Navy Acquisition Procedures Supplement; Payments Under Shipbuilding Contracts

DEPARTMENT OF DEFENSE

Department of the Navy

48 CFR Parts 5232 and 5252

Navy Acquisition Procedures Supplement; Payments Under

Shipbuilding Contracts

AGENCY: Department of the Navy, DOD.

ACTION: Proposed rule.

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SUMMARY: The Department of the Navy is proposing to revise the

shipbuilding progress payments clauses to incorporate several

provisions covering standard Federal Acquisition Regulation progress

payment clause protections, clarifications and expansions.

DATES: Public comments are solicited and should be received by October

7, 1994.

ADDRESSES: Interested parties should submit written comments to: Office

of the Assistant Secretary of the Navy (Research Development &

Acquisition), ATTN: Mr. Clarence Belton, APIA(PP-CP), 2211 Jefferson

Davis Highway, Arlington, VA 22244-5104.

FOR FURTHER INFORMATION CONTACT: Mr. Clarence Belton, OASN(RDA)APIA(PP-

CP), (703) 602-2357.

SUPPLEMENTARY INFORMATION:

A. Background

The Department of the Navy has adopted procurement policies and

procedures that implement and supplement the Federal Acquisition

Regulations (FAR) [48 CFR] and the Defense Federal Acquisition

Regulation Supplement (DFARS). The policies and procedures are known

collectively as the Navy Acquisition Procedures Supplement (NAPS).

Pursuant to FAR 32.500(b), the Navy developed a shipbuilding progress

payments clause for use in fixed price (FP) and fixed price incentive

(FI) contracts for construction or for shipbuilding or ship conversion,

alteration, or repair, when the contracts provide for progress payments

based on a percentage or stage of completion. The shipbuilding progress

payments clauses are being revised primarily with the intent of

incorporating controls, terms and provisions consistent with those

found in the clause at FAR 52.232-16, Progress Payments.

B. Summary of Major Revisions

(1) Definitions. Consolidates the FI clause definitions.

(2) Computation of Payments. The proposed rule modifies the payment

limitation of 100% of allowable costs to include unliquidated progress

payments made to subcontractors.

(3) Invoices. The proposed rule modifies the invoicing provision by

requiring contractor certification of the amount of unliquidated

progress payments made to subcontractors.

(4) Physical Progress and Weighting Factors. The proposed rule

modifies the physical progress and weighting factors provision to give

the Contracting Officer the unilateral right to establish the weighting

factors if the contractor and the Contracting Officer cannot reach

agreement.

(5) Incurred Costs. The proposed rule adds to the list of incurred

costs exclusions, costs incurred by subcontractors and suppliers; and

capitalized costs and interim payments to subcontractors and suppliers.

This provides consistency with the FAR progress payments clause. The

proposed rule also removes the small business provision that allows for

billing of material costs not paid for by the contractor.

(6) Progress Payments to Subcontractors. The proposed rule adds a

new section containing provisions from the FAR progress payments clause

that govern payments to subcontractors.

(7) Liens and Title. A proposed provision is added which references

Liens and Title provisions found elsewhere in the contract.

(8) Reduction and Suspension. The proposed rule adds a new section

incorporating provisions from the FAR progress payments clause that

govern reductions and suspension of progress payments.

(9) Limitations on Undefinitized Contract Actions. A proposed new

section is added incorporating provisions from the FAR progress

payments clause that govern limitations on Undefinitized Contract

Actions.

(10) Special Terms Regarding Default. A proposed new section is

added incorporating provisions from the FAR progress payments clause

that govern treatment of progress payments in a contract default.

C. Paperwork Reduction Act

The proposed rule contains no new information collection or

recordkeeping requirement under the Paperwork Reduction Act of 1980 (44

U.S.C. 3501 et seq.). Supporting data requirements identified in the

proposed rule include only data already required to be maintained by

shipbuilding contractors.

D. Regulatory Flexibility Act Information

The proposed rule will have no economic impact upon small entities

within the meaning of the Regulatory Flexibility Act of 1980, 5 U.S.C.

601 et seq. The shipbuilding progress payment clauses have been

incorporated into applicable contracts since the early 1980's,

affecting all shipbuilders, large and small. The proposed NAPS rule

will benefit the Navy and its shipbuilding contractors by insuring

uniform application and administration of progress payments. Therefore,

no regulatory flexibility analysis has been performed.

List of Subjects in 48 CFR Chapter 52

Government procurement.

For the reasons stated in the Preamble, 48 CFR Chapter 52 is

proposed to be amended as follows:

1. Part 5232 is added to read as follows:

PART 5232--CONTRACT FINANCING

Authority: 5 U.S.C. 301, 10 U.S.C. 2202, DOD Directive 5000.35.

