
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 10USC2307]

 
                         TITLE 10--ARMED FORCES
 
                    Subtitle A--General Military Law
 
                PART IV--SERVICE, SUPPLY, AND PROCUREMENT
 
                   CHAPTER 137--PROCUREMENT GENERALLY
 
Sec. 2307. Contract financing

    (a) Payment Authority.--The head of any agency may--
        (1) make advance, partial, progress, or other payments under 
    contracts for property or services made by the agency; and
        (2) insert in solicitations for procurement of property or 
    services a provision limiting to small business concerns advance or 
    progress payments.

    (b) Performance-Based Payments.--Whenever practicable, payments 
under subsection (a) shall be made on any of the following bases:
        (1) Performance measured by objective, quantifiable methods such 
    as delivery of acceptable items, work measurement, or statistical 
    process controls.
        (2) Accomplishment of events defined in the program management 
    plan.
        (3) Other quantifiable measures of results.

    (c) Payment Amount.--Payments made under subsection (a) may not 
exceed the unpaid contract price.
    (d) Security for Advance Payments.--Advance payments made under 
subsection (a) may be made only if the contractor gives adequate 
security and after a determination by the head of the agency that to do 
so would be in the public interest. Such security may be in the form of 
a lien in favor of the United States on the property contracted for, on 
the balance in an account in which such payments are deposited, and on 
such of the property acquired for performance of the contract as the 
parties may agree. This lien is paramount to any other liens and is 
effective immediately upon the first advancement of funds without 
filing, notice, or any other action by the United States.
    (e) Conditions for Progress Payments.--(1) The Secretary of Defense 
shall ensure that any payment for work in progress (including materials, 
labor, and other items) under a defense contract that provides for such 
payments is commensurate with the work accomplished that meets standards 
established under the contract. The contractor shall provide such 
information and evidence as the Secretary of Defense determines 
necessary to permit the Secretary to carry out the preceding sentence.
    (2) The Secretary shall ensure that progress payments referred to in 
paragraph (1) are not made for more than 80 percent of the work 
accomplished under a defense contract so long as the Secretary has not 
made the contractual terms, specifications, and price definite.
    (3) This subsection applies to any contract in an amount greater 
than $25,000.
    (f) Conditions for Payments for Commercial Items.--(1) Payments 
under subsection (a) for commercial items may be made under such terms 
and conditions as the head of the agency determines are appropriate or 
customary in the commercial marketplace and are in the best interests of 
the United States. The head of the agency shall obtain adequate security 
for such payments. If the security is in the form of a lien in favor of 
the United States, such lien is paramount to all other liens and is 
effective immediately upon the first payment, without filing, notice, or 
other action by the United States.
    (2) Advance payments made under subsection (a) for commercial items 
may include payments, in a total amount of not more than 15 percent of 
the contract price, in advance of any performance of work under the 
contract.
    (3) The conditions of subsections (d) and (e) need not be applied if 
they would be inconsistent, as determined by the head of the agency, 
with commercial terms and conditions pursuant to paragraphs (1) and (2).
    (g) Certain Navy Contracts.--(1) The Secretary of the Navy shall 
provide that the rate for progress payments on any contract awarded by 
the Secretary for repair, maintenance, or overhaul of a naval vessel 
shall be not less than--
        (A) 95 percent, in the case of a firm considered to be a small 
    business; and
        (B) 90 percent, in the case of any other firm.

