Subpart 32.1 - Financing for Other Than a

Commercial Purchase

Parent topic: Part 32 - Contract Financing

32.100 Scope of subpart.

This subpart provides policies and procedures applicable to contract financing and payment for any

purchases other than purchases of commercial products or commercial services in accordance with

part 12.

32.101 Authority.

The basic authority for the contract financing described in this part is contained in 41 U.S.C. chapter

45, Contract Financing, 10 U.S.C. chapter 277, and TitleIII of the Defense Production Act of l950 (50

U.S.C. App.2091).

32.102 Description of contract financing methods.

(a) Advance payments are advances of money by the Government to a prime contractor before, in

anticipation of, and for the purpose of complete performance under one or more contracts. They are

expected to be liquidated from payments due to the contractor incident to performance of the

contracts. Since they are not measured by performance, they differ from partial, progress, or other

payments based on the performance or partial performance of a contract. Advance payments may be

made to prime contractors for the purpose of making advances to subcontractors.

(b) Progress payments based on costs are made on the basis of costs incurred by the contractor as

work progresses under the contract. This form of contract financing does not include-

(1) Payments based on the percentage or stage of completion accomplished;

(2) Payments for partial deliveries accepted by the Government;

(3) Partial payments for a contract termination proposal; or

(4) Performance-based payments.

(c) Loan guarantees are made by Federal Reserve banks, on behalf of designated guaranteeing

agencies, to enable contractors to obtain financing from private sources under contracts for the

acquisition of supplies or services for the national defense.

(d) Payments for accepted supplies and services that are only a part of the contract requirements

(i.e., partial deliveries) are authorized under 41 U.S.C. chapter 45 and 10 U.S.C. chapter 277. In

accordance with 5 CFR 1315.4(k), agencies must pay for partial delivery of supplies or partial

performance of services unless specifically prohibited by the contract. Although payments for partial
deliveries generally are treated as a method of payment and not as a method of contract financing,

using partial delivery payments can assist contractors to participate in contracts without, or with

minimal, contract financing. When appropriate, contract statements of work and pricing

arrangements must permit acceptance and payment for discrete portions of the work, as soon as

accepted (see 32.906(c)).

(e)

(1) Progress payments based on a percentage or stage of completion are authorized by the statutes

cited in 32.101.

(2) This type of progress payment may be used as a payment method under agency procedures.

Agency procedures must ensure that payments are commensurate with work accomplished, which

meets the quality standards established under the contract. Furthermore, progress payments may

not exceed 80 percent of the eligible costs of work accomplished on undefinitized contract actions.

(f) Performance-based payments are contract financing payments made on the basis of-

(1) Performance measured by objective, quantifiable methods;

(2) Accomplishment of defined events; or

(3) Other quantifiable measures of results.

32.103 Progress payments under construction contracts.

When satisfactory progress has not been achieved by a contractor during any period for which a

progress payment is to be made, a percentage of the progress payment may be retained. Retainage

should not be used as a substitute for good contract management, and the contracting officer should

not withhold funds without cause. Determinations to retain and the specific amount to be withheld

shall be made by the contracting officers on a case-by-case basis. Such decisions will be based on

the contracting officer’s assessment of past performance and the likelihood that such performance

will continue. The amount of retainage withheld shall not exceed 10 percent of the approved

estimated amount in accordance with the terms of the contract and may be adjusted as the contract

approaches completion to recognize better than expected performance, the ability to rely on

alternative safeguards, and other factors. Upon completion of all contract requirements, retained

amounts shall be paid promptly.

32.104 Providing contract financing.

(a) Prudent contract financing can be a useful working tool in Government acquisition by expediting

the performance of essential contracts. Contracting officers must consider the criteria in this part in

determining whether to include contract financing in solicitations and contracts. Resolve reasonable

doubts by including contract financing in the solicitation. The contracting officer must-

(1) Provide Government financing only to the extent actually needed for prompt and efficient

performance, considering the availability of private financing and the probable impact on working

capital of the predelivery expenditures and production lead-times associated with the contract, or
groups of contracts or orders (e.g., issued under indefinite-delivery contracts, basic ordering

agreements, or their equivalent);

(2) Administer contract financing so as to aid, not impede, the acquisition;

(3) Avoid any undue risk of monetary loss to the Government through the financing;

(4) Include the form of contract financing deemed to be in the Government’s best interest in the

solicitation (see 32.106 and 32.113); and

(5) Monitor the contractor’s use of the contract financing provided and the contractor’s financial

status.

