Part 32 - Contract Financing

32.000 Scope of part.

32.001 Definitions.

32.002 Applicability of subparts.

32.003 Simplified acquisition procedures financing.

32.004 Contract performance in foreign countries.

32.005 Consideration for contract financing.

32.006 Reduction or suspension of contract payments upon finding of fraud.

32.006-1 General.

32.006-2 Definition.

32.006-3 Responsibilities.

32.006-4 Procedures.

32.006-5 Reporting.

32.007 Contract financing payments.

32.008 Notification of overpayment.

32.009 Providing accelerated payments to small business contractors and to prime contractors that

subcontract with a small business concern.

32.009-1 General.

32.009-2 Contract clause.

Subpart 32.1 - Financing for Other Than a Commercial Purchase

32.100 Scope of subpart.

32.101 Authority.

32.102 Description of contract financing methods.

32.103 Progress payments under construction contracts.

32.104 Providing contract financing.

32.105 Uses of contract financing.

32.106 Order of preference.
32.107 Need for contract financing not a deterrent.

32.108 Financial consultation.

32.109 Termination financing.

32.110 Payment of subcontractors under cost-reimbursement prime contracts.

32.111 Contract clauses for non-commercial purchases.

32.112 Nonpayment of subcontractors under contracts other than for commercial products and

commercial services.

32.112-1 Subcontractor assertions of nonpayment.

32.112-2 Subcontractor requests for information.

32.113 Customary contract financing.

32.114 Unusual contract financing.

Subpart 32.2 - Commercial Product and Commercial Service Purchase Financing

32.200 Scope of subpart.

32.201 Statutory authority.

32.202 General.

32.202-1 Policy.

32.202-2 Types of payments for commercial product and commercial service purchases.

32.202-3 Conducting market research about financing terms.

32.202-4 Security for Government financing.

32.203 Determining contract financing terms.

32.204 Procedures for contracting officer-specified commercial contract financing.

32.205 Procedures for offeror-proposed commercial contract financing.

32.206 Solicitation provisions and contract clauses.

32.207 Administration and payment of commercial financing payments.

Subpart 32.3 - Loan Guarantees for Defense Production

32.300 Scope of subpart.

32.301 Definitions.

32.302 Authority.
32.303 General.

32.304 Procedures.

32.304-1 Application for guarantee.

32.304-2 Certificate of eligibility.

32.304-3 Asset formula.

32.304-4 Guarantee amount and maturity.

32.304-5 Assignment of claims under contracts.

32.304-6 Other collateral security.

32.304-7 Contract surety bonds and loan guarantees.

32.304-8 Other borrowing.

32.305 Loan guarantees for terminated contracts.

32.306 Loan guarantees for subcontracts.

Subpart 32.4 - Advance Payments for Other Than Commercial Acquisitions

32.400 Scope of subpart.

32.401 Statutory authority.

32.402 General.

32.403 Applicability.

32.404 Exclusions.

32.405 Applying Pub.L.85-804 to advance payments under sealed bid contracts.

32.406 Letters of credit.

32.407 Interest.

32.408 Application for advance payments.

32.409 Contracting officer action.

32.409-1 Recommendation for approval.

32.409-2 Recommendation for disapproval.

32.409-3 Security, supervision, and covenants.

32.410 Findings, determination, and authorization.

32.411 Agreement for special account at a financial institution.
32.412 Contract clause.

Subpart 32.5 - Progress Payments Based on Costs

32.500 Scope of subpart.

32.501 General.

32.501-1 Customary progress payment rates.

32.501-2 Unusual progress payments.

32.501-3 Contract price.

32.501-4 [Reserved]

32.501-5 Other protective terms.

32.502 Preaward matters.

32.502-1 Use of customary progress payments.

32.502-2 Contract finance office clearance.

32.502-3 Solicitation provisions.

32.502-4 Contract clauses.

32.503 Postaward matters.

32.503-1 [Reserved]

32.503-2 Supervision of progress payments.

32.503-3 Initiation of progress payments and review of accounting system.

32.503-4 Approval of progress payment requests.

32.503-5 Administration of progress payments.

32.503-6 Suspension or reduction of payments.

32.503-7 [Reserved]

32.503-8 Liquidation rates-ordinary method.

32.503-9 Liquidation rates-alternate method.

32.503-10 Establishing alternate liquidation rates.

32.503-11 Adjustments for price reduction.

32.503-12 Maximum unliquidated amount.

32.503-13 [Reserved]
32.503-14 Protection of Government title.

32.503-15 Application of Government title terms.

32.503-16 Risk of loss.

32.504 Subcontracts under prime contracts providing progress payments.

Subpart 32.6 - Contract Debts

32.600 Scope of subpart.

32.601 General.

32.602 Responsibilities.

32.603 Debt determination.

32.604 Demand for payment.

32.605 Final decisions.

32.606 Debt collection.

32.607 Installment payments and deferment of collection.

32.607-1 Installment payments.

32.607-2 Deferment of collection.

32.608 Interest.

32.608-1 Interest charges.

32.608-2 Interest credits.

32.609 Delays in receipt of notices or demands.

32.610 Compromising debts.

32.611 Contract clause.

Subpart 32.7 - Contract Funding

32.700 Scope of subpart.

32.701 [Reserved]

32.702 Policy.

32.703 Contract funding requirements.

32.703-1 General.

32.703-2 Contracts conditioned upon availability of funds.
32.703-3 Contracts crossing fiscal years.

32.704 Limitation of cost or funds.

32.705 Unenforceability of Unauthorized Obligations.

32.706 Contract clauses.

32.706-1 Clauses for contracting in advance of funds.

32.706-2 Clauses for limitation of cost or funds.

32.706-3 Clause for unenforceability of unauthorized obligations.