5232.1-5232.499 [Reserved]

5232.500 Scope of part.

The contracting officer shall insert the provision at 48 CFR

5252.232-9100, Payments (FP), or 48 CFR 5252.232-9105, Payments (FI),

as appropriate, in all solicitations and contracts for shipbuilding or

ship conversion, alteration, or repair, when progress payments are

based on a percentage or stage of completion.

PART 5252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES [AMENDED]

2. The authority citation for part 5252 continues to read as

follows:

Authority: 5 U.S.C. 301, 10 U.S.C. 2405, DOD Directive 5000.35,

and DFARS subparts 201.3 and 243.1.

3. Part 5252 is amended by adding sections 5252.232-9100 and

5252.232-9105 to read as follows:

5252.232-9100 Payments (FP).

As prescribed in 32 CFR 5232.500, insert the following clause in

fixed price solicitations and contracts for shipbuilding or ship

conversion, alteration, or repair, when progress payments are based on

a percentage or stage of completion:

(Beginning of Clause)

5252.232-9100 PAYMENTS (FP) (DEC 1992)

(a) Computation of payments.

(1) Until such time as physical progress in the performance of

work on a vessel is fifty percent (50%) complete, the Government,

upon submission by the Contractor of invoices certified by the

Contractor as hereinafter provided, will promptly make payments, on

account of the total contract price, of ninety percent (90%) of the

amount determined by multiplying the total contract price of such

vessel by the percentage of physical progress accomplished in the

performance of work on such vessel as certified by the Contractor

subject to the approval of the Supervisor; provided, that no such

payment shall be made in an amount which when added to the total of

all payments previously made with respect to such vessel under (i)

paragraph (a) of this requirement and (ii) the ``COMPENSATION

ADJUSTMENTS (LABOR AND MATERIAL)'' requirement exceeds one hundred

percent (100%) of the allowable costs certified by the Contractor on

the related invoice to have been incurred in the performance of work

on such vessel plus any unliquidated progress payments paid to

subcontractors.

(2) After the percentage of physical progress in the performance

of work on a vessel has reached fifty percent (50%), the Government,

upon submission by the Contractor of invoices certified by the

Contractor as hereinafter provided, will promptly make payments, on

account of the total contract price, of one hundred percent (100%)

of the amount determined by: (i) multiplying the total contract

price of such vessel by the percentage of physical progress in the

performance of work on such vessel as certified by the Contractor

subject to the approval of the supervisor, and (ii) subtracting from

that product five percent (5%) of the total contract price of such

vessel; provided, that no such payment shall be made in an amount

which when added to the total of all payments made previously with

respect to such vessel under paragraph (a) of this requirement and

the ``COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)'' requirement

exceeds one hundred five percent (105%) of the allowable costs

certified by the Contractor on the related invoice to have been

incurred in the performance of work on such vessel plus any

unliquidated progress payments paid to subcontractors; provided,

further, that the Contractor furnishes data on actual cumulative

costs and estimated future costs acceptable to the Supervisor which

demonstrates to the satisfaction of the Supervisor that the

Contractor will make a profit of at least five percent (5%) on

completion of the contract, and the Contractor provides updated

information on a quarterly basis. If updated data indicate the

Contractor will not make a profit of at least five percent (5%) on

completion of the contract, the progress payments shall be adjusted

retroactively so that the total of all payments made with respect to

the vessel under paragraph (a) of this requirement and the

``COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)'' requirement shall

not exceed one hundred percent (100%) of the allowable costs

certified by the Contractor on the related invoice to have been

incurred in the performance of work on such vessel plus any

unliquidated progress payments paid to subcontractors or 100% of

total contract price, whichever is less.

(b) Invoices. Invoices may be submitted every two weeks, but not

more frequently; provided, however, that if after contract award

more frequent progress payments are approved by cognizant Government

authority, this requirement shall be modified accordingly without

additional consideration by the Contractor to the Government for

such modification. No payment will be required to be made upon

invoices aggregating less than five thousand dollars ($5,000). The

Contractor shall certify on each invoice:

(1) The percentage of physical progress in the performance of

work on the vessel as a decimal carried to four places; and

(2) The allowable costs incurred in the performance of the work

on the vessel plus any unliquidated progress payments paid to

subcontractors as of the date the invoice is submitted. Such

certification shall provide for cost category reporting in

accordance with the Contractor's normal accounting system and shall

be broken down into direct material, direct labor, and indirect

costs.

(c) Physical progress and weighting factors.

(1) Within sixty (60) days after contract award, the Contractor

shall submit a progressing system description for review and

approval by the Contracting Officer. Upon approval of such system,

progress payments shall be in accordance with the approved system.

Subsequent revisions to the approved system shall be submitted to

the Contracting Officer for approval prior to implementation.