(b) If the contractor is a small business concern, the contracting officer must give special attention

to meeting the contractor’s contract financing need. However, a contractor’s receipt of a certificate

of competency from the Small Business Administration has no bearing on the contractor’s need for

or entitlement to contract financing.

(c) Subject to specific agency regulations and paragraph (d) of this section, the contracting officer-

(1) May provide customary contract financing in accordance with 32.113; and

(2) Must not provide unusual contract financing except as authorized in 32.114.

(d) Unless otherwise authorized by agency procedures, the contracting officer may provide contract

financing in the form of performance-based payments (see subpart 32.10) or customary progress

payments (see subpart 32.5) if the following conditions are met:

(1) The contractor-

(i) Will not be able to bill for the first delivery of products for a substantial time after work must

begin (normally 4 months or more for small business concerns, and 6 months or more for others),

and will make expenditures for contract performance during the predelivery period that have a

significant impact on the contractor’s working capital; or

(ii) Demonstrates actual financial need or the unavailability of private financing.

(2) If the contractor is not a small business concern-

(i) For an individual contract, the contract price is $3 million or more; or

(ii) For an indefinite-delivery contract, a basic ordering agreement or a similar ordering instrument,

the contracting officer expects the aggregate value of orders or contracts that individually exceed

the simplified acquisition threshold to have a total value of $3 million or more. The contracting

officer must limit financing to those orders or contracts that exceed the simplified acquisition

threshold.

(3) If the contractor is a small business concern-

(i) For an individual contract, the contract price exceeds the simplified acquisition threshold; or

(ii) For an indefinite-delivery contract, a basic ordering agreement or a similar ordering instrument,

the contracting officer expects the aggregate value of orders or contracts to exceed the simplified

acquisition threshold.
32.105 Uses of contract financing.

(a) Contract financing methods covered in this part are intended to be self-liquidating through

contract performance. Consequently, agencies shall only use the methods for financing of contractor

working capital, not for the expansion of contractor-owned facilities or the acquisition of fixed

assets. However, under loan guarantees, exceptions may be made for-

(1) Facilities expansion of a minor or incidental nature, if a relatively small part of the guaranteed

loan is used for the expansion and the contractor’s repayment would not be delayed or impaired; or

(2) Other instances of facilities expansion for which contract financing is appropriate under agency

procedures.

(b) The limitations in this section do not apply to contracts under which facilities are being acquired

for Government ownership.

32.106 Order of preference.

The contracting officer must consider the following order of preference when a contractor requests

contract financing, unless an exception would be in the Government’s best interest in a specific

case:

(a) Private financing without Government guarantee. It is not intended, however, that the

contracting officer require the contractor to obtain private financing-

(1) At unreasonable terms; or

(2) From other agencies.

(b) Customary contract financing other than loan guarantees and certain advance payments (see

32.113).

(c) Loan guarantees.

(d) Unusual contract financing (see 32.114).

(e) Advance payments (see exceptions in 32.402(b)).

32.107 Need for contract financing not a deterrent.

(a) If the contractor or offeror meets the standards prescribed for responsible prospective

contractors at 9.104, the contracting officer shall not treat the contractor’s need for contract

financing as a handicap for a contract award; e.g., as a responsibility factor or evaluation criterion.

(b) The contractor should not be disqualified from contract financing solely because the contractor

failed to indicate a need for contract financing before the contract was awarded.
32.108 Financial consultation.

Each contracting office should have available and use the services of contract financing personnel

competent to evaluate credit and financial problems. In resolving any questions concerning-

(a) The financial capability of an offeror or contractor to perform a contract, or

(b) What form of contract financing is appropriate in a given case, the contracting officer should

consult the appropriate contract financing office.