Subpart 32.8 - Assignment of Claims

32.800 Scope of subpart.

32.801 Definitions.

32.802 Conditions.

32.803 Policies.

32.804 Extent of assignee’s protection.

32.805 Procedure.

32.806 Contract clauses.

Subpart 32.9 - Prompt Payment

32.900 Scope of subpart.

32.901 Applicability.

32.902 Definitions.

32.903 Responsibilities.

32.904 Determining payment due dates.

32.905 Payment documentation and process.

32.906 Making payments.

32.907 Interest penalties.

32.908 Contract clauses.

32.909 Contractor inquiries.

Subpart 32.10 - Performance-Based Payments

32.1000 Scope of subpart.
32.1001 Policy.

32.1002 Bases for performance-based payments.

32.1003 Criteria for use.

32.1004 Procedures.

32.1005 Solicitation provision and contract clause.

32.1006 [Reserved]

32.1007 Administration and payment of performance-based payments.

32.1008 Suspension or reduction of performance-based payments.

32.1009 Title.

32.1010 Risk of loss.

Subpart 32.11 - Electronic Funds Transfer

32.1100 Scope of subpart.

32.1101 Statutory requirements.

32.1102 Definitions.

32.1103 Applicability.

32.1104 Protection of EFT information.

32.1105 Assignment of claims.

32.1106 EFT mechanisms.

32.1107 Payment information.

32.1108 Payment by Governmentwide commercial purchase card.

32.1109 EFT information submitted by offerors.

32.1110 Solicitation provision and contract clauses.

Parent topic: Federal Acquisition Regulation

32.000 Scope of part.

This part prescribes policies and procedures for contract financing and other payment matters. This

part addresses-

(a) Payment methods, including partial payments and progress payments based on percentage or

stage of completion;
(b) Loan guarantees, advance payments, and progress payments based on costs;

(c) Administration of debts to the Government arising out of contracts;

(d) Contract funding, including the use of contract clauses limiting costs or funds;

(e) Assignment of claims to aid in private financing;

(f) Selected payment clauses;

(g) Financing of purchases of commercial products and commercial services;

(h) Performance-based payments; and

(i) Electronic funds transfer payments.

32.001 Definitions.

As used in this part—

Commercial interim payment means any payment that is not a commercial advance payment or a

delivery payment. These payments are contract financing payments for prompt payment purposes

(i.e., not subject to the interest penalty provisions of the Prompt Payment Act in accordance with

subpart 32.9). A commercial interim payment is given to the contractor after some work has been

done, whereas a commercial advance payment is given to the contractor when no work has been

done.

Contract action means an action resulting in a contract, as defined in subpart 2.1, including actions

for additional supplies or services outside the existing contract scope, but not including actions that

are within the scope and under the terms of the existing contract, such as contract modifications

issued pursuant to the Changes clause, or funding and other administrative changes.

Contract financing payment means an authorized Government disbursement of monies to a

contractor prior to acceptance of supplies or services by the Government.

(1) Contract financing payments include-

(i) Advance payments;

(ii) Performance-based payments;

(iii) Commercial advance and interim payments;

(iv) Progress payments based on cost under the clause at 52.232-16, Progress Payments;

(v) Progress payments based on a percentage or stage of completion (see 32.102(e)), except those

made under the clause at 52.232-5, Payments Under Fixed-Price Construction Contracts, or the

clause at 52.232-10, Payments Under Fixed-Price Architect-Engineer Contracts; and

(vi) Interim payments under a cost reimbursement contract, except for a cost reimbursement

contract for services when Alternate I of the clause at 52.232-25, Prompt Payment, is used.
(2) Contract financing payments do not include-

(i) Invoice payments;

(ii) Payments for partial deliveries; or

(iii) Lease and rental payments.

Customary contract financing means that financing deemed by an agency to be available for routine

use by contracting officers. Most customary contract financing arrangements should be usable by

contracting officers without specific reviews or approvals by higher management.

Delivery payment means a payment for accepted supplies or services, including payments for

accepted partial deliveries. Commercial financing payments are liquidated by deduction from these

payments. Delivery payments are invoice payments for prompt payment purposes.

Designated billing office means the office or person (governmental or nongovernmental) designated

in the contract where the contractor first submits invoices and contract financing requests. The

contract might designate different offices to receive invoices and contract financing requests. The

designated billing office might be-

(1) The Government disbursing office;

(2) The contract administration office;

(3) The office accepting the supplies delivered or services performed by the contractor;

(4) The contract audit office; or

(5) A nongovernmental agent.

Designated payment office means the office designated in the contract to make invoice payments or

contract financing payments. Normally, this will be the Government disbursing office.

Due date means the date on which payment should be made.

Invoice payment means a Government disbursement of monies to a contractor under a contract or

other authorization for supplies or services accepted by the Government.

Invoice payments includePayments for partial deliveries that have been accepted by the Government;

Final cost or fee payments where amounts owed have been settled between the Government and the

contractor;

For purposes of subpart 32.9 only, all payments made under the clause at 52.232-5, Payments

Under Fixed-Price Construction Contracts, and the clause at 52.232-10, Payments Under Fixed-Price

Architect-Engineer Contracts; and

Interim payments under a cost-reimbursement contract for services when Alternate I of the clause at

52.232-25, Prompt Payment, is used

Invoice payments do not include contract financing payments.
Liquidate means to decrease a payment for an accepted supply item or service under a contract for

the purpose of recouping financing payments previously paid to the contractor.

Unusual contract financing means any financing not deemed customary contract financing by the

agency. Unusual contract financing is financing that is legal and proper under applicable laws, but

that the agency has not authorized contracting officers to use without specific reviews or approvals

by higher management.

32.002 Applicability of subparts.

(a) The following sections and subparts of this part are applicable to all purchases subject to part 

32:

(1) Sections 32.000 through 32.009.

(2) subpart 32.3, Loan Guarantees for Defense Production.

(3) subpart 32.6, Contract Debts.

