[Federal Register Volume 59, Number 172 (Wednesday, September 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21611]


[[Page Unknown]]

[Federal Register: September 7, 1994]


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DEPARTMENT OF DEFENSE

Department of the Navy

48 CFR Parts 5232 and 5252

 

Navy Acquisition Procedures Supplement; Payments Under 
Shipbuilding Contracts

AGENCY: Department of the Navy, DOD.

ACTION: Proposed rule.

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SUMMARY: The Department of the Navy is proposing to revise the 
shipbuilding progress payments clauses to incorporate several 
provisions covering standard Federal Acquisition Regulation progress 
payment clause protections, clarifications and expansions.

DATES: Public comments are solicited and should be received by October 
7, 1994.

ADDRESSES: Interested parties should submit written comments to: Office 
of the Assistant Secretary of the Navy (Research Development & 
Acquisition), ATTN: Mr. Clarence Belton, APIA(PP-CP), 2211 Jefferson 
Davis Highway, Arlington, VA 22244-5104.

FOR FURTHER INFORMATION CONTACT: Mr. Clarence Belton, OASN(RDA)APIA(PP-
CP), (703) 602-2357.

SUPPLEMENTARY INFORMATION:

A. Background

    The Department of the Navy has adopted procurement policies and 
procedures that implement and supplement the Federal Acquisition 
Regulations (FAR) [48 CFR] and the Defense Federal Acquisition 
Regulation Supplement (DFARS). The policies and procedures are known 
collectively as the Navy Acquisition Procedures Supplement (NAPS). 
Pursuant to FAR 32.500(b), the Navy developed a shipbuilding progress 
payments clause for use in fixed price (FP) and fixed price incentive 
(FI) contracts for construction or for shipbuilding or ship conversion, 
alteration, or repair, when the contracts provide for progress payments 
based on a percentage or stage of completion. The shipbuilding progress 
payments clauses are being revised primarily with the intent of 
incorporating controls, terms and provisions consistent with those 
found in the clause at FAR 52.232-16, Progress Payments.

B. Summary of Major Revisions

    (1) Definitions. Consolidates the FI clause definitions.
    (2) Computation of Payments. The proposed rule modifies the payment 
limitation of 100% of allowable costs to include unliquidated progress 
payments made to subcontractors.
    (3) Invoices. The proposed rule modifies the invoicing provision by 
requiring contractor certification of the amount of unliquidated 
progress payments made to subcontractors.
    (4) Physical Progress and Weighting Factors. The proposed rule 
modifies the physical progress and weighting factors provision to give 
the Contracting Officer the unilateral right to establish the weighting 
factors if the contractor and the Contracting Officer cannot reach 
agreement.
    (5) Incurred Costs. The proposed rule adds to the list of incurred 
costs exclusions, costs incurred by subcontractors and suppliers; and 
capitalized costs and interim payments to subcontractors and suppliers. 
This provides consistency with the FAR progress payments clause. The 
proposed rule also removes the small business provision that allows for 
billing of material costs not paid for by the contractor.
    (6) Progress Payments to Subcontractors. The proposed rule adds a 
new section containing provisions from the FAR progress payments clause 
that govern payments to subcontractors.
    (7) Liens and Title. A proposed provision is added which references 
Liens and Title provisions found elsewhere in the contract.
    (8) Reduction and Suspension. The proposed rule adds a new section 
incorporating provisions from the FAR progress payments clause that 
govern reductions and suspension of progress payments.
    (9) Limitations on Undefinitized Contract Actions. A proposed new 
section is added incorporating provisions from the FAR progress 
payments clause that govern limitations on Undefinitized Contract 
Actions.
    (10) Special Terms Regarding Default. A proposed new section is 
added incorporating provisions from the FAR progress payments clause 
that govern treatment of progress payments in a contract default.

C. Paperwork Reduction Act

    The proposed rule contains no new information collection or 
recordkeeping requirement under the Paperwork Reduction Act of 1980 (44 
U.S.C. 3501 et seq.). Supporting data requirements identified in the 
proposed rule include only data already required to be maintained by 
shipbuilding contractors.

D. Regulatory Flexibility Act Information

    The proposed rule will have no economic impact upon small entities 
within the meaning of the Regulatory Flexibility Act of 1980, 5 U.S.C. 
601 et seq. The shipbuilding progress payment clauses have been 
incorporated into applicable contracts since the early 1980's, 
affecting all shipbuilders, large and small. The proposed NAPS rule 
will benefit the Navy and its shipbuilding contractors by insuring 
uniform application and administration of progress payments. Therefore, 
no regulatory flexibility analysis has been performed.

List of Subjects in 48 CFR Chapter 52

    Government procurement.

    For the reasons stated in the Preamble, 48 CFR Chapter 52 is 
proposed to be amended as follows:
    1. Part 5232 is added to read as follows:

PART 5232--CONTRACT FINANCING

    Authority: 5 U.S.C. 301, 10 U.S.C. 2202, DOD Directive 5000.35.


