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an official representative of the Postal Service. They are given reasonable opportunity to answer the charges and explain the alleged irregularity or delinquency. The facts are briefed, and a full report and recommendations are forwarded together with the answer: (i) In the case of steamship carriers performing non-contract services directly to the Bureau of Transportation; (ii) in all other cases, to the Distribution and Traffic Manager who examines and reviews the charges in order to determine the responsibility of the carrier or contractor involved and, if the facts warrant, imposes fine or deduction computed in accordance with statutory, regulatory, or contractual provisions. The Distribution and Traffic Manager may charge directly, in the first instance, the contractor or carrier, in which case the answer shall be filed with the Distribution and Traffic Manager.

NOTE: Postal Field Officials use Form 5178, Notification of Irregularity in Service-DelayDamage to Parcel Post Mail. (For Surface Carriers), and Form 2759, Report of Irregular Handling of Air Mail. (For Air Carriers.)

(b) Deductions. The same procedure as in paragraph (a) of this section is followed in making deductions for failure to perform service as required except that the Distribution and Traffic Manager is authorized, upon an evaluation of the evidence, to waive omissions of service or make deductions therefor in payments made to mail contractors.

NOTE: Postal Field Officials use Form 5440C-D-E, Contract Route Service Order, to notify star route contractors of deductions ordered, and the remission of previous deductions is ordered on the basis or in view of the facts.

(c) Damages. Damage cases are investigated in the same manner as fine cases. Where it is found, after investigation, that the Government has suffered a loss through the payment of indemnity or otherwise as a result of damage to or loss of mails, such loss may be taken into consideration in determining the amount of the fine. The Distribution and Traffic Manager determines if a fine should be imposed for damage to or loss of mail.

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Rules of Procedure Before the Bureau of Finance and Administration

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tions to the effect that the acceptance of such checks or drafts constitutes settlement in full of the claim, fine, penalty, or liability in connection with which the offer is made, except that such checks or drafts may be accepted when they are accompanied with a written waiver of the endorsements or instructions printed thereon. Offers in compromise should be transmitted or delivered to the bureau of the Department, the Post Office Inspector, or the postmaster from whom demand is received for payment of the amount due.

(R.S. 161, as amended; 5 U.S.C. 301, 39 U.S.C. 309, 501) [26 F.R. 11662, Dec. 6, 1961. Redesignated, 33 F.R. 6291, April 25, 1968]

Rules of Procedure Before the Bureau of Facilities

PART 936-RULES OF PROCEDURE FOR CONTRACT FINANCING

Sec.

936.1 936.2

Progress payments.
Partial payments.
Exhibit A.

AUTHORITY: The provisions of this Part 936 issued under R.S. 161, as amended, sec. 305, 63 Stat. 396, as amended; 5 U.S.C. 301, 39 U.S.C. 309, 501, 41 U.S.C. 255.

SOURCE: The provisions of this Part 936 appear at 27 F.R. 3884, April 24, 1962, unless otherwise noted. Redesignated at 33 F.R. 6291, April 25, 1968.

§ 936.1 Progress payments.

(a) Scope. This section prescribes basic policies and procedures in providing contract financing in the form of progress payments in Post Office Department contracts.

(b) Definitions. (1) "Progress payment" means a payment made from time to time during the performance of a contract on the basis of costs to the contractor in connection with which the Government takes title to property acquired and work performed under the contract.

(2) "Eligible contractors" includes all persons awarded contracts covered by these instructions, except a person who is determined by the contracting officer to be in such unsatisfactory financial or technical condition, or has disregarded his obligations with respect to progress payments under other Government contracts to such a degree as to endanger recoupment of progress payments under the current contract.

(3) "Unliquidated progress payments" means the aggregate sum of all progress payments made less the aggregate sum of amounts applied to reduce progress payments.

(4) The word "bid" includes "offer," the word "bidder" includes "offeror," and the words "Invitation for Bids" also includes "Request for Proposals."

