[Federal Register Volume 68, Number 52 (Tuesday, March 18, 2003)]
[Rules and Regulations]
[Pages 13206-13208]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6375]



[[Page 13206]]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 32 and 52

[FAC 2001-13; FAR Case 2001-006; Item IV]
RIN 9000-AJ23


Federal Acquisition Regulation; Progress Payment Requests Under 
Indefinite-Delivery Contracts

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) to require, under 
indefinite-delivery contracts, the contractor to account for and submit 
progress payment requests under individual orders as if each order 
constitutes a separate contract, unless otherwise specified in the 
contract.

DATES: Effective Date: April 17, 2003.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC, 20405, (202) 501-4755, for information 
pertaining to status or publication schedules. For clarification of 
content, contact Mr. Ralph De Stefano, at (202) 501-1758. Please cite 
FAC 2001-13, FAR case 2001-006.

SUPPLEMENTARY INFORMATION:

A. Background

    The Councils have agreed to amend the Federal Acquisition 
Regulation (FAR) to require, under indefinite-delivery contracts, the 
contractor to account for and submit progress payment requests under 
individual orders as if each order constitutes a separate contract, 
unless otherwise specified in the contract.
    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 66 FR 57294, November 14, 2001. Eight respondents submitted 
public comments. These comments are discussed below. The Councils 
concluded that the proposed rule should be converted to a final rule, 
with only minor editorial changes made to the proposed rule.
    1. Time requirement. One respondent asked if the proposed rule 
change would have a time requirement other than 60 days, and if so, how 
that change would effect outside agencies. This question referenced an 
existing policy addressing progress schedules and reports.
    Councils' response: No change. The proposed change focuses on how 
progress payments will be billed and processed on delivery orders under 
indefinite-delivery type contracts. It does not impact any existing 
timeframes.
    2. Statement of work. One respondent asserted that the proposed 
change would increase the difficulty in preparing a statement of work 
to quantify a technical assistance contract.
    Councils' response: No change. The proposed change would not impact 
the preparation of statements of work.
    3. Effect on costs. Two respondents disagreed with the proposed 
change on the basis that existing FAR language contains the necessary 
flexibility, and that the proposed language would reduce latitude of 
the contracting officer, increase the costs of doing business with the 
government, and generate more paper. Other points made were that the 
inconsistency between FAR 32.503-5(c) and FAR 52.232-16 does not obtain 
the desired effect because many offices follow single billing for each 
task order, and that single billing for the entire contract is 
preferable to keep costs lower.
    Councils' response: No change. The proposed change would have 
minimal impact on efficiency. The FAR currently requires that 
contracting officers administer indefinite-delivery type contracts on a 
delivery order basis. The vast majority of contractors comply with this 
guidance; so adding this requirement to the clause will simply 
eliminate an inconsistency between FAR guidance to contracting officers 
and the contract clause. Furthermore, the existing requirement for 
administering progress payments on a delivery-order basis is necessary 
to maintain proper control over payment processing and liquidations. 
Permitting progress payments on a whole contract basis would create 
inefficiencies in payment approval and processing, making it more 
difficult to ensure that progress payments are paid from the proper 
appropriations, and add complexity to surveillance.
    4. No inconsistency. One respondent stated that there is not an 
inconsistency in the FAR between the coverage in FAR 32.503-5(c) and 
FAR 52.232-16; that if there is a perceived inconsistency it does not 
merit a revision to the Progress Payment clause; and that if any 
revision to the FAR is necessary to resolve this perceived 
inconsistency, then the FAR should be revised to delete all references 
that imply that individual orders (under a contract) are to be treated 
as separate contracts.
    Councils' response: No change. The inconsistency between the 
coverage in FAR 32.503-5(c) and the Progress Payment clause is clear. 
FAR 32.503-5(c) provides that under indefinite delivery contracts the 
contracting officer should administer progress payments made under each 
individual order as if the order constituted a separate contract, 
unless agency procedures provide otherwise. However, there is no 
related language in the clause at FAR 52.232-16, so the contractor is 
not currently required by contract to request progress payments on a 
delivery order basis. Although contractors almost always comply with 
the contracting officer's instructions regarding separation of progress 
payments by order, a contractor may erroneously contend that it 
incurred additional costs in complying with direction to prepare 
progress payments on an indefinite-delivery contract as if each 
delivery order were a separate contract. The Councils recommend adding 
the proposed language to the clause to preclude future 
misunderstandings.
    With regard to the comment that FAR references implying that 
individual orders should be treated as separate contracts should be 
deleted, the Councils regard the existing requirements as necessary. 
The necessity is borne of the need to recognize that funds are 
typically obligated on the individual orders, and that individual 
orders must be treated as if they were separate contracts in order to 
effectively administer progress payments; and monitor production, 
payment requests, delivery payments and liquidations.
    5. Invoices. One respondent expressed concern that the proposed 
changes would require submission of individual requests for payment of 
invoices on indefinite-delivery service contracts. Currently, some 
contractors submit single requests for payment under several task 
orders.
    Councils' response: No change. The proposed rule addresses progress 
payment requests, not invoices. The rule does not address the 
submission of invoices and does not prohibit agencies from permitting 
their contractors to submit single invoices for multiple tasks. To the 
extent that progress payments are involved, existing contract coverage 
at 52.232-16, Progress Payments, acts to protect the Government's 
interests.