(4) subpart 32.7, Contract Funding.

(5) subpart 32.8, Assignment of Claims.

(6) subpart 32.9, Prompt Payment.

(7) subpart 32.11, Electronic Funds Transfer.

(b) subpart 32.2, Commercial Product and Commercial Service Purchase Financing, is applicable

only to purchases of commercial products and commercial services under authority of part 12.

(c) The following subparts of this part are applicable to all purchases made under any authority

other than part 12:

(1) subpart 32.1, Financing for Other Than a Commercial Purchase.

(2) subpart 32.4, Advance Payments for Other Than Commercial Acquisitions.

(3) subpart 32.5, Progress Payments Based on Costs.

(4) subpart 32.10, Performance-Based Payments.

32.003 Simplified acquisition procedures financing.

Unless agency regulations otherwise permit, contract financing shall not be provided for purchases

made under the authority of part 13.
32.004 Contract performance in foreign countries.

The enforceability of contract provisions for security of Government financing in a foreign

jurisdiction is dependent upon local law and procedure. Prior to providing contract financing where

foreign jurisdictions may become involved, the contracting officer shall ensure the Government’s

security is enforceable. This may require the provision of additional or different security than that

normally provided for in the standard contract clauses.

32.005 Consideration for contract financing.

(a) Requirement. When a contract financing clause is included at the inception of a contract, there

shall be no separate consideration for the contract financing clause. The value of the contract

financing to the contractor is expected to be reflected in either (1)a bid or negotiated price that will

be lower than such price would have been in the absence of the contract financing, or (2) contract

terms and conditions, other than price, that are more beneficial to the Government than they would

have been in the absence of the contract financing. Adequate new consideration is required for

changes to, or the addition of, contract financing after award.

(b) Amount of new consideration. The contractor may provide new consideration by monetary or

nonmonetary means, provided the value is adequate. The fair and reasonable consideration should

approximate the amount by which the price would have been less had the contract financing terms

been contained in the initial contract. In the absence of definite information on this point, the

contracting officer should apply the following criteria in evaluating whether the proposed new

consideration is adequate:

(1) The value to the contractor of the anticipated amount and duration of the contract financing at

the imputed financial costs of the equivalent working capital.

(2) The estimated profit rate to be earned through contract performance.

(c) Interest. Except as provided in subpart 32.4, Advance Payments for Other Than Commercial

Acquisitions, the contract shall not provide for any other type of specific charges, such as interest,

for contract financing.

32.006 Reduction or suspension of contract payments upon

finding of fraud.

32.006-1 General.

(a) Under 10 U.S.C. 3806(j), the statutory authority implemented by this section is available to the

Department of Defense and the National Aeronautics and Space Administration; this statutory

authority is not available to the United States Coast Guard. Under 41 U.S.C. 4506, this statutory

authority is available to all agencies subject to Division C of subtitle I of title 41.

(b) 10 U.S.C. 3806(c) and 41 U.S.C. 4506 provide for a reduction or suspension of further payments

to a contractor when the agency head determines there is substantial evidence that the contractor's
request for advance, partial, or progress payments is based on fraud. This authority does not apply

to commercial interim payments under subpart 32.2, or performance-based payments under

subpart 32.10.

(c) The agency head may not delegate his or her responsibilities under these statutes below Level IV

of the Executive Schedule.

(d) Authority to reduce or suspend payments under these statutes is in addition to other Government

rights, remedies, and procedures.

(e) In accordance with these statutes, agency head determinations and decisions under this section

may be made for an individual contract or any group of contracts affected by the fraud.

32.006-2 Definition.

Remedy coordination official, as used in this section, means the person or entity in the 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. (See

10 U.S.C. 3806(a) and 41 U.S.C.4506(a).)

32.006-3 Responsibilities.

(a) Agencies shall establish appropriate procedures to implement the policies and procedures of this

section.

(b) Government personnel shall report suspected fraud related to advance, partial, or progress

payments in accordance with agency regulations.

32.006-4 Procedures.

(a) In any case in which an agency’s remedy coordination official finds substantial evidence that a

contractor’s request for advance, partial, or progress payments under a contract awarded by that

agency is based on fraud, the remedy coordination official shall recommend that the agency head

reduce or suspend further payments to the contractor. The remedy coordination official shall submit

to the agency head a written report setting forth the remedy coordination official’s findings that

support each recommendation.

(b) Upon receiving a recommendation from the remedy coordination official under paragraph (a) of

this subsection, the agency head shall determine whether substantial evidence exists that the

request for payment under a contract is based on fraud.

(c) If the agency head determines that substantial evidence exists, the agency head may reduce or

suspend further payments to the contractor under the affected contract(s). Such reduction or

suspension shall be reasonably commensurate with the anticipated loss to the Government resulting

from the fraud.

(d) In determining whether to reduce or suspend further payment(s), as a minimum, the agency head

shall consider-
(1) A recommendation from investigating officers that disclosure of the allegations of fraud to the

contractor may compromise an ongoing investigation;

(2) The anticipated loss to the Government as a result of the fraud;

(3) The contractor’s overall financial condition and ability to continue performance if payments are

reduced or suspended;

(4) The contractor’s essentiality to the national defense, or to the execution of the agency’s official

business; and

(5) Assessment of all documentation concerning the alleged fraud, including documentation

submitted by the contractor in its response to the notice required by paragraph (e) of this

subsection.

(e) Before making a decision to reduce or suspend further payments, the agency head shall, in

accordance with agency procedures-

(1) Notify the contractor in writing of the action proposed by the remedy coordination official and

the reasons therefor (such notice must be sufficiently specific to permit the contractor to collect and

present evidence addressing the aforesaid reasons); and

(2) Provide the contractor an opportunity to submit information within a reasonable time, in

response to the action proposed by the remedy coordination official.

