FAR 32.501-1—Customary progress payment rates.
Plain-English Summary
FAR 32.501-1 sets the baseline rules for progress payment rates under federal contracts. It explains the customary progress payment rate for most contracts, the higher customary rate available for small business concerns, and how contracting officers must treat any rate above those customary levels as an unusual progress payment requiring advance agency approval under FAR 32.501-2. It also addresses the interaction between progress payments and advance payments on the same contract, making clear that the contracting officer may not authorize a progress payment rate above the customary rate when both financing methods are used together. Finally, it imposes a special statutory cap for undefinitized contract actions, limiting progress payments to 80 percent of work accomplished and prohibiting higher rates even if the payment would otherwise qualify as unusual or customary. In practice, this section is about controlling government financing risk, ensuring consistent treatment of contractor cash flow, and preventing over-advancement of funds before contract terms are fully defined or work is sufficiently performed.
Key Rules
Customary rate is 80 percent
For most contracts, the customary progress payment rate is 80 percent of the total costs of performing the contract. This is the default ceiling unless another rule in the FAR or an approved exception applies.
Small business rate is 85 percent
When the contractor is a small business concern, the customary progress payment rate is 85 percent. This higher customary rate reflects the policy of improving small business access to contract financing.
Higher rates are unusual
Any progress payment rate above the customary rate must be treated as an unusual progress payment. The contracting officer cannot approve it on a routine basis and must obtain advance agency approval as required by FAR 32.501-2.
No higher rate with advance payments
If a contract authorizes both advance payments and progress payments, the contracting officer must not authorize a progress payment rate above the customary rate. The presence of advance payments does not justify increasing the progress payment percentage.
Undefinitized actions capped at 80 percent
For undefinitized contract actions, progress payments are limited by statute to 80 percent of work accomplished. The contracting officer may not use unusual progress payment authority or other customary progress payment rules to exceed that cap.
Responsibilities
Contracting Officer
Apply the correct customary progress payment rate, distinguish between standard and unusual rates, and obtain advance agency approval before including any higher rate in the contract. The contracting officer must also ensure that progress payment rates do not exceed the customary rate when advance payments are authorized under the same contract, and must enforce the 80 percent statutory limit for undefinitized contract actions.
Agency
Provide advance approval when a contracting officer seeks to authorize a progress payment rate above the customary level. The agency must follow the approval procedures prescribed in FAR 32.501-2 before an unusual rate can be included in the contract.
Contractor
Understand the applicable progress payment rate based on business size and contract type, and recognize that higher-than-customary rates are not automatic. Contractors should also account for the 80 percent cap on undefinitized contract actions and the fact that advance payments do not increase the allowable progress payment rate.
Practical Implications
Contracting officers must verify whether the contractor qualifies as a small business before setting the progress payment rate, because the customary rate changes from 80 percent to 85 percent.
Any request to exceed the customary rate should be treated as an exception, not a negotiation point, and it cannot be inserted into the contract without advance agency approval.
When both advance payments and progress payments are used, the financing structure must be reviewed carefully to avoid accidentally authorizing a higher progress payment rate than the FAR allows.
For undefinitized contract actions, the 80 percent cap is mandatory and statutory, so neither unusual progress payment authority nor other customary rules can be used to bypass it.
A common pitfall is assuming that a contractor’s cash flow needs justify a higher rate; under this section, the rate is controlled by FAR limits and approval requirements, not by convenience alone.
Official Regulatory Text
(a) The customary progress payment rate is 80 percent, applicable to the total costs of performing the contract. The customary rate for contracts with small business concerns is 85 percent. (b) The contracting officer must- (1) Consider any rate higher than those permitted in paragraph (a) of this section an unusual progress payment; and (2) Not include a higher rate in a contract unless advance agency approval is obtained as prescribed in 32.501-2 . (c) When advance payments and progress payments are authorized under the same contract, the contracting officer must not authorize a progress payment rate higher than the customary rate. (d) In accordance with 10 U.S.C. 3804(b) and 41 U.S.C. 4504(b) , the limit for progress payments is 80 percent on work accomplished under undefinitized contract actions. The contracting officer must not authorize a higher rate under unusual progress payments or other customary progress payments for the undefinitized actions.