(2) The mutually agreed upon weighting factors for the

categories of labor and material for each vessel are set forth in

Attachment------ to this contract. The weighting factors shall be

revised quarterly. Notwithstanding the above, revision of weighting

factors may be requested by either party when factual data indicate

that the weighting factors then in use are no longer representative

of the actual labor and material distribution. Revisions of

weighting factors shall be supported by detailed de-escalated

(estimated final) direct material, direct labor, and indirect costs

and additional data concerning the cause of the change in the

weighting factors. In the event that the parties fail to agree on

the establishment of, or a revision to the weighting factors, the

Contracting Officer may establish on a unilateral basis the

weighting factors to be used in the administration of this

provision. Any change in the weighting factors shall be set forth in

a Standard Form 30, ``Amendment of Solicitation/Modification of

Contract''.

(d) Incurred costs. For the purpose of this requirement,

``incurred costs'' are those costs identified through the use of the

accrual method of accounting, as supported by the records maintained

by the Contractor and which are allowable in accordance with Part 31

of the Federal Acquisition Regulation (FAR) and Part 231 of the

Department of Defense FAR Supplement (DFARS) in effect on the

effective date of this contract and include only:

(1) The costs of supplies and services purchased by the

Contractor directly for this contract may be included only after

payment by cash, check, or other form of actual payment.

(2) Costs for the following may be included when incurred even

if before payment, when the Contractor is not delinquent in payment

of costs of contract performance in the ordinary course of business:

(i) Materials issued from the Contractor's stores inventory and

placed in the production process for use on this contract;

(ii) Direct labor, direct travel, and other direct inhouse cost;

(iii) Properly allocable and allowable indirect costs.

(3) Accrued costs of Contractor contributions under employee

pension or other post-retirement benefit, profit sharing, and stock

ownership plans shall not be considered incurred until actually paid

unless--

(i) The Contractor's practice is to contribute to the plans

quarterly or more frequently; and

(ii) The contribution does not remain unpaid 30 days after the

end of the applicable quarter or shorter payment period. (Any

contributions remaining unpaid shall be excluded from the

Contractor's total cost for progress payment limitations until

paid.)

(4) Incurred costs shall not include:

(i) Any costs that are required under any requirement of this

contract (other than the ``COMPENSATION ADJUSTMENTS (LABOR AND

MATERIAL)'' requirement) to be reimbursed or paid by the Government

to the Contractor or by the Contractor to the Government other than

through an equitable adjustment in the contract price;

(ii) Costs incurred by subcontractors or suppliers;

(iii) Costs ordinarily capitalized and subject to depreciation

or amortization except for the properly depreciated or amortized

portion of such costs;

(iv) Payments made or amounts payable to subcontractors or

suppliers, except for--(A) Completed work, including partial

deliveries, to which the Contractor has acquired title; and (B) Work

under cost-reimbursement or time-and-material subcontracts to which

the Contractor has acquired title.

(5) If an overpayment is made relative to this paragraph (d),

interest shall be charged at the prevailing per annum rate

established by the Secretary of the Treasury, pursuant to Public Law

92-41, from the date such overpayment is made (date of Government

check) until the date the overpayment if fully recovered.

(e) Progress payments to subcontractors. Progress payments made

by the Contractor to its subcontractors shall be the unliquidated

progress payments that are mentioned in (a)(1) and (a)(2) above

shall be all progress payments to subcontractors or divisions, if

the following conditions are met:

(1) The amounts included are limited to the unliquidated

remainder of progress payments made.

(2) The subcontract or interdivisional order is expected to

involve a minimum of approximately six months between the beginning

of work and the first delivery, or, if the subcontractor is a small

business concern, four months.

(3) The terms of the subcontract or interdivisional order

concerning progress payments--

(i) Are substantially similar to the terms of this provision or

to the clause at 52.232-16, Progress Payments, for any subcontractor

that is a large business concern, or that clause with its Alternate

I for any subcontractor that is a small business concern;

(ii) Are at least as favorable to the Government as the terms of

this clause;

(iii) Are not more favorable to the subcontractor or division

than the terms of this clause are to the Contractor;

(iv) Are substantially in conformance with the requirements of

paragraph 32.504(e) of the Federal Acquisition Regulation; and

(v) Subordinate all subcontractor rights concerning property to

which the Government has title under the subcontract to the

Government's right to require delivery of the property to the

Government if (A) the Contractor defaults or (B) the subcontractor

becomes bankrupt or insolvent.

(4) The progress payment rate in the subcontract is the

customary rate used by the Contracting Agency, depending on whether

the subcontractor is or is not a small business concern.

(5) The parties agree concerning any proceeds received by the

Government for property to which title has vested in the Government

or against which a lien has been placed in favor of the Government

under the subcontract terms, that the proceeds shall be applied to

reducing any unliquidated progress payments by the Government to the

Contractor under this contract.

