What are the prescribed bases for performance-based payments and how are they established?
Performance-based payments may be made on any of the following bases:
Performance measured by objective, quantifiable methods
Accomplishment of defined events
Other quantifiable measures of results.
The basis for performance-based payments may be either specifically described events (e.g., milestones) or some measurable criterion of performance that was identified in the contract, including a description of what constitutes successful accomplishment. The signing of contracts or modifications, the exercise of options, the passage of time, or other such occurrences do not represent meaningful efforts or actions and may not be identified as events or criteria for performance-based payments. An event need not be a critical event to trigger a payment, but the government must be able to readily verify successful performance of each such event or performance criterion.
The CO establishes a complete, fully defined schedule of events or performance criteria and payment amounts when negotiating contract terms. If a contract action significantly affects the price, an event, or a performance criterion, the CO responsible for pricing the contract modification adjusts the performance-based schedule appropriately.
Total performance-based payments are to:
Reflect prudent contract financing provided only to the extent needed for contract performance
Not exceed 90 percent of the contract price if on a whole contract basis, or 90 percent of the delivery item price if on a delivery item basis.
The contract must specifically state the amount of each performance-based payment either as a dollar amount or as a percentage of a specifically identified price (e.g., contract price, unit price of the deliverable item).
How are performance-based finance payments to be liquidated?
Performance-based amounts are to be liquidated by deducting a percentage or a designated dollar amount from the delivery payments. The CO specifies the liquidation rate or designated dollar amount in the contract. The method of liquidation should ensure complete liquidation no later than final payment.
What is government policy regarding advance payments for noncommercial item contracts?
Advance payments are the least preferred method of contract financing and should be used sparingly, if at all. Other types of financing should be available to the contractor in adequate amounts. However, loans and credit at excessive interest rates or other exorbitant charges are not considered reasonably available financing.
Advance payments might be considered useful and appropriate for the following:
Contracts for experimental, research, or development work with nonprofit educational or research institutions
Contracts solely for the management and operation of government-owned plants
Contracts for acquisition, at cost, of property for government ownership
Contracts of such a highly classified nature that the agency considers advance payments necessary for national security
Contracts entered into with financially weak contractors whose technical ability is considered essential to the agency.
What is an invoice payment?
An invoice payment is a disbursement of government monies to a contractor under a contract or other authorization for supplies or services accepted by the government; invoice payments are also sometimes referred to as delivery payments. Invoice payments include:
Payments for deliveries (including partial deliveries) that have been accepted by the government
Final cost or fee payments where amounts owed have been settled between the government and the contractor
Payments under fixed price construction contracts
Payments under fixed price architect-engineer contracts
Interim payments under a cost-reimbursement contract for services.
Invoice payments are subject to payment due dates and interest penalties for late invoice payment. Remember, invoice payments do not include contract financing payments; therefore, contract financing payments are not subject to penalties for late invoice payment.