FAR 32.501-3—Contract price.
Plain-English Summary
FAR 32.501-3 explains how to determine the "contract price" for purposes of making progress payments and applying the progress-payment limitation. It covers several contract types and special situations: firm-fixed-price contracts, redeterminable contracts, contracts subject to economic price adjustment, fixed-price incentive contracts, letter contracts, unpriced orders under basic ordering agreements, and any contract portions that are reimbursable on a cost-only basis. The rule matters because the amount treated as the contract price is the base used to calculate progress payments and to determine whether those payments are within the allowable limit. In practice, this section tells contracting officers what dollar amount to use when the contract is not a simple fixed-price arrangement and prevents contractors from receiving progress payments on amounts that are not yet obligated or that are specifically cost-reimbursement only. It also makes clear that progress payments cannot exceed the funds actually obligated on the contract, even if the contract price calculation would otherwise suggest a higher amount.
Key Rules
Firm-fixed-price baseline
For firm-fixed-price contracts, the contract price is the current fixed amount in the contract plus the not-to-exceed amount of any unpriced modifications. This means the progress-payment base includes the priced contract value and any authorized but not yet priced change work, but only up to the stated ceiling for those changes.
Redeterminable and EPA contracts
For contracts that are redeterminable or subject to economic price adjustment, the contract price remains the initial price until the contract is modified. The price used for progress-payment purposes does not automatically change just because the contract includes a future adjustment mechanism.
Fixed-price incentive treatment
For fixed-price incentive contracts, the contract price is the target price plus the not-to-exceed amount of unpriced modifications. If properly incurred costs exceed the target price, the contracting officer may provisionally increase the price, but only up to the ceiling or maximum price.
Letter contract rule
For a letter contract, the contract price is the maximum amount obligated by the contract as modified. This ties the progress-payment base to the actual obligated ceiling rather than to any later negotiated definitive price.
Unpriced BOA order rule
For an unpriced order issued under a basic ordering agreement, the contract price is the maximum amount obligated by the order as modified. The relevant amount is the obligated ceiling on that order, not the eventual negotiated price if one is later established.
Cost-only portions excluded
Any part of the contract that specifically provides for reimbursement of costs only must be excluded from the contract price. Those cost-reimbursement portions are not part of the base used to calculate progress payments under this section.
No payments beyond funds
The contracting officer may not make progress payments or increase the contract price beyond the funds obligated under the contract, as amended. Obligated funding is a hard cap, even if the contract price calculation or performance status would otherwise support a higher amount.
Responsibilities
Contracting Officer
Determine the correct contract price base for progress-payment purposes based on the contract type and any unpriced modifications, exclusions, or provisional increases. The contracting officer must also ensure progress payments and any price increases do not exceed the funds obligated under the contract as amended.
Contractor
Track the contract type, obligated funding, and any unpriced modifications to understand the maximum progress-payment base available. The contractor should not assume that target prices, adjustment clauses, or anticipated changes automatically increase the amount eligible for progress payments.
Agency
Maintain proper funding and contract administration controls so that obligated amounts are accurate and progress payments stay within available funds. The agency must ensure contract modifications and funding actions are documented before payments are made above prior limits.
Practical Implications
This section is critical when a contract is not a straightforward fixed-price award, because the progress-payment base can change depending on the contract type and whether modifications are priced or unpriced.
A common pitfall is treating an incentive target price, EPA clause, or expected modification as if it were already part of the contract price; under this rule, that is not always true.
Another frequent mistake is including cost-reimbursement portions in the progress-payment base, even though those portions must be excluded.
Contracting officers must watch the funding line carefully: even if the calculated contract price is higher, progress payments cannot exceed obligated funds.
Contractors should verify that any provisional increase for a fixed-price incentive contract is actually authorized and limited to the ceiling or maximum price, not merely based on incurred costs exceeding the target price.
Official Regulatory Text
(a) For the purpose of making progress payments and determining the limitation on progress payments, the contract price shall be as follows: (1) Under firm-fixed price contracts, the contract price is the current amount fixed by the contract plus the not-to-exceed amount for any unpriced modifications. (2) If the contract is redeterminable or subject to economic price adjustment, the contract price is the initial price until modified. (3) Under a fixed-price incentive contract, the contract price is the target price plus the not-to-exceed amount of unpriced modifications. However, if the contractor’s properly incurred costs exceed the target price, the contracting officer may provisionally increase the price up to the ceiling or maximum price. (4) Under a letter contract, the contract price is the maximum amount obligated by the contract as modified. (5) Under an unpriced order issued against a basic ordering agreement, the contract price is the maximum amount obligated by the order, as modified. (6) Any portion of the contract specifically providing for reimbursement of costs only shall be excluded from the contract price. (b) The contracting officer shall not make progress payments or increase the contract price beyond the funds obligated under the contract, as amended.