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Progress
Payments Based on Costs
Revised March
2004
Debbie
Powell (703) 428-0997
Process Name Community of Practice
The
intent of this chapter is to ensure
the contractor is paid appropriate
amounts for authorized costs in a
timely manner, commensurate with
progress on the contract.
1.
The Intent of the Policy and Process
1.1
The DCMA team will manage
progress payments to ensure the
contractor is only paid appropriate
amounts for specific costs as
outlined in the Progress Payments clause, FAR
52.232-16, commensurate with progress
on the contract, payments are timely
and procedures are in place for preventing
overpayments or loss of funds. A
risk based approach will be used to
evaluate a contractor's management
of business systems, financial condition,
and contract performance. Progress
payment administration includes, but
is not limited to, developing and executing
a plan for assessing the contractors'
progress on the contract through periodic
reviews, reviewing and approving progress
payment requests, analyzing liquidations,
and taking other actions to protect
the Government's interests.
2.
Performance Management
2.1. How
performance is measured (Metric) -
Ensure accurate progress payment requests
are processed in a timely manner.
2.1.1. Near
term performance target:
2.1.1.1. Performance
Improvement Target - N/A
2.1.1.2. Performance
Standard - Timely review and processing of progress
payment requests. Provide acquisition life-cycle support
to the customer by identifying payments processed and
physical progress by program.
2.1.2. Ultimate
Performance Level (Goal) - Appropriate
functional personnel are properly engaged
on contracts to review and process
payment requests timely. Management
of progress payment requests will ensure
actual progress on the contract is
commensurate with payment.
3. Process
Description
3.1. RISK PLANNING (Risk
Based Progress Payments)
3.1.1. Review
the Contract. The ACO will
determine whether the progress payment
clause is in the contract, and ascertain
the presence of other special
considerations, i.e., First Article,
FMS Purchases, Unusual progress payments,
progress payments against Basic Ordering
Agreements/Indefinite Delivery Requirements,
Undefinitized Contractual Action
Limitations. (FAR
32.5)
3.1.2. Determine
Contractor Plans For Submitting Progress
Payment Requests. Progress payments
are a form of Government financing
for fixed-price contracts that are
provided in recognition of the need
for working capital, for long lead
items, and work in-process expenditures.
-
A
determination that the contractor
plans to request progress payments
may be ascertained during the Postaward
Orientation Conference (PAOC).
If the contractor states that progress
payments will not be requested,
the ACO will document the contract
file and ensure there is no Progress
Payment Master File established
in the Mechanization of Contract
Administration Services (MOCAS).
-
Progress
payment requests will be
submitted and processed
electronically in accordance
with DFARS 252.232-7003, Electronic
Submission of Payment Requests. If
the ACO determines DFARS
252.232-7003 is not in
the contract, they should
contact the PCO for authorization
to include the clause.
3.1.3. Establish
performance baseline. The technical
specialist will develop a baseline
for the measurement of progress achieved
during contract performance when
the contractor states that progress
payments will be requested.
3.1.4. Identify
and Document Key Processes. The appropriate
DCMA team members will identify and
document the contractor's key processes
that affect progress payments. Key
processes are those, which if not
properly controlled, can adversely
affect contract performance, schedule,
or cost. Key processes include,
but are not limited to, the contractor's
management of:
-
Business
systems, i.e., Accounting, Estimating,
Property
-
Cost,
i.e., Accumulation and allocation
of direct and indirect costs
-
Company
financial condition
-
Progress
payment request preparation and
submission process
-
Production
and quality assurance systems
3.2. RISK
ASSESSMENT (ASSIGNING RISK RATING)
3.2.1. The
DCMA team will perform a risk assessment
and assign an overall risk rating,
with supporting rationale, for each
contract. The Progress
Payment Risk Matrix has been developed
as a guide to assist the ACO and other
members of the team in assigning risk
ratings.
3.2.2. The
ACO may use risk evaluations performed
by functional specialists, reports
from the contract auditor, and information
provided by the cognizant Divisional
ACO (DACO) and Corporate ACO (CACO),
as applicable, to determine the risk
rating to be assigned to each key process
in the overall progress payment process.
Progress payment reviews on individual
contracts will be factored into contractor
level risk ratings in Risk Assessment
Management Program (RAMP),
if applicable. Risk ratings for
the progress payment key processes
are determined according to the following
criteria:
-
HIGH
RISK. The process is out of control
or performance data casts significant
doubt on the capability of the
system. A major disruption is highly
probable and the likelihood is
the contractor will not meet the
performance, schedule, or cost
objectives.
-
MODERATE
RISK - There is moderate process
variance and the trend is adverse.
Performance data casts doubt on
the ability of the system or key
process to consistently meet requirements.
If concerns are not addressed,
the process may progress to high
risk.
-
LOW
RISK - Performance data provides
confidence in the capability of
the system or key process to meet
requirements. Minimal or no impact
will occur in meeting performance,
schedule, or cost objectives.
3.2.3. DETERMINE
ADEQUACY OF CONTRACTOR SYSTEM CONTROLS. Risk
assessment of progress payments consists
of an initial determination of the
adequacy of a contractor's overall
capability to perform. The ACO shall
determine and document the contractor's
overall capability to perform. (FAR
32.503) The CONTRACT
FINANCING ADMINISTRATIVE RECORD, DCMA
Form 325 may be
used for documentation. If
the DCMA
325 is
not utilized, all the information
contained in the DCMA
325 should
be documented in the contract file.
