Contract Line Items

Working through the 47-page document myself.  See the Line Item Guide at its Section 9.2, entitled "Quantity":

Quote

Quantity will dictate when or how often the contractor will get paid. If the quantity is 1 and unit of measure is lot, the contractor will only be able to be paid 1 time when the 'lot' is delivered.

FAR 32.102(d), FAR 32.906(c), and the FAR 52.232-1, "Payments" clause all seem to conflict with this guidance.  The mere existence of a Quantity "1" and UOM "Lot" is not dispositive that only one payment may occur.  Contract specialists should take care not to fall into this thinking.  Instead, if you need to restrict all payments to just one, write that into the Contract Schedule.  Something like "Partial Payments not authorized" should do it.  Make sure to decide (with the requiring activity's advice) if the work is severable first.  The concept of severability is adequately presented in the Line Item Guide.

Of course, if you don't have to restrict payments to just one, try not picking "Lot" as your UOM at all, to avoid the confusion.  But my point is, if you do, the contractor is not limited by this decision post-award.

https://www.acq.osd.mil/asda/dpc/ce/p2p/docs/transparency/DoD Line Item Guide Updated May 2023.pdf

Voyager said:

The mere existence of a Quantity "1" and UOM "Lot" is not dispositive that only one payment may occur.  Contract specialists should take care not to fall into this thinking.  Instead, if you need to restrict all payments to just one, write that into the Contract Schedule.  Something like "Partial Payments not authorized" should do it.

Are you referring to contract financing payments or payments for partial deliveries? If the latter, how do you partially accept a quantity of 1?

Don Mansfield said:

contract financing payments

Voyager said:

Something like "Partial Payments not authorized" should do it.

Hmmm semantics? Is there even such a thing as "partial payment" when it comes to financing payments?  After all FAR 32.001 says financing payments do not include payments for partial deliveries.  A financing payment is simply providing financing.

I should have said “partial deliveries” not “payments” in my suggested language above.

Don Mansfield said:

Are you referring to contract financing payments or payments for partial deliveries?

Deliveries, not financing.

Don Mansfield said:

If the latter, how do you partially accept a quantity of 1?

That would depend what you’re buying, but in most cases you can write a table of payment milestones in Section E of the Schedule. There you write what inspection must occur and what payable amount it’s worth if accepted.  Works especially well with construction or DDR of improvements.

Voyager said:

I should have said “partial deliveries” not “payments” in my suggested language above.

Deliveries, not financing.

That would depend what you’re buying, but in most cases you can write a table of payment milestones in Section E of the Schedule. There you write what inspection must occur and what payable amount it’s worth if accepted.  Works especially well with construction or DDR of improvements.

I am still hung up on semantics.  In construction its payment for progress (partial) not deliveries is it not?

I understand your intent but if you believe 9.2 needs clarity I do not believe you have represented the clarity correctly.  IMHO.

I addressed my post clarifying 9.2 to those seeking to require a nonseverable Lot.  Here: I rewrote the original 9.2 sentence I quote above:

“Quantity will dictate when or how often the contractor will get paid. If the quantity is 1 and unit of measure is lot and the contract explicitly states partial deliveries are not authorized, the contractor will only be able to be paid 1 time when the 'lot' is delivered.”

That’s all I got.  The default position of a government contract is to allow partial deliveries, by statute.  Just look at FAR 52.232-1(a) and (b) to learn how.  You’d have to be a real roadblock of a CO to not allow partial IAW this clause.

As for semantics, how about this one for size: “partial performance” of services, instead of deliveries.  See that term used in 5 CFR 1315.4 paragraph (k).

https://www.ecfr.gov/current/title-5/chapter-III/subchapter-B/part-1315/section-1315.4#p-1315.4(k)

Voyager said:

I addressed my post clarifying 9.2

For your consideration....

"LT Lot A collection of associated or miscellaneous articles sold as one unit"  Emphasis added.  Reference - https://www.dla.mil/Portals/104/Documents/DLMS/CDS/PCDC/PCDC_0018-Addition_of_New_Units_of_Measure_Parts_Per_Million_and_Percent_Weight_and_Unit_of_Issue_Sleeve.pdf

Reminder Don asked you this question.  Additionally how does one deliver a partial unit of one?  

