FAR 32.502-4—Contract clauses.
Plain-English Summary
FAR 32.502-4 tells contracting officers when and how to include the Progress Payments clause at FAR 52.232-16 and how to tailor that clause to the specific contract situation. It covers solicitations and fixed-price contracts that will provide progress payments based on costs, the use of advance agency approval to change the customary progress payment and liquidation rates for other-than-small-business concerns, approval of unusual progress payment rates for prime contractors and subcontractors, changes to the liquidation rate, and the special handling required for letter contracts and indefinite-delivery contracts/basic ordering agreements (and equivalents). It also addresses contracts that require separate progress payment rates for clearly severable portions of work, such as annual production requirements, and requires special contract language plus separate requests and invoices to preserve accounting integrity. In practice, this section is about making sure the contract clause matches the approved financing arrangement so the Government can pay properly, protect its interests, and avoid inconsistent or unsupported payment terms.
Key Rules
Insert Progress Payments Clause
The contracting officer must include FAR 52.232-16, Progress Payments, in solicitations that may lead to cost-based progress payment contracts and in fixed-price contracts where the Government will provide progress payments based on costs. This is the baseline clause requirement for any contract using this financing method.
Use Approved Rate Changes
If advance agency approval has been granted under FAR 32.501-1, the contracting officer may substitute a different customary rate for other-than-small-business concerns for the progress payment and liquidation rate shown in the clause. The clause must reflect the approved financing terms, not just the default rates.
Apply Unusual Prime Rates
When an unusual progress payment rate is approved for the prime contractor under FAR 32.501-2, the contracting officer must replace the customary rate in paragraphs (a)(1), (a)(6), and (b) of the clause with the approved rate. This ensures the contract text matches the specific approved rate for the prime.
Adjust Liquidation Rate
If the liquidation rate is changed from the customary progress payment rate under FAR 32.503-8 and 32.503-9, the new rate must be substituted in paragraphs (a)(1), (a)(6), and (b) of the clause. The liquidation terms must be consistent with the approved repayment structure.
Document Unusual Subcontract Rates
If an unusual progress payment rate is approved for a subcontract under FAR 32.504(c) and 32.501-2, paragraph (j)(6) of the clause must be modified to identify the subcontractor, state the new rate, and specify that the new rate applies to that subcontractor instead of the customary rate. The clause must clearly tie the special rate to the correct subcontract.
Use Required Alternates
If the contractor is a small business concern, the clause must be used with Alternate I. If the contract is a letter contract, use Alternate II. If the contractor is not a small business concern and progress payments are authorized under an indefinite-delivery contract, basic ordering agreement, or equivalent, use Alternate III. The correct alternate depends on the contract type and contractor status.
Separate Severable Work Rates
If the contract requires separate progress payment rates for clearly severable portions of work and accounting segregation will be maintained, the contract must include a supplementary special provision describing how the separate rates apply. The contractor must then submit separate progress payment requests and later invoices for each severable portion to preserve accounting integrity.
Responsibilities
Contracting Officer
Insert FAR 52.232-16 when progress payments based on costs are authorized; select and apply the correct alternate; substitute approved progress payment and liquidation rates where required; modify the clause for unusual subcontract rates; and include special provisions for severable work when separate rates are needed.
Agency
Provide advance approval when a different customary rate is requested under FAR 32.501-1 and approve unusual progress payment rates under the applicable FAR provisions. The agency must ensure the financing arrangement is authorized before the clause is tailored.
Contractor
Comply with the clause version included in the contract, use the correct progress payment and invoice procedures, and, when separate severable work rates apply, submit separate progress payment requests and invoices for each portion of work. A small business contractor must accept the clause with Alternate I when applicable.
Subcontractor
When an unusual subcontract progress payment rate is approved, operate under the rate and terms identified for that subcontract. The subcontractor’s approved rate must be specifically documented in the prime contract clause modification.
Practical Implications
This section is a drafting and administration checkpoint: if the clause, alternate, or rate is wrong, the contract may not reflect the approved financing terms and payment administration can become defective.
Contracting officers should verify contractor size status, contract type, and whether the financing applies to the prime contract, a subcontract, or only certain severable portions of work before finalizing the clause.
A common pitfall is failing to update both the progress payment rate and the liquidation rate when an approved change applies; the clause must be internally consistent across the referenced paragraphs.
For severable work, separate accounting is not optional if separate rates are used. Contractors need separate requests and invoices, or they risk payment confusion and audit problems.
Special rates for subcontractors must be written clearly enough to identify the subcontractor and the applicable rate; vague clause language can create disputes over which work the special rate covers.
Official Regulatory Text
(a) (1) Insert the clause at 52.232-16 , Progress Payments, in- (i) Solicitations that may result in contracts providing for progress payments based on costs; and (ii) Fixed-price contracts under which the Government will provide progress payments based on costs. (2) If advance agency approval has been given in accordance with 32.501-1 , the contracting officer may substitute a different customary rate for other than small business concerns for the progress payment and liquidation rate indicated. (3) If an unusual progress payment rate is approved for the prime contractor (see 32.501-2 ), substitute the approved rate for the customary rate in paragraphs (a)(1), (a)(6), and (b) of the clause. (4) If the liquidation rate is changed from the customary progress payment rate (see 32.503-8 and 32.503-9 ), substitute the new rate for the rate in paragraphs (a)(1), (a)(6), and (b) of the clause. (5) If an unusual progress payment rate is approved for a subcontract (see 32.504 (c) and 32.501-2 ), modify paragraph (j)(6) of the clause to specify the new rate, the name of the subcontractor, and that the new rate shall be used for that subcontractor in lieu of the customary rate. (b) If the contractor is a small business concern, use the clause with its AlternateI. (c) If the contract is a letter contract, use the clause with its AlternateII. (d) If the contractor is not a small business concern, and progress payments are authorized under an indefinite-delivery contract, basic ordering agreement, or their equivalent, use the clause with its AlternateIII. (e) If the nature of the contract necessitates separate progress payment rates for portions of work that are clearly severable and accounting segregation would be maintained ( e.g., annual production requirements), describe the application of separate progress payment rates in a supplementary special provision within the contract. The contractor must submit separate progress payment requests and subsequent invoices for the severable portions of work in order to maintain accounting integrity.