3.2.3.1. The
ACO and multifunctional team evaluation
of the contractor's overall capability
shall include financial capability,
adequacy of accounting system and
controls, past performance, experience,
quality of management, and reliability
(FAR
32.503-2). For
indefinite-delivery contracts, the
contracting officer shall administer
progress payments made under each
individual order as if the order
constituted a separate contract,
unless agency procedures provide
otherwise. 32.503-5(c)
3.2.3.2. The
ACO shall not approve progress
payments before determining (FAR
32.503-3):
- The
contractor will be capable of
liquidating any progress payments
or the
Government is otherwise protected
against loss by additional protective
provisions, and
- The
contractor's accounting system
and controls are adequate for
proper administration of progress
payments.
3.2.3.3.
Use of Available Information. The
ACO may use available information within
the last 12 months (FAR 32.503-3(a))
in the contractor's general file, recent
preaward surveys, should cost studies,
other evaluations and coordination
with other members of the team. The
ACO may obtain necessary information
to make a determination of the adequacy
of the contractor's system from appropriate
specialists. This information may include
the following:
-
Financial
analysis which addresses the contractor's
overall liquidity, cash flow, backlog
of work and financial posture.
-
Contract
auditor evaluation of the contractor's
accounting systems, billing system,
and Material Management Accounting
System, if applicable. Audit
reviews older than twelve months
shall not be relied upon to determine
contractors' overall capability
to perform. (FAR 32.503-3).
-
Technical
specialist evaluation of the contractor's
experience or capability in producing
the item at the prime contractor
and major/critical subcontractors,
and evaluation of Production and Quality
System controls. The technical
specialist should also develop
a baseline, using either an added/weighted
value methodology or the contractor's
earned value baseline, to identify
the value of items or services
required by contract. The
technical specialist should include
the statement of the submission
of an independence statement as
outlined in DCMA
INFO MEMO 03-146
-
For
program-managed contracts, the
ACO will work with the Program
Integrator (PI) to identify major
subcontractors and initiate supporting
delegations to provide for periodic
physical progress status reviews
as required.
3.2.3.4. Description
of Estimate-to-Complete (ETC) Method. Procedures
for Estimating the Cost to Complete
the Contract are provided
as a guide. Prior to ACO approval
of the initial progress payment, the contractor will provide
a written description of the methods
for developing item 12b, "Estimated
additional cost to complete," and item
20a, "Cost included in item 11 applicable
to items delivered, invoiced and accepted
as of the date in the heading of section
II," of the SF 1443. (FAR
52-232.16(g) As required
by the SF 1443 instructions for Item
12b, the contractor will update the
ETC amount not less frequently than
every six months. (FAR
53.301)
3.2.3.5. Progress
Payments Limited to Certain Costs. If the contractor's
accounting system and controls are not fully adequate,
but portions of costs are adequate and clearly traceable,
the ACO, in coordination with the contract auditor,
may approve progress payments limited to those costs.
3.2.3.6.
Deficiencies. Prior to approval of any progress
payments, the ACO shall require the contractor to correct
critical deficiencies. For minor problems, the
contractor shall provide an estimated date of how and
when a correction will be accomplished or prevented
from affecting contract performance prior to the approval
of payment. (32.503-2)
3.2.3.7.
Overseas Reviews. If the contractor is overseas,
financial, accounting, and other system reviews will
be performed in accordance with host nation agreements
and other applicable laws and regulations. Any
reviews not covered by the above agreements will
be performed by the DCMA team.
3.2.4. Developing
a Surveillance Plan: The DCMA
team shall develop a risk surveillance
plan for administering progress payments
in accordance with FAR 32.503.
-
Progress
payment reviews shall be conducted
periodically, or when considered
desirable by the ACO to determine
the validity of progress payments
already made and expected to
be made. (FAR 32.503-5 (a))
-
The
ACO shall request an independent
EAC using the assistance from
the technical specialist for
each contract receiving progress
payments, on a frequency commensurate
with the risk associated with
the contract, to assure that
the contractor is not in a loss
position. (FAR 32.503-4 through
6.)
3.2.4.1.
Progress Payment Master and Frequency
of progress payment reviews.
|
"Key
Process" Risk Rating |
Periodic
Review Frequency |
| High |
Quarterly |
| Moderate |
Semi-Annually |
| Low |
Annually |
The
ACO shall establish the Progress
Payment Master to schedule the
progress payment review frequency
in MOCAS and generate periodic review
alerts. (MOCAS manual). If Progress
Payment Distribution requirements
apply, the ACO will not normally
create a progress payment master
for an affected contract until distribution
instructions have been provided to
the payment office. However,
if the master is created prior to
providing distribution instructions,
the ACO shall input an "R" code
until distribution instructions are
received from the PCO. If a
modification is received adding a
second ACRN to a contract, the ACO
shall input an "R" code
until payment instructions are provided.
The
frequency of reviews is determined
by the ACO, based on the Risk Assessment.
Individual key processes will be reviewed
based on their respective risk rating. Each
key process should be reviewed at least
annually. The different types
of Progress Payment reviews are:
-
Scheduled
Periodic Review: Periodic Reviews
are conducted either annually,
semiannually, or quarterly, depending
on the level of risk assigned by
the ACO (See chart). Periodic Reviews
will normally be performed post-payment
(See FAR
32.503-5(a)); however, if circumstances
warrant, a pre-payment review may
be appropriate.
- Progress
Payment System Review (PPSR): If
the contractor's progress payment
procedures and implementation processes
are sound, an annual PPSR may be
accomplished in lieu of individual
contract reviews. The PPSR should
be limited to contractors that are
submitting at least thirty-six SF1443s
per year, are in sound financial
condition, have stable accounting
systems and are free from accounting
or questioned cost issues that would
affect allowability and allocability
of costs for progress payment purposes.
The DCMA progress payment team shall
coordinate with the contract auditors
and determine which contractors are
candidates for a PPSR and which contracts
will be included in the sample. The
potential for combining the PPSR
with the contract auditor's billing
system review should be considered
at this time.
