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Working with DCMA on modifying contracts to incorporate the new progress payment clauses with 90% (large business) rates. Lots of people seem to think the new rates are prospective only. DFAS has confirmed that is not the case, that once the new rate is input it goes retroactive since the progress payment rates are based on costs incurred inception-to-date. Or, in DFAS speak, a contract can only have one progress payment rate, not two.

Anybody hearing anything similar?

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8 hours ago, here_2_help said:

Working with DCMA on modifying contracts to incorporate the new progress payment clauses with 90% (large business) rates. Lots of people seem to think the new rates are prospective only. DFAS has confirmed that is not the case, that once the new rate is input it goes retroactive since the progress payment rates are based on costs incurred inception-to-date. Or, in DFAS speak, a contract can only have one progress payment rate, not two.

Anybody hearing anything similar?

Not sure what you mean H2H. Is it something like only $ subject to payment after the contract modification will be paid at 90% vs. the government will send a check  (or debit? )to contractors to make up any difference between what was already paid at the rate previously in the contract and the 90% rate? Thanks.

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I cannot answer the original poster’s question, but I do want to offer a thought about how we may be acting the wrong way during this time of exigency.

Rather than issuing a modification to each and every DCMA contract, why not just do a system change inside the DCMA computers and automatically change 85 to 90 or 90 to 95?  Wherever the computer shows progress payments suspended or reduced, leave those unchanged.

Making contracting officers do modifications for mindless things like this is a tremendous waste of time, and takes them away from negotiating other changes where they could provide real value.

Just an observation.

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3 hours ago, ji20874 said:

Rather than issuing a modification to each and every DCMA contract, why not just do a system change inside the DCMA computers and automatically change 85 to 90 or 90 to 95?  Wherever the computer shows progress payments suspended or reduced, leave those unchanged.

Making contracting officers do modifications for mindless things like this is a tremendous waste of time, and takes them away from negotiating other changes where they could provide real value.

Agreed!

We had heard The FIRM was taking the lead, working with DACOs and CACOs on a block change. But then we heard individual COs/ACOs were taking the lead on individual contracts.

We heard the new PP rates were prospective only, then we heard "no DFAS can't handle that," then we heard "yes we meant prospective only."

So much confusion.

I was hoping somebody here had some better insight.

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My "insight" is that contract terms prevail regardless of what computer capabilities are. However, if payment is made at a higher rate on contracts that have a lower contract rate,  I question whether there would be a rush of contractors filing suit against the government for breach of contract. 

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Neil,

First COs are overwhelmed now.  Doing numerous contract modifications to simply increase percentages from a DFARS change is low on priorities.  If it was me, I would simply email all my contractors and worry about formal modifications later.

Second, this is for contractors benefits so there shouldn’t be complaints.

Lastly, why would there be a rush of contractor filing suits?

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1 hour ago, formerfed said:

Neil,

First COs are overwhelmed now.  Doing numerous contract modifications to simply increase percentages from a DFARS change is low on priorities.  If it was me, I would simply email all my contractors and worry about formal modifications later.

Second, this is for contractors benefits so there shouldn’t be complaints.

Lastly, why would there be a rush of contractor filing suits?

formerfed,

I don't think there would be a rush of contractors filing breach of contract suits against the government. And for that reason alone, I think the government should evaluate risk and benefit of being in technical breach of contract and act accordingly. However, I don't know if government personnel are permitted to act in that manner.

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If a contract states that x is required to be provided from one party to another, providing something other than x is breach of contract. Providing something beneficial or detrimental or notice of such benefit or detriment, instead of providing what the contract requires is a breach of contract.

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The KO should be able to notify the contractor’s by email.

14 hours ago, formerfed said:

Neil,

First COs are overwhelmed now.  Doing numerous contract modifications to simply increase percentages from a DFARS change is low on priorities.  If it was me, I would simply email all my contractors and worry about formal modifications later.

