A. What Are PBPs?
B. PBP Limitation
PBPs are financing payments based upon the achievement of specific measurable events or accomplishments that are defined and valued in advance by the parties to the contract.
PBPs are:
- a customary method of contract financing
- fully recoverable in the event of default
PBPs are not:
- payment for accepted goods or services
- payments for partial deliveries
- payments based solely on incurrence of costs
- an incentive arrangement
Per the FAR, PBPs can be made on the basis of performance measured by objective and quantifiable methods, accomplishment of defined events or other quantifiable measures of results. For ease of understanding, this guide will refer to “events” as the basis for PBPs.
PBPs can be established on a whole-contract or a line item basis. When established on a line item basis, each PBP event must be associated with a specific line item.
Total PBPs on a contract cannot exceed 90% of the contract price, if on the whole contract or 90% of the line item price if on a line item basis. It is important to note that 90% is the maximum that can be provided and not the default level of PBP financing. In order to establish PBP financing, the parties must identify and agree upfront on what events will be used to indicate true progress, how their accomplishment will be determined and what financing value each will have. The events, completion criteria and financing values must be clearly identified in the contract. Therefore PBPs require considerable upfront time and effort on both sides. Also, because PBPs require verification of event completion prior to payment, they require administrative effort during contract performance.