- A
PPSR should include everything
an individual periodic progress
payment review includes, except
it should be performed on a
statistically valid sample
(values, types, complexities)
of all contracts receiving
progress payments. It should
minimally include a DCAA audit
of the progress payment process,
and technical reviews (percent
of physical completion, estimate
to complete (ETC)/estimate
at completion (EAC)) of the
sample for further incorporation
into the audit. It should also
address the contractor's financial
condition.DCAA routinely performs
full Accounting System, Billing
System, and Material Management
Accounting System Reviews on
three-year cycles. These systems
are generally under continuous
surveillance, allowing DCAA
to make adequacy statements
considered "current" in
other audits, i.e., the PPSR
audit.
- Occasionally,
there is confusion (by both
DCAA and ACOs) that a Billing
System Review satisfies the
requirements of a PPSR. It
is recommended that a PPSR
be aligned with DCAA's review
of a contractor's Billing System,
when practical, because some
common areas are reviewed.
A Billing System Review does
not verify contractor compliance
with the SF 1443 form. It does
not verify if the contractor
has a system that requires
it to input actual liquidation
for item 23, the correct obligated
amount on item 5, etc. It
does not validate the contractor's
ETC/EAC methodology/accuracy,
nor correct liquidation/PP
rate usage, etc. In short,
a Billing System doesn't assure
error free SF 1443 submissions
or compliance with the progress
payment clause.
- Out-of-cycle
Prepayment and Post Payment Reviews:
- Out-of-cycle
prepayment review is appropriate in those
high risk situations (see FAR 32.503-4(b))
where there is an expectation of a loss,
that is, where the Government may not recover
all of the unliquidated progress payments. Conditions
meriting prepayment review may include:
financial capability so weak as to threaten
performance; doubt as to the reliability
or accuracy of the requests; or a combination
of factors putting contract completion
in jeopardy. The ACO should be careful
in use of prepayment reviews due to the
effect that a delay in payment may have
on the contractor.
- Out-of-cycle
post payment reviews are also used only in
high risk situations which, while not as
severe as to require out-of-cycle prepayment
reviews, have risk of loss too great to rely
solely on periodic reviews. A condition such
as an unstable financial capability may indicate
the need for out-of-cycle post payment reviews.
3.2.4.2. SET
UP PAYMENT PROCESS:
3.2.4.2.1. First
Progress Payment Request. The
first progress payment request will
be sent to the ACO to review for
accuracy. The ACO will then forward
it to the Government Payment Office
using one of the following methods:
- Electronic
request utilizing SEPS or WAWF
- Paper
requests received will be sent to
DFAS Electronic Data Management (EDM) FAX
numbers as follows:
- North (614)
693-2200
- South (614)
693-2224
- West (614)
693-2267
3.2.4.2.2.
Subsequent progress payment requests
should be sent directly to the Government
Payment Office with an information
copy to the ACO, unless pre-signature
is required.
3.2.4.2.3. SEPS
Processing. The SEPS process permits designation
of a primary and an alternate ACO at the contract level. An
alternate ACO should be designated for each EDI progress
payment contract to ensure that EDI progress payment
requests are not delayed due to the absence of the
primary ACO.
3.2.4.2.4. Pre-Signature
of Progress Payments - Certain types of contracts will
always fail the MOCAS progress payment validations,
making pre-signing of the request by the ACO necessary. When
a progress payment request requires pre-signing, the
ACO will review and validate each request and verify
the data on the request is current and in agreement
with MOCAS prior to authorizing payment. The need for
pre-signing is due to one of the following:
- Contract
has mixed fixed price and cost reimbursement
pricing arrangements;
- Contract
is incrementally funded;
- Contract
contains two or more different progress
payment rates for different phases
of the contract.
3.2.4.2.3.
Expedited Pre-sign Procedure (applies
to SEPS ONLY) Expedited
Pre-sign is a process by which the
ACO directs SEPS to automatically affix
the ACO's signature to an EDI progress
payment request (without ACO review),
and forward the request to MOCAS for
processing. When the ACO activates
the "CHG-PRESIGN" function in SEPS,
the system will: (1) enter the amount
in Item 26 (Amount of Current Invoice
for Progress Payment) into Item 27,
(Amount Approved by Contracting Officer);
(2) affix the ACO's electronic signature
to the EDI progress payment request;
(3) transmit the request to MOCAS for
processing. This occurs when the ACO
has activated the CHG-PRESIGN function
in SEPS.
3.2.4.2.3.1. Expedited
Pre-sign should be used with caution,
and only at the discretion of the ACO. The
process is subject to the following
conditions:
- The ACO
has determined the contract is Low
Risk, for each of Performance, Schedule
and Cost, using the Risk
Matrix criteria;
- Contract
is not in a loss, and none of the
conditions discussed in FAR Part
32.503-6, Suspension or reduction
of payments, applies.
3.2.4.2.3.2. When
the ACO has determined the criteria
described above are satisfied, the
ACO may authorize expedited submission
of EDI progress payments, using the
following procedure.
- The
ACO should prepare a memorandum for
record (MFR) documenting the file
that the criteria have been satisfied,
and provide a copy of the memorandum
to the CMO Operations Chief. The
MFR will include a summary discussion
of the contractor's situation with
regard to Performance,
Schedule, and Cost criteria.
- Activate
the pre-sign option in Contract Routing
under "Change Presign." The
last column has an empty block which
will change to an "x" when
the option is activated.
- The ACO
will monitor submission of progress
payment requests that have Expedited
Pre-sign authorized, and perform
post payment validations for each
of those requests. This validation
will consist of a customary progress
payment validation such as would
be performed under normal pre-sign procedures,
and should be performed within 7
calendar days of Expedited Pre-sign
processing though SEPS.
