232.1003-70 - Criteria for use
In accordance with 10 U.S.C. 2307(b)(4)(A), a contractor’s financial statements shall be in compliance with Generally Accepted Accounting Principles, in order to receive performance-based payments. 10 U.S.C. 2307(b)(4)(B) specifies that it does not grant the Defense Contract Audit Agency the authority to audit compliance with Generally Accepted Accounting Principles.

232.1004 - Procedures
(b) Establishing performance-based finance payment amounts.
(i) The contracting officer should include in a solicitation both the progress payments and performance-based payments provisions and clauses prescribed in this part, when considering both types of payment methods. Only one type of financing will be included in the resultant contract, except as may be authorized on separate orders subject to FAR 32.1003(c)).
(ii) The contracting officer shall analyze the performance-based payment schedule using the performance-based payments (PBP) analysis tool. The PBP analysis tool is on the DPC website in the Cost, Pricing & Finance section, Performance Based Payments - Guide Book & Analysis Tool tab, at http://www.acq.osd.mil/dpap/cpic/cp/Performance_based_payments.html.
(A) When considering performance-based payments, obtain from the offeror/contractor a proposed performance-based payments schedule that includes all performance-based payments events, completion criteria and event values along with the projected monthly expenditure profile in order to negotiate the value of the performance events such that the performance-based payments are not expected to result in an unreasonably low or negative level of contractor investment in the contract.
If performance-based payments are deemed practical, the Government will evaluate and negotiate the details of the performance-based payments schedule.
(B) For modifications to contracts that already use performance-based payments financing, the basis for negotiation must include performance-based payments. The PBP analysis tool will be used in the same manner to help determine the price for the modification;
(iii) The contracting officer shall document in the contract file that the performance-based payment schedule provides a mutually beneficial settlement position that reflects adequate consideration to the Government for the improved contractor cash flow.
(c) Instructions for multiple appropriations. If the contract contains foreign military sales requirements, the contracting officer shall provide instructions for distribution of the contract financing payments to each country’s account.

232.102 - Description of contract financing methods
(e)(2) Progress payments based on percentage or stage of completion are authorized only for contracts for construction (as defined in FAR 36.102), shipbuilding, and ship conversion, alteration, or repair. However, percentage or stage of completion methods of measuring contractor performance may be used for performance-based payments in accordance with FAR Subpart 32.10.

232.102-70 - Provisional delivery payments
(a) The contracting officer may establish provisional delivery payments to pay contractors for the costs of supplies and services delivered to and accepted by the Government under the following contract actions, if undefinitized:
(1) Letter contracts contemplating a fixed-price contract.
(2) Orders under basic ordering agreements.
(3) Spares provisioning documents annexed to contracts.
(4) Unpriced equitable adjustments on fixed-price contracts.
(5) Orders under indefinite-delivery contracts.
(b) Provisional delivery payments shall be—
(1) Used sparingly;
(2) Priced conservatively; and
(3) Reduced by liquidating previous progress payments in accordance with the Progress Payments clause.
(c) Provisional delivery payments shall not—
(1) Include profit;
(2) Exceed funds obligated for the undefinitized contract action; or
(3) Influence the definitized contract price.