5232.1-5232.499  [Reserved]


5232.500  Scope of part.

    The contracting officer shall insert the provision at 48 CFR 
5252.232-9100, Payments (FP), or 48 CFR 5252.232-9105, Payments (FI), 
as appropriate, in all solicitations and contracts for shipbuilding or 
ship conversion, alteration, or repair, when progress payments are 
based on a percentage or stage of completion.

PART 5252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES [AMENDED]

    2. The authority citation for part 5252 continues to read as 
follows:

    Authority: 5 U.S.C. 301, 10 U.S.C. 2405, DOD Directive 5000.35, 
and DFARS subparts 201.3 and 243.1.

    3. Part 5252 is amended by adding sections 5252.232-9100 and 
5252.232-9105 to read as follows:


5252.232-9100  Payments (FP).

    As prescribed in 32 CFR 5232.500, insert the following clause in 
fixed price solicitations and contracts for shipbuilding or ship 
conversion, alteration, or repair, when progress payments are based on 
a percentage or stage of completion:

(Beginning of Clause)

5252.232-9100  PAYMENTS (FP) (DEC 1992)

    (a) Computation of payments.
    (1) Until such time as physical progress in the performance of 
work on a vessel is fifty percent (50%) complete, the Government, 
upon submission by the Contractor of invoices certified by the 
Contractor as hereinafter provided, will promptly make payments, on 
account of the total contract price, of ninety percent (90%) of the 
amount determined by multiplying the total contract price of such 
vessel by the percentage of physical progress accomplished in the 
performance of work on such vessel as certified by the Contractor 
subject to the approval of the Supervisor; provided, that no such 
payment shall be made in an amount which when added to the total of 
all payments previously made with respect to such vessel under (i) 
paragraph (a) of this requirement and (ii) the ``COMPENSATION 
ADJUSTMENTS (LABOR AND MATERIAL)'' requirement exceeds one hundred 
percent (100%) of the allowable costs certified by the Contractor on 
the related invoice to have been incurred in the performance of work 
on such vessel plus any unliquidated progress payments paid to 
subcontractors.
    (2) After the percentage of physical progress in the performance 
of work on a vessel has reached fifty percent (50%), the Government, 
upon submission by the Contractor of invoices certified by the 
Contractor as hereinafter provided, will promptly make payments, on 
account of the total contract price, of one hundred percent (100%) 
of the amount determined by: (i) multiplying the total contract 
price of such vessel by the percentage of physical progress in the 
performance of work on such vessel as certified by the Contractor 
subject to the approval of the supervisor, and (ii) subtracting from 
that product five percent (5%) of the total contract price of such 
vessel; provided, that no such payment shall be made in an amount 
which when added to the total of all payments made previously with 
respect to such vessel under paragraph (a) of this requirement and 
the ``COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)'' requirement 
exceeds one hundred five percent (105%) of the allowable costs 
certified by the Contractor on the related invoice to have been 
incurred in the performance of work on such vessel plus any 
unliquidated progress payments paid to subcontractors; provided, 
further, that the Contractor furnishes data on actual cumulative 
costs and estimated future costs acceptable to the Supervisor which 
demonstrates to the satisfaction of the Supervisor that the 
Contractor will make a profit of at least five percent (5%) on 
completion of the contract, and the Contractor provides updated 
information on a quarterly basis. If updated data indicate the 
Contractor will not make a profit of at least five percent (5%) on 
completion of the contract, the progress payments shall be adjusted 
retroactively so that the total of all payments made with respect to 
the vessel under paragraph (a) of this requirement and the 
``COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)'' requirement shall 
not exceed one hundred percent (100%) of the allowable costs 
certified by the Contractor on the related invoice to have been 
incurred in the performance of work on such vessel plus any 
unliquidated progress payments paid to subcontractors or 100% of 
total contract price, whichever is less.
    (b) Invoices. Invoices may be submitted every two weeks, but not 
more frequently; provided, however, that if after contract award 
more frequent progress payments are approved by cognizant Government 
authority, this requirement shall be modified accordingly without 
additional consideration by the Contractor to the Government for 
such modification. No payment will be required to be made upon 
invoices aggregating less than five thousand dollars ($5,000). The 
Contractor shall certify on each invoice:
    (1) The percentage of physical progress in the performance of 
work on the vessel as a decimal carried to four places; and
    (2) The allowable costs incurred in the performance of the work 
on the vessel plus any unliquidated progress payments paid to 
subcontractors as of the date the invoice is submitted. Such 
certification shall provide for cost category reporting in 
accordance with the Contractor's normal accounting system and shall 
be broken down into direct material, direct labor, and indirect 
costs.
    (c) Physical progress and weighting factors.
    (1) Within sixty (60) days after contract award, the Contractor 
shall submit a progressing system description for review and 
approval by the Contracting Officer. Upon approval of such system, 
progress payments shall be in accordance with the approved system. 
Subsequent revisions to the approved system shall be submitted to 
the Contracting Officer for approval prior to implementation.
    (2) The mutually agreed upon weighting factors for the 
categories of labor and material for each vessel are set forth in 
Attachment------ to this contract. The weighting factors shall be 
revised quarterly. Notwithstanding the above, revision of weighting 