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    6. Agency procedures. One respondent submitted the following 
comments:
    a. The need for the rule is not evident, since the prescription in 
FAR 32.502-4(e) directs contracting officers to provide special 
contract instructions for severable work, where accounting segregation 
is needed, and furthermore, FAR 32.503-5(c) provides guidance to treat 
task orders under existing indefinite-delivery contracts as if they 
were separate contracts.
    Councils' response: No change. Although the prescription at FAR 
32.502-4(c) directs that special contract instructions be provided for 
severable work, the existing language at FAR 32.503-5(c) establishes a 
default requirement for separate administration of progress payments on 
delivery orders. There is a need for accompanying standard language in 
the clause at FAR 52.232-16, rather than requiring that special 
provisions be constructed for each occurrence of a fairly common 
situation. If special instructions were determined to be the solution 
to this inconsistency and those provisions were not written into a 
contract through an oversight, then the inconsistency would be 
incorporated into the contract. This would result in complications in 
the administration and payment of progress payments under the affected 
contract.
    b. To fully implement the policy changes of the proposed rule, the 
first sentence of existing coverage in FAR 32.503(c) should be revised 
to add the phrase ``or the contract'' after the phrase ``unless agency 
procedures.''
    Councils' response: No change. The recommended language is 
redundant because a provision should not be in the contract if it does 
not comply with the procedures of the awarding agency.
    c. In the second sentence of FAR 32.503(c), recommend changing ``if 
the awarding agency wants the administration* * *'' to ``when the 
awarding agency's procedures, the contract administration office's 
procedures, or the contract* * *'' require the contract administration 
to be on a basis other than order-by-order.
    Councils' response: No change. The recommended language contains 
potential conflicts, e.g., if the awarding agency procedures and the 
contract administration office procedures are not in step. Furthermore, 
the Councils regard referencing the contract in this sentence as 
redundant, since an alternate procedure should not be in the contract 
unless it complies with the awarding agency procedures. The central 
point of the sentence under discussion is that progress payments will 
be administered on an order-by-order basis if the contract is 
administered by an agency other than the awarding agency, unless the 
awarding agency has previously coordinated that alternate arrangement 
with the administering agency. This point is diluted if an alternate 
procedure can be established simply by putting it in the contract.
    d. In FAR 52.232-16(l), the FAR Council recognizes the 
appropriateness of special attention to the terms of the contract, but 
fails to take into account special agency procedures that may exist, 
and that are covered under existing FAR 32.503-5(c). To fully implement 
the policy and maintain consistency within the FAR, we recommend 
revising the phrase ``unless otherwise specified in the contract'' to 
``unless agency procedures or the contract provide otherwise.''
    Councils' response: No change. The Councils believe that the 
language in the proposed rule for FAR 52.232-16 obtains the desired 
affect, is consistent with the language in the proposed rule for FAR 
32.503-5, and does effectively implement the policy. Specifically, by 
limiting the exceptions in FAR 52.232-16(l) to other contractual 
provisions, this language eliminates the potential for a requirement to 
be expressed in agency procedures, but not executed in the contract 
itself. This existing proposed rule enforces consistency between 
regulation and contract.
    7. Concurrence of the CAO. The respondent recommended that the case 
be revised to require that the contracting officer obtain the 
concurrence of the contract administration office if the awarding 
agency wants the administration of progress payments to be on a basis 
other than order-by-order. This change would remove any ambiguity with 
regard to whether coordination with the contract administration office 
constitutes concurrence.
    Councils' response: No change. The Councils recognize that the term 
``coordination'' may not always be construed to mean that the awarding 
office will obtain the agreement of the administering office prior to 
deciding that progress payments will be administered on a basis other 
than order-by-order. However, the term ``coordinate'' provides more 
flexibility, which may be appropriate at certain times.
    8. Performance-based payments. One respondent stated that the FAR 
should be revised to include a similar concept for performance-based 
payments. Specifically, language should be inserted into FAR part 32.10 
and FAR 52.323-32, Performance-Based Payments, to provide that, under 
indefinite-delivery contracts, the performance-based payments would be 
administered under each individual order as if the order constituted a 
separate contract, unless agency procedures provide otherwise. In 
addition to the language proposed for FAR 32.1007, this recommendation 
includes accompanying proposed language to be inserted in the 
Performance Based Payments clause at FAR 32.232-32. In addition, the 
FAR should be revised to provide that, for indefinite-delivery 
contracts, that performance-based payments be used only on individual 
delivery orders or task orders, and not on the basic contract.
    Councils' response: The Councils believe that these recommendations 
are beyond the scope of the subject case.
    This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., because most contracts awarded 
to small entities have a dollar value less than the simplified 
acquisition threshold and, therefore, do not have the progress payment 
type of financing.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose information collection requirements that require 
the approval of the Office of Management and Budget under 44 U.S.C. 
3501, et seq.