3.2.4.2.3.3. Suspension
of Expedited Pre-sign: If at any time
the contractor is not in compliance
with the criteria above, the
ACO will suspend Expedited Pre-sign. The
procedure may be re-authorized when
the ACO determines compliance is restored.
3.2.4.3.
PERFORM ADMINISTRATIVE REVIEWS
3.2.4.3.1. Performance
of Review. The ACO will perform timely
progress payment reviews in accordance
with the risk surveillance plan, using
functional specialists including DCAA,
as appropriate. Out-of-cycle
post payment reviews should be completed
within forty-five days of the request. Prepayment
reviews should be obtained on an expedited
basis, normally with a 5 to 10 day
turnaround from ACO receipt of the
progress payment request to ACO decision
of review results.
3.2.4.3.2.
Use of Other Reports. During the review, any reports
developed by the Government or the contractor, resulting
from other contractual requirements will be evaluated. The
ACO will look for consistency between the reports,
e.g., EACs from the different reports and the results
of the progress payment review.
3.2.4.3.3. Scope
of Reviews: Basic review requirements to satisfy FAR
32.503-5 are:
- Costs
expended are commensurate with physical
progress on the contract and supported
by the fair value of the work in
process;
- Outstanding
progress payments are capable of
being liquidated;
- The contractor's
accounting system, controls and certification
are still adequate for progress payment
purposes;
- The contractor's
financial condition (Refer to Financial
Surveillance) is sufficient to
finance its current contractual workload
to completion and to liquidate outstanding
progress payments, including verification
the contractor is paying the costs
of performance as required by the
progress payment clause;
- ETC
methodology performed; and
- Other
systems that may be critical to progress
payments are adequate.
3.2.4.4.
Overpayments. If review discloses
an overpayment, the ACO shall act promptly
to remedy the contract debt situation
in accordance with the provisions of FAR
32.6 and DFARS
232.6.
There will
be NO credit Progress Payments. If
the contractor owes the government
money, the contractor shall forward
a letter and check to DFAS-ADP/CA. If
the contractor chooses to use a SF
1443 to compute a credit, it should
only be attached to the letter and NOT submitted
as a Progress Payment request nor contain
a PPR number. MOCAS will not
recognize a credit Progress Payment
and subsequently will stop all future
Progress Payment requests because a
previous Progress Payment request was
not paid. If a check is being forwarded
to DFAS by the CMO, use DD Form 1131
Cash Collection Voucher (DoD 700.14-R,
DoD Financial Management Regulation).
3.2.4.5.
Management of
Progress Payments: The DCMA team will
apply a risk based approach to evaluate
a contractor's management of business
systems, financial condition, and contract
performance to ensure:
-
The
contractor is only paid appropriate
amounts for specific costs
as outlined in the Progress Payments
clause, FAR
52.232-16, commensurate with
progress on the contract
-
Payments
are timely
-
Procedures
are in place for preventing overpayments
or loss of funds.
3.2.4.6.
Waiver of Reviews. In special and limited
situations, the ACO can waive periodic
reviews. This decision will be
clearly documented. Some examples
of these situations are:
- The unliquidated
progress payment balance on the contract
is less than $100,000 and is in no
danger of being unliquidated;
- The contract
will be completed within sixty days
and is in no danger of being unliquidated,
incomplete or delinquent; or
- An unscheduled
review that disclosed no deficiencies
was completed within sixty days of
the scheduled review date.
3.2.4.6.1. When
a periodic review is waived, sections
D and E of the DCMA 325, Contract Financing
Administrative Record, should be updated
and when applicable, reevaluate the
Risk Ratings in section B of the DCMA
325. MOCAS will require an accurate
review date be input.
3.2.4.6.2.
Inventory Encumbrances. If
the review reveals that title to progress payment inventory
is encumbered in any way, the ACO shall require additional
protective provisions per FAR
32.501-5.
3.2.4.6.3.
Update Risk Assessment and Risk Surveillance Plan. The
ACO shall revise the Risk Assessment and Risk Surveillance
Plan when the review results indicate that a revision
is warranted. (FAR 32.503-2)
3.2.4.7. Update MOCAS. Upon
completion of the scheduled review,
the ACO shall ensure the Progress
Payment Master is appropriately
updated in MOCAS. Failure
to update the Master will stop
automatic payments. (MOCAS
Manual 8000.3)
3.2.4.7.1.
If the ACO determines that manual review and approval
of an individual progress payment request is required,
the ACO shall input an "R" (reduction) in
MOCAS. "R" Code allows for the administrative
review of the request, but requires the ACO's signature
before releasing of payment on the request.
3.2.4.7.2.
If progress payments should be stopped, enter an "S" Code
in MOCAS. The "S" code is used to stop
progress payments. Future progress payments cannot
be paid unless the "S" code is removed from
MOCAS.
3.2.5.
RECEIVE PAYMENT REQUEST
3.2.5.1.
Validation of Progress Payment Requests. MOCAS
performs the necessary administrative
checks of the SF1443. Although
ACOs perform cursory review of automatically
paid progress payment requests to keep
abreast of activity on the contract,
the ACO will not normally review each
individual request unless it fails
one of the MOCAS validation checks,
or is pre-signed.
3.2.5.2.
Validation Failures. If a progress payment fails the
initial MOCAS validation, it will be returned to the
ACO for corrective action. (Note: the ACO can
obtain a complete list of error messages and corrective
actions via MOCAS.
3.2.5.3.
Manual Validations. For those contracts not in MOCAS
or for pre-signed contracts in MOCAS, the ACO will
manually conduct a validation of each request. DoD
policy is to process contract financing payments as
quickly as possible, therefore, ACOs will validate
and approve or disapprove the payment request expeditiously.
