DCMA Seal Defense Contract Management Agency (DCMA)
Search Our Site
 
 Skip Past Nav BarHome · Help Desk · Directory · UpdatesSkip Past Nav Bar

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 NovationFor 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

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.

    page last updated on
    cm: debbie.powell@dcma.mil