Don Mansfield said:

If the latter, how do you partially accept a quantity of 1?

@Don Mansfield Sorry for injecting myself in your follow-on.  Could not help myself!

@C CulhamThat's ok. That was my next question.

I posted my answer to that question above already.

Aren't you describing progress payments based on percentage or stage of completion?

That would depend on what you're buying.  If it's construction/AE, then yes (and you use FAR 52.232-5/-10 instead of -1 to pay).  See Cibinic, Nash, & Nagle (2006), Administration of Government Contracts 4th ed. (p. 1160):

Quote

5 CFR 1315 states that a construction progress payment includes a 'monthly percentage of completion progress payment or milestone payments for completed phases, increments, or segments of any project.'  Where unit prices are included in the contract, progress payments will be made as units of work are completed.  Where lump sum payments are involved, payment is based on estimates of the percentage of completion of the item of work.  In accordance with paragraph (b) of the Payments Under Fixed-Price Construction Contracts clause in FAR 52.232-5, progress payments are based on 'estimates of work accomplished which meets the standards of quality established under the contract, as approved by the Contracting Officer.'  To determine the amount of work accomplished, the parties negotiate percentages for each of the principal categories of work and then multiply the contract price by the percentage.

None of this seems to mean you are providing contract financing - see the FAR 32.001 definition of "Contract financing payment".  And I do not see the difference between this and a delivery payment, really.  Even the definition of "Invoice payment" lumps partial deliveries and FAR 52.232-5 progress payments together.  Acceptance is acceptance at FAR 46.101 - no distinction is made about what is being accepted.  Can you help me better understand if you do see a major difference?

What I see is at stake here is the effect all this has on FAR 46 rework and FAR 49 termination.  For example, service inspection clause FAR 52.246-4 and construction inspection clause FAR 52.246-12 alike allow the Government to charge the Contractor for rework by another contractor, but what if the CO gets to that point approving monthly invoices all along and find no one is able to pick up where the Contractor left off due to the following:

1. in construction, a steep cost of mobilization, or
2. in a service, the nature of that service?  For example, an auditing service, where the report thus far is not useful to the new auditor due to GAGAS.

Then it is likely nonseverable work.  And I am trying to get us all wiser about drafting a solicitation for nonseverable work.  What stops the Contractor, IAW the generously worded FAR 52.232-1, from negotiating a stage or percentage of completion into the awarded lot's delivery, but for the explicit wording a prescient CS put into the RFP that "Partial deliveries are not authorized"?  One must analyze the severability of a requirement for any infeasibility to be reworked/ terminated at a stage of completion.

Voyager said:

no distinction is made about what is being accepted

I think you have talked yourself into a circle.   By my read the whole of Section 9 says the same thing.   

You now bring in non-severable yet 9.2 is is providing advice on severable.  Additionally the following two quotes from Section 9 provide that LOT is of least choice as there are other units to use to better meet the concerns you raise such as audit services (severing audit services in to approved units other than LOT could be done easily) and mobilization ( its a progress payment not a payment of acceptance.   52.232-5 is clear to this fact).

"Defining Unit of Measure, Quantity, and Price/Cost In simple terms there are three questions to answer to determine the next three required data elements for the line item. (1) What is the optimal unit of measure to ensure the end items are delivered or performed and the Government can pay for them? Ex: Each, Monthly, etc. (2) What is the correct quantity? How many of the end items are required to be delivered or performed? Ex: 15 Each, 12 Months, etc. (3) What is the unit price or estimated cost? What has the Government agreed to pay for? Is it a firm, fixed price or an estimated/not to exceed amount for a cost reimbursement contract?"  Section 9. page 27

And

"Ensure all items are separately identifiable, avoiding use of lot and kit unless absolutely necessary."  Section 9.1 page 29

And with regard to construction mobilization consider this from a reputable government contracting source - The Standard Specifications for the Construction of Roads and Bridges on Federal Highway Projects (FP)  AKA FP-14  