Two business days from receipt of the payment request
is normally sufficient time for processing. When Expedited
Pre-Sign is authorized, the validation shall be
post payment. Note: Validation
Instructions
3.2.6.
APPROVE/DISAPPROVE PROGRESS PAYMENT
3.2.6.1. Based
upon the results of the periodic
review, the ACO shall determine
whether to continue progress payments,
suspend, or reduce payments. See FAR
32.503-6 and FAR
52.232-16. The reason for
the reduction/suspension shall
be reasonable and supported by
adequate evidence and documented
in writing in the contract file. The
contractor will be notified in
writing of the intended actions. The
following are some reasons for
reductions/suspension:
- Disallowance
of Cost: Reductions for disallowance
of cost occur when it is discovered
that unallocable/unallowable costs
have been billed under progress
payments.
- Contractor
fails to comply with material requirement
of the contract,
- Unsatisfactory
financial condition,
- Inventory
allocated to the contract exceeds
reasonable requirements,
- Delinquency
in payment of costs of performance,
- Unliquidated
Progress Payments exceed the fair
value of undelivered work,
- Loss
contract: Loss ratio reductions
are used when the estimated contract
cost at completion exceeds the
contract price; A loss ratio
factor shall be computed and
applied by the ACO as outlined
in FAR
32.503-6 (g) and DFARS
232.503-6 . The ACO shall
prepare a supplemental analysis
in accordance with FAR 32.503-6
(g), Loss contracts. When
a contract is in a loss position,
the contractor will submit the
progress payment request showing
the actual costs, without a loss
ratio adjustment. However, the
ACO may request the contractor
to attach a supplementary sheet
showing the proper application
of the loss ratio and submit
the SF 1443 to the ACO. Supplementary
sheets for EDI progress payment
requests will be sent to the
ACO.
- MOCAS
and SEPS will compute the loss ratio
calculations based on contractor submitted
data; WAWF will not. Note: ACO
must independently validate the contractor's
submission. This will result in the progress
payment and the validation report being
available to the ACO in MOCAS for review
and disposition to either:
- Approve,
fill in item 27 "Amount Approved by
Contracting Officer", sign (including
electronically sign, if using EDI)
and return to DFAS; or
- Disapprove
and return to contractor.
3.2.6.2. Increase
the Liquidation Ratio: There may
be situations where progress payment
reductions are appropriate but
since the contractor has stopped
progress billings, the reductions
cannot be enacted. In those instances,
an increase to the liquidation
rate may accomplish the desired
remedy. As with reductions, the
liquidation increase shall be fully
supported, documented, and be representative
of the material harm to the Government. Liquidation
rate increases require a unilateral
modification to the contract (See
paragraph (b) of the Progress Payments
clause at FAR
52.232-16.)
3.2.7.
EXECUTE PAYMENT: ACO
signature overrides most MOCAS validations
requiring ACO manual validation.
3.2.7.1. If
the contract is a normal pre-sign,
the ACO shall validate and sign
the request before payment will
occur. However, if Expedited
Pre-sign has been activated, the
ACO shall perform
post payment validations for
those progress payment requests,
within 7 days from the date of
submission of the payment request. If
the contract has been "R" Coded
in MOCAS, the ACO shall approve
the request before payment will
occur. If the contract is "S" Coded
in MOCAS, the "S" must be deleted
before payment can be made. (MOCAS
Manual 8000.3, Part
2, Chap 2, Para 2.2.6.1.) If
the progress payment request is
being processed and paid automatically
through MOCAS, the ACO need not
take any specific actions.
3.2.7.2.
Progress Payment Distribution. For
fixed-price contracts (other than
firm-fixed-price contracts) with
multiple appropriations, awarded
after August 31, 1998, the ACO shall
provide progress payment distribution
instructions to the contract payment
office. The distribution instructions
shall include sufficient information
to enable the paying office to distribute
progress payments from each appropriation
funding the contract, in proportions
that reasonably reflect the performance
of the work on the contract. Instructions
shall be updated as necessary. (DFARS
204.7107(e)(3))
3.2.7.2.1. Prepare
Distribution Instructions: When
preparing the distribution instructions,
the ACO should consider data available
from Contract Funds Status Reports
(DD Form 1586), the Earned
Value Management System (EVMS), and
other contract and program data. (Refer
to Earned
Value Management, for more
information on EVMS.) The
ACO shall evaluate this data periodically
in order to determine whether to
modify distribution instructions. The DD
Form 1586 provides expenditure
data by appropriation. Note: ACOs
shall not request additional data
from contractors, or require changes
in how contractors account for or
segregate costs, for the purposes
of Progress Payment Distribution.
3.2.7.2.2. Issue
Distribution Instructions: The ACO shall
provide distribution instructions in writing, preferably
by using the Progress Payment Special Instructions
Field in MOCAS, or by letter, email, or fax, normally
using the following four progress payment
distribution instruction conventions: "Oldest
funds first", "Proration", "Unique distribution instructions",
and "Other." Unless there is evidence to the
contrary, the ACO can assume that the four conventions
are appropriate as indicated.
- Multiple
ACRNs under single appropriations: When
a contract is funded by a single
appropriation, as identified by
the first seven positions of the
long line of accounting, (see
sample) no distribution instructions
within the appropriation are required.
- Multiple
ACRNs under multiple appropriations: When
a contract is funded by multiple
appropriations, and unique distribution
instructions are needed, the ACO
shall consider data available from
contract funds status reports and
other available sources of contract
and program data, and prepare distribution
instructions that identify the
specific amount to be paid from
each appropriation, as identified
by the first seven positions of
the long line of accounting. Once
the ACO has determined the amount
to be paid from each appropriation,
the payment amounts for each ACRN
identifying that appropriation may
be prorated.
