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What types of invoices can a contractor submit?
Invoice types under a fixed price contract include fixed price contract invoices and cost-type contract invoices.
Under fixed price contracts, the contractor will submit invoices in accordance with the payment clause in the contract. Payment clauses may include specific instructions for the submission of invoices for payment. Depending on the type of fixed price contract, a contractor may use one of two formats for the invoice:
1. Basic invoices
An invoice for a fixed price contract must contain some basic elements in order to be considered complete or proper for payment purposes. These elements are:
The name and address of the contractor.
The invoice date and invoice number. (Contractors should date invoices as close as possible to the date of mailing or transmission.)
The contract number or other authorization for the items or services performed (including order number and contract line item number).
The description, quantity, unit of measure, unit price, and extended price of supplies delivered or services performed.
Shipping and payment terms. If any government bills of lading (GBLs) are used, the GBL number and the weight of the shipment must be shown. (See Question 311, Chapter 6, for a discussion of commercial bills of lading and government bills of lading.)
The name and address of the contractor's official to whom payment is to be sent. (This must be the same name and address as shown in the contract or on a proper notice of assignment, i.e., a document demonstrating that the contractor has transferred its right to be paid by the government for contract performance to a bank, trust company, or other financial institution.)
The name, title, phone number, and mailing address of the person to be notified in event of a deficient invoice, when available.
Taxpayer Identifiaction Number (TIN), if required by agency procedures.
Electronic Funds Transfer (EFT) banking information.
Any other information or documentation required by the contract.
2. Performance-based payment invoices
On a performance-based contract, payment invoices must include:
The contractor's name and address
The date of request for payment
The contract number or other identifier of the contract under which the request is made
Information and documentation required by the contract's description of the basis for payment
The contractor's certification that the request for payment is true and correct; the certification must be signed by an official authorized to bind the contractor.
Under cost-type contracts, submitted invoices may be verified by reviewing vouchers for compliance. The COR may have to request that the contractor submit vouchers for his or her review to validate the amount invoiced for payment. The voucher must include corroborating information or data concerning all incurred costs.
Calculating the Payment Amount
How does the COR calculate the payment amount?
After the invoice has been accepted for payment, the COR will calculate an amount for payment against acceptable invoices or vouchers. The COR will follow these steps in doing so:
1. Identify terms and conditions of the contract
2. Obtain needed documents and determinations
3. Identify billed amounts that will not be paid to the contractor
4. Determine the total amount due the contractor.
1. Identifying terms and conditions of the contract
The COR should be able to identify applicable contract terms and conditions for payment, such as:
Type of contract
Payment provisions (in-full, partial, performance, or progress payments)
Period of acceptance
2. Obtaining needed documents and determinations
Supporting information and data for invoices and vouchers are essential to reinforce a contractor's billings for:
Work that has been completed
Work in process
Costs incurred for a specified period of time.
While the extent of such information and data may vary considerably under different types of contractual arrangements, the principle of reasonable documentation for expended public dollars stands behind every government contract. The COR may request that the contractor support the amount claimed on the invoice through either:
Voucher documentation. Vouchers submitted by the contractor should list corroborating information or data concerning all incurred costs. This data may include:
- Vendor or supplier billings
- Contractor internal cost sheets or displays
- References to files where relevant information can be found.
Invoice documentation. Supporting information and data for invoice payments may include:
- Inspection or receiving reports
- Commercial or government shipping documents
- Determinations on billing rates
- Reports on contractor indebtedness
- Determinations for reductions in progress payments
- Determinations for an adjustment for progress payments.
3. Identifying billed amounts that will not be paid to the contractor
The COR should be able to determine when billed amounts cannot be paid. Reasons for nonpayment include:
Withholdings and deductions in fixed-price contracts. A contract may include special terms that allow the government the right to deductions or withholdings in certain instances:
- A withholding is an amount of money subtracted from the total billed amount that may be paid at a later date. Figure 7-1 identifies several common withholdings.
- A deduction is an amount of money that is permanently subtracted from the billed amount, unless a contractor provides appropriate supporting evidence for the reinstatement of any
FIGURE 7-1. Withholdings
deducted amount. For example, some contracts specify deductions for defective products or services that do not meet an "acceptable quality level." It is possible that later, if the contractor improves the service or product, and the government finds it acceptable, the deducted amount could be reinstated. Figure 7-2 identifies some events that can lead to deductions from amounts invoiced.
Unallowable costs in a cost-type contract. In a cost-type contract, the COR should examine each cost element (direct or indirect) to determine if the cost will be allowed under the contract. A COR may request that the contractor submit vouchers in support of the invoiced amounts.
4. Determining the total amount due the contractor
Once all appropriate withholdings and deductions are identified, the COR will determine the amount due the contractor. Depending upon the contractual situation, the contractor will then be issued:
Payment in full
When the COR recommends payment in full or issues a partial payment, the amount of payment the contractor receives is self-explanatory. However, when payment is performance-based, the amount due must be liquidated by deducting a percentage or a designated dollar amount
FIGURE 7-2. Deductions
from delivery payments, and the CO must specify the liquidation rate or designated dollar amount in the contract. Whatever the method of liquidation, complete liquidation must occur no later than final payment under a contract.
In accordance with FAR 32.1004 (d)(1)(2), the CO may use the following methods of liquidation:
For payments established on a total contract amount, payment is liquidated according to predestinated liquidation amounts or liquidation percentages
For payments established on a delivery item basis, the liquidation amount for each line item is the percent of that delivery item price that was previously paid under performance-based finance payments, or the designated dollar amount.
What information must a voucher include?
All vouchers must support whether or not costs are allowable in accordance with certain allowability factors listed below. These costs are subject to a determination of allowability by audit under:
Government cost principles
Applicable cost accounting standards (CAS)
Agreement by the contractor and the government
Advanced agreements or some form of contract management procedures.
What are cost allowability factors?
Factors for determining whether a cost is allowable include the following:
Reasonableness. A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business.
Allocability. A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship, as defined by the contractor's accounting system, in accordance with FAR Part 31 or generally accepted accounting principles (GAAP).
Standards promulgated by the Cost Accounting Standards Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the particular circumstances apply.
Terms of the contract.
Any other cost limitations as set forth in government guidelines for cost principles.
What is the COR's role if there are differences between the submitted invoice and the amount the government will pay?
If there are differences between the amount of the submitted invoice and the amount that the government proposes to pay, the COR must notify the contractor. The government must accurately present all factual data that justify the difference, and the contractor should be provided an opportunity to present its position.
Reasons for a difference between the invoiced amount and the actual amount paid may include:
Defective products or inferior service
What should the COR do if the contractor disagrees with the amount the government proposes to pay?
If a contractor disagrees with the calculated amount, the COR should notify the CO, who will make a final determination. Once the amount to be paid is agreed to by both the government and the contractor, the COR will submit the correct invoice to the paying office for payment within the time specified in the contract.
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