factors may be requested by either party when factual data indicate 
that the weighting factors then in use are no longer representative 
of the actual labor and material distribution. Revisions of 
weighting factors shall be supported by detailed de-escalated 
(estimated final) direct material, direct labor, and indirect costs 
and additional data concerning the cause of the change in the 
weighting factors. In the event that the parties fail to agree on 
the establishment of, or a revision to the weighting factors, the 
Contracting Officer may establish on a unilateral basis the 
weighting factors to be used in the administration of this 
provision. Any change in the weighting factors shall be set forth in 
a Standard Form 30, ``Amendment of Solicitation/Modification of 
Contract''.
    (d) Incurred costs. For the purpose of this requirement, 
``incurred costs'' are those costs identified through the use of the 
accrual method of accounting, as supported by the records maintained 
by the Contractor and which are allowable in accordance with Part 31 
of the Federal Acquisition Regulation (FAR) and Part 231 of the 
Department of Defense FAR Supplement (DFARS) in effect on the 
effective date of this contract and include only:
    (1) The costs of supplies and services purchased by the 
Contractor directly for this contract may be included only after 
payment by cash, check, or other form of actual payment.
    (2) Costs for the following may be included when incurred even 
if before payment, when the Contractor is not delinquent in payment 
of costs of contract performance in the ordinary course of business:
    (i) Materials issued from the Contractor's stores inventory and 
placed in the production process for use on this contract;
    (ii) Direct labor, direct travel, and other direct inhouse cost;
    (iii) Properly allocable and allowable indirect costs.
    (3) Accrued costs of Contractor contributions under employee 
pension or other post-retirement benefit, profit sharing, and stock 
ownership plans shall not be considered incurred until actually paid 
unless--
    (i) The Contractor's practice is to contribute to the plans 
quarterly or more frequently; and
    (ii) The contribution does not remain unpaid 30 days after the 
end of the applicable quarter or shorter payment period. (Any 
contributions remaining unpaid shall be excluded from the 
Contractor's total cost for progress payment limitations until 
paid.)
    (4) Incurred costs shall not include:
    (i) Any costs that are required under any requirement of this 
contract (other than the ``COMPENSATION ADJUSTMENTS (LABOR AND 
MATERIAL)'' requirement) to be reimbursed or paid by the Government 
to the Contractor or by the Contractor to the Government other than 
through an equitable adjustment in the contract price;
    (ii) Costs incurred by subcontractors or suppliers;
    (iii) Costs ordinarily capitalized and subject to depreciation 
or amortization except for the properly depreciated or amortized 
portion of such costs;
    (iv) Payments made or amounts payable to subcontractors or 
suppliers, except for--(A) Completed work, including partial 
deliveries, to which the Contractor has acquired title; and (B) Work 
under cost-reimbursement or time-and-material subcontracts to which 
the Contractor has acquired title.
    (5) If an overpayment is made relative to this paragraph (d), 
interest shall be charged at the prevailing per annum rate 
established by the Secretary of the Treasury, pursuant to Public Law 
92-41, from the date such overpayment is made (date of Government 
check) until the date the overpayment if fully recovered.
    (e) Progress payments to subcontractors. Progress payments made 
by the Contractor to its subcontractors shall be the unliquidated 
progress payments that are mentioned in (a)(1) and (a)(2) above 
shall be all progress payments to subcontractors or divisions, if 
the following conditions are met:
    (1) The amounts included are limited to the unliquidated 
remainder of progress payments made.
    (2) The subcontract or interdivisional order is expected to 
involve a minimum of approximately six months between the beginning 
of work and the first delivery, or, if the subcontractor is a small 
business concern, four months.
    (3) The terms of the subcontract or interdivisional order 
concerning progress payments--
    (i) Are substantially similar to the terms of this provision or 
to the clause at 52.232-16, Progress Payments, for any subcontractor 
that is a large business concern, or that clause with its Alternate 
I for any subcontractor that is a small business concern;
    (ii) Are at least as favorable to the Government as the terms of 
this clause;
    (iii) Are not more favorable to the subcontractor or division 
than the terms of this clause are to the Contractor;
    (iv) Are substantially in conformance with the requirements of 
paragraph 32.504(e) of the Federal Acquisition Regulation; and
    (v) Subordinate all subcontractor rights concerning property to 
which the Government has title under the subcontract to the 
Government's right to require delivery of the property to the 
Government if (A) the Contractor defaults or (B) the subcontractor 
becomes bankrupt or insolvent.
    (4) The progress payment rate in the subcontract is the 
customary rate used by the Contracting Agency, depending on whether 
the subcontractor is or is not a small business concern.
    (5) The parties agree concerning any proceeds received by the 
Government for property to which title has vested in the Government 
or against which a lien has been placed in favor of the Government 
under the subcontract terms, that the proceeds shall be applied to 
reducing any unliquidated progress payments by the Government to the 
Contractor under this contract.
    (6) If no unliquidated progress payments to the Contractor 
remain, but there are unliquidated progress payments that the 
Contractor has made to any subcontractor, the Contractor shall be 
subrogated to all the rights the Government obtained through the 