- Adjustments
to distribution: Normally
adjustments to distribution will
be prospective in the next payment;
however, on rare occasions, a formal
correction by the DFAS supporting
finance office may be required.
- Point
of contact for distribution or liquidation issues: In
the event of problems related to
the distribution instructions or
the liquidation against delivery
payments on an affected contract,
DFAS will contact the ACO.
3.2.8.
PERFORM POST PROGRESS PAYMENT ACTIONS:
3.2.8.1.
Review MOCAS Reports. All MOCAS
reports are found in Reveal. ACOs
should review reports on a daily
basis, or a frequency they deem adequate.
When a progress payment is paid through
MOCAS, the transaction will be listed
in the UNFM320A report available
in REVEAL. MOCAS generates
an online workload screen for rejected
Progress payment requests. Rejected
progress payment requests will be
listed on YCMP screen UNFM72, Progress
Payment Requests Rejected to ACO
(DLAM 8000.3, Part 2, Chap 2, Para
2.2.6.1.1). ACOs should review
UNFM72 periodically to evaluate rejected
progress payment requests and take
action to either return such progress
payment requests to contractors or
resubmit to DFAS. Rejected
EDI progress payment requests (due
to either the contract not found
on database or Progress Payment Request
already exists) will be reported
in the UNAE060B report, Rejected
Electronic Progress Payment Requests. ACO
Periodic Review Alert (screen UNFM74)
should be reviewed daily to remind
ACOs of periodic reviews that need
to be performed. The
ACO shall review these notifications
to monitor progress payment
activity and to assure the remaining
contract financing available is sufficient
to finance the additional cost to
complete (line 12b of SF1443). (MOCAS
Manual 8000.3)
3.2.8.2.
Track Disbursement Data. For MOCAS pre-signed
contracts and MOCAS contracts with any other complicated
financing arrangement, the ACO will track and accumulate
disbursement/funding data by means of the disbursement
register maintained in the contract file. The ACO will
use this register to ensure proper financing of this
contract occurs.
3.2.8.3.
Track Liquidations. The ACO shall assure that a
proper liquidation rate is used. FAR
32.503-8 through FAR
32.503-10 outline the conditions for using ordinary
and alternate liquidation rates and explain how to
compute them.
3.2.8.4. Bell
Ringers. For contractors receiving progress payments
who have gone into bankruptcy or have financial difficulties,
the ACO should file a bell ringer report with the local
office of counsel and DFAS-ADP/CA.
3.2.8.5. Corporate
Restructuring or Novation. For contractors
who have outstanding progress payments and undergo
corporate restructuring or novation, the ACO will take
the appropriate action, such as executing subordination
agreements or putting appropriate language in novation
agreements, to preserve the Government's rights to
progress payment inventories. The ACO should coordinate
the proposed actions with local counsel.
3.2.8.6. Product
Quality. For contractors who have outstanding
progress payments, where significant doubt exists as
to the quality
of product being produced, the ACO shall take the
appropriate actions to protect the Government's interests.
(FAR 32.503-2(a))
3.2.8.7.
ACAT Programs. For ACAT I and II contracts, the
ACO should report EACs and progress payments, as reported
on the most recent Progress Payment Request, to the
cognizant PCO and DCMA Program Integrator at least
every six months.
3.2.8.8.
Notice of Termination.
- Terminations
for Default: Upon receipt
of a notice of contract termination,
the ACO shall immediately update
the Progress Payment Master, inputting
an "S" Code into MOCAS. No
further progress payments shall
be approved.
- Termination
for Convenience (complete): Notify
the TCO for coordination and input
an "R" code into MOCAS.
- Termination
for Convenience (partial): Input
an "R" code into MOCAS
and coordinate with TCO. If
Progress Payments can be requested
for the portion not terminated,
ensure that the contractor can
properly segregate costs so that
Progress Payments will not be claimed
for the terminated portion under
contract.
3.2.8.9. Reallocation
of funds under Progress
Payment Distribution. The
ACO will review liquidation of progress
payments by ACRN, and if required,
provide instructions to DFAS on redistributing
payments or adjusting future payment
distribution.
3.3.
RISK HANDLING
3.3.1.
Risk handling is the process that identifies,
evaluates, selects, and implements
options in order to set risk at acceptable
levels given program constraints and
objectives. CMOs perform risk
planning, assessing, monitoring and
documenting, while contractors do the
risk handling, because it is their
process(es) that has to be changed
in order to mitigate risk. DCMA's
role in contractor risk handling is
one of influence rather than control. Therefore,
CMOs shall ensure that their assessments
are well founded and provide good reason
for the supplier to voluntarily act
on these assessments.
3.4.
RISK MONITORING
3.4.1.Evaluate
Contractor Performance. The DCMA team
or functional specialists will evaluate
the contractor performance relating
to systems and key processes addressed
in the risk surveillance plan. The
risk handling methods selected will
be analyzed against results to determine
if objectives are being met or new
risk handling methods are needed.
3.4.1.1.
Deterioration of the contractor's financial,
managerial, and technical capabilities:
The DCMA team will provide the
ACO with information on the deterioration
of the contractor's financial, managerial,
and technical capabilities as soon
as they are discovered. The ACO should
review data derived from available
risk reports (e.g., CPR, C/SSR,
cost/schedule analysis and Earned Value
Management Systems) and discuss the
contents with the multifunctional team
members. This discussion will help
the ACO determine the need to: perform
an out-of-cycle progress payment review;
reassess the contractor's risk category;
remove the contract from the automated
progress payment system; or take other
actions to protect the Government's
interests.