"Section 151. — MOBILIZATION Description 151.01 This work consists of moving personnel, equipment, material, and incidentals to the project and performing work necessary before beginning work at the project site. This work also includes obtaining permits, insurance, and bonds. Measurement 151.02 Measure the Section 151 items listed in the bid schedule according to Subsection 109.02. Payment 151.03 The accepted quantities will be paid at the contract price per unit of measurement for the Section 151 pay items listed in the bid schedule. Payment will be full compensation for the work prescribed in this Section. See Subsection 109.05. Progress payments for mobilization by the lump sum will be paid as follows: (a) Bond premiums will be reimbursed according to FAR Clause 52.232-5 Payments Under Fixed-Price Construction Contracts, after receipt of the evidence of payment. (b) When 5 percent of the original contract amount is earned from pay items (not including mobilization), 50 percent of the mobilization pay item, or 5 percent of the original contract amount, whichever is less, will be paid. (c) When 10 percent of the original contract amount is earned from pay items (not including mobilization), 100 percent of the mobilization pay item, or 10 percent of the original contract amount, whichever is less, will be paid. (d) Any portion of the mobilization pay item in excess of 10 percent of the original contract amount will be paid after final acceptance."

Voyager said:

And I am trying to get us all wiser about drafting a solicitation for nonseverable work.

I agree and would hope that such drafting would avoid LOT and KIT unless it was clear that the work could not be identified in severable discrete units for payment, inspection and acceptance.  As already noted by the very fact of using LOT severable and discrete is fleeting and therefore payment, inspection and acceptance could not be and should not be made on a partial basis.

@Voyager, do you think that Table 30 in the Guide would be ok if the contract had the milestone schedule in Section E that you described?

Don Mansfield said:

do you think that Table 30 in the Guide would be ok if the contract had the milestone schedule in Section E that you described?

No, its grass cutting service is obviously severable.

But if some unthinking CO solicited and awarded it that way, the contractor isn’t going to wait till the end of the year to invoice.  They will just start billing monthly.  That’s the point I made above about the 1 Lot not being dispositive, remember?  The reason I started this conversation…

On 6/30/2023 at 2:34 PM, C Culham said:

( its a progress payment not a payment of acceptance.   52.232-5 is clear to this fact)

I’m not convinced of this and that’s the point I was making above.  Acceptance occurs explicitly in the clause, at (f): “Title, liability, and reservation of rights. All material and work covered by progress payments made shall, at the time of payment, become the sole property of the Government…”

The definition of acceptance at 46.101 says “Acceptance means the act of an authorized representative of the Government by which the Government, for itself or as agent of another, assumes ownership of existing identified supplies tendered or approves specific services rendered as partial or complete performance of the contract.”

Emphases mine in bold.

Voyager said:

I don’t agree with this and that’s the point I was making above.

The purpose of Title, Liability...  is the Federal government's  security interest in those items covered by the payment pursuant to 52.232-5 but the payment(s) do not constitute acceptance until final acceptance and payment is made.

"Accordingly, we refuse to read the “sole property of the Government” language of the present contract’s “Payments Under Fixed Price Construction Contracts” clause as prescribing a permanent divestiture of title to any materials other than those that have become part of “discrete work items completed during the course of construction.” See Reddick & Sons of Gouverneur, Inc. v. United States, 31 Fed. Cl. 558, 561 (1994). Payments for materials under the contruction contract Payments clause is intended solely for “material delivered on site for incorporation in the work.” See C. Lawrence Construction Co., ASBCA 45270, 93-3 BCA ¶ 26,129, at 129,886 (emphasis supplied). Thus, although the Payments clause language created “a security interest in favor of the Government in materials . . . covered by the progress payments” made to G&R, Skip Kirchdorfer, Inc. v. United States, 6 F.3d 1573, 1581 (Fed. Cir. 1993), once G&R completed the construction and the construction was inspected and accepted by the Forest Service, there no longer was a need to secure the prior progress payments, and, as with other contracts where progress payments have been completely liquidated by a final delivery of product, title to any unused materials in this case revested in the contractor, G&R. At that juncture, the terms and conditions of the Payments clause of the instant contract regarding Government property interests in materials covered by interim progress payments, other than materials incorporated into the completed construction, no longer were operative."

https://www.cbca.gov/files/decisions/2007/WALTERS_03-14-2007_121__G&R_SERVICE_COMPANY_INC_508.pdf

Voyager said:

I don’t agree with this and that’s the point I was making above.  Acceptance occurs explicitly in the clause, at (f): “Title, liability, and reservation of rights. All material and work covered by progress payments made shall, at the time of payment, become the sole property of the Government…”

The definition of acceptance at 46.101 says “Acceptance means the act of an authorized representative of the Government by which the Government, for itself or as agent of another, assumes ownership of existing identified supplies tendered or approves specific services rendered as partial or complete performance of the contract.”