Second, this is for contractors benefits so there shouldn’t be complaints.

Lastly, why would there be a rush of contractor filing suits?

in this case, I agree. It could be a constructive change under a Changes clause. If it increases the cost or time required to complete the contract (it shouldn’t), the contractor’s can so respond...

If a contractor objects, then the KO could revert back to the previous rate. 

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On 3/25/2020 at 2:02 PM, here_2_help said:

Working with DCMA on modifying contracts to incorporate the new progress payment clauses with 90% (large business) rates. Lots of people seem to think the new rates are prospective only. DFAS has confirmed that is not the case, that once the new rate is input it goes retroactive since the progress payment rates are based on costs incurred inception-to-date. Or, in DFAS speak, a contract can only have one progress payment rate, not two.

Anybody hearing anything similar?

I understand the following citation relates to severable contract work but it does fly in the DFAS contention that "a contract can only have one progress payment rate, not two."  FAR 32.502-4(e).   Their contention is a "system" thing and not a FAR thing in my view.

As to a carte blanc action by the DFAS I understand the ease that everyone wants but isn't there more to it with regard to contract administration of progress payments with regard to contract pricing, funds obligated etc?  Consider undefinitized contracts as well that might and most likely do exist.  A contract by contract change may not be a simple as everyone wants to make it out to be.

In a detailed read of the FAR, and most likely supplements to it, the move from lower rate to higher rate is a move from customary to unusual progress payments.  In the case of undefinitized contacts there is statutory limitation more specific than just that of customary versus unusual.  Additionally there is FAR 43.301 and the imperatives it provides. 

In the end the change in rate is not mindless and consistent contract administration and documentation hygiene requires the engagement of the contractor in my view.  With this noted an action to change the rate under any specific contact "depends" on the contract itself and with the thoughts noted in this thread the effort should be left to the CO's view of their authority and what they would do to document the change.

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47 minutes ago, C Culham said:

In a detailed read of the FAR, and most likely supplements to it, the move from lower rate to higher rate is a move from customary to unusual progress payments.  In the case of undefinitized contacts there is statutory limitation more specific than just that of customary versus unusual.  

No it’s not.  The deviation covers customary

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59 minutes ago, formerfed said:

No it’s not.  The deviation covers customary

Agreed, sorry for the mistake.   However I do not believe the memo changes the process of how changing an existing  contract  ought to occur.  Ref. FAR 43.102(a).

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Here’s something relevant to what was discussed on progress payments:

https://www.defense.gov/Newsroom/Releases/Release/Article/2129497/partnering-with-the-us-defense-industrial-base-to-combat-covid-19/

 

Quote

DCMA is implementing a mass modification to approximately 1,500 contracts to raise the limits on progress payments from to 90% for large businesses, and to 95% for small businesses.


So another example of someone, or a group, taking charge and doing something positive 

 

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  • 2 weeks later...
On ‎3‎/‎26‎/‎2020 at 10:21 AM, Neil Roberts said:

My "insight" is that contract terms prevail regardless of what computer capabilities are. However, if payment is made at a higher rate on contracts that have a lower contract rate,  I question whether there would be a rush of contractors filing suit against the government for breach of contract. 

I had a similar thought and think the answer is there will soon be...because...(Assumption [reality], ACOs are unilaterally incorporating the deviated Progress Payments clause by modification)

 

The deviation in the Progress Payments clause not only increases the Progress Payment rate it increases the O so important Liquidation Rate.  The Progress Payments clause paragraph (c) only allows the Contracting Officer to unilaterally increase the Liquidation Rate when:

"(c) The Contracting Officer may reduce or suspend progress payments, increase the rate of liquidation, or take a combination of these actions, after finding on substantial evidence any of the following conditions:

(1)  The Contractor failed to comply with any material requirement of this contract (which includes paragraphs (f) and (g) of this clause).

(2)  Performance of this contract is endangered by the Contractor’s—

             (i)  Failure to make progress; or

             (ii)  Unsatisfactory financial condition.