(f) When more than one agency has contracts affected by the fraud, the agencies shall consider

designating one agency as the lead agency for making the determination and decision.

(g) The agency shall retain in its files the written justification for each-

(1) Decision of the agency head whether to reduce or suspend further payments; and

(2) Recommendation received by an agency head in connection with such decision.

(h) Not later than 180 calendar days after the date of the reduction or suspension action, the remedy

coordination official shall-

(1) Review the agency head’s determination on which the reduction or suspension decision is based;

and

(2) Transmit a recommendation to the agency head as to whether the reduction or suspension should

continue.

32.006-5 Reporting.

(a) In accordance with 41 U.S.C.4506(h), the head of an agency, other than the Department of

Defense, shall prepare a report for each fiscal year in which a recommendation has been received

pursuant to 32.006-4(a). Reports within the Department of Defense shall be prepared in accordance

with 10 U.S.C. 3806(h).

(b) In accordance with 41 U.S.C.4506(h) and 10 U.S.C. 3806(h), each report shall contain-
(1) Each recommendation made by the remedy coordination official;

(2) The actions taken on the recommendation(s), with reasons for such actions; and

(3) An assessment of the effects of each action on the Government.

32.007 Contract financing payments.

(a)

(1) Unless otherwise prescribed in agency policies and procedures or otherwise specified in

paragraph (b) of this section, the due date for making contract financing payments by the designated

payment office is the 30 thday after the designated billing office receives a proper contract financing

request.

(2) If an audit or other review of a specific financing request is required to ensure compliance with

the terms and conditions of the contract, the designated payment office is not compelled to make

payment by the specified due date.

(3) Agency heads may prescribe shorter periods for payment based on contract pricing or

administrative considerations. For example, a shorter period may be justified by an agency if the

nature and extent of contract financing arrangements are integrated with agency contract pricing

policies.

(4) Agency heads must not prescribe a period shorter than 7 days or longer than 30 days.

(b) For advance payments, loans, or other arrangements that do not involve recurrent submission of

contract financing requests, the designated payment office will make payment in accordance with

the applicable contract financing terms or as directed by the contracting officer.

(c) A proper contract financing request must comply with the terms and conditions specified by the

contract. The contractor must correct any defects in requests submitted in the manner specified in

the contract or as directed by the contracting officer.

(d) The designated billing office and designated payment office must annotate each contract

financing request with the date their respective offices received the request.

(e) The Government will not pay an interest penalty to the contractor as a result of delayed contract

financing payments.

32.008 Notification of overpayment.

If the contractor notifies the contracting officer of a duplicate payment or that the Government has

otherwise overpaid, the contracting officer shall follow the procedures at 32.604.
32.009 Providing accelerated payments to small business

contractors and to prime contractors that subcontract with a

small business concern.

32.009-1 General.

(a)

(1) Pursuant to 31 U.S.C. 3903(a), agencies other than the Department of Defense (DoD) shall

provide accelerated payments, to the fullest extent permitted by law, with a goal of 15 days after

receipt of a proper invoice and all other required documentation, if a specific payment date is not

established by contract, to—

(i) Small business contractors; and

(ii) Prime contractors that subcontract with a small business concern, if the prime contractor agrees

to make payments to the small business subcontractor within 15 days of receiving the accelerated

payment from the Government, after receipt of a proper invoice and all other required

documentation from the small business subcontractor, to the maximum extent practicable, without

any further consideration from or fees charged to the subcontractor.

(2) Pursuant to 10 U.S.C. 3801(b), DoD shall provide accelerated payments, to the fullest extent

permitted by law, with a goal of 15 days after receipt of a proper invoice and all other required

documentation, to—

(i) Small business contractors; and

(ii) Prime contractors that subcontract with a small business concern, if the prime contractor agrees

to make payments to the small business subcontractor within 15 days of receiving the accelerated

payment from the Government, after receipt of a proper invoice and all other required

documentation from the small business subcontractor, to the maximum extent practicable, without

any further consideration from or fees charged to the subcontractor.

(b) This acceleration does not provide any new rights under the Prompt Payment Act and does not

affect the application of the Prompt Payment Act late payment interest provisions.

(c) Agencies may use the Governmentwide commercial purchase card as a method of payment (see

32.1108) to facilitate accelerated payment, to earn refunds, and to reduce invoice processing costs.

32.009-2 Contract clause.

Insert clause 52.232-40, Providing Accelerated Payments to Small Business Subcontractors, in all

solicitations and contracts.
Subpart 32.1 - Financing for Other Than a Commercial

Purchase

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 cost-reimbursement 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.

Subpart 32.2 - Commercial Product and Commercial Service

Purchase Financing

32.200 Scope of subpart.
This subpart provides policies and procedures for commercial financing arrangements under

commercial purchases pursuant to part 12.

32.201 Statutory authority.

10 U.S.C. 3805 and 41 U.S.C.4505 provide that payment for commercial products or commercial

services 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 interest of the United

States.

32.202 General.

32.202-1 Policy.

(a) Use of financing in contracts. It is the responsibility of the contractor to provide all resources

needed for performance of the contract. Thus, for purchases of commercial products or commercial

services, financing of the contract is normally the contractor’s responsibility. However, in some

markets the provision of financing by the buyer is a commercial practice. In these circumstances,

the contracting officer may include appropriate financing terms in contracts for commercial

purchases when doing so will be in the best interest of the Government.

(b) Authorization. Commercial interim payments and commercial advance payments may be made

under the following circumstances-

(1) The contract item financed is a commercial supply or service;

(2) The contract price exceeds the simplified acquisition threshold;

(3) The contracting officer determines that it is appropriate or customary in the commercial

marketplace to make financing payments for the item;

(4) Authorizing this form of contract financing is in the best interest of the Government (see

paragraph (e) of this sub-section);

(5) Adequate security is obtained (see 32.202-4);

(6) Prior to any performance of work under the contract, the aggregate of commercial advance

payments shall not exceed 15 percent of the contract price;

(7) The contract is awarded on the basis of competitive procedures or, if only one offer is solicited,

adequate consideration is obtained (based on the time value of the additional financing to be

provided) if the financing is expected to be substantially more advantageous to the offeror than the

offeror’s normal method of customer financing; and

(8) The contracting officer obtains concurrence from the payment office concerning liquidation

provisions when required by 32.206(e).