(c) Policy. (1) To the maximum practicable extent, the need for progress payments shall not be treated as a handicap in awarding contracts to concerns which qualify as responsible suppliers. A prospective contractor deemed reliable, competent, and otherwise responsible will not be regarded as any less responsible because of the need for progress payments.

(2) Normally, contracts under $10,000 will not be considered for progress payments. If subsequent to award of a contract under $10,000 or of a contract which does not include a provision for making progress payments, it develops that progress payments are required by the contractor and it would be in the interest of the Government to allow such progress payments, then the contract may be amended to provide for such progress payments provided the Government receives adequate consideration therefor.

(3) The Post Office Department does not contemplate providing advance payments as a financial aid to its existing or potential contractors.

(d) Applicability. The policies and procedures of this section are applicable only to fixed price contracts other than research and development contracts. They do not apply to contracts for engineering, architectural, or similar services related to construction, research and development contracts or to management and study contracts.

(e) Requirement for use of progress payments. (1) The contracting officer shall include in the Invitation for Bids the provision set forth in paragraph (f) of this section unless he determines that progress payments would be impractical or not reasonably necessary. Ordinarily, it shall be considered practical or reasonably necessary to make progress payments unless one or more of the following factors are present:

(i) The procurement is not expected to result in a contract of $10,000 or more. (ii) The contracting officer determines that the time between starting performance (usually immediately following the date of award) and delivery of the first end items is of such short duration (180 days or less) as to obviate the need for progress payments.

(iii) The contract provides for the placing of orders and the making of payments by more than one office.

(2) In unusual conditions, progress payments may be considered practical or reasonably necessary even though one or more of the exceptions of subparagraph (1) (i) through (iii) of this paragraph may be applicable.

(f) Provision for invitation for bids. The following provision shall be included

in the Invitation for Bids under the circumstances set forth in paragraph (e) of this section.

Availability of progress payments. The Government may make provision for progress payments in any contract resulting from this Invitation for Bids by including an appropriate clause in the contract if:

(a) The period of time between starting performance and delivery of the first end items will exceed six (6) months; or

Contract performance is likely to involve expenditures prior to delivery of the first end items, having a material impact on the contractor's working funds, or, in the case of progress payments first requested subsequent to award, involves expenditures having such impact; and

(b) The bidder, or contractor makes a written request for progress payments and is found eligible for such payments under applicable regulations.

The need for progress payments on the foregoing basis will not be considered a handicap or an adverse factor in awarding contracts.

If a bidder desires progress payments, the bidder shall check the appropriate box below:

Progress payments are desired but bid is not conditioned on receiving progress payments.

Bid is conditioned on receiving progress payments.

NOTES. 1. If bid is conditioned on the availability of progress payments and bidder is found ineligible for progress payments, the bid will be rejected.

2. Failure to check the appropriate box will preclude approval of progress payments.

3. If the bidder has indicated prior to award that progress payments are desired or that his bid is conditioned upon the receipt of progress payments, the contracting officer may require such bidder to furnish such financial information as the contracting officer deems necessary to enable the contracting officer to make a determination whether the contractor is eligible for progress payments.

4. If progress payments are to be made under the contract to be awarded as a result of this invitation the attached progress payments "total costs" clause will be applicable and shall be a part of the contract.

(g) Progress payment clause for use in contracts. (1) When progress payments are to be authorized, the attached total costs clause shall be included in all contracts covered by this section. (See Exhibit A immediately following § 936.2.)

(2) If the procurement action does not contemplate progress payments, the invitation shall include the following:

This procurement does not contemplate progress payments and provision for progress payments will not be included in this contract.

(h) Unusual progress payments. Whenever in the judgment of the contracting officer, exceptional circumstances exist, the contracting officer may consider an application by the contractor for additional progress payments in excess of the usual 75 percent limitation. Upon receiving the application, the contracting officer shall, with the concurrence of the Bureau of Finance, determine whether additional progress payments should be allowed. If it is determined that such additional payments should be allowed, the contract shall be amended, provided the Government receives adequate consideration; and, provided further, that such additional payments shall not cause the aggregate amount of the progress payments to exceed 90 percent of the total contract price. The Office of General Counsel shall be requested to advise whether the proposed consideration is legally sufficient.