(6) If no unliquidated progress payments to the Contractor

remain, but there are unliquidated progress payments that the

Contractor has made to any subcontractor, the Contractor shall be

subrogated to all the rights the Government obtained through the

terms required by this clause to be in any subcontract, as if all

such rights had been assigned and transferred to the Contractor.

(7) To facilitate small business participation in subcontracting

under this contract, the Contractor agrees to provide progress

payments to small business concerns, in conformity with the

standards for customary progress payments stated in subpart 32.5 of

the Federal Acquisition Regulation. The Contractor further agrees

that the need for such progress payments shall not be considered as

a handicap or adverse factor in the award of subcontracts.

(f) Retentions.

(1) Upon preliminary acceptance of each vessel and upon the

submission of properly certified invoices, the Government will pay

to the Contractor the amount withheld under paragraph (a) of this

requirement in respect of that vessel in excess of (i) a performance

reserve in the amount of one and one-half percent (1.5%) of the

total contract price for such vessel, or (ii) one hundred thousand

dollars ($100,000), whichever is greater. If at any time it shall

appear to the Government that the amount of performance reserve may

be insufficient to meet the cost to the Government of finishing any

unfinished work under the contract for which the Contractor is

responsible, or of correcting defects for which the Contractor is

responsible which are discovered prior to preliminary acceptance or

during the guaranty period of any vessel, the Government may, in

making payments under this requirement, deduct or withhold such

additional amounts as it may determine to be necessary to render

such reserve adequate; provided, that any additional amounts

deducted or withheld on account of defects which are discovered

during the guaranty period of the vessel shall not exceed the limit

of the Contractor's liability as set forth in the requirement

entitled LIMITATION OF CONTRACTOR'S LIABILITY FOR CORRECTION OF

DEFECTS'', reduced by the amounts of the cost incurred by the

Contractor for work on such vessel because of Contractor responsible

deficiencies which are discovered during the guaranty period of the

vessel.

(2) The Government may, in its discretion, make payments prior

to final settlement on account of the reserves established under

this requirement, subject to such conditions precedent as the

Contracting Officer may prescribe.

(3) The Government shall, at the time of final settlement, in

accordance with the provisions of the requirement entitled ``FINAL

SETTLEMENT'', pay the Contractor the balance owing to it under the

contract promptly after the amount of such balance shall have been

determined.

(g) Liens and title. For liens and title provisions, see the

requirement of this contract entitled ``LIENS AND TITLE''.

(h) Certifications and audits. At any time or times prior to

final payment under this contract, the Contracting Officer may have

any invoices and statements or certifications of costs audited. The

Contracting Officer may require the Contractor to submit, or make

available for examination by the Contracting Officer or his

designated representative, the supporting documentation upon which

invoices, statements or certifications of costs are based. Each

payment theretofore made shall be subject to reduction as necessary

to reflect the exclusion of amounts included in the invoices or

statements or certifications of costs which are found by the

Contracting Officer, on the basis of such audit, not to constitute

allowable costs. Any payment may be reduced for overpayments, or

increased for underpayments on preceding invoices.

(i) Reduction or suspension. The Contracting Officer may reduce

or suspend progress payments after finding on substantial evidence

of any of the following conditions:

(1) The Contractor failed to comply with any material

requirement of this contract.

(2) Performance of this contract is endangered by the

Contractor's (i) failure to make progress or (ii) unsatisfactory

financial condition.

(3) Inventory allocated to this contract substantially exceeds

reasonable requirements.

(4) The Contractor is delinquent in payment of the costs of

performing this contract in the ordinary course of business.

(5) The Contractor fails to maintain an efficient and reliable

accounting system and controls adequate for the proper

administration of progress payments.

(j) Limitations on undefinitized contract actions.

Notwithstanding any other progress payment provisions in this

contract, progress payments may not exceed 90 percent of costs

incurred on work accomplished under undefinitized contract actions.

A ``contract action'' is any action resulting in a contract, as

defined in subpart 2.1, including contract modifications for

additional supplies or services, but not including contract

modifications that are within the scope and under the terms of the

contract, such as contract modifications issued pursuant to the

``CHANGES'' clause, or funding and other administrative changes.

This limitation shall apply to the costs incurred, as computed in

accordance with paragraph (d) of this clause, and shall remain in

effect until the contract action is definitized. Costs incurred

which are subject to this limitation shall be segregated on

Contractor progress payment requests and invoices from those costs

eligible for higher progress payment rates. For purposes of progress

payment liquidation, progress payments for undefinitized contract

actions shall be liquidated at 90 percent of the amount invoiced for

work performed under the undefinitized contract action as long as

the contract action remains undefinitized. The amount of

unliquidated progress payments for undefinitized contract actions

shall not exceed 90 percent of the maximum liability of the

Government under the undefinitized contract action or such lower

limit specified elsewhere in the contract. Separate limits may be

specified for separate actions.