(c) Difference from other than commercial financing. Government financing of commercial

purchases under this subpart is expected to be different from that used for other than commercial
purchases under subpart 32.1 and its related subparts. While the contracting officer may adapt

techniques and procedures from the other than commercial subparts for use in implementing

commercial contract financing arrangements, the contracting officer must have a full understanding

of effects of the differing contract environments and of what is needed to protect the interests of the

Government in commercial contract financing.

(d) Unusual contract financing. Any contract financing arrangement not in accord with the

requirements of agency regulations or this part is unusual contract financing and requires advance

approval in accordance with agency procedures. If not otherwise specified, such unusual contract

financing shall be approved by the head of the contracting activity.

(e) Best interest of the Government. The statutes cited in 32.201 do not allow contract financing by

the Government unless it is in the best interest of the United States. Agencies may establish

standards to determine whether contract financing is in the best interest of the Government. These

standards may be for certain types of procurements, certain types of items, or certain dollar levels of

procurements.

32.202-2 Types of payments for commercial product and commercial service purchases.

These definitions incorporate the requirements of the statutory commercial financing authority and

the implementation of the Prompt Payment Act.

Commercial advance payment, as used in this section, means a payment made before any

performance of work under the contract. The aggregate of these payments shall not exceed 15

percent of the contract price. These payments are contract financing payments for prompt payment

purposes (i.e., not subject to the interest penalty provisions of the Prompt Payment Act in

accordance with subpart 32.9). These payments are not subject to subpart 32.4, Advance Payments

for Other Than Commercial Acquisitions.

Commercial interim payment (see 32.001).

Delivery payment (see 32.001).

32.202-3 Conducting market research about financing terms.

Contract financing may be a subject included in the market research conducted in accordance with

part 10. If market research for contract financing is conducted, the contracting officer should

consider-

(a) The extent to which other buyers provide contract financing for purchases in that market;

(b) The overall level of financing normally provided;

(c) The amount or percentages of any payments equivalent to commercial advance payments (see

32.202-2);

(d) The basis for any payments equivalent to commercial interim payments (see 32.001), as well as

the frequency, and amounts or percentages; and

(e) Methods of liquidation of contract financing payments and any special or unusual payment terms
applicable to delivery payments (see 32.001).

32.202-4 Security for Government financing.

(a) Policy.

(1) 10 U.S.C. 3805 and 41 U.S.C.4505 require the Government to obtain adequate security for

Government financing. The contracting officer shall specify in the solicitation the type of security the

Government will accept. If the Government is willing to accept more than one form of security, the

offeror shall be required to specify the form of security it will provide. If acceptable to the

contracting officer, the resulting contract shall specify the security (see 32.206(b)(1)(iv)).

(2) Subject to agency regulations, the contracting officer may determine the offeror’s financial

condition to be adequate security, provided the offeror agrees to provide additional security should

that financial condition become inadequate as security (see paragraph (c) of the clause at 52.232-29,

Terms for Financing of Purchases of Commercial Products and Commercial Services). Assessment of

the contractor’s financial condition shall consider both net worth and liquidity. If the contracting

officer finds the offeror’s financial condition is not adequate security, the contracting officer shall

require other adequate security. Paragraphs (b), (c), and (d) of this subsection list other (but not all)

forms of security that the contracting officer may find acceptable.

(3) The value of the security must be at least equal to the maximum unliquidated amount of contract

financing payments to be made to the contractor. The value of security may be adjusted periodically

during contract performance, as long as it is always equal to or greater than the amount of

unliquidated financing.

(b) Paramount lien.

(1) The statutes cited in 32.201 provide that if the Government’s security is in the form of a lien,

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) When the Government’s security is in the form of a lien, the contract shall specify what the lien is

upon, e.g., the work in process, the contractor’s plant, or the contractor’s inventory. Contracting

officers may be flexible in the choice of assets. The contract must also give the Government a right

to verify the existence and value of the assets.

(3) Provision of Government financing shall be conditioned upon a contractor certification that the

assets subject to the lien are free from any prior encumbrances. Prior liens may result from such

things as capital equipment loans, installment purchases, working capital loans, various lines of

credit, and revolving credit arrangements.

(c) Other assets as security. Contracting officers may consider the guidance at 28.203 and 28.204 in

determining which types of assets may be acceptable as security. For the purpose of applying the

guidance in part 28 to this subsection, the term "surety" and/or "individual surety" should be

interpreted to mean "offeror" and/or "contractor."

(d) Other forms of security. Other acceptable forms of security include-
(1) An irrevocable letter of credit from a federally insured financial institution;

(2) A bond from a surety, acceptable in accordance with part 28 (note that the bond must guarantee

repayment of the unliquidated contract financing);

(3) A guarantee of repayment from a person or corporation of demonstrated liquid net worth,

connected by significant ownership to the contractor; or

(4) Titleto identified contractor assets of adequate worth.

(e) Management of risk and security. In establishing contract financing terms, the contracting officer

must be aware of certain risks. For example, very high amounts of financing early in the contract

(front-end loading) may unduly increase the risk to the Government. The security and the amounts

and timing of financing payments must be analyzed as a whole to determine whether the

arrangement will be in the best interest of the Government.

32.203 Determining contract financing terms.

When the criteria in 32.202-1(b) are met, the contracting officer may either specify the financing

terms in the solicitation (see 32.204) or permit each offeror to propose its own customary financing

terms (see 32.205). When the contracting officer has sufficient information on financing terms that

are customary in the commercial marketplace for the item, those terms may be specified in the

solicitation.

