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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: August 16, 2000

FROM: Barry McVay, CPCM

SUBJECT: National Aeronautics and Space Administration (NASA); Procurement Information Circular (PIC) 00-15, Elimination of the "Paid Cost" Rule

SOURCE: PIC 00-15, August 15, 2000

AGENCIES: NASA

ACTION: Notice

SYNOPSIS: PIC 00-15 provides guidance on the modification of existing contracts with large businesses to eliminate the progress payments' "paid cost" rule. The paid cost rule was removed from Federal Acquisition Regulation (FAR) 32.504, Subcontracts Under Prime Contracts Providing Progress Payments, effective May 26, 2000, by Federal Acquisition Circular (FAC) 97-16.

EDITOR'S NOTE: For more on FAC 97-16, see the March 27, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-16, Small Business Competitiveness Demonstration Program and Progress Payments and Related Financing Policies."

EFFECTIVE DATE: PIC 00-15 is effective August 15, 2000, and will remain in effect until cancelled or superseded.

FOR FURTHER INFORMATION CONTACT: Richard Kall, Code HK, 202-358-0459, e-mail: rkall@hq.nasa.gov.

SUPPLEMENTAL INFORMATION: FAC 97-16 substantially revised FAR Part 32, Contract Financing, to reduce the burdens on contractors and contracting officers and to simplify and clarify its language. One of the changes was the elimination of the "paid cost" rule, which required large contractors to pay their subcontractors before including the payment (the "paid cost") in their progress payment billings (small businesses could include costs that had been incurred but not yet paid in their progress payment billings). Now, all contractors may include paid and unpaid costs in their progress payment billings (contractors must pay their subcontractors any unpaid costs included in a progress payment billing before the next progress payment request).

Effective May 26, 2000, all new contracts authorizing progress payments had to use the revised FAR 52.216-7, Allowable Cost and Payment; FAR 52.216-26, Payments of Allowable Costs Before Definitization; FAR 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts; and FAR 52.232-16, Progress Payments, as applicable. Contracts and solicitations issued before May 26, 2000, could be modified to delete the "paid cost" rule.

NASA authorized the Defense Contract Management Agency (DCMA) to negotiate and modify NASA contracts with large businesses administered by DCMA. Based on a cost-benefit analysis by DCMA, it decided to negotiate consideration for removal of the paid cost rule from existing contracts with the five largest defense firms only: Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman. These negotiations have been completed. All other large business contracts administered by DCMA were modified by DCMA by a single unilateral administrative change, and PIC 00-15 includes a list of all NASA contracts included in the modification. However, contracts only partially delegated to DCMA may not be included on the modification list. Therefore, NASA centers are being directed to remove the paid cost rule from contracts awarded to large businesses prior to May 26, 2000, that are not on the modification list and which could have more than one year of performance remaining from that date. The centers have three options:

The modifications may be unilateral and, with the exception of contracts with United Space Alliance, do not require consideration.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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