    (2) The Secretary of the Navy may advance to private salvage 
companies such funds as the Secretary considers necessary to provide for 
the immediate financing of salvage operations. Advances under this 
paragraph shall be made on terms that the Secretary considers adequate 
for the protection of the United States.
    (3) The Secretary of the Navy shall provide, in each contract for 
construction or conversion of a naval vessel, that, when partial, 
progress, or other payments are made under such contract, the United 
States is secured by a lien upon work in progress and on property 
acquired for performance of the contract on account of all payments so 
made. The lien is paramount to all other liens.
    (h) Vesting of Title in the United States.--If a contract paid by a 
method authorized under subsection (a)(1) provides for title to property 
to vest in the United States, the title to the property shall vest in 
accordance with the terms of the contract, regardless of any security 
interest in the property that is asserted before or after the contract 
is entered into.
    (i) Action in Case of Fraud.--(1) In any case in which the remedy 
coordination official of an agency finds that there is substantial 
evidence that the request of a contractor for advance, partial, or 
progress payment under a contract awarded by that agency is based on 
fraud, the remedy coordination official shall recommend that the head of 
the agency reduce or suspend further payments to such contractor.
    (2) The head of an agency receiving a recommendation under paragraph 
(1) in the case of a contractor's request for payment under a contract 
shall determine whether there is substantial evidence that the request 
is based on fraud. Upon making such a determination, the agency head may 
reduce or suspend further payments to the contractor under such 
contract.
    (3) The extent of any reduction or suspension of payments by the 
head of an agency under paragraph (2) on the basis of fraud shall be 
reasonably commensurate with the anticipated loss to the United States 
resulting from the fraud.
    (4) A written justification for each decision of the head of an 
agency whether to reduce or suspend payments under paragraph (2) and for 
each recommendation received by such agency head in connection with such 
decision shall be prepared and be retained in the files of such agency.
    (5) The head of an agency shall prescribe procedures to ensure that, 
before such agency head decides to reduce or suspend payments in the 
case of a contractor under paragraph (2), the contractor is afforded 
notice of the proposed reduction or suspension and an opportunity to 
submit matters to the head of the agency in response to such proposed 
reduction or suspension.
    (6) Not later than 180 days after the date on which the head of an 
agency reduces or suspends payments to a contractor under paragraph (2), 
the remedy coordination official of such agency shall--
        (A) review the determination of fraud on which the reduction or 
    suspension is based; and
        (B) transmit a recommendation to the head of such agency whether 
    the suspension or reduction should continue.

    (7) The head of an agency shall prepare for each year a report 
containing the recommendations made by the remedy coordination official 
of that agency to reduce or suspend payments under paragraph (2), the 
actions taken on the recommendations and the reasons for such actions, 
and an assessment of the effects of such actions on the Federal 
Government. The Secretary of each military department shall transmit the 
annual report of such department to the Secretary of Defense. Each such 
report shall be available to any member of Congress upon request.
    (8) This subsection applies to the agencies named in paragraphs (1), 
(2), (3), (4), and (6) of section 2303(a) of this title.
    (9) The head of an agency may not delegate responsibilities under 
this subsection to any person in a position below level IV of the 
Executive Schedule.
    (10) In this subsection, the term ``remedy coordination official'', 
with respect to an agency, means the person or entity in that agency who 
coordinates within that agency the administration of criminal, civil, 
administrative, and contractual remedies resulting from investigations 
of fraud or corruption related to procurement activities.

(Aug. 10, 1956, ch. 1041, 70A Stat. 131; Pub. L. 85-800, Sec. 9, Aug. 
28, 1958, 72 Stat. 967; Pub. L. 93-155, title VIII, Sec. 807(c), Nov. 
16, 1973, 87 Stat. 616; Pub. L. 100-370, Sec. 1(f)(1)(A), July 19, 1988, 
102 Stat. 846; Pub. L. 101-510, div. A, title VIII, Sec. 836(a), (b), 
title XIII, Sec. 1322(a)(4), Nov. 5, 1990, 104 Stat. 1615, 1616, 1671; 
Pub. L. 102-25, title VII, Sec. 701(d)(4), (j)(2)(A), Apr. 6, 1991, 105 
Stat. 114, 116; Pub. L. 102-190, div. A, title X, Sec. 1061(a)(10), Dec. 
5, 1991, 105 Stat. 1472; Pub. L. 102-484, div. A, title X, 
Sec. 1052(24), Oct. 23, 1992, 106 Stat. 2500; Pub. L. 103-355, title II, 
Sec. 2001(a)-(g), Oct. 13, 1994, 108 Stat. 3301, 3302; Pub. L. 105-85, 
div. A, title VIII, Sec. 802, Nov. 18, 1997, 111 Stat. 1831; Pub. L. 
106-391, title III, Sec. 306, Oct. 30, 2000, 114 Stat. 1592.)

                                          Historical and Revision Notes
                                                    1956 Act
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---------------------------------
            Revised section                      Source (U.S. Code)            
   Source (Statutes at Large)
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---------------------------------
2307(a)...............................  41:154(a).                           Fe
b. 19, 1948, ch. 65, Sec.  5, 62
2307(b)...............................  41:154 (less (a)).                    S
tat. 23.
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---------------------------------

    In subsection (a), the words ``and appropriate'' are omitted as 
surplusage. The words ``whether or not the contract previously provided 
for such payments'' are substituted for the words ``heretofore or 
hereafter executed''.
    In subsection (b), the words ``under subsection (a)'' are inserted 
for clarity. The words ``provide for'' are substituted for the words 
``include as security provision for''. The words ``United States'' are 
substituted for the word ``Government''.