(k) Special terms regarding default. If this contract is

terminated under the ``DEFAULT'' clause, (i) the Contractor shall,

on demand, repay to the Government the amount of unliquidated

progress payments and (ii) title shall vest in the Contractor, on

full liquidation of progress payments, for all property for which

the Government elects not to require delivery under the ``DEFAULT''

clause. The Government shall be liable for no payment except as

provided by the ``DEFAULT'' clause.

(End of Clause)

Sec. 5252.232-9105 Payments (FI).

As prescribed in Sec. 5232.500, insert the following clause in

fixed price incentive solicitations and contracts for shipbuilding or

ship conversion, alteration, or repair, when progress payments are

based on a percentage or stage of completion:

(Beginning of Clause)

5252.232-9105 PAYMENTS (FI) (DEC 1992)

(a) Definitions. For purposes of this contract requirement, the

following definitions apply:

(1) Total contract price--the sum of the contract prices

including, adjustments as set forth in paragraphs (a)(4) (i) or (ii)

of this clause and paragraph (c) of this clause, for each item in

this contract subject to the requirement entitled, ``INCENTIVE PRICE

REVISION--FIRM TARGET''.

(2) Original unit target price--the target price of each item in

this contract subject to the requirement entitled, ``INCENTIVE PRICE

REVISION--FIRM TARGET'', that was established at the time of

contract award.

(3) Original total target price--the sum of the target prices of

each item in this contract subject to the requirement entitled,

``INCENTIVE PRICE REVISION--FIRM TARGET'', that were established at

the time of contract award.

(4) Allocated total contract price--that portion of the total

contract price which is assigned to an item in the contract subject

to the requirement entitled, ``INCENTIVE PRICE REVISION-- FIRM

TARGET''. The allocated total contract price of each item shall be

established by multiplying the total contract price by a percentage,

expressed as a decimal carried to four decimal places, equal to that

fraction whose numerator is the original unit target price of the

vessel and whose denominator is the original total target price. The

resulting dollar amount shall be rounded to the nearest one hundred

thousand dollar ($100,000), upward or downward; provided that in no

event shall the sum of the allocated total contract price of the

items exceed the total contract price. The aforesaid percentages of

each item shall be revised, by contract modification, in the event

that either:

(i) Equitable adjustments to the unit target prices of the items

result in unit target prices of a substantially different proportion

to the total target prices than previously provided for under this

subparagraph (a)(4); or

(ii) Incurred costs indicate that a revision to the percentages

is appropriate; provided, however, any such revision shall not be

made more frequently than at the end of a calendar quarter unless

the total contract price is limited to the contract ceiling price

and the contract ceiling price is adjusted during the calendar

quarter.

(b) Computation of payments.

(1) Until such time as physical progress in the performance of

work on a vessel is fifty percent (50%) complete, the Government,

upon submission by the Contractor of invoices certified by the

Contractor as hereinafter provided, will promptly make payments, on

account of the total contract price, of ninety percent (90%) of the

amount determined by multiplying the allocated total contract price

of such vessel by the percentage of physical progress accomplished

in the performance of work on such vessel as certified by the

Contractor subject to the approval of the Supervisor; provided, that

no such payment shall be made in an amount which when added to the

total of all payments previously made with respect to such vessel

under (i) paragraph (b) of this requirement and (ii) the

``COMPENSATION ADJUSTMENTS (LABOR AND MATERIAL)'' requirement

exceeds one hundred percent (100%) of the allowable costs certified

by the Contractor on the related invoice to have been incurred in

the performance of work on such vessel plus any unliquidated

progress payments paid to subcontractors.

(2) After the percentage of physical progress in the performance

of work on a vessel has reached fifty percent (50%), the Government,

upon submission by the Contractor of invoices certified by the

Contractor as hereinafter provided, will promptly make payments, on

account of the total contract price, at one hundred percent (100%)

of the amount determined by: (i) multiplying the allocated total

contract price of such vessel by the percentage of physical progress

accomplished in the performance of work on such vessel as certified

by the Contractor subject to the approval of the Supervisor, and

(ii) subtracting from that product five percent (5%) of the

allocated total contract price of such vessel; provided, that no

such payment shall be made in an amount which when added to the

total of all payments made previously with respect to such vessel

under paragraph (b) of this requirement and the ``COMPENSATION

ADJUSTMENTS (LABOR AND MATERIAL)'' requirement exceeds one hundred

five percent (105%) of the allowable costs certified by the

Contractor on the related invoice to have been incurred in the

performance of work on such vessel plus any unliquidated progress

payments paid to subcontractors; provided, further, that the

Contractor furnishes data on actual cumulative costs and estimated

future costs acceptable to the Supervisor which demonstrate to the

satisfaction of the Supervisor that the Contractor will make a

profit of at least five percent (5%) on completion of the contract,

and the Contractor provides updated information on a quarterly

basis. If updated data indicate the Contractor will not make a

profit of at least five percent (5%) on completion of the contract,

the progress payments shall be adjusted retroactively so that the

total of all payments made with respect to the vessel under

paragraph (b) of this requirement and the ``COMPENSATION ADJUSTMENTS

(LABOR AND MATERIAL)'' requirement shall not exceed one hundred

percent (100%) of the allowable costs certified by the Contractor on

the related invoice to have been incurred in the performance of work

on such vessel plus any unliquidated progress payments paid to

subcontractors or 100% of the total contract price, whichever is

less.