terms required by this clause to be in any subcontract, as if all 
such rights had been assigned and transferred to the Contractor.
    (7) To facilitate small business participation in subcontracting 
under this contract, the Contractor agrees to provide progress 
payments to small business concerns, in conformity with the 
standards for customary progress payments stated in subpart 32.5 of 
the Federal Acquisition Regulation. The Contractor further agrees 
that the need for such progress payments shall not be considered as 
a handicap or adverse factor in the award of subcontracts.
    (f) Retentions.
    (1) Upon preliminary acceptance of each vessel and upon the 
submission of properly certified invoices, the Government will pay 
to the Contractor the amount withheld under paragraph (a) of this 
requirement in respect of that vessel in excess of (i) a performance 
reserve in the amount of one and one-half percent (1.5%) of the 
total contract price for such vessel, or (ii) one hundred thousand 
dollars ($100,000), whichever is greater. If at any time it shall 
appear to the Government that the amount of performance reserve may 
be insufficient to meet the cost to the Government of finishing any 
unfinished work under the contract for which the Contractor is 
responsible, or of correcting defects for which the Contractor is 
responsible which are discovered prior to preliminary acceptance or 
during the guaranty period of any vessel, the Government may, in 
making payments under this requirement, deduct or withhold such 
additional amounts as it may determine to be necessary to render 
such reserve adequate; provided, that any additional amounts 
deducted or withheld on account of defects which are discovered 
during the guaranty period of the vessel shall not exceed the limit 
of the Contractor's liability as set forth in the requirement 
entitled LIMITATION OF CONTRACTOR'S LIABILITY FOR CORRECTION OF 
DEFECTS'', reduced by the amounts of the cost incurred by the 
Contractor for work on such vessel because of Contractor responsible 
deficiencies which are discovered during the guaranty period of the 
vessel.
    (2) The Government may, in its discretion, make payments prior 
to final settlement on account of the reserves established under 
this requirement, subject to such conditions precedent as the 
Contracting Officer may prescribe.
    (3) The Government shall, at the time of final settlement, in 
accordance with the provisions of the requirement entitled ``FINAL 
SETTLEMENT'', pay the Contractor the balance owing to it under the 
contract promptly after the amount of such balance shall have been 
determined.
    (g) Liens and title. For liens and title provisions, see the 
requirement of this contract entitled ``LIENS AND TITLE''.
    (h) Certifications and audits. At any time or times prior to 
final payment under this contract, the Contracting Officer may have 
any invoices and statements or certifications of costs audited. The 
Contracting Officer may require the Contractor to submit, or make 
available for examination by the Contracting Officer or his 
designated representative, the supporting documentation upon which 
invoices, statements or certifications of costs are based. Each 
payment theretofore made shall be subject to reduction as necessary 
to reflect the exclusion of amounts included in the invoices or 
statements or certifications of costs which are found by the 
Contracting Officer, on the basis of such audit, not to constitute 
allowable costs. Any payment may be reduced for overpayments, or 
increased for underpayments on preceding invoices.
    (i) Reduction or suspension. The Contracting Officer may reduce 
or suspend progress payments after finding on substantial evidence 
of any of the following conditions:
    (1) The Contractor failed to comply with any material 
requirement of this contract.
    (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 Contractor fails to maintain an efficient and reliable 
accounting system and controls adequate for the proper 
administration of progress payments.
    (j) Limitations on undefinitized contract actions. 
Notwithstanding any other progress payment provisions in this 
contract, progress payments may not exceed 90 percent of costs 
incurred on work accomplished under undefinitized contract actions. 
A ``contract action'' is any action resulting in a contract, as 
defined in subpart 2.1, including contract modifications for 
additional supplies or services, but not including contract 
modifications that are within the scope and under the terms of the 
contract, such as contract modifications issued pursuant to the 
``CHANGES'' clause, or funding and other administrative changes. 
This limitation shall apply to the costs incurred, as computed in 
accordance with paragraph (d) of this clause, and shall remain in 
effect until the contract action is definitized. Costs incurred 
which are subject to this limitation shall be segregated on 
Contractor progress payment requests and invoices from those costs 
eligible for higher progress payment rates. For purposes of progress 
payment liquidation, progress payments for undefinitized contract 
actions shall be liquidated at 90 percent of the amount invoiced for 
work performed under the undefinitized contract action as long as 
the contract action remains undefinitized. The amount of 
unliquidated progress payments for undefinitized contract actions 
shall not exceed 90 percent of the maximum liability of the 
Government under the undefinitized contract action or such lower 
limit specified elsewhere in the contract. Separate limits may be 
specified for separate actions.
    (k) Special terms regarding default. If this contract is 
terminated under the ``DEFAULT'' clause, (i) the Contractor shall, 
on demand, repay to the Government the amount of unliquidated 
progress payments and (ii) title shall vest in the Contractor, on 
full liquidation of progress payments, for all property for which 
the Government elects not to require delivery under the ``DEFAULT'' 
clause. The Government shall be liable for no payment except as 
provided by the ``DEFAULT'' clause.