                            1988 Act

    Subsection (e) is based on Pub. L. 99-145, title IX, Sec. 916, Nov. 
8, 1985, 99 Stat. 688.

                       References in Text

    Level IV of the Executive Schedule, referred to in subsec. (i)(9), 
is set out in section 5315 of Title 5, Government Organization and 
Employees.


                            Prior Provisions

    Provisions similar to those in subsec. (g) of this section were 
contained in sections 7312, 7364, and 7521 of this title prior to repeal 
by Pub. L. 103-355, Sec. 2001(j)(1).


                               Amendments

    2000--Subsec. (i)(8). Pub. L. 106-391 substituted ``(4), and (6)'' 
for ``and (4)''.
    1997--Subsecs. (h), (i). Pub. L. 105-85 added subsec. (h) and 
redesignated former subsec. (h) as (i).
    1994--Pub. L. 103-355, Sec. 2001(a)(1), substituted ``Contract 
financing'' for ``Advance payments'' in section catchline.
    Subsec. (a). Pub. L. 103-355, Sec. 2001(a)(2), inserted heading.
    Subsec. (a)(2). Pub. L. 103-355, Sec. 2001(c), struck out ``bid'' 
before ``solicitations''.
    Subsec. (b). Pub. L. 103-355, Sec. 2001(a)(7), (b), added subsec. 
(b) and redesignated former subsec. (b) as (c).
    Pub. L. 103-355, Sec. 2001(a)(3), inserted heading.
    Subsec. (c). Pub. L. 103-355, Sec. 2001(a)(7), redesignated subsec. 
(b) as (c). Former subsec. (c) redesignated (d).
    Pub. L. 103-355, Sec. 2001(a)(4), inserted heading.
    Subsec. (d). Pub. L. 103-355, Sec. 2001(d), inserted before period 
at end ``and is effective immediately upon the first advancement of 
funds without filing, notice, or any other action by the United 
States''.
    Pub. L. 103-355, Sec. 2001(a)(7), redesignated former subsec. (c) as 
(d). Former subsec. (d) redesignated (e).
    Pub. L. 103-355, Sec. 2001(a)(5), inserted heading.
    Subsec. (e). Pub. L. 103-355, Sec. 2001(a)(7), redesignated subsec. 
(d) as (e). Former subsec. (e) redesignated (h).
    Pub. L. 103-355, Sec. 2001(a)(6), inserted heading.
    Subsec. (e)(1). Pub. L. 103-355, Sec. 2001(e)(1), substituted ``work 
accomplished that meets standards established under the contract'' for 
``work, which meets standards of quality established under the contract, 
that has been accomplished''.
    Subsec. (e)(3). Pub. L. 103-355, Sec. 2001(e)(2), amended par. (3) 
generally. Prior to amendment, par. (3) read as follows: ``This 
subsection does not apply to any contract for an amount not in excess of 
the amount of the small purchase threshold.''
    Subsecs. (f), (g). Pub. L. 103-355, Sec. 2001(f), (g), added 
subsecs. (f) and (g).
    Subsec. (h). Pub. L. 103-355, Sec. 2001(a)(7), redesignated subsec. 
(e) as (h).
    1992--Subsec. (e)(1). Pub. L. 102-484 substituted ``(1)'' for 
``(l)'' as par. designation after ``(e)''.
    1991--Subsec. (d)(3). Pub. L. 102-25, Sec. 701(d)(4), substituted 
``any contract for an amount not in excess of the amount of the small 
purchase threshold'' for ``contracts for amounts less than the maximum 
amount for small purchases specified in section 2304(g)(2) of this 
title''.
    Subsec. (e). Pub. L. 102-25, Sec. 701(j)(2)(A), redesignated subsec. 
(f) as (e).
    Subsec. (f). Pub. L. 102-190, which directed the substitution of 
``(1)'' for ``(l)'' as par. designation after ``(f)'', could not be 
executed because ``(l)'' did not appear after ``(f)''.
    Pub. L. 102-25, Sec. 701(j)(2)(A), redesignated subsec. (f) as (e).
    1990--Subsec. (d). Pub. L. 101-510, Sec. 1322(a)(4), redesignated 
subsec. (e) as (d) and struck out former subsec. (d) which read as 
follows: ``Payments under subsection (a) in the case of any contract, 
other than partial, progress, or other payments specifically provided 
for in such contract at the time such contract was initially entered 
into, may not exceed $25,000,000 unless the Committees on Armed Services 
of the Senate and the House of Representatives have been notified in 
writing of such proposed payments and 60 days of continuous session of 
Congress have expired following the date on which such notice was 
transmitted to such Committees and neither House of Congress has 
adopted, within such 60-day period, a resolution disapproving such 
payments. For purposes of this section, the continuity of a session of 
Congress is broken only by an adjournment of the Congress sine die, and 
the days on which either House is not in session because of an 
adjournment of more than 3 days to a day certain are excluded in the 
computation of such 60-day period.''
    Subsec. (e). Pub. L. 101-510, Sec. 1322(a)(4)(B), redesignated 
subsec. (e) as (d).
    Pub. L. 101-510, Sec. 836(b), inserted at end of par. (1) ``The 
contractor shall provide such information and evidence as the Secretary 
of Defense determines necessary to permit the Secretary to carry out the 
preceding sentence.''
    Subsec. (f). Pub. L. 101-510, Sec. 836(a), added subsec. (f).
    1988--Subsec. (e). Pub. L. 100-370 added subsec. (e).
    1973--Subsec. (d). Pub. L. 93-155 added subsec. (d).
    1958--Pub. L. 85-800 authorized advance or other payments under 
contracts for property or services by agency, authorized insertion in 
bid solicitations of provision limiting advance or progress payments to 
small business concerns, restricted payments under subsec. (a) to unpaid 
contract price, and reworded generally conditions for making advance 
payments.


