Overview
This section contains a comprehensive suite of payment clauses that define the procedures, conditions, and requirements for paying contractors across various contract types, including fixed-price, construction, time-and-materials, and professional services. These clauses establish the legal framework for invoicing, progress payments, retainage, and the final release of claims against the government.
Key Rules
- Payment Triggers: Payment is generally predicated on the submission of a "proper invoice" and the delivery and acceptance of supplies or services.
- Partial Payments: Under standard fixed-price contracts (52.232-1), partial payments are permitted if the amount due warrants it or if the amount is at least $1,000 or 50% of the contract price.
- Construction Progress Payments: Monthly progress payments are authorized based on work estimates. Contractors must provide a formal certification (52.232-5) stating they have paid subcontractors and that the work meets contract standards.
- Time-and-Materials (T&M) Provisions: Payment is based on fixed hourly rates and the actual cost of materials. Contractors must notify the Contracting Officer (CO) once they reach 85% of the specified ceiling price.
- Withholding and Retainage:
- In construction and architect-engineer contracts, the CO may retain up to 10% of payments to protect the government’s interest.
- In T&M contracts, the CO may withhold 5% of hourly payments (up to $50,000) as a reserve.
- The "Limitation on Withholding of Payments" (52.232-9) ensures that if multiple clauses allow for withholding, the total amount does not exceed the single largest authorized amount.
- Final Payment Requirements: To receive final payment, contractors are typically required to execute a "Release of Claims," discharging the government from any further liability arising under the contract.
Practical Implications
- Administrative Burden: Contractors—particularly in construction or T&M—must maintain rigorous timekeeping and invoicing records to substantiate payment requests and avoid interest penalties for "unearned amounts."
- Cash Flow Management: Firms must account for potential retainage or "withholds" in their financial planning, as the government may legally delay a portion of payment until project completion or satisfactory progress is demonstrated.
- Compliance Risk: The requirement for specific certifications (especially under 52.232-5) creates significant legal exposure; inaccurate certifications regarding subcontractor payments can lead to interest penalties or False Claims Act implications.