As most government contractors are aware, progress payments are a form of contract financing in which the Government pays the contractor based on cost throughout performance of the contract, up to a cap dictated by the terms of the contract. On March 20, 2020 – “in response to the Coronavirus Disease” – the Department of Defense issued a Class Deviation to contract clauses DFARS 252.232-7004 and FAR 52.232-16, the effect of which is to increase the progress payment rates to 90% for large business concerns and 95% for small business concerns – an increase of 10% and 5%, respectively – from the customary progress payment rates established by DFARS 232.501-1. The Class Deviation provides that the change is to remain in effect until rescinded.
While the Deviation serves as a well-intentioned effort to increase cash flow to contractors supporting the Defense Industrial Base, it remains unclear whether the Deviations are to be automatically incorporated into existing contracts or to apply only to new contracts during this period. The safest course of action for defense contractors that may be affected is to assume the Class Deviation, without more, is inapplicable to current contracts unless and until the new clauses are made applicable through a formal modification. This, of course, should not stop contractors from reaching out and asking contracting officers when such a modification will be forthcoming. We expect that, absent a clarification from DoD, Contracting Officers will soon have to climb a mountain of modifications in order to implement this change – better to meet the Contracting Officer at base camp than to wait for the air – and wallets – to thin.