32.204 Procedures for contracting officer-specified commercial contract

financing.

The financing terms shall be included in the solicitation. Contract financing shall not be a factor in

the evaluation of resulting proposals, and proposals of alternative financing terms shall not be

accepted (but see 14.208 and 15.206 concerning amendments of solicitations). However, an offer

stating that the contracting officer-specified contract financing terms will not be used by the offeror

does not alter the evaluation of the offer, nor does it render the offer nonresponsive or otherwise

unacceptable. In the event of award to an offeror who declined the proposed contract financing, the

contract financing provisions shall not be included in the resulting contract. Contract financing shall

not be a basis for adjusting offerors’ proposed prices, because the effect of contract financing is

reflected in each offeror’s proposed prices.

32.205 Procedures for offeror-proposed commercial contract financing.

(a) Under this procedure, each offeror may propose financing terms. The contracting officer must

then determine which offer is in the best interests of the United States.

(b) Solicitations. The contracting officer must include in the solicitation the provision at 52.232-31,

invitation to Propose Financing Terms. The contracting officer must also-

(1) Specify the delivery payment (invoice) dates that will be used in the evaluation of financing

proposals; and
(2) Specify the interest rate to be used in the evaluation of financing proposals (see paragraph (c)(4)

of this section).

(c) Evaluation of proposals.

(1) When contract financing terms vary among offerors, the contracting officer must adjust each

proposed price for evaluation purposes to reflect the cost of providing the proposed financing in

order to determine the total cost to the Government of that particular combination of price and

financing.

(2) Contract financing results in the Government making payments earlier than it otherwise would.

In order to determine the cost to the Government of making payments earlier, the contracting officer

must compute the imputed cost of those financing payments and add it to the proposed price to

determine the evaluated price for each offeror.

(3) The imputed cost of a single financing payment is the amount of the payment multiplied by the

annual interest rate, multiplied by the number of years, or fraction thereof, between the date of the

financing payment and the date the amount would have been paid as a delivery payment. The

imputed cost of financing is the sum of the imputed costs of each of the financing payments.

(4) The contracting officer must calculate the time value of proposal-specified contract financing

arrangements using as the interest rate the nominal discount rate specified in AppendixC of the

Office of Management and Budget (OMB) CircularA-94, "Guidelines and Discount Rates for BenefitCost Analysis of Federal Programs," appropriate to the period of contract financing. Where the

period of proposed financing does not match the periods in the OMB Circular, the interest rate for

the period closest to the finance period shall be used. AppendixC is updated yearly, and is available

from the Office of Economic Policy in the Office of Management and Budget (OMB).

32.206 Solicitation provisions and contract clauses.

(a) The contract shall contain the paragraph entitled "Payment" of the clause at 52.212-4, Contract

Terms and Conditions-Commercial Products and Commercial Services. If the contract will provide

for contract financing, the contracting officer shall construct a solicitation provision and contract

clause. This solicitation provision shall be constructed in accordance with 32.204 or 32.205. If the

procedure at 32.205 is used, the solicitation provision at 52.232-31, invitation to Propose Financing

Terms, shall be included. The contract clause shall be constructed in accordance with the

requirements of this subpart and any agency regulations.

(b) Each contract financing clause shall include:

(1) A description of the-

(i) Computation of the financing payment amounts (see paragraph (c) of this section);

(ii) Specific conditions of contractor entitlement to those financing payments (see paragraph (c) of

this section);

(iii) Liquidation of those financing payments by delivery payments (see paragraph (e) of this section);

(iv) Security the contractor will provide for financing payments and any terms or conditions

specifically applicable thereto (see 32.202-4); and
(v) Frequency, form, and any additional content of the contractor’s request for financing payment (in

addition to the requirements of the clause at 52.232-29, Terms for Financing of Purchases of

Commercial Products and Commercial Services; and

(2) Unless agency regulations authorize alterations, the unaltered text of the clause at 52.232-29,

Terms for Financing of Purchases of Commercial Products and Commercial Services.

(c) Computation of amounts, and contractor entitlement provisions.

(1) Contracts shall provide that delivery payments shall be made only for completed supplies and

services accepted by the Government in accordance with the terms of the contract. Contracts may

provide for commercial advance and commercial interim payments based upon a wide variety of

bases, including (but not limited to) achievement or occurrence of specified events, the passage of

time, or specified times prior to the delivery date(s). The basis for payment must be objectively

determinable. The clause written by the contracting officer shall specify, to the extent access is

necessary, the information and/or facilities to which the Government shall have access for the

purpose of verifying the contractor’s entitlement to payment of contract financing.

(2) If the contract is awarded using the offeror-proposed procedure at 32.205, the clause

constructed by the contracting officer under paragraph (b)(1) of this section shall contain the

following:

(i) A statement that the offeror’s proposed listing of earliest times and greatest amounts of projected

financing payments submitted in accordance with paragraph (d)(2) of the provision at 52.232-31,

invitation to Propose Financing Terms, is incorporated into the contract, and

(ii) A statement that financing payments shall be made in the lesser amount and on the later of the

date due in accordance with the financing terms of the contract, or in the amount and on the date

projected in the listing of earliest times and greatest amounts incorporated in the contract.

(3) If the security accepted by the contracting officer is the contractor’s financial condition, the

contracting officer shall incorporate in the clause constructed under paragraph (b)(1) of this section

the following-

(i) A statement that the contractor’s financial condition has been accepted as adequate security for

commercial financing payments; and

(ii) A statement that the contracting officer may exercise the Government’s rights to require other

security under paragraph (c), Security for Government Financing, of the clause at 52.232-29, Terms

for Financing of Purchases of Commercial Products and Commercial Services, in the event the

contractor’s financial condition changes and is found not to be adequate security.