32.109 Termination financing.

To encourage contractors to invest their own funds in performance despite the susceptibility of the

contract to termination for the convenience of the Government, the contract financing procedures

under this part may be applied to the financing of terminations either in connection with or

independently of financing for contract performance (see 49.112-1).

32.110 Payment of subcontractors under costreimbursement prime contracts.

If the contractor makes financing payments to a subcontractor under a cost-reimbursement prime

contract, the contracting officer should accept the financing payments as reimbursable costs of the

prime contract only under the following conditions:

(a) The payments are made under the criteria in subpart 32.5 for customary progress payments

based on costs, 32.202-1 for commercial product or commercial service purchase financing, or

32.1003 for performance-based payments, as applicable.

(b) If customary progress payments are made, the payments do not exceed the progress payment

rate in 32.501-1, unless unusual progress payments to the subcontractor have been approved in

accordance with 32.501-2.

(c) If customary progress payments are made, the subcontractor complies with the liquidation

principles of 32.503-8, 32.503-9, and 32.503-10.

(d) If performance-based payments are made, the subcontractor complies with the liquidation

principles of 32.1004(d).

(e) The subcontract contains financing payments terms as prescribed in this part.

32.111 Contract clauses for non-commercial purchases.

(a) The contracting officer shall insert the following clauses, appropriately modified with respect to

payment due dates, in accordance with agency regulations-
(1) The clause at 52.232-1, Payments, in solicitations and contracts when a fixed-price supply

contract, a fixed-price service contract, or a contract for nonregulated communication services is

contemplated;

(2) The clause at 52.232-2, Payment under Fixed-Price Research and Development Contracts, in

solicitations and contracts when a fixed-price research and development contract is contemplated;

(3) The clause at 52.232-3, Payments under Personal Services Contracts, in solicitations and

contracts for personal services;

(4) The clause at 52.232-4, Payments under Transportation Contracts and Transportation-Related

Services Contracts, in solicitations and contracts for transportation or transportation-related

services;

(5) The clause at 52.232-5, Payments under Fixed-Price Construction Contracts, in solicitations and

contracts for construction when a fixed-price contract is contemplated;

(6) The clause at 52.232-6, Payments under Communication Service Contracts with Common

Carriers, in solicitations and contracts for regulated communication services by common carriers;

and

(7) The clause at 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts, in

solicitations and contracts when a time-and-materials or labor-hour contract is contemplated. If the

contracting officer determines that it is necessary to withhold payment to protect the Government’s

interests, paragraph (a)(7) of the clause permits the contracting officer to unilaterally issue a

modification requiring the contractor to withhold 5 percent of amounts due, up to a maximum of

$50,000 under the contract. The contracting officer shall ensure that the modification specifies the

percentage and total amount of the withhold payment. Normally, there should be no need to

withhold payment for a contractor with a record of timely submittal of the release discharging the

Government from all liabilities, obligations, and claims, as required by paragraph (g) of the clause.

(b) The contracting officer shall insert the following clauses, appropriately modified with respect to

payment due dates in accordance with agency regulations:

(1) The clause at 52.232-8, Discounts for Prompt Payment, in solicitations and contracts when a

fixed-price supply contract or fixed-price service contract is contemplated.

(2) A clause, substantially the same as the clause at 52.232-9, Limitation on Withholding of

Payments, in solicitations and contracts when a supply contract, research and development contract,

service contract, time-and-materials contract, or labor-hour contract is contemplated that includes

two or more terms authorizing the temporary withholding of amounts otherwise payable to the

contractor for supplies delivered or services performed.

(c) The contracting officer shall insert the following clauses, appropriately modified with respect to

payments due dates in accordance with agency regulations:

(1) The clause at 52.232-10, Payments under Fixed-Price Architect-Engineer Contracts, in fixed-price

architect-engineer contracts.

(2) The clause at 52.232-11, Extras, in solicitations and contracts when a fixed-price supply contract,

fixed-price service contract, or a transportation contract is contemplated.
32.112 Nonpayment of subcontractors under contracts other

than for commercial products and commercial services.