(c) Billing price.

(1) For the purpose of this requirement, until the establishment

of the total final price in accordance with paragraph (d) of the

``INCENTIVE PRICE REVISION (FIRM TARGET)'' requirement, the term

``total contract price'' means the billing price; initially the

billing price shall be the initial total contract target price, and

thereafter the billing price shall be revised as provided in

paragraph (c)(2) below. After establishment of the total final price

in accordance with paragraph (d) of the ``INCENTIVE PRICE REVISION

(FIRM TARGET)'' requirement, the billing price shall be the total

final price so established.

(2) Within fifteen (15) days after each calendar quarter, the

Contractor shall submit in writing a proposed revised billing price

which shall be established as follows:

(i) The Contractor shall certify to the Contracting Officer the

percentage of physical progress in the performance of the contract

as a whole as of the end of the calendar quarter. Such percentage of

physical progress shall be expressed as a decimal carried to four

decimal places and shall be subject to the approval of the

Supervisor.

(ii) The revised billing price shall be the sum of a projected

final cost, and a projected profit, computed as follows:

(A) A projected final cost shall be computed by (1) determining

the cumulative sum of the base costs as of the end of the calendar

quarter, established in accordance with the ``COMPENSATION

ADJUSTMENTS (LABOR AND MATERIAL)'' requirement, and (2) dividing the

sum thereof by the percentage of physical progress certified and

approved as set forth in subparagraph (i) above.

(B) A projected profit shall be determined by applying, to the

projected final cost, the incentive formula set forth in paragraph

(d)(2) of the ``INCENTIVE PRICE REVISION--FIRM TARGET'' requirement;

provided, that in no event shall the revised billing price exceed

the ceiling price of the contract.

(iii) The revised billing price determined as stated above shall

be set forth separately in a supplemental agreement to this

contract, which also shall set forth the computations upon which the

revision of the billing price is based.

(iv) Any revision of the billing prices shall not affect the

determination of the total final price under paragraph (d) of the

``INCENTIVE PRICE REVISION--FIRM TARGET'' requirement. After

execution of the contract modification referred to in paragraph

(d)(3) of said requirement, the total amount paid or to be paid on

all invoices or vouchers shall be adjusted to reflect the total

final price, and any additional payments, refunds or credits

resulting therefrom shall be promptly made.

(d) Invoices. Invoices may be submitted every two weeks, but not

more frequently; provided, however, that if after contract award

more frequent progress payments are approved by cognizant Government

authority, this provision shall be modified accordingly without

additional consideration by the Contractor to the Government for

such modification. No payment will be required to be made upon

invoices aggregating less than five thousand dollars ($5,000). The

Contractor shall certify on each invoice:

(1) the percentage of physical progress in the performance of

work on the vessel as a decimal carried to four places; and

(2) the allowable costs incurred in the performance of the work

on the vessel plus any unliquidated progress payments paid to

subcontractors as of the date the invoice is submitted. Such

certification shall provide for cost category reporting in

accordance with the Contractor's normal accounting system and shall

be broken down into direct material, direct labor, and indirect

costs.

(e) Physical progress and weighting factors.

(1) Within sixty (60) days after contract award, the Contractor

shall submit a progressing system description for review and

approval by the Contracting Officer. Upon approval of such system,

progress payments shall be in accordance with the approved system.

Subsequent revisions to the approved system shall be submitted to

the Contracting Officer for approval prior to implementation.

(2) The mutually agreed upon weighting factors for the

categories of labor and material for each vessel are set forth in

Attachment ________ to this contract. The weighting factors shall be

revised quarterly concurrent with the billing price revisions

specified in paragraph (c). Notwithstanding the above, revision of

weighting factors may be requested by either party when factual data

indicate that the weighting factors then in use are no longer

representative of the actual labor and material distribution.

Revisions of weighting factors shall be supported by detailed de-

escalated (estimated final) direct material, direct labor, and

indirect costs and additional data concerning the cause of the

change in the weighting factors. In the event that the parties fail

to agree on the establishment of, or a revision to the weighting

factors, the Contracting Officer may establish on a unilateral basis

the weighting factors to be used in the administration of this

provision. Any change in the weighting factors shall be set forth in

a Standard Form 30, ``Amendment of Solicitation/Modification of

Contract''.