(End of Clause)


Sec. 5252.232-9105  Payments (FI).

    As prescribed in Sec. 5232.500, insert the following clause in 
fixed price incentive solicitations and contracts for shipbuilding or 
ship conversion, alteration, or repair, when progress payments are 
based on a percentage or stage of completion:

(Beginning of Clause)

5252.232-9105  PAYMENTS (FI) (DEC 1992)

    (a) Definitions. For purposes of this contract requirement, the 
following definitions apply:
    (1) Total contract price--the sum of the contract prices 
including, adjustments as set forth in paragraphs (a)(4) (i) or (ii) 
of this clause and paragraph (c) of this clause, for each item in 
this contract subject to the requirement entitled, ``INCENTIVE PRICE 
REVISION--FIRM TARGET''.
    (2) Original unit target price--the target price of each item in 
this contract subject to the requirement entitled, ``INCENTIVE PRICE 
REVISION--FIRM TARGET'', that was established at the time of 
contract award.
    (3) Original total target price--the sum of the target prices of 
each item in this contract subject to the requirement entitled, 
``INCENTIVE PRICE REVISION--FIRM TARGET'', that were established at 
the time of contract award.
    (4) Allocated total contract price--that portion of the total 
contract price which is assigned to an item in the contract subject 
to the requirement entitled, ``INCENTIVE PRICE REVISION-- FIRM 
TARGET''. The allocated total contract price of each item shall be 
established by multiplying the total contract price by a percentage, 
expressed as a decimal carried to four decimal places, equal to that 
fraction whose numerator is the original unit target price of the 
vessel and whose denominator is the original total target price. The 
resulting dollar amount shall be rounded to the nearest one hundred 
thousand dollar ($100,000), upward or downward; provided that in no 
event shall the sum of the allocated total contract price of the 
items exceed the total contract price. The aforesaid percentages of 
each item shall be revised, by contract modification, in the event 
that either:
    (i) Equitable adjustments to the unit target prices of the items 
result in unit target prices of a substantially different proportion 
to the total target prices than previously provided for under this 
subparagraph (a)(4); or
    (ii) Incurred costs indicate that a revision to the percentages 
is appropriate; provided, however, any such revision shall not be 
made more frequently than at the end of a calendar quarter unless 
the total contract price is limited to the contract ceiling price 
and the contract ceiling price is adjusted during the calendar 
quarter.
    (b) Computation of payments.
    (1) Until such time as physical progress in the performance of 
work on a vessel is fifty percent (50%) complete, the Government, 
upon submission by the Contractor of invoices certified by the 
Contractor as hereinafter provided, will promptly make payments, on 
account of the total contract price, of ninety percent (90%) of the 
amount determined by multiplying the allocated total contract price 
of such vessel by the percentage of physical progress accomplished 
in the performance of work on such vessel as certified by the 
Contractor subject to the approval of the Supervisor; provided, that 
no such payment shall be made in an amount which when added to the 
total of all payments previously made with respect to such vessel 
under (i) paragraph (b) of this requirement and (ii) the 
``COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)'' requirement 
exceeds one hundred percent (100%) of the allowable costs certified 
by the Contractor on the related invoice to have been incurred in 
the performance of work on such vessel plus any unliquidated 
progress payments paid to subcontractors.
    (2) After the percentage of physical progress in the performance 
of work on a vessel has reached fifty percent (50%), the Government, 
upon submission by the Contractor of invoices certified by the 
Contractor as hereinafter provided, will promptly make payments, on 
account of the total contract price, at one hundred percent (100%) 
of the amount determined by: (i) multiplying the allocated total 
contract price of such vessel by the percentage of physical progress 
accomplished in the performance of work on such vessel as certified 
by the Contractor subject to the approval of the Supervisor, and 
(ii) subtracting from that product five percent (5%) of the 
allocated total contract price of such vessel; provided, that no 
such payment shall be made in an amount which when added to the 
total of all payments made previously with respect to such vessel 
under paragraph (b) of this requirement and the ``COMPENSATION 
ADJUSTMENTS (LABOR AND MATERIAL)'' requirement exceeds one hundred 
five percent (105%) of the allowable costs certified by the 
Contractor on the related invoice to have been incurred in the 
performance of work on such vessel plus any unliquidated progress 
payments paid to subcontractors; provided, further, that the 
Contractor furnishes data on actual cumulative costs and estimated 
future costs acceptable to the Supervisor which demonstrate to the 
satisfaction of the Supervisor that the Contractor will make a 
profit of at least five percent (5%) on completion of the contract, 
and the Contractor provides updated information on a quarterly 
basis. If updated data indicate the Contractor will not make a 
profit of at least five percent (5%) on completion of the contract, 
the progress payments shall be adjusted retroactively so that the 
total of all payments made with respect to the vessel under 
paragraph (b) of this requirement and the ``COMPENSATION ADJUSTMENTS 