Emphases mine in bold.

Progress payments do not imply or constitute acceptance of the construction materials or the construction works.

Your bold emphasis above concerning assuming ownership is only applicable to “supplies tendered*”, which is separate from “approving” performance.

See the following clauses, for instance:

52.236-7 Permits and Responsibilities

“…The Contractor shall also be responsible for all materials delivered and work performed until completion and acceptance of the entire work, except for any completed unit of work which may have been accepted under the contract.”

52.246-12 Inspection of Construction.

Discusses inspection and the separate acceptance of the work, including final acceptance. 

52.232-5 Payments under Fixed-Price Construction Contracts.

“…(h) Final payment. The Government shall pay the amount due the Contractor under this contract after-

(1) Completion and acceptance of all work;”

See also: 

46.102 Policy

“…(c) Government contract quality assurance is conducted before acceptance (except as otherwise provided in this part), by or under the direction of Government personnel;”

There are reasons for the government assuming ownership of partially completed work and for stored materials either on or off site. The contractor retains responsibility for securing and protecting the stored materials and the in-progress works.

However, he government doesn’t “accept” the materials to be incorporated or the partial progress of the construction works, unless there are specific provisions for separate or partial acceptance.

“Supplies*” are not “materials to be incorporated into the work.”

Acceptance of construction is a formal process. 

See also the Warranty of Construction clause at 52.246-21, whereby the warranty commences on completed portions accepted or on fully completed project acceptance or on any portion which the government takes beneficial occupancy of prior to completion and acceptance. Beneficial occupancy can be permanent or tempoaray.

The Warranty doesn’t start on work in progress or on the contractor’s stored materials!

@Voyager,

I think your original point--the Guide overstated the effect of quantity of one on payment--is well-founded. I also think that what you described about making and paying for partial deliveries when the quantity is one is ok.

However, I think you have one thing wrong. I think you concluded that progress payments under FAR 52.232-5 and -10 are payments for accepted services because they are excluded from the definition of contract financing payment at FAR 32.001. You may have even concluded that they are delivery payments. If so, I think you are misinterpreting the definition of contract financing payment. 

Progress payments based on percentage or stage of completion are a form of contract financing. However, for purposes of the Prompt Payment Act, progress payments under FAR 52.232-5 and -10 are specifically excluded from the definition of contract financing payment so they will bear an interest penalty if paid late. This does not mean they are payments for accepted services. If that were true, there would be no reason to specifically exclude them from the definition of contract financing payment (or specifically include them in the definition of invoice payment).

@Don Mansfield

Did a little more digging.  It seems the Guide follows policy.  I guess the Guide could be considered policy as well.

Go here and read the details.  https://www.dfas.mil/contractorsvendors/mocas/Discontinuance-of-Partial-Lot-Payments/

Want to cut the the chase the linked policy memo and the Guide at 9.2 supports this -

"No contract line item shall contain a quantity less than the number of deliveries anticipated on the line item."  DFARs PGI 204.7103 (d). 

@Voyager FYI

As it goes I guess one could argue with regard to DoD and Civilian but then again it seems DoD is usually the path to follow regardless if another department does not have policy.  One could argue DoD's policy makes sense.

@C CulhamNice detective work. I suspected the arrangement would make payment systems go haywire, but I couldn't find any prohibition.

Don Mansfield said:

@C CulhamNice detective work. I suspected the arrangement would make payment systems go haywire, but I couldn't find any prohibition.

Thanks.   My suspicion kept me looking.   

I kept thinking analogies appropriate even when using EACH for a supply.   One EACH Pair of Pants, how do you pay partial?  More on point One LOT of grass cutting , what portion of the LOT are you partially paying for absent other detail in the contract?   So here I get it a little but there would have to be  deliverables or the like somewhere detailed in the contract - one calendar month is 1/12th or something, otherwise based on the payment clause (52.232-1) KTR could request some portion of the month if they felt payment warranted it and it was more than $1,000.