(d) Instructions for multiple appropriations. If contract financing is to be computed for the contract

as a whole, and if there is more than one appropriation account (or subaccount) funding payments

under the contract, the contracting officer shall include, in the contract, instructions for distribution

of financing payments to the respective funds accounts. Distribution instructions and contract

liquidation instructions must be mutually consistent.

(e) Liquidation. Liquidation of contract financing payments shall be on the same basis as the

computation of contract financing payments; that is, financing payments computed on a whole

contract basis shall be liquidated on a whole contract basis; and a payment computed on a line item

basis shall be liquidated against that line item. If liquidation is on a whole contract basis, the
contracting officer shall use a uniform liquidation percentage as the liquidation method, unless the

contracting officer obtains the concurrence of the cognizant payment office that the proposed

liquidation provisions can be executed by that office, or unless agency regulations provide

alternative liquidation methods.

(f) Prompt payment for commercial purchase payments. The provisions of subpart 32.9, Prompt

Payment, apply to contract financing and invoice payments for commercial purchases in the same

manner they apply to other than commercial purchases. The contracting officer is responsible for

including in the contract all the information necessary to implement prompt payment. In particular,

contracting officers must be careful to clearly differentiate in the contract between contract

financing and invoice payments and between items having different prompt payment times.

(g) Installment payment financing for commercial products and commercial services. Contracting

officers may insert the clause at 52.232-30, Installment Payments for Commercial Products and

Commercial Services, in solicitations and contracts in lieu of constructing a specific clause in

accordance with paragraphs (b) through (e) of this section, if the contract action qualifies under the

criteria at 32.202-1(b) and installment payments for the item are either customary or are authorized

in accordance with agency procedures.

(1) Description. Installment payment financing is payment by the Government to a contractor of a

fixed number of equal interim financing payments prior to delivery and acceptance of a contract

item. The installment payment arrangement is designed to reduce administrative costs. However, if

a contract will have a large number of deliveries, the administrative costs may increase to the point

where installment payments are not in the best interests of the Government.

(2) Authorized types of installment payment financing and rates. Installment payments may be made

using the clause at 52.232-30, Installment Payments for Commercial Products and Commercial

Services, either at the 70 percent financing rate cited in the clause or at a lower rate in accordance

with agency procedures.

(3) Calculating the amount of installment financing payments. The contracting officer shall identify

in the contract schedule those items for which installment payment financing is authorized. Monthly

installment payment amounts are to be calculated by the contractor pursuant to the instructions in

the contract clause only for items authorized to receive installment payment financing.

(4) Liquidating installment payments. If installment payments have been made for an item, the

amount paid to the contractor upon acceptance of the item by the Government shall be reduced by

the amount of installment payments made for the item. The contractor’s request for final payment

for each item is required to show this calculation.

32.207 Administration and payment of commercial financing payments.

(a) Responsibility. The contracting officer responsible for administration of the contract shall be

responsible for review and approval of contract financing requests.

(b) Approval of financing requests. Unless otherwise provided in agency regulations, or by

agreement with the appropriate payment official-

(1) The contracting officer shall be responsible for receiving, approving, and transmitting all

contract financing requests to the appropriate payment office; and
(2) Each approval shall specify the amount to be paid, necessary contractual information, and the

account(s) (see 32.206(d)) to be charged for the payment.

(c) Management of security. After contract award, the contracting officer responsible for approving

requests for financing payments shall be responsible for determining that the security continues to

be adequate. If the contractor’s financial condition is the Government’s security, this contracting

officer is also responsible for monitoring the contractor’s financial condition.

Subpart 32.3 - Loan Guarantees for Defense Production

32.300 Scope of subpart.

This subpart prescribes policies and procedures for designated agencies’ guarantees of loans made

by private financial institutions to borrowers performing contracts related to national defense (see

30.102).

32.301 Definitions.

As used in this subpartBorrower means a contractor, subcontractor (at any tier), or other supplier who receives a

guaranteed loan.

Federal Reserve Board means the Board of Governors of the Federal Reserve System.

Guaranteed loan or "V loan" means a loan, revolving credit fund, or other financial arrangement

made pursuant to Regulation V of the Federal Reserve Board, under which the guaranteeing agency

is obligated, on demand of the lender, to purchase a stated percentage of the loan and to share any

losses in the amount of the guaranteed percentage.

Guaranteeing agency means any agency that the President has authorized to guarantee loans,

through Federal Reserve Banks, for expediting national defense production.

32.302 Authority.

Congress has authorized Federal Reserve Banks to act, on behalf of guaranteeing agencies, as fiscal

agents of the United States in the making of loan guarantees for defense production (Section301,

Defense Production Act of1950 (50 U.S.C. App.2091)). By Executive Order10480, August 14,1953 (3

CFR1949-53), as amended, the President has designated the following agencies as guaranteeing

agencies:

(a) Department of Defense.

(b) Department of Energy.

(c) Department of Commerce.
(d) Department of the Interior.

(e) Department of Agriculture.

(f) General Services Administration.

(g) National Aeronautics and Space Administration.

32.303 General.

(a) Section 301 of the Defense Production Act authorizes loan guarantees for contract performance

or other operations related to national defense, subject to amounts annually authorized by Congress

on the maximum obligation of any guaranteeing agency under any loan, discount, advance, or

commitment in connection therewith, entered into under section 301. (See 50 U.S.C. App.2091 for

statutory limitations and exceptions concerning the authorization of loan guarantee amounts and the

use of loan guarantees for the prevention of insolvency or bankruptcy.)

(b) The guarantee shall be for less than 100 percent of the loan unless the agency determines that-

(1) The circumstances are exceptional;

(2) The operations of the contractor are vital to the national defense; and

(3) No other suitable means of financing are available.

(c) Loan guarantees are not issued to other agencies of the Government.