3.4.2. Adjust
surveillance based on changes in risk
assessment. The multifunctional team
members should adjust risk surveillance
methods, intensity, and frequency based
on the contractor systems and key processes.
Adverse performance data shall result
in corrective action measures and an
increase in the intensity of oversight
(e.g., frequency, depth of review,
etc.) until corrective actions are
finalized. Trend analysis of system
and process performance indicating
low risk shall result in a decrease
in risk surveillance activities (e.g.,
reduced frequency, greater reliance
on data analysis, alternate risk handling
activities, etc.).
3.5.
RISK DOCUMENTATION: The ACO should
record documentation on risk assessments. The
ACO documentation should include the
following:
- Risk
surveillance activity records (Financial
Surveillance, EAC evaluations,
systems reviews, etc),
- Records
on status of contractor business
systems,
- Records
regarding input on key processes
from DACO/CACO/DCE (if assigned),
- Copies
of contract auditor reports on contractor
systems and internal controls,
- Copies
of any contractor appeals to ACO
of auditor notice of contractor costs
suspended and/or disapproved (e.g.,
DCAA Form 1),
- Copies
of Risk Assessments including documentation
supporting changes,
- Records
of contractor's implementation of
corrective actions, if required.
4.
Points of Contact:
DCMA
Headquarters Performance
Advocate: Debbie
Powell, OCB (703) 428-0997
District Performance Advocates:
DCMA East: Brian
Carroll (617) 753-3649
DCMA West: DebbieTatum (310)
900-6432
DCMA International : John
Reddinger (703)
428-1776
Pre-Process
Activity
Process
Inputs
- Contracts
- MOCAS
abstract UNMD040A
- SF Form
1443, Request for Progress Payment
Process
Flowchart
Process
Mechanisms
Process
Controls
Additional
Information
Competencies/Certifications
- Training
Matrix
- Certifications:
ACO shall be warranted and DAWIA
certified in accordance with position
held.
- Training
Sources/Information
Process
Activity Based Costing
- PLAS
Process code: 145
- Process
Unit Count: Number of Progress Payment
Invoices Processed
Progress
Payment Distribution Instructions/Conventions
Note: When the Progress Payment
Special Instructions are utilized,
instructions will be limited to 80
characters.
(Progress
Payment Distribution Background)
(DCAA Audit
Guidance on Progress Payment Distributions)
(Provision
Level Special Payment Instructions)
Unless there is evidence to the contrary, the ACO
can assume that the following methods are appropriate
as indicated.
|
Method
(Convention) |
Appropriate
Contractual Situations |
Meaning |
|
Oldest
funds first |
Research
and Development |
Payment
office will pay in sequential
ACRN order within the contract,
exhausting all funds in the previous
ACRN before paying from the next
ACRN using the following sequence:
alpha/alpha; alpha/numeric; numeric/alpha;
and numeric/numeric. |
|
Proration |
Multiple
appropriations for identical
items;
Mixed Service buys for identical
items;
Large volume of low cost items;
Concurrent spares and weapons systems |
Distribution
of payments using the existing
MOCAS Automatic Payment of Progress
Payment proration method. (Allocation
of the invoiced amounts to all
ACRNs based on the ACRN obligation
as a percentage of the total
contract obligation.) When
using the Progress Payment Special
Instructions field in MOCAS,
Proration will be indicated by
leaving the field blank (This
will allow for the system to
automatically pay and prorate
the payment.) |
|
Unique
distribution instructions |
When
special instructions are needed
for each progress payment request. |
Specific
distribution instructions will
be provided for each progress
payment request. (This
includes specific distribution
instructions for each payment,
as well as proration, other than
described below.) Distribution
instructions will originate from
the ACO. When unique distribution
instructions are provided, they
will be expressed as "ACRN
XX ($ Amount)" or "ACRN
XX (X%)." |
|
Other |
When
the other methods are not appropriate. |
Any
distribution method not described
above. Include text describing
the method or where it can be
found in the contract |
RISK
MATRIX
|
HIGH Risk: The process is out of control or
performance data casts significant
doubt on the capability of
the system or key process to
meet requirements. A major
disruption is highly probable
and the likelihood is the contractor
will not meet the performance,
schedule, or cost objectives |
|
KEY
PROCESS |
PERFORMANCE |
SCHEDULE |
COST |
|
·Management
of Progress Payment Request
Preparation & Submission |
· Frequent
and significant billing request
errors,
· High
turnover in contractor personnel
preparing payment requests, |
· Contractor
inexperience with progress payment
process - consistent delay
in submittal, |
· Multiple
versus single process to prepare
progress payment,
· Lack
of current internal procedures for the preparation
of PP requests, |
|
· Management
of Costs |
· Significant
variances between contractor
reported ETC and the Government's
independent ETC. |
· Past
performance information reflects
contractor has had cost control
problems under several previous
contracts,
· Billing
cycle frequently not in accordance with actual manufacturing
schedule. |
· Unallowable
costs frequently included in
payment requests,
· Predominance
of Gov. contracts in loss position,
· Lack
of clear cut documentation concerning allowable and
allocable costs,
· Overpayments
not identified. |
|
· Management
of Business Systems |
· Accounting
and billing system; have recent,
significant changes,
· Little
or no history of various system
performance,
· Accounting,
Billing, Estimating, or Material
Management and Accounting System(s)
partially adequate. |
Frequent
accounting and billing system
deficiencies cause significant
delays in processing payments
to DFAS.