(LABOR AND MATERIAL)'' requirement shall not exceed one hundred 
percent (100%) of the allowable costs certified by the Contractor on 
the related invoice to have been incurred in the performance of work 
on such vessel plus any unliquidated progress payments paid to 
subcontractors or 100% of the total contract price, whichever is 
less.
    (c) Billing price.
    (1) For the purpose of this requirement, until the establishment 
of the total final price in accordance with paragraph (d) of the 
``INCENTIVE PRICE REVISION (FIRM TARGET)'' requirement, the term 
``total contract price'' means the billing price; initially the 
billing price shall be the initial total contract target price, and 
thereafter the billing price shall be revised as provided in 
paragraph (c)(2) below. After establishment of the total final price 
in accordance with paragraph (d) of the ``INCENTIVE PRICE REVISION 
(FIRM TARGET)'' requirement, the billing price shall be the total 
final price so established.
    (2) Within fifteen (15) days after each calendar quarter, the 
Contractor shall submit in writing a proposed revised billing price 
which shall be established as follows:
    (i) The Contractor shall certify to the Contracting Officer the 
percentage of physical progress in the performance of the contract 
as a whole as of the end of the calendar quarter. Such percentage of 
physical progress shall be expressed as a decimal carried to four 
decimal places and shall be subject to the approval of the 
Supervisor.
    (ii) The revised billing price shall be the sum of a projected 
final cost, and a projected profit, computed as follows:
    (A) A projected final cost shall be computed by (1) determining 
the cumulative sum of the base costs as of the end of the calendar 
quarter, established in accordance with the ``COMPENSATION 
ADJUSTMENTS (LABOR AND MATERIAL)'' requirement, and (2) dividing the 
sum thereof by the percentage of physical progress certified and 
approved as set forth in subparagraph (i) above.
    (B) A projected profit shall be determined by applying, to the 
projected final cost, the incentive formula set forth in paragraph 
(d)(2) of the ``INCENTIVE PRICE REVISION--FIRM TARGET'' requirement; 
provided, that in no event shall the revised billing price exceed 
the ceiling price of the contract.
    (iii) The revised billing price determined as stated above shall 
be set forth separately in a supplemental agreement to this 
contract, which also shall set forth the computations upon which the 
revision of the billing price is based.
    (iv) Any revision of the billing prices shall not affect the 
determination of the total final price under paragraph (d) of the 
``INCENTIVE PRICE REVISION--FIRM TARGET'' requirement. After 
execution of the contract modification referred to in paragraph 
(d)(3) of said requirement, the total amount paid or to be paid on 
all invoices or vouchers shall be adjusted to reflect the total 
final price, and any additional payments, refunds or credits 
resulting therefrom shall be promptly made.
    (d) Invoices. Invoices may be submitted every two weeks, but not 
more frequently; provided, however, that if after contract award 
more frequent progress payments are approved by cognizant Government 
authority, this provision shall be modified accordingly without 
additional consideration by the Contractor to the Government for 
such modification. No payment will be required to be made upon 
invoices aggregating less than five thousand dollars ($5,000). The 
Contractor shall certify on each invoice:
    (1) the percentage of physical progress in the performance of 
work on the vessel as a decimal carried to four places; and
    (2) the allowable costs incurred in the performance of the work 
on the vessel plus any unliquidated progress payments paid to 
subcontractors as of the date the invoice is submitted. Such 
certification shall provide for cost category reporting in 
accordance with the Contractor's normal accounting system and shall 
be broken down into direct material, direct labor, and indirect 
costs.
    (e) Physical progress and weighting factors.
    (1) Within sixty (60) days after contract award, the Contractor 
shall submit a progressing system description for review and 
approval by the Contracting Officer. Upon approval of such system, 
progress payments shall be in accordance with the approved system. 
Subsequent revisions to the approved system shall be submitted to 
the Contracting Officer for approval prior to implementation.
    (2) The mutually agreed upon weighting factors for the 
categories of labor and material for each vessel are set forth in 
Attachment ________ to this contract. The weighting factors shall be 
revised quarterly concurrent with the billing price revisions 
specified in paragraph (c). Notwithstanding the above, revision of 
weighting factors may be requested by either party when factual data 
indicate that the weighting factors then in use are no longer 
representative of the actual labor and material distribution. 
Revisions of weighting factors shall be supported by detailed de-
escalated (estimated final) direct material, direct labor, and 
indirect costs and additional data concerning the cause of the 
change in the weighting factors. In the event that the parties fail 
to agree on the establishment of, or a revision to the weighting 
factors, the Contracting Officer may establish on a unilateral basis 
the weighting factors to be used in the administration of this 
provision. Any change in the weighting factors shall be set forth in 
a Standard Form 30, ``Amendment of Solicitation/Modification of 
Contract''.
    (f) Incurred costs. For the purpose of this requirement, 
``incurred costs'' are those costs identified through the use of the 