List of Subjects in 48 CFR Parts 32 and 52

    Government procurement.

    Dated: March 12, 2003.
Laura G. Smith,
Director, Acquisition Policy Division.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 32 and 52 as set 
forth below:
    1. The authority citation for 48 CFR parts 32 and 52 continues to 
read as follows:


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    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 32--CONTRACT FINANCING

    2. Amend section 32.503-5 by adding a sentence to the end of 
paragraph (c) to read as follows:


32.503-5  Administration of progress payments.

* * * * *
    (c) * * * When the contract will be administered by an agency other 
than the awarding agency, the contracting officer shall coordinate with 
the contract administration office if the awarding agency wants the 
administration of progress payments to be on a basis other than order--
by-- order.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    3. Amend section 52.232-16 by--
    a. Revising the date of the clause;
    b. Adding paragraph (m);
    c. Revising the date and introductory text of Alternate II;
    d. Redesignating paragraphs (m) and (n) of Alternate II as (n) and 
(o), respectively;
    e. Revising the introductory text of the newly designated paragraph 
(n), and paragraph (n)(3);
    f. Revising the date and the introductory text of Alternate III; 
and
    g. Redesignating paragraph (m) of Alternate III as paragraph (n).


52.232-16  Progress Payments.

* * * * *

Progress Payments (April 2003)

* * * * *
    (m) Progress payments under indefinite--delivery contracts. The 
Contractor shall account for and submit progress payment requests 
under individual orders as if the order constituted a separate 
contract, unless otherwise specified in this contract.
(End of clause)
* * * * *
    Alternate II (Apr 2003). If the contract is a letter contract, 
add paragraphs (n) and (o). The amount specified in paragraph (o) 
shall not exceed 80 percent of the maximum liability of the 
Government under the letter contract. The contracting officer may 
specify separate limits for separate parts of the work.
    (n) The Contracting Officer will liquidate progress payments 
made under this letter contract, unless previously liquidated under 
paragraph (b) of this clause, using the following procedures:
    (1) * * *
    (2) * * *
    (3) If this letter contract is partly terminated and partly 
superseded by a contract, the Government will allocate the 
unliquidated progress payments to the terminated and unterminated 
portions as the Government deems equitable, and will liquidate each 
portion under the relevant procedure in paragraphs (n)(1) and (n)(2) 
of this clause.
* * * * *
    Alternate III (Apr 2003). As prescribed in 32.502-4(d), add the 
following paragraph (n) to the basic clause. If Alternate II is also 
being used, redesignate the following paragraph as paragraph (p):
* * * * *

[FR Doc. 03-6375 Filed 3-17-03; 8:45 am]
BILLING CODE 6820-EP-P