|
· Accounting,
Billing, Estimating, or Material
Management and Accounting System(s)
partially adequate ,
· Multiple
layered company costs -- Intra-company costs replacing
previously subcontracted costs,
· Overpayments
not identified by contractor. |
|
· Management
of Company Financial Condition |
· Contractor
financial capability unstable,
· Significant
changes in the corporate structure
(mergers and acquisitions). |
· Contractor
financial capability unstable,
· Significant
changes in the corporate structure
(mergers and acquisitions). |
· Contractor
financial capability unstable,
· Significant
changes in the corporate structure
(mergers and acquisitions). |
|
Management
of Production and Quality
Assurance Systems
|
· Contractor
experiencing significant scrap
rates in one or more floor processes,
·Contractor's
actual labor hours significantly
vary from its planned process
on major operations,
· Contractor
experiencing rapid growth in
orders accompanied by influx
in new personnel. |
· Physical
progress review reports significant
deficiencies impacting ability
to meet contract schedule,
Significant
schedule delays.
|
· Significant
changes anticipated,
· Material
and labor expenditures in excess
of contract requirements,
· Excessive
labor expenditures driven by
labor hour growth or inexperienced
personnel. |
|
MODERATE RISK: There is moderate process variance
and the trend is adverse. Performance
data casts doubt on the ability
of the system or key process
to consistently meet requirements.
Not only is it probable the
contractor will encounter delays
in meeting the performance,
schedule, or cost objectives,
but if the concerns are not
addressed, the process may
progress to high risk. |
|
KEY
PROCESS |
PERFORMANCE |
SCHEDULE |
COST |
|
· Management
of Progress Payment Request
Preparation & Submission |
· Occasional
billing request errors ,
· Moderate
turnover in contractor personnel
preparing payment requests,
· Contractor
fairly experienced with progress
payment process. |
· Contractor
inexperience with progress payment
process - occasional delay
in submittal. |
· Incomplete
internal procedures for the preparation
of PP requests. |
|
· Management
of Costs |
·Moderate
variances between contractor
reported ETC and Government's
independent ETC. |
· Past
performance information reflects
contractor has had some cost
control problems under previous
contracts,
· Billing
cycle occasionally not in accordance
with actual manufacturing schedule. |
· Unallowable
costs included in some payment
requests ,
·Some
Gov. contracts in loss position. |
|
· Management
of Business Systems |
· Accounting,
Billing, Estimating and Material
Management and Accounting Systems
adequate and moderately stable,
with some corrective action required. |
· Occasional
accounting and billing system
deficiencies cause occasional
delays in processing payments
to DFAS. |
· Partially
inadequate or conditionally approved
accounting/billing system with
corrective action plan,
· Moderate
changes to systems anticipated. |
|
· Management
of Company Financial Condition |
· Contractor
financial capability stable,
ability to complete the contract
is not threatened; however, significant
changes (mergers, takeovers,
etc) may affect historical stability. |
Inconsistent
financial condition,
Some changes
in the corporate structure (mergers
and acquisitions). |
Inconsistent
financial condition,
Some
changes in the corporate structure
(mergers and acquisitions). |
|
Management of Production and Quality Assurance
Systems
|
· Contractor
experiencing moderately excessive
scrap rates in one or more floor
processes ,
· Contractor's
actual labor hours vary moderately
from his/her planned process
values on major operations.
·Contractor
experiencing moderate increase
in orders, accompanied by influx
in new personnel. |
· Physical
progress review reports some
deficiencies impacting ability
to meet contract schedule,
· Occasional
schedule delays. |
· Moderate
material and labor cost overruns
driven by scrap/rework rates,
· Moderate
labor cost overruns driven by
labor hour growth or inexperienced
personnel. |
|
LOW RISK: Performance data provides
confidence in the capability
of the system or key process
to meet requirements. Minimal
or no impact will occur in
meeting performance, schedule,
or cost objectives. |
|
KEY
PROCESS |
PERFORMANCE |
SCHEDULE |
COST |
|
· Management
of Progress Payment Request
Preparation & Submission |
· Rare
billing request errors,
· Little
or no turnover in contractor
personnel preparing payment requests
· Contractor
very experienced with progress
payment process, |
· Single
process. |
Complete
internal procedures for the
preparation of progress payment
requests.
|
|
· Management
of Costs |
· Slight
variances between contractor-reported
Estimate to Complete and results
of Periodic Progress Payment
Review. |
· Physical
progress review reports no significant
deficiencies impacting ability
to meet contract schedule. |
· Proper
and timely application of loss
ratio ,
· Contract
not in loss situation,
· Proper
segregation of unallowable costs. |
|
· Management
of Business Systems |
· Accounting
and billing system adequate,
stable & mature for progress
payment purposes,
· Estimating
and Material Management and Accounting Systems adequate
or only minor corrective action required,
· Timely
notification of overpayment |
Rare
accounting and billing system
deficiencies cause rare delays
in processing payments to DFAS.
|
· Adequate
accounting and billing systems
and stable, with only minor changes
anticipated
· Joint
system reviews by DCAA and contractor
internal audit. |
|
Management of Company Financial Condition
|
· Contractor
financial capability stable,
ability to complete the contract
is not threatened. Several years
financial history available for
the current corporate entity. |
Contractor
financial capability stable,
Insignificant
changes in the corporate structure
(mergers and acquisitions). |
Contractor
financial capability stable,
Insignificant
changes in the corporate structure
(mergers and acquisitions). |
|
Management of Production and Quality Assurance
Systems
|
·Contractor
scrap rates insignificant across
floor processes,
· Actual
labor hours vary insignificant from plan,
· Plant
loading & personnel resources stable. |
·Physical
progress review reports insignificant
deficiencies impacting ability
to meet contract schedule,
· Insignificant
schedule delays. |
· Material & labor
cost overruns caused by scrap/rework
rates rarely occur,
·Minor
labor cost overruns driven by labor hour growth or
inexperienced personnel. |
|
