32.504 Subcontracts under prime contracts

providing progress payments.

(a) Subcontracts may include either performance-based payments, provided they meet the criteria in

32.1003, or progress payments, provided they meet the criteria in subpart 32.5 for customary

progress payments, but not both. Subcontracts for commercial purchases may include commercial

product or commercial service purchase financing terms, provided they meet the criteria in

32.202-1.

(b) The contractor’s requests for progress payments may include the full amount of commercial

product or commercial service purchase financing payments, performance-based payments, or

progress payments to a subcontractor, whether paid or unpaid, provided that unpaid amounts are

limited to amounts determined due and that the contractor will pay-

(1) In accordance with the terms and conditions of a subcontract or invoice; and

(2) Ordinarily within 30 days of the submission of the contractor’s progress payment request to the

Government.

(c) If the contractor is considering making unusual progress payments to a subcontractor, the

parties will be guided by the policies in 32.501-2. If the Government approves unusual progress

payments for the subcontract, the contracting officer must issue a contract modification to specify

the new rate in paragraph (j)(6) of the clause at 52.232-16, Progress Payments, in the prime

contract. This will allow the contractor to include the progress payments to the subcontractor in the

cost basis for progress payments by the Government. This modification is not a deviation and does

not require the clearance prescribed in 32.502-2(b).

(d) The contractor has a duty to ensure that financing payments to subcontractors conform to the

standards and principles prescribed in paragraph (j) of the Progress Payments clause in the prime

contract. Although the contracting officer should, to the extent appropriate, review the subcontract

as part of the overall administration of progress payments in the prime contract, there is no special

requirement for contracting officer review or consent merely because the subcontract includes

financing payments, except as provided in paragraph (c) of this section. However, the contracting

officer must ensure that the contractor has installed the necessary management control systems,

including internal audit procedures.

(e) When financing payments are in the form of progress payments, the Progress Payments clause at

52.232-16 requires that the subcontract include the substance of the Progress Payments clause in

the prime contract, modified to indicate that the contractor, not the Government, awards the

subcontract and administers the progress payments. The following exceptions apply to wording

modifications:

(1) The subcontract terms on title to property under progress payments shall provide for vesting of

title in the Government, not the contractor, as in paragraph (d) of the Progress Payments clause in

the prime contract. A reference to the contractor may, however, be substituted for "Government" in

paragraph (d)(2)(iv) of the clause.

(2) In the subcontract terms on reports and access to records, the contractor shall not delete the

references to "Contracting Officer" and "Government" in adapting paragraph (g) of the Progress
Payments clause in the contract, but may expand the terms as follows:

(i) The term "Contracting Officer" may be changed to "Contracting Officer or Prime Contractor."

(ii) The term "the Government" may be changed to "the Government or Prime Contractor."

(3) The subcontract special terms regarding default shall include paragraph (h) of the Progress

Payments clause in the contract through its subdivision (i). The rest of paragraph (h) is optional.

(f) When financing payments are in the form of performance-based payments, the PerformanceBased Payments clause at 52.232-32 requires that the subcontract terms include the substance of

the Performance-Based Payments clause, modified to indicate that the contractor, not the

Government, awards the subcontract and administers the performance-based payments, and include

appropriately worded modifications similar to those noted in paragraph (e) of this section.

(g) When financing payments are in the form of commercial product or commercial service purchase

financing, the subcontract must include a contract financing clause structured in accordance with

32.206.

Parent topic: Subpart 32.5 - Progress Payments Based on Costs