accrual method of accounting, as supported by the records maintained 
by the Contractor and which are allowable in accordance with Part 31 
of the Federal Acquisition Regulation (FAR) and Part 231 of the 
Department of Defense FAR Supplement (DFARS) in effect on the 
effective date of this contract and include only:
    (1) The costs of supplies and services purchased by the 
Contractor directly for this contract may be included only after 
payment by cash, check, or other form of actual payment.
    (2) Costs for the following may be included when incurred even 
if before payment, when the Contractor is not delinquent in payment 
of the costs of contract performance in the ordinary course of 
business:
    (i) Materials issued from the Contractor's stores inventory and 
placed in the production process for use on this contract;
    (ii) Direct labor, direct travel, and other direct in-house 
costs;
    (iii) Properly allocable and allowable indirect costs.
    (3) Accrued costs of Contractor contributions under employee 
pension or other post-retirement benefit, profit sharing, and stock 
ownership plans shall not be considered incurred until actually paid 
unless--
    (i) the Contractor's practice is to contribute to the plans 
quarterly or more frequently; and
    (ii) the contribution does not remain unpaid 30 days after the 
end of the applicable quarter or shorter payment period. (Any 
contributions remaining unpaid shall be excluded from the 
Contractor's total cost for progress payment limitations until 
paid.)
    (4) Incurred costs shall not include:
    (i) Any costs that are required under any requirement of this 
contract (other than the ``COMPENSATION ADJUSTMENTS (LABOR AND 
MATERIAL)'' requirement) to be reimbursed or paid by the Government 
to the Contractor or by the Contractor to the Government other than 
through an equitable adjustment in the contract price;
    (ii) Costs incurred by subcontractors or suppliers;
    (iii) Costs ordinarily capitalized and subject to depreciation 
or amortization except for the properly depreciated or amortized 
portion of such costs;
    (iv) Payments made or amounts payable to subcontractors or 
suppliers, except for--(A) Completed work, including partial 
deliveries, to which the Contractor has acquired title; and (B) Work 
under cost-reimbursement or time-and-material subcontracts to which 
the Contractor has acquired title.
    (5) If an overpayment is made relative to this paragraph (f), 
interest shall be charged at the prevailing per annum rate 
established by the Secretary of the Treasury, pursuant to Public Law 
92-41, from the date such overpayment is made (date of Government 
check) until the date the overpayment is fully recovered.
    (g) Progress payments to subcontractors. Progress payments made 
by the Contractor to its subcontractors shall be the unliquidated 
progress payments paid to subcontractors that are mentioned in 
(b)(1) and (b)(2), if the following conditions are met:
    (1) The amounts included are limited to the unliquidated 
remainder of progress payments made.
    (2) The subcontract or interdivisional order is expected to 
involve a minimum of approximately six months between the beginning 
of work and the first delivery, or, if the subcontractor is a small 
business concern, four months.
    (3) The terms of the subcontract or interdivisional order 
concerning progress payments--
    (i) Are substantially similar to the terms of this provision or 
to the clause at FAR 52.232-16, Progress Payments, for any 
subcontractor that is a large business concern, or that clause with 
its Alternate I for any subcontractor that is a small business 
concern;
    (ii) Are at least as favorable to the Government as the terms of 
this requirement;
    (iii) Are not more favorable to the subcontractor or division 
than the terms of this requirement are to the Contractor;
    (iv) Are substantially in conformance with the requirements of 
paragraph 32.504(e) of the Federal Acquisition Regulation; and
    (v) Subordinate all subcontractor rights concerning property to 
which the Government has title under the subcontract to the 
Government's right to require delivery of the property to the 
Government if (A) the Contractor defaults or (B) the subcontractor 
becomes bankrupt or insolvent.
    (4) The progress payment rate in the subcontract is the 
customary rate used by the Contracting Agency, depending on whether 
the subcontractor is or is not a small business concern.
    (5) The parties agree concerning any proceeds received by the 
Government for property to which title has vested in the Government 
or against which a lien has been placed in favor of the Government 
under the subcontract terms, that the proceeds shall be applied to 
reducing any unliquidated progress payments by the Government to the 
Contractor under this contract.
    (6) If no unliquidated progress payments to the Contractor 
remain, but there are unliquidated progress payments that the 
Contractor has made to any subcontractor, the Contractor shall be 
subrogated to all the rights the Government obtained through the 
terms required by this requirement to be in any subcontract, as if 
all such rights had been assigned and transferred to the Contractor.
    (7) To facilitate small business participation in subcontracting 
under this contract, the Contractor agrees to provide progress 
payments to small business concerns, in conformity with the 
standards for customary progress payments stated in subpart 32.5 of 
the Federal Acquisition Regulation. The Contractor further agrees 
that the need for such progress payments shall not be considered as 
a handicap or adverse factor in the award of subcontracts.
    (h) Retentions.
