Overview
This section prescribes the policies and procedures for making partial and final payments to contractors after a contract has been terminated for the convenience of the Government. It establishes the limits on interim funding to provide contractors with necessary cash flow while settlement proposals are being negotiated or determined.
Key Rules
- Partial Payment Eligibility: Prime contractors may request partial payments at any time after submitting interim or final settlement proposals; subcontractors must submit requests through the prime contractor.
- Payment Limitations: The Termination Contracting Officer (TCO) may authorize up to 100% for completed end items and approved subcontract settlements, but is generally limited to 90% for termination inventory and other allowable costs.
- Exclusion of Profit/Fee: Partial payments cannot include profit or fee on the terminated portion of the contract, except for payment related to undelivered acceptable finished products.
- Government Security: If partial payments are made for completed items or inventory, the TCO must protect the Government’s interest by obtaining title or a paramount lien on the property.
- Mandatory Deductions: The TCO must deduct unliquidated progress payments, advance payments, and any credits from the sale or retention of termination inventory from the partial payment amount.
- Overpayment Liabilities: If partial payments exceed the final settlement amount, the contractor is liable to repay the excess with interest, calculated from the date the excess was received.
- Final Payment Procedures: Final payment is initiated by the contractor’s submission of a voucher or invoice following either a negotiated settlement agreement or a final determination (unilateral or via appeal).
Practical Implications
- Liquidity Management: These rules provide a critical mechanism for contractors and subcontractors to maintain cash flow during the often lengthy settlement process, though they must provide detailed data to justify the request.
- Administrative Oversight: Contractors should expect rigorous specialized reviews by the TCO, including accounting and engineering audits, before partial payments are approved to ensure the Government does not overpay.