                    Effective Date of 1994 Amendment

    For effective date and applicability of amendment by Pub. L. 103-
355, see section 10001 of Pub. L. 103-355, set out as a note under 
section 251 of Title 41, Public Contracts.


                    Effective Date of 1990 Amendment

    Section 836(c) of Pub. L. 101-510, as amended by Pub. L. 102-25, 
title VII, Sec. 701(j)(2)(B), Apr. 6, 1991, 105 Stat. 116, provided 
that: ``The provisions of section 2307 of title 10, United States Code, 
that are added by the amendments made by subsections (a) and (b) shall 
apply with respect to contracts entered into on or after May 6, 1991.''


      Relationship of 1994 Amendment to Prompt Payment Requirements

    Section 2001(h) of Pub. L. 103-355 provided that: ``The amendments 
made by this section [amending this section and section 7522 of this 
title and repealing sections 7312, 7364, and 7521 of this title] are not 
intended to impair or modify procedures required by the provisions of 
chapter 39 of title 31, United States Code, and the regulations issued 
pursuant to such provisions of law (as such procedures are in effect on 
the date of the enactment of this Act [Oct. 13, 1994]), except that the 
Government may accept payment terms offered by a contractor offering a 
commercial item.''


                    Limitations on Progress Payments

    Pub. L. 99-145, title IX, Sec. 916, Nov. 8, 1985, 99 Stat. 688, 
which required Secretary of Defense to ensure that any progress payment 
under a defense contract be commensurate with work accomplished at 
standard of quality in contract, that such payments be limited to 80 
percent of work accomplished so long as contract terms are indefinite, 
that this provision be waived for small purchases, and that this 
provision apply only to contracts for which solicitations were issued on 
or after 150 days after Nov. 8, 1985, was repealed and restated in 
subsec. (e) of this section by Pub. L. 100-370, Sec. 1(f)(1), July 19, 
1988, 102 Stat. 846.


            Obligations Entered Into Before November 16, 1973

    Section 807(e) of Pub. L. 93-155 provided that: ``The amendments 
made by this section [amending this section, section 1431 of Title 50, 
War and National Defense, and sections 468 and 2092 of Appendix to Title 
50] shall not affect the carrying out of any contract, loan, guarantee, 
commitment, or other obligation entered into prior to the date of 
enactment of this section [Nov. 16, 1973].''

                  Section Referred to in Other Sections

    This section is referred to in sections 2310, 2323, 7362 of this 
title; title 50 section 403c.