    (1) Upon preliminary acceptance of each vessel and upon the 
submission of properly certified invoices, the Government will pay 
to the Contractor the amount withheld under paragraph (b) of this 
requirement in respect of that vessel in excess of (i) a performance 
reserve in the amount of one and one-half percent (1.5%) of the 
allocated total contract price for such vessel, or (ii) one hundred 
thousand dollars ($100,000), whichever is greater. If at any time it 
shall appear to the Government that the amount of performance 
reserve may be insufficient to meet the cost to the Government of 
finishing any unfinished work under the contract for which the 
Contractor is responsible, or of correcting defects for which the 
Contractor is responsible which are discovered prior to preliminary 
acceptance or during the guaranty period of any vessel, the 
Government may, in making payments under this requirement, deduct or 
withhold such additional amounts as it may determine to be necessary 
to render such reserve adequate; provided, that any additional 
amounts deducted or withheld on account of defects which are 
discovered during the guaranty period of the vessel shall not exceed 
the limit of the Contractor's liability as set forth in the 
requirement entitled ``LIMITATION OF CONTRACTOR'S LIABILITY FOR 
CORRECTION OF DEFECTS'', reduced by the amounts of the cost incurred 
by the Contractor for work on such vessel because of Contractor 
responsible deficiencies which are discovered during the guaranty 
period of the vessel.
    (2) The Government may, at its discretion, make payments prior 
to final settlement on account of the reserves established under 
this requirement, subject to such conditions precedent as the 
Contracting Officer may prescribe.
    (3) The Government shall, at the time of final settlement, in 
accordance with the provisions of the requirement entitled ``FINAL 
SETTLEMENT'', pay the Contractor the balance owing to it under the 
contract promptly after the amount of such balance shall have been 
determined.
    (i) Liens and title. For liens and title provisions, see the 
requirement of this contract entitled ``LIENS AND TITLE''.
    (j) Certifications and audits. At any time or times prior to 
final payment under this contract, the Contracting Officer may have 
any invoices and statements or certifications of costs audited. The 
Contracting officer may require the Contractor to submit, or make 
available for examination by the Contracting Officer or his 
designated representative, the supporting documentation upon which 
invoices, statements or certifications of costs are based. Each 
payment theretofore made shall be subject to reduction as necessary 
to reflect the exclusion of amounts included in the invoices or 
statements or certifications of costs which are found by the 
Contracting Officer, on the basis of such audit, not to constitute 
allowable costs. Any payment may be reduced for overpayments, or 
increased for underpayments on preceding invoices.
    (k) Reduction or suspension. The Contracting Officer may reduce 
or suspend progress payments after finding on substantial evidence 
of any of the following conditions:
    (1) The Contractor failed to comply with any material 
requirement of this contract.
    (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 Contractor fails to maintain an efficient and reliable 
accounting system and controls adequate for the proper 
administration of progress payments.
    (l) Limitations on Undefinitized Contract Actions. 
Notwithstanding any other progress payment provisions in this 
contract, progress payments may not exceed 90 percent of costs 
incurred on work accomplished under undefinitized contract actions. 
A ``contract action'' is any action resulting in a contract, as 
defined in subpart 2.1, including contract modifications for 
additional supplies or services, but not including contract 
modifications that are within the scope and under the terms of the 
contract, such as contract modifications issued pursuant to the 
CHANGES clause, or funding and other administrative changes. This 
limitation shall apply to the costs incurred, as computed in 
accordance with paragraph (f) of this requirement, and shall remain 
in effect until the contract action is definitized. Costs incurred 
which are subject to this limitation shall be segregated on 
Contractor progress payment requests and invoices from those costs 
eligible for higher progress payments rates. For purposes of 
progress payment liquidation, progress payments for undefinitized 
contract actions shall be liquidated at 90 percent of the amount 
invoiced for work performed under the undefinitized contract action 
as long as the contract action remains undefinitized. The amount of 
unliquidated progress payments for undefinitized contract actions 
shall not exceed 90 percent of the maximum liability of the 
Government under the undefinitized contract action or such lower 
limit specified elsewhere in the contract. Separate limits may be 
specified for separate actions.
    (m) Special terms regarding default. If this contract is 
terminated under the ``DEFAULT'' clause, (1) the Contractor shall, 
on demand, repay to the Government the amount of unliquidated 
progress payments and (2) title shall vest in the Contractor, on 
full liquidation of progress payments, for all property for which 
the Government elects not to require delivery under the ``DEFAULT'' 
clause. The Government shall be liable for no payment except as 
provided by the ``DEFAULT'' clause.

(End of Clause)

    Dated: August 19, 1994.
Lewis T. Booker, Jr.,
LCDR, JAGC, USN, Federal Register Liaison Officer.
[FR Doc. 94-21611 Filed 9-6-94; 8:45 am]
BILLING CODE 3810-AE-P