Don Mansfield said:

@C CulhamNice detective work. I suspected the arrangement would make payment systems go haywire, but I couldn't find any prohibition.

Yep, so much of what we do is based on making transactions acceptable to various systems.  To make things worse, systems are often interrelated.  The issue quickly gets compounded across some agencies as well.  For example a requisition committing funds might have separate line items representing multiple colors of money or shades of money (differing object codes as an example).  When the CO is ready to make award, they can be hamstring because award amounts are inconsistent with requisition amounts.  Or the requisition might specify one laptop but the CO needs to make three awards - one for the laptop, a second for software, and a third for docking station.  All this might carry over to the system for inspection and acceptance.  Finally the finance and payment system may not like things.

So the fix often seems to be writing detailed operational policies instead of doing comprehensive upfront planning.

Thanks @C Culham and @joel hoffman and @Don Mansfield, this was educational.  And Joel, to add to your list of FAR references for the next time this question comes up, I (now) see FAR 32.102 "Description of contract financing methods", says at paragraph (e)(1): "Progress payments based on a percentage or stage of completion are authorized by the statutes cited in 32.101 [i.e., 41 U.S.C. chapter 45, Contract Financing, 10 U.S.C. 2307...]."  I must have missed that when I was all wound up in the definitions.

formerfed said:

So the fix often seems to be writing detailed operational policies instead of doing comprehensive upfront planning.

If you're a PCO requiring a nonseverable CLIN, comprehensive upfront planning should start all the way at the market research stages.  It could mean many small businesses are unable to meet financial responsibility requirements, depending on the investment of resources and production timeframe.  You do not want to leave it to the uninformed awardee and the unwitting ACO to have to renegotiate the CLIN quantity and UOM post-award just because you weren't clear in the RFP (or RFI, for that matter).

@voyager  All true what you said.  But I was referring to the design of various systems and comments.

Front page of WIFCON has a very special example of the discussion we had in this thread.  I present to you distinguished colleagues the following:

63449 CB Portable Toilet Rental and Services 8.16.23 Decision.pdf (asbca.mil)

From the decision:

Quote

CB Portable suggests the contracting officer’s agreement when it asked her if it would receive $36,307.50 each month is dispositive (finding 6). Though the government proffers no explanation for that statement, the contract does not specify a monthly price for performance of the CLINs. Instead, the price is for units delivered upon a schedule unique to each CLIN.

* * * *

We are satisfied that the combination of written government directions for services at locations other than those identified by the contract, copied to the contracting officer and acknowledged in writing by CB Portable, followed by the contracting officer’s written recognition that the government was seeking services at various locations and would pay for them, and her written pronouncement that locations and times would be determined by the command, reflect a change to the contract’s terms. The contract was changed from one only seeking services at fixed dates and locations to one where they could also be ordered by the government for other places and times it chose at the $1,030 unit price. For this reason, simply following the contract’s schedule, as the government suggests, does not completely reveal what work was performed.

Let's just say this CO will be "knee-deep in it" by the time ASBCA gets to the quantum phase.  A good pre-award lesson learned from this is to choose your units of measure and ordering process (if any) carefully, by market research, customer inquiry, and asking experienced ACOs how these work best to fulfill the contract.  A good post-award rule of thumb is that, if you are getting emails from the contractor and customer that you cannot logically tie back to the CLIN structure, then you either need to modify the CLINs or speak up for your contract as written.

Voyager said:

A good pre-award lesson learned from this is to choose your units of measure and ordering process (if any) carefully, by market research, customer inquiry, and asking experienced ACOs how these work best to fulfill the contract.

Thanks Voyager.  Good reading.

I couldn’t agree more with your stated pre-award lesson on market research.  So many contracts turn out poorly because the government team doesn’t properly articulate their requirement, understand the associated segment of industry, doesn’t see how everything fits into the contracting environment, and what differentiates the best performers.  Probably my most favorite question in conducting market research is asking industry “if you were in our shoes, how would you craft the acquisition?”