B-209013 L/M, OCT 28, 1982, OFFICE OF GENERAL COUNSEL
Highlights
THE DEPARTMENT OF DEFENSE (DOD) APPARENTLY AGREED THAT INDUSTRY CONCERNS WERE VALID AND DETERMINED THAT THE LIBERALIZATION OF PROGRESS PAYMENTS WOULD STRENGTHEN THE INDUSTRIAL BASE AND BENEFIT THE GOVERNMENT. WE RECOGNIZE THAT IN THE PAST FMS PROGRESS PAYMENT RATES HAVE BEEN HIGHER THAN THE RATES APPLICABLE TO OTHER DOD CONTRACTS AND GIVEN THE RECENT INCREASE IN RATES APPLICABLE TO OTHER DOD CONTRACTS. WE HAVE NO OBJECTIONS TO THE PROPOSED CHANGES TO DAR APPENDIX E.
B-209013 L/M, OCT 28, 1982, OFFICE OF GENERAL COUNSEL
PRECIS-UNAVAILABLE
MR. JAMES T. BRANNAN, OFFICE OF THE UNDER SECRETARY OF DEFENSE:
BY LETTER OF SEPTEMBER 7, 1982, YOU REQUESTED OUR COMMENTS ON DEFENSE ACQUISITION CIRCULAR 76-38. THE CIRCULAR MODIFIES DEFENSE ACQUISITION REGULATION (DAR) SEC. 7-104.35(A) AND (B) TO INCREASE PROGRESS PAYMENT RATES FOR FOREIGN MILITARY SALES (FMS) CONTRACTS FROM 95 PERCENT TO 100 PERCENT FOR SMALL BUSINESS CONCERNS AND FROM 90 PERCENT TO 95 PERCENT FOR ALL OTHER CONCERNS. THE CIRCULAR ALSO RELAXES THE POLICY CONCERNING MULTIPLE RATE PROGRESS PAYMENTS CONTAINED IN DAR APPENDIX E, PARAGRAPH E- 530.1, AND CREATES A NEW PARAGRAPH E 530.9 WHICH BARS THE USE OF FLEXIBLE PROGRESS PAYMENTS IN CONJUNCTION WITH LETTER CONTRACTS AND OTHER UNPRICED CONTRACTUAL ACTIONS.
THE INCREASES IN PROGRESS PAYMENT RATES STEM FROM A DEFENSE INDUSTRY CONCERN THAT PREVIOUS CONTRACT FINANCING POLICIES AND PRACTICES ADVERSELY AFFECTED THE INDUSTRY'S REALIZED PROFIT, CREDIT CAPACITY AND THE ABILITY TO REINVEST IN PLANT AND EQUIPMENT IN THE CURRENT ENVIRONMENT OF HIGH INTEREST RATES. THE DEPARTMENT OF DEFENSE (DOD) APPARENTLY AGREED THAT INDUSTRY CONCERNS WERE VALID AND DETERMINED THAT THE LIBERALIZATION OF PROGRESS PAYMENTS WOULD STRENGTHEN THE INDUSTRIAL BASE AND BENEFIT THE GOVERNMENT.
AS WE INDICATED IN OUR LETTER TO YOU OF JUNE 22, 1982 (B-206861) CONCERNING THE INCREASE IN PROGRESS PAYMENT RATES APPLICABLE TO OTHER THAN FMS CONTRACTS, IT DOES NOT APPEAR THAT DOD HAS DONE MUCH IN THE WAY OF BENEFIT OR COST IMPACT ANALYSIS. NONETHELESS, WE RECOGNIZE THAT IN THE PAST FMS PROGRESS PAYMENT RATES HAVE BEEN HIGHER THAN THE RATES APPLICABLE TO OTHER DOD CONTRACTS AND GIVEN THE RECENT INCREASE IN RATES APPLICABLE TO OTHER DOD CONTRACTS, WE DO NOT OBJECT TO DOD COMMENSURATELY INCREASING FMS RATES. WE DO BELIEVE, HOWEVER, THAT THE GENERAL POLICY OF INCREASING PROGRESS PAYMENT RATES SHOULD BE REVIEWED WITH A MORE CAREFUL CONSIDERATION OF THE COSTS AND ASSUMED BENEFITS ASSOCIATED WITH THE INCREASES.
WE HAVE NO OBJECTIONS TO THE PROPOSED CHANGES TO DAR APPENDIX E.