purposes in paragraph (a)(1) of this clause:

(i) Costs that are not reasonable, allocable to this contract, and consistent with sound and generally accepted accounting principles and practices."

The cost principles stipulate that:

31.201-6 (a) "Costs that are expressly unallowable or mutually agreed to be unallowable, including mutually agreed to be unallowable directly associated costs, shall be identified and excluded from any billing, claim, or proposal applicable to a Government contract." (Emphasis is on "ANY billing")

DCMA and DCAA have issued guidance related to Progress Payments Based on Cost that uses the terms "allowable" and "unallowable" - terms that are defined in the FAR Cost Principles:

DCMA Guidebook - Progress Payments Based on Cost - Process Description Paragraph #8 - Approve/Disapprove/Reduce Progress Payment - first bullet "Disallowance of Cost: Reductions for disallowance of cost occur when unallocable/unallowable costs have been billed under progress payments."

http://guidebook.dcma.mil/32/guidebook_process.htm

DCAA Audit ProgramTfor Progress Payments Based on Costs Incurred (17500)

"The objective of progress payments is to provide the contractor with interim financing for a percentage (stated in contract) of allowable costs incurred for undelivered and uninvoiced items."

Why would DCMA and DCAA use such terms if the cost principles did not apply ?

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I understand that the Progress Payments Clause does not reference the cost principles, with the exception of 31.205-10 . Here are two excerpts from the Progress Payments Clause:

52.232-16(a)(1) "(1) Unless the Contractor requests a smaller amount, the Government will compute each progress payment as 80 percent of the Contractor?s total costs incurred under this contract whether or not actually paid, plus financing payments to subcontractors (see paragraph (j) of this clause), less the sum of all previous progress payments made by the Government under this contract. The Contracting Officer will consider cost of money that would be allowable under FAR 31.205-10 as an incurred cost for progress payment purposes."

52.232-16 (a) (4)" The Contractor shall not include the following in total costs for progress payment purposes in paragraph (a)(1) of this clause:

(i) Costs that are not reasonable, allocable to this contract, and consistent with sound and generally accepted accounting principles and practices."

The cost principles stipulate that:

31.201-6 (a) "Costs that are expressly unallowable or mutually agreed to be unallowable, including mutually agreed to be unallowable directly associated costs, shall be identified and excluded from any billing, claim, or proposal applicable to a Government contract." (Emphasis is on "ANY billing")

DCMA and DCAA have issued guidance related to Progress Payments Based on Cost that uses the terms "allowable" and "unallowable" - terms that are defined in the FAR Cost Principles:

DCMA Guidebook - Progress Payments Based on Cost - Process Description Paragraph #8 - Approve/Disapprove/Reduce Progress Payment - first bullet "Disallowance of Cost: Reductions for disallowance of cost occur when unallocable/unallowable costs have been billed under progress payments."

http://guidebook.dcma.mil/32/guidebook_process.htm

DCAA Audit ProgramTfor Progress Payments Based on Costs Incurred (17500)

"The objective of progress payments is to provide the contractor with interim financing for a percentage (stated in contract) of allowable costs incurred for undelivered and uninvoiced items."

Why would DCMA and DCAA use such terms if the cost principles did not apply ?

Look at item 11 and the instructions for completing item 11 on the 1443. Note the 1443 does not use the term "allowable cost." Instead, it uses "Eligible cost." DCMA and DCAA appear to be using the two terms interchangeably.

As you noted, 52.232-16 does not incorporate the cost principles. Thus, 31.201-6 is not a part of your contract. Neither is the guidance put out by DCMA and DCAA. This raises the question of whether you are submitting progress payment requests in accordance with the terms of your contract?

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