Overview
FAR 32.1007 outlines the administrative responsibilities and procedural requirements for Contracting Officers (COs) regarding the review, approval, and oversight of performance-based payments (PBPs). It establishes that PBPs are strictly contingent upon the successful completion of defined contract milestones and grants the CO discretion to adjust oversight levels based on contractor risk.
Key Rules
- CO Responsibility: The Contracting Officer (typically the Administrative Contracting Officer) is the sole authority for reviewing, approving, and transmitting PBP requests to the payment office.
- Approval Requirements: Every payment approval must explicitly identify the payment amount, pertinent contract data, and the specific appropriation accounts to be debited.
- Risk-Based Oversight: The CO determines the depth of review required (pre-payment or post-payment) by evaluating the contractor’s financial strength, past performance, reliability, and internal controls.
- Strict Performance Criteria: Payments cannot be approved until the specific event or criterion is fully achieved. For cumulative events, all preceding milestones must be completed before payment is authorized.
- Government Delays: While PBPs are performance-based rather than time-based, if the Government causes a delay, the CO is authorized to renegotiate the payment schedule to allow the contractor to bill for partially completed work within a delayed milestone.
Practical Implications
- Administrative Rigor: Contractors must maintain precise documentation and internal controls because the CO’s assessment of "risk" directly dictates whether the contractor faces the administrative burden of pre-payment audits or the relative ease of post-payment reviews.
- Cash Flow Management: Because PBPs are "all-or-nothing" based on milestone completion, contractors must proactively engage the CO to renegotiate schedules if Government-caused delays occur to avoid significant liquidity gaps.