Progress payments are periodic payments made by the government as performance on the contract proceeds. Such payments are based either on cost incurred by the contractor or on a percentage of stage of completion achieved under the contract. Perfomance-based payments are contract financing payments of predetermined amounts that are made when a contractor satisfies predefined contract events or criteria. They are not payments for accepted items but rather advances based on work performed.

Progress payments made on percentage of completion are most common under construction, shipbuilding or ship conversion/repair contracts. They are quite similar to performance based contracts. Payments are made monthly. When the CO determines that satisfactory progress and quality are achieved, payments must be made in full for work under definitized contracts while for undefinitized contracts, payment is limited to 80%.

Progess payments based on costs may be "customary" or "unusual." Customary progress payments are those made under the general guidance of FAR 32.5 where there is a progress payment rate, a cost payment and frequency of payments established by the Progress Payments clause in the contract. Any other payments are considered "unusual." These unusual payments might prvide for a higher rate of progress payment or greater frequency than is customary and is usually available only if there are significant predelivery expenditures or the contractor fully documents the need for unusual payments.

The progress payment rate has varied over the years. Currently, the FAR rate is 80% for large business and 85% for small while for DOD contracts, the rate is 80% for large, 90% for small and 95% for small disadvantaged concerns. The total amount payable for fixed price contracts is limited to a specified percentage of the "contract price" which is defined as the current price plus any unpriced modifications for which funds have been obligated. Specific cost-reimbursement portions of the contract must be excluded from the contract price.

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