(i) Determination as to eligibility. The eligibility of a contractor for progress payments must be determined prior to the authorization of progress payments. Where progress payments are requested prior to contract award, the determination of eligibility for progress payments should be made in conjunction with any required determination necessary by the Post Office Department of the prospective contractor's capacity and credit. Whenever the contracting officer considers it necessary, he may:

(1) Request the Bureau of Finance for advice and recommendation whether a bidder is financially responsible and whether the contractor's accounting system is adequate for identification and accumulation of costs and proper administration of progress payments. Financial statements and other data sufficient to enable determination of these factors should be made available to the Bureau of Finance for evaluation along with information obtained through independent sources. If necessary, the

Bureau of Finance may, with the concurrence of the contracting officer, request the Internal Audit Division to perform on-site reviews and evaluations to obtain additional information needed to make a determination as to financial condition and adequacy of the accounting system.

(2) In the absence of a certificate of competency from the Small Business Administration, request the Office of Research and Engineering for advice and recommendation whether a bidder has the necessary technical, engineering, inspection and manufacturing procedures and facilities to satisfactorily perform the contract.

(3) Authorize progress payments despite unfavorable findings in evaluations of the contractor's financial condition, or technical ability, provided a performance bond in an amount equal to the maximum amount of progress payments payable under the contract, was required in the Invitation for Bid. Such bond shall be in the form prescribed by the Government.

(j) Administration of progress payments. Progress payment clauses are not self-executing. They require careful administration to insure against overpayments and losses. The extent of supervision and checks made should depend on the nature of the procurement, amount of financing by the Department, technical and financial ability, and character of the contractor.

(1) At least semiannually the Bureau of Finance will furnish the contracting officer with a report showing by contractor and contract number the unliquidated progress payments outstanding.

(2) From time to time the cognizant bureau or office will furnish to the contracting officer an evaluation of the physical progress of the contractor's work to assure that requests for progress payments are properly supported thereby.

(3) The contracting officer may, whenever he considers it necessary to determine whether progress payments should be continued:

(1) Request the Office of Research and Engineering to inspect work in process at contractor's plants or at job site to verify physical progress under the contract and the continued technical responsibility of the contractor;

(ii) Request the Bureau of Finance for further advice as to the continuing financial responsibility of the contractor. The contractor may be required to furnish such additional information as is deemed necessary. The Bureau of Finance may, with the concurrence of the contracting officer, request the Internal Audit Division to perform onsite audits of contract costs. Ordinarily, such audit is not intended to preclude payment of current invoices.

(4) Despite unfavorable findings in evaluations of the contractor's continuing financial condition, technical ability, or physical progress, the contracting officer may authorize the continuance of progress payments if the contractor furnishes such additional security as is deemed good and sufficient.

§ 936.2 Partial payments.

(a) Scope. This section prescribes basic policies and procedures for providing contract financing in the form of partial payments.

"Partial payment"

(b) Definition. means a payment made for invoiced supplies delivered and accepted, or services rendered and approved, where such supplies or services are only a part of the total contract requirements.

(c) Policy. It is the policy of the Department to make maximum practical use of partial payments as a financial aid to business concerns in participating in Government procurement. A liberal policy in the making of partial payments should minimize the need for contractors to request progress payments.

(d) Provision for partial payments in Post Office Department contracts. The provisions of paragraph 7 of Standard Form 32, "General Provisions, Supply Contract," September 1961 edition, are deemed sufficient for making partial payments under Post Office Department contracts where that form is used.

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(a) 75 percent of the amount of the contractor's total costs incurred under this contract plus

(b) The amount of the progress payments made by the contractor to its subcontractors as provided in paragraph j below; all less the sum of previous progress payments.