(f) Incurred costs. For the purpose of this requirement,

``incurred costs'' are those costs identified through the use of the

accrual method of accounting, as supported by the records maintained

by the Contractor and which are allowable in accordance with Part 31

of the Federal Acquisition Regulation (FAR) and Part 231 of the

Department of Defense FAR Supplement (DFARS) in effect on the

effective date of this contract and include only:

(1) The costs of supplies and services purchased by the

Contractor directly for this contract may be included only after

payment by cash, check, or other form of actual payment.

(2) Costs for the following may be included when incurred even

if before payment, when the Contractor is not delinquent in payment

of the costs of contract performance in the ordinary course of

business:

(i) Materials issued from the Contractor's stores inventory and

placed in the production process for use on this contract;

(ii) Direct labor, direct travel, and other direct in-house

costs;

(iii) Properly allocable and allowable indirect costs.

(3) Accrued costs of Contractor contributions under employee

pension or other post-retirement benefit, profit sharing, and stock

ownership plans shall not be considered incurred until actually paid

unless--

(i) the Contractor's practice is to contribute to the plans

quarterly or more frequently; and

(ii) the contribution does not remain unpaid 30 days after the

end of the applicable quarter or shorter payment period. (Any

contributions remaining unpaid shall be excluded from the

Contractor's total cost for progress payment limitations until

paid.)

(4) Incurred costs shall not include:

(i) Any costs that are required under any requirement of this

contract (other than the ``COMPENSATION ADJUSTMENTS (LABOR AND

MATERIAL)'' requirement) to be reimbursed or paid by the Government

to the Contractor or by the Contractor to the Government other than

through an equitable adjustment in the contract price;

(ii) Costs incurred by subcontractors or suppliers;

(iii) Costs ordinarily capitalized and subject to depreciation

or amortization except for the properly depreciated or amortized

portion of such costs;

(iv) Payments made or amounts payable to subcontractors or

suppliers, except for--(A) Completed work, including partial

deliveries, to which the Contractor has acquired title; and (B) Work

under cost-reimbursement or time-and-material subcontracts to which

the Contractor has acquired title.

(5) If an overpayment is made relative to this paragraph (f),

interest shall be charged at the prevailing per annum rate

established by the Secretary of the Treasury, pursuant to Public Law

92-41, from the date such overpayment is made (date of Government

check) until the date the overpayment is fully recovered.

(g) Progress payments to subcontractors. Progress payments made

by the Contractor to its subcontractors shall be the unliquidated

progress payments paid to subcontractors that are mentioned in

(b)(1) and (b)(2), if the following conditions are met:

(1) The amounts included are limited to the unliquidated

remainder of progress payments made.

(2) The subcontract or interdivisional order is expected to

involve a minimum of approximately six months between the beginning

of work and the first delivery, or, if the subcontractor is a small

business concern, four months.

(3) The terms of the subcontract or interdivisional order

concerning progress payments--

(i) Are substantially similar to the terms of this provision or

to the clause at FAR 52.232-16, Progress Payments, for any

subcontractor that is a large business concern, or that clause with

its Alternate I for any subcontractor that is a small business

concern;

(ii) Are at least as favorable to the Government as the terms of

this requirement;

(iii) Are not more favorable to the subcontractor or division

than the terms of this requirement are to the Contractor;

(iv) Are substantially in conformance with the requirements of

paragraph 32.504(e) of the Federal Acquisition Regulation; and

(v) Subordinate all subcontractor rights concerning property to

which the Government has title under the subcontract to the

Government's right to require delivery of the property to the

Government if (A) the Contractor defaults or (B) the subcontractor

becomes bankrupt or insolvent.

(4) The progress payment rate in the subcontract is the

customary rate used by the Contracting Agency, depending on whether

the subcontractor is or is not a small business concern.

(5) The parties agree concerning any proceeds received by the

Government for property to which title has vested in the Government

or against which a lien has been placed in favor of the Government

under the subcontract terms, that the proceeds shall be applied to

reducing any unliquidated progress payments by the Government to the

Contractor under this contract.

(6) If no unliquidated progress payments to the Contractor

remain, but there are unliquidated progress payments that the

Contractor has made to any subcontractor, the Contractor shall be

subrogated to all the rights the Government obtained through the

terms required by this requirement to be in any subcontract, as if

all such rights had been assigned and transferred to the Contractor.

(7) To facilitate small business participation in subcontracting

under this contract, the Contractor agrees to provide progress

payments to small business concerns, in conformity with the

standards for customary progress payments stated in subpart 32.5 of

the Federal Acquisition Regulation. The Contractor further agrees

that the need for such progress payments shall not be considered as

a handicap or adverse factor in the award of subcontracts.

(h) Retentions.

