Forced Progress Payments

[USGCO]

I am a CO for the USG. I have a big contractor that does not like to submit invoices on our FFP contracts until delivery. My customer would like to have regular invoicing, and has requested we hold the contractor to a "spend plan". My contract includes the Progress Payments clause, but my understanding is that we can't force the contractor to submit progress payments if they don't want/need to. Someone please tell me I'm wrong. Can I add a payment schedule to the contract and enforce regular billing on my contractor?

[formerfed]

What is the contract for?  Supplies or services?  Dollar value large or small?  Since you mentioned “spend plan” it sounds like performance can be in increments.  We just need more information.  But a quick answer seems like “no, you can’t force them to submit progress payments if the contract doesn’t require it.”  That doesn’t mean you can’t sit down and negotiate something though.

[joel hoffman]

On 9/22/2023 at 8:08 AM, USGCO said:

I am a CO for the USG. I have a big contractor that does not like to submit invoices on our FFP contracts until delivery. My customer would like to have regular invoicing, and has requested we hold the contractor to a "spend plan". My contract includes the Progress Payments clause, but my understanding is that we can't force the contractor to submit progress payments if they don't want/need to. Someone please tell me I'm wrong. Can I add a payment schedule to the contract and enforce regular billing on my contractor?

No. Not under the Progress Payments clause at 52.232-16, which begins with: “The Government will make progress payments to the Contractor when requested as work progresses, but not more frequently than monthly, in amounts of $2,500 or more approved by the Contracting Officer, under the following conditions…”

I don’t think that it would be within the scope of the Changes clause to unilaterally change the payment terms of the contract from voluntarily requested progress payments, to mandatory progress payments. It will likely increase the contractor’s costs to administer and prepare regular invoices. 

[C Culham]

On 9/22/2023 at 6:08 AM, USGCO said:

FFP contracts

 

On 9/22/2023 at 6:08 AM, USGCO said:

My customer would like to have regular invoicing, and has requested we hold the contractor to a "spend plan".

Why?  The contract total amount is most likely already obligated if truly a FFP contract so I do not get why the "customer" wants to know a "spend plan".   Maybe if you found out the reason you could figure out a way to ask the contractor to provide some kind of progress report or whatever that gives the customer the information they really want!

[here_2_help]

Seems to me that the "customer" is equating spending money (as reported on progress payment financing requests) with making technical progress. Have we forgotten the lessons learned from the A-12 debacle already? (Yikes!) There are other means to determine the contractor's technical performance. Monthly reports (CDRLs) are one means of doing so.

Second, if this "big" contractor doesn't want progress payments, there must be some other reason. Why? Because "cash is king." Every contractor in the world wants--or should want--enhanced cash flow. They will frequently trade profit for enhanced cash flow. My thought is that there must be some other (unstated) reason for not wanting progress payments. For example, FFP without progress payments avoids most if not all auditor scrutiny. If the contractor is trading cash for a lack of auditor scrutiny, that would signal to me that the contractor has something to hide.

At a guess, they have an accounting system issue. (I.e., use of progress payments requires an "adequate" accounting system as determined by DCAA auditors.) FFP means that the accounting system issues remain unobserved and unknown. After all, if the price was fair & reasonable, nobody really cares what the contractor is spending.

Though another possible reason for denying progress payments is that the contractor is making a huge windfall profit and it doesn't want USG to know, as a huge underrun against planned/negotiated costs would smell like defective pricing and--again--the auditors would be brought in to see what was really going on. (You can always bring in the auditors afterwards, for a post-completion "truthful cost or pricing data" audit.)

Those are my thoughts, for what they may be worth.

[formerfed]

The reason I asked details about the contract is this situation happens occasionally.  Sometimes it’s the governments preference.  A common practice for some studies and analysis efforts as well as IT development is delivering a series of sequential products.  This might include items like requirements definition, conceptual design, test plans, and draft reports.  Sometimes the parties don’t like multiple invoicing and payments.  Separate clins might be used but not always.  But here_2_help probably hit upon a very good reason for the contractors reluctance and that’s not wanting to disclose a huge profit.

[C Culham]

On 9/22/2023 at 6:08 AM, USGCO said:

My contract includes the Progress Payments clause,

This is the most interesting part of this thread.  The question is why progress payments?  Was it determined that "contract financing" was usual for the type of work or simply to accommodate a "customers" want of monitoring?  If the latter it seems a misapplication of contract financing.  I say this as it is clear the contractor doesn't need financing.

[joel hoffman]

@USGCO, I like the question concerning the customer’s reasoning for requesting a “spend plan” for (an assumed) fully funded FFP (supply?) contract.

1. Can you explain the basis/reasons for customer’s concerns or needs?

2. Also, why was this type of financing chosen for the acquisition?

3. Can we assume that regular progress reporting, independent of progress payments, is a contract requirement?

4. One more question. Was this a competitively awarded contract or was it a sole source negotiated contract?

Thanks, in advance for clarifying…

P.S., if your question has been answered and you don’t want to publicize the details, that’s ok but please confirm if it has been answered. I noticed that you last signed in last Friday morning when you posed the question.