 (3)  Inventory allocated to this contract substantially exceeds reasonable requirements.

 (4)  The Contractor is delinquent in payment of the costs of performing this contract in the ordinary course of business.

 (5)  The fair value of the undelivered work is less than the amount of unliquidated progress payments for that work.

 (6)  The Contractor is realizing less profit than that reflected in the establishment of any alternate liquidation rate in paragraph (b) of this clause, and that rate is less than the progress payment rate stated in paragraph (a)(1) of this clause."

 

So where is the Substantial Evidence one or all six conditions existed before the ACO unilaterally modified the Liquidation Rate?  Without it there is no unilateral authority under the Progress Payments clause afforded the ACO or PCO to make the unilateral increase to the Liquidation Rate.

 

I can hear the key boards clicking with the drafting of letters reserving the right to an equitable adjustment under 52.243-1.  Better also start separate charges codes as indicated by 52.243-6 when a change occurs.

 

On ‎3‎/‎25‎/‎2020 at 2:02 PM, here_2_help said:

Working with DCMA on modifying contracts to incorporate the new progress payment clauses with 90% (large business) rates. Lots of people seem to think the new rates are prospective only. DFAS has confirmed that is not the case, that once the new rate is input it goes retroactive since the progress payment rates are based on costs incurred inception-to-date. Or, in DFAS speak, a contract can only have one progress payment rate, not two.

Anybody hearing anything similar?

 

The DCMA Manual 2101-02--9.2. PROGRESS PAYMENT DISBURSEMENT EXCEPTIONS--paragraph b. “Multiple Progress Payment Rates”, Page 36 of 78 of the PDF. It discusses this in-depth.

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22 minutes ago, Dominicke Ybarra said:

I can hear the key boards clicking with the drafting of letters reserving the right to an equitable adjustment under 52.243-1.

Contractors get an equitable adjustment under that clause if a covered government action causes an increase in the cost of performance and/or the time needed for performance.  How would or could a change in progress payment rates or increase in the liquidation rate do either?  Also, for a breach of contract claim, what damages has the contractor suffered?

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22 hours ago, Retreadfed said:

Contractors get an equitable adjustment under that clause if a covered government action causes an increase in the cost of performance and/or the time needed for performance.  How would or could a change in progress payment rates or increase in the liquidation rate do either?  Also, for a breach of contract claim, what damages has the contractor suffered?

Changing the Liquidation Rate directly effects the earned profit element of the contract prices for completed items.  Increasing the Liquidation Rate reduces the earned profit which is an increase to the cost of performance.

 

Example:

Upon delivery, inspection, and acceptance of an $1,000,000 item under 80% Liquidation Rate would result in a payment of $200,000; assuming the total Unliquidated Progress payments remaining against incomplete work at time of delivery were = to or > than $800,000.

Upon delivery, inspection, and acceptance of an $1,000,000 item under 90% Liquidation Rate would result in a payment of $100,000; assuming the total Unliquidated Progress payments remaining against incomplete work at time of delivery were = to or > than $900,000.

 

Changing the Liquidation Rate directly effects the earned profit of the item delivered.  In the example above the 80% liquidation rate would have resulted in a payment of $200,000; at 90% the contractor would only receive a payment of $100,000.  This is less than what the contractor agreed to at contract formation and directly affects the profit.

 

Increasing the Liquidation Rate effects the earned profit negatively and is why 52.232-16 Paragraph (c) limits the Contracting Officer to only increasing the rate after finding on substantial evidence one or more of the six conditions exists. However, decreasing the Liquidation Rate effects the earned profit positively.  FAR 32.503-9 discusses decreasing the Liquidation Rate and exclaims the decrease is subject to a bilateral modification (FAR 32.503-9 (a)(8)).

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Dominicke,

Have you read the latest implementation guidance from DOD DPC (Kim Herrington)? I ask because it seems to address some, if not all, of your concerns.

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