(1) Upon preliminary acceptance of each vessel and upon the

submission of properly certified invoices, the Government will pay

to the Contractor the amount withheld under paragraph (b) of this

requirement in respect of that vessel in excess of (i) a performance

reserve in the amount of one and one-half percent (1.5%) of the

allocated total contract price for such vessel, or (ii) one hundred

thousand dollars ($100,000), whichever is greater. If at any time it

shall appear to the Government that the amount of performance

reserve may be insufficient to meet the cost to the Government of

finishing any unfinished work under the contract for which the

Contractor is responsible, or of correcting defects for which the

Contractor is responsible which are discovered prior to preliminary

acceptance or during the guaranty period of any vessel, the

Government may, in making payments under this requirement, deduct or

withhold such additional amounts as it may determine to be necessary

to render such reserve adequate; provided, that any additional

amounts deducted or withheld on account of defects which are

discovered during the guaranty period of the vessel shall not exceed

the limit of the Contractor's liability as set forth in the

requirement entitled ``LIMITATION OF CONTRACTOR'S LIABILITY FOR

CORRECTION OF DEFECTS'', reduced by the amounts of the cost incurred

by the Contractor for work on such vessel because of Contractor

responsible deficiencies which are discovered during the guaranty

period of the vessel.

(2) The Government may, at its discretion, make payments prior

to final settlement on account of the reserves established under

this requirement, subject to such conditions precedent as the

Contracting Officer may prescribe.

(3) The Government shall, at the time of final settlement, in

accordance with the provisions of the requirement entitled ``FINAL

SETTLEMENT'', pay the Contractor the balance owing to it under the

contract promptly after the amount of such balance shall have been

determined.

(i) Liens and title. For liens and title provisions, see the

requirement of this contract entitled ``LIENS AND TITLE''.

(j) Certifications and audits. At any time or times prior to

final payment under this contract, the Contracting Officer may have

any invoices and statements or certifications of costs audited. The

Contracting officer may require the Contractor to submit, or make

available for examination by the Contracting Officer or his

designated representative, the supporting documentation upon which

invoices, statements or certifications of costs are based. Each

payment theretofore made shall be subject to reduction as necessary

to reflect the exclusion of amounts included in the invoices or

statements or certifications of costs which are found by the

Contracting Officer, on the basis of such audit, not to constitute

allowable costs. Any payment may be reduced for overpayments, or

increased for underpayments on preceding invoices.

(k) Reduction or suspension. The Contracting Officer may reduce

or suspend progress payments after finding on substantial evidence

of any of the following conditions:

(1) The Contractor failed to comply with any material

requirement of this contract.

(2) Performance of this contract is endangered by the

Contractor's (i) failure to make progress or (ii) unsatisfactory

financial condition.

(3) Inventory allocated to this contract substantially exceeds

reasonable requirements.

(4) The Contractor is delinquent in payment of the costs of

performing this contract in the ordinary course of business.

(5) The Contractor fails to maintain an efficient and reliable

accounting system and controls adequate for the proper

administration of progress payments.

(l) Limitations on Undefinitized Contract Actions.

Notwithstanding any other progress payment provisions in this

contract, progress payments may not exceed 90 percent of costs

incurred on work accomplished under undefinitized contract actions.

A ``contract action'' is any action resulting in a contract, as

defined in subpart 2.1, including contract modifications for

additional supplies or services, but not including contract

modifications that are within the scope and under the terms of the

contract, such as contract modifications issued pursuant to the

CHANGES clause, or funding and other administrative changes. This

limitation shall apply to the costs incurred, as computed in

accordance with paragraph (f) of this requirement, and shall remain

in effect until the contract action is definitized. Costs incurred

which are subject to this limitation shall be segregated on

Contractor progress payment requests and invoices from those costs

eligible for higher progress payments rates. For purposes of

progress payment liquidation, progress payments for undefinitized

contract actions shall be liquidated at 90 percent of the amount

invoiced for work performed under the undefinitized contract action

as long as the contract action remains undefinitized. The amount of

unliquidated progress payments for undefinitized contract actions

shall not exceed 90 percent of the maximum liability of the

Government under the undefinitized contract action or such lower

limit specified elsewhere in the contract. Separate limits may be

specified for separate actions.

(m) Special terms regarding default. If this contract is

terminated under the ``DEFAULT'' clause, (1) the Contractor shall,

on demand, repay to the Government the amount of unliquidated

progress payments and (2) title shall vest in the Contractor, on

full liquidation of progress payments, for all property for which

the Government elects not to require delivery under the ``DEFAULT''

clause. The Government shall be liable for no payment except as

provided by the ``DEFAULT'' clause.

(End of Clause)

Dated: August 19, 1994.

Lewis T. Booker, Jr.,

LCDR, JAGC, USN, Federal Register Liaison Officer.

[FR Doc. 94-21611 Filed 9-6-94; 8:45 am]

BILLING CODE 3810-AE-P