32.112-1 Subcontractor assertions of nonpayment.

(a) In accordance with Section 806(a)(4) of Pub.L.102-190, as amended by Sections2091 and 8105 of

Pub.L.103-355 (10 U.S.C. 4601 note prec.), upon the assertion by a subcontractor or supplier of a

Federal contractor that the subcontractor or supplier has not been paid in accordance with the

payment terms of the subcontract, purchase order, or other agreement with the prime contractor,

the contracting officer may determine-

(1) For a construction contract, whether the contractor has made-

(i) Progress payments to the subcontractor or supplier in compliance with Chapter 39 of Title 31,

United States Code (Prompt Payment Act); or

(ii) Final payment to the subcontractor or supplier in compliance with the terms of the subcontract,

purchase order, or other agreement with the prime contractor;

(2) For a contract other than construction, whether the contractor has made progress payments,

final payments, or other payments to the subcontractor or supplier in compliance with the terms of

the subcontract, purchase order, or other agreement with the prime contractor; or

(3) For any contract, whether the contractor’s certification of payment of a subcontractor or supplier

accompanying its payment request to the Government is accurate.

(b) If, in making the determination in paragraphs (a)(1) and (2) of this subsection, the contracting

officer finds the prime contractor is not in compliance, the contracting officer may-

(1) Encourage the contractor to make timely payment to the subcontractor or supplier; or

(2) If authorized by the applicable payment clauses, reduce or suspend progress payments to the

contractor.

(c) If the contracting officer determines that a certification referred to in paragraph (a)(3) of this

subsection is inaccurate in any material respect, the contracting officer shall initiate administrative

or other remedial action.

32.112-2 Subcontractor requests for information.

(a) In accordance with section 806(a)(1) of Public Law 102-190, as amended by sections 2091 and

8105 of Public Law 103-355 (10 U.S.C. 4601 note prec.), upon the request of a subcontractor or

supplier under a Federal contract other than for a commercial product or commercial service, the

contracting officer shall promptly advise the subcontractor or supplier as to—

(1) Whether the prime contractor has submitted requests for progress payments or other payments

to the Federal Government under the contract; and

(2) Whether final payment under the contract has been made by the Federal Government to the
prime contractor.

(b) In accordance with 5 U.S.C.552(b)(1), this subsection does not apply to matters that are-

(1) Specifically authorized under criteria established by an Executive order to be kept classified in

the interest of national defense or foreign policy; and

(2) Properly classified pursuant to such Executive order.

32.113 Customary contract financing.

The solicitation must specify the customary contract financing offerors may propose. The following

are customary contract financing when provided in accordance with this part and agency

regulations:

(a) Financing of shipbuilding, or ship conversion, alteration, or repair, when agency regulations

provide for progress payments based on a percentage or stage of completion.

(b) Financing of construction or architect-engineer services purchased under the authority of part 

36.

(c) Financing of contracts for supplies or services awarded under the sealed bid method of

procurement in accordance with part 14 through progress payments based on costs in accordance

with subpart 32.5.

(d) Financing of contracts for supplies or services awarded under the competitive negotiation

method of procurement in accordance with part 15, through either progress payments based on

costs in accordance with subpart 32.5, or performance-based payments in accordance with subpart 

32.10 (but not both).

(e) Financing of contracts for supplies or services awarded under a sole-source acquisition as

defined in 2.101 and using the procedures of part 15, through either progress payments based on

costs in accordance with subpart 32.5, or performance-based payments in accordance with subpart 

32.10 (but not both).

(f) Financing of contracts for supplies or services through advance payments in accordance with

subpart 32.4.

(g) Financing of contracts for supplies or services through guaranteed loans in accordance with

subpart 32.3.

(h) Financing of contracts for supplies or services through any appropriate combination of advance

payments, guaranteed loans, and either performance-based payments or progress payments (but not

both) in accordance with their respective subparts.

32.114 Unusual contract financing.

Any contract financing arrangement that deviates from this part is unusual contract financing.

Unusual contract financing shall be authorized only after approval by the head of the agency or as
provided for in agency regulations.