returned. The amount of a compromise offer must be tendered unconditionally for deposit pending the consideration of acceptance. Checks and drafts cannot be accepted as offers in compromise when they bear endorsements or instructions 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]

Subparts K and L-[Reserved] Subpart M-Rules of Procedure for

Contract Financing

AUTHORITY: The provisions of this Subpart M 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 Subpart M appear at 27 F.R. 3884, Apr. 24, 1962, unless otherwise noted.

§ 201.130 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.

8. 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 pay

ments "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 § 201.131.)

(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.

(1) 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 in deemed good and sufficient.

§ 201.131 Partial payments.

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

(b) Definition. "Partial payment" 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.

EXHIBIT A

Progress Payments—“Total Costs" Clause. Progress payments shall be made to the contractor as work progresses, from time to time upon request, in amounts approved by the contracting officer upon the following terms and conditions:

a. Computation of amounts. (1) Unless a smaller amount is requested, each progress payment shall be:

(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 (1.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, including liquidation of all progress pay

ments hereunder, title to all property (or the proceeds thereof) which had not been delivered to and accepted by the Government under this contract or which had not been incorporated in supplies delivered to and accepted by the Government under this contract and to which title has vested in the Government under this clause shall vest in the contractor. The provisions of this contract referring to or defining liability for Government-furnished property shall not apply to property to which the Government shall have acquired title solely by virtue of the provisions of this clause.

e. Risk of loss. Except to the extent that the Government shall have otherwise expressly assumed the risk of loss of property, title to which vests in the Government pursuant to this clause, in the event of the loss, theft or destruction of or damage to any such property before its delivery to and acceptance by the Government, the contractor shall bear the risk of loss and shall repay the Government an amount equal to the unliquidated progress payments based on costs allocable to such lost, stolen, destroyed or damaged property.

1. Control of costs and property. The contractor shall maintain an accounting system and controls adequate for the proper administration of this clause.

g. Reports access to records. Insofar as pertinent to the administration of this clause, the contractor will:

(1) Furnish promptly such relevant reports, certificates, financial statements, and other information as may be reasonably requested by the contracting officer, and

(2) Give the Government reasonable opportunity to examine and verify its books, records and accounts.

h. Special provisions regarding default. If this contract is terminated pursuant to the clause entitled "Default,"

(1) The contractor shall, upon demand, pay to the Government the amount of unliquidated progress payments, and

(2) With respect to all property of which the Government elects not to require delivery under the clause entitled "Default,' title shall vest in the contractor upon full liquidation of progress payments, and the Government shall be liable for no payment except as provided by the "Default" clause.

1. Reservation of rights. The rights and remedies of the Government provided in this clause shall not be exclusive, and are in addition to any other rights and remedies provided by law or under this contract. No payment, or vesting of title pursuant to this clause, shall excuse the contractor from performance of its obligations under this contract, nor constitute a waiver of any of the rights and remedies of the parties under this contract. No delay or failure of the Government in exercising any right, power, or privilege under this clause shall affect any such right, power or privilege, nor shall

any single or partial exercise thereof preclude or impair any further exercise thereof or the exercise of any other right, power or privilege of the Government.

J. Progress payments to subcontractors. (1) The amount mentioned in paragraph a(1)(b) above shall be the sum of:

(a) All the progress payments made by the contractor to his subcontractors and remaining unliquidated, and

(b) Unpaid billings for progress payments to subcontractors which have been approved for current payment in the ordinary course of business, when under subcontracts which conform to subparagraph (2) below.

(2) Subcontracts on which progress payments to subcontractors may be included in the base for progress payments pursuant to paragraph a. of this clause shall contain subcontract progress payment provisions which:

(a) Are substantially similar to and as favorable to the Government &s this "Progress Payments" clause (and no more favorable to the subcontractor than this clause is to the contractor), and

(b) Make all rights of the subcontractor with respect to all property to which the Government has title under the subcontract subordinate to the rights of the Government to require delivery of such property to it in the event of default by the contractor under this contract or in the event of the bankruptcy or insolvency of the

subcontractor.

(8) The Government agrees that any proceeds received by it from property to which it has acquired title by virtue of such provisions in any subcontract shall be applied to reduce the amount of unliquidated progress payments made by the Government to the contractor under this contract. In the event the contractor fully liquidates such progress payments made by the Government to it hereunder and there are progress payments to any subcontractors which are unliquidated, the contractor shall be subrogated to all the Government's rights by virtue of such provisions in the subcontract or subcontracts involved as if all such rights had been thereupon assigned and transferred to the contractor.

(4) The billings described in j(1)(b) above shall be paid promptly by the contractor in the ordinary course of business, not later than a reasonable time after payment of equivalent amounts by the Government to the contractor.

k. Method of invoicing. All invoices for progress payments on contracts containing the Progress Payment clause shall be supported by Form 4737, Contractor's Request for Progress Payment, and any other supporting information that may be reasonably required.

[27 F.R. 3884, Apr. 24, 1962, as amended at 27 F.R. 4281, May 4, 1962]

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