(2) The contractor's total costs shall be reasonable, allocable to this contract, and consistent with sound and generally accepted accounting principles and practices. However, such costs shall not include:

(a) Any costs incurred by subcontractors or suppliers, or,

(b) Any payments or amounts payable to subcontractors or suppliers, except for completed work (including partial deliveries) to which the contractor has acquired title, and except for amounts paid or payable under cost-reimbursement or time and material subcontracts for work to which the contractor has acquired title, or

(c) Costs ordinarily capitalized and subject to depreciation or amortization except for the properly depreciated or amortized portion of such costs.

(3) The amount of unliquidated progress payments shall not exceed the lesser of:

(a) 75 percent of the costs mentioned in a(1)(a) above, plus any unliquidated progress payments mentioned in a(1)(b) above, both of which are applicable only to the supplies and services not yet delivered and invoiced to and accepted by the Government,

or

(b) 75 percent of the total contract price of supplies and services not yet delivered and invoiced to and accepted by the Government, less unliquidated advance payments.

(4) The aggregate amount of progress payments made shall not exceed 75 percent of the total contract price.

(5) If at any time a progress payment or the unliquidated progress payments exceed the amount permitted by this paragraph a, the contractor shall pay the amount of such excess to the Government upon demand.

b. Liquidation. Except as may be provided in a clause in this contract entitled "Termination for Convenience of the Government," all progress payments shall be liquidated by deducting from any payment under this contract, other than advance or progress, the amount of unliquidated progress payments, or 75 percent of the gross amount invoiced, whichever is less. Repayment to the Government required by a retroactive price reduction will be made after recalculating liquidations and payments on past invoices at the reduced prices and adjusting the unliquidated progress payments accordingly.

c. Reduction or suspension. The contracting officer may reduce or suspend progress payments, or liquidate them at a rate higher than the percentage stated in paragraph b above, or both, whenever he finds upon substantial evidence that the contractor:

(1) Has failed to comply with any material requirement of this contract,

(2) Has so failed to make progress, or is in such unsatisfactory financial condition, as to endanger performance of this contract, (3) Has allocated inventory to this contract substantially exceeding reasonable requirements,

(4) Is delinquent in payment of the costs of performance of this contract in the ordinary course of business,

(5) Has so failed to make progress that the unliquidated progress payments exceed the fair value of the work accomplished on the undelivered portion of this contract, or

(6) Is realizing less profit than the estimated profit used for establishing a liquidation percentage in paragraph b, if that liquidation percentage is less than the percentage stated in paragraph a(1).

d. Title. When any progress payment is made under this contract, title to all parts; materials; inventories; work in process; nondurable (i.e., noncapital) tools, jigs, dies fixtures, molds, patterns, taps, gauges, test equipment, and other similar manufacturing aids; and drawings and technical data (to the extent delivery thereof to the Government is required by other provisions of this contract); theretofore acquired or produced by the contractor and allocated or properly chargeable to this contract under sound and generally accepted accounting principles and practices shall forthwith vest in the Government; and title to all like property thereafter acquired or produced by the contractor and allocated or properly chargeable to this contract as aforesaid shall forthwith vest in the Government upon said acquisition, production or allocation. Notwithstanding that title to property is in the Government through the operation of this clause, the handling and disposition of such property shall be determined by the applicable provisions of this contract such as the default clause and paragraph h of this clause, and any applicable "Termination for Convenience of the Government" clause. Current production scrap may be sold by the contractor without approval of the contracting officer and the proceeds shall be credited against the costs of contract performance. With the consent of the contracting officer and on terms approved by him, the contractor may acquire or dispose of property to which title is vested in the Government pursuant to this clause, and in that event, the costs allocable to the property so transferred from this contract shall be eliminated from the costs of contract performance and the contractor shall repay to the Government (by cash or credit memorandum) an amount equal to the unliquidated progress payments allocable to the property so transferred. Upon completion of performance of all the obligations of the contractor under this contract.

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