(d) Guaranteed loans are essentially the same as conventional loans made by private financial

institutions, except that the guaranteeing agency is obligated, on demand of the lender, to purchase

a stated percentage of the loan and to share any losses in the amount of guaranteed percentage. It is

the responsibility of the private financial institution to disburse and collect funds and to administer

the loan. Under Regulation V of the Federal Reserve Board (12 CFR245), any private financing

institution may submit an application to the Federal Reserve Bank of its district for guarantee of a

loan or credit.

(e) Federal Reserve Banks will make the loan guarantee agreements on behalf of the guaranteeing

agencies.

(f) Under Section 302(c) of Executive Order10480, August 14,1953 (3 CFR1949-53), as amended, all

actions and operations of Federal Reserve Banks, as fiscal agents, are subject to the supervision of

the Federal Reserve Board. The Federal Reserve Board is authorized to prescribe the following, after

consultation with the heads of guaranteeing agencies:

(1) Regulations governing the actions and operations of fiscal agents.

(2) Rates of interest, guarantee and commitment fees, and other charges that may be made for

loans, discounts, advances, or commitments guaranteed by the guaranteeing agencies through the

Federal Reserve Banks. These prescriptions may be in the form of specific rates or limits, or in other

forms.

(3) Uniform forms and procedures to be used in connection with the guarantees.
(g) The guaranteeing agency is responsible for certifying eligibility for the guarantee and fixing the

maximum dollar amount and maturity date of the guaranteed loan to meet the contractor’s

requirement for financing performance of the defense production contract on hand at the time the

guarantee application is submitted.

32.304 Procedures.

32.304-1 Application for guarantee.

(a) A contractor, subcontractor, or supplier that needs operating funds to perform a contract related

to national defense may apply to a financing institution for a loan. If the financing institution is

willing to extend credit, but considers a Government guarantee necessary, the institution may apply

to the Federal Reserve Bank of its district for the guarantee. Application forms and guidance are

available at all Federal Reserve Banks.

(b) The Federal Reserve Bank will promptly send a copy of the application, including a list of the

relevant defense contracts held by the contractor, to the Federal Reserve Board. The Board will

transmit the application and the list of contracts to the interested guaranteeing agency, so that the

agency can determine the eligibility of the contractor.

(c) To expedite the process, the Federal Reserve Bank may, pursuant to instructions of a

guaranteeing agency, submit lists of the defense contracts to the interested contracting officers.

(d) While eligibility is being determined, the Federal Reserve Bank will make any necessary credit

investigations to supplement the information furnished by the applicant financing institution in order

to-

(1) Expedite necessary defense financing; and

(2) Protect the Government against monetary loss.

(e) The Federal Reserve Bank will send its report and recommendation to the Federal Reserve

Board. The Board will transmit them to the interested guaranteeing agency.

32.304-2 Certificate of eligibility.

(a) The contracting officer shall prepare the certificate of eligibility for a contract that the

contracting officer deems to be of material consequence, when-

(1) The contract financing office requests it;

(2) Another interested agency requests it; or

(3) The application for a loan guarantee relates to a contract or subcontract within the cognizance of

the contracting officer.

(b) The agency shall evaluate the relevant data, including the certificate of eligibility, the

accompanying data, and any other relevant information on the contractor’s financial status and

performance, to determine whether authorization of a loan guarantee would be in the Government’s
interest.

(c) If the contractor has several major national defense contracts, it is normally not necessary to

evaluate the eligibility of relatively minor contracts. The determination of eligibility should be

processed, without delay, based on the preponderance of the amount of the contracts.

(d) The certificate of eligibility shall include the following determinations:

(1) The supplies or services to be acquired are essential to the national defense.

(2) The contractor has the facilities and the technical and management ability required for contract

performance.

(3) There is no practicable alternate source for the acquisition without prejudice to the national

defense. (This statement shall not be included if the contractor is a small business concern.)

(e) The contracting officer shall consider the following factors in determining if a practicable

alternate source exists:

(1) Prejudice to the national defense, because reletting of a contract with another source would

conflict with a major policy on defense acquisition; e.g., policies relating to the mobilization base.

(2) The urgency of contract performance schedules.

(3) The technical ability and facilities of other potential sources.

(4) The extent to which other sources would need contract financing to perform.

(5) The willingness of other sources to enter into contracts.

(6) The time and expense involved in repurchasing for contracts or parts of contracts. This may

include potential claims under a termination for convenience or delays incident to default at a later

date.

(7) The comparative prices available from other sources.

(8) The disruption of established subcontracting arrangements.

(9) Other pertinent factors.

(f) The contracting officer shall attach sufficient data to the certificate of eligibility to support the

determinations made. Available pertinent information shall be included on-

(1) The contractor’s past performance;

(2) The relationship of the contractor’s operations to performance schedules; and

(3) Other factors listed in paragraph (e) of this section, if relevant to the case under consideration.

(g) If the contracting officer determines that a certificate of eligibility is not justified, the facts and

reasons supporting that conclusion shall be documented and furnished to the agency contract

finance office.

(h) The guaranteeing agency shall review the proposed guarantee terms and conditions. If they are
considered appropriate, the guaranteeing agency shall complete a standard form of authorization as

prescribed by the Federal Reserve Board. The agency shall transmit the authorization through the

Federal Reserve Board to the Federal Reserve Bank. The Bank is authorized to execute and deliver

to the financing institution a standard form of guarantee agreement, with the terms and conditions

approved for the particular case. The financing institution will then make the loan.

(i) Substantially the same procedure may be followed for the application of an offeror who is actively

negotiating or bidding for a defense contract, except that the guarantee shall not be authorized until

the contract has been executed.

(j) The contracting officer shall report to the agency contract finance office any information about

the contractor that would have a potentially adverse impact on a pending guarantee application. The

contracting officer is not required, however, to initiate any special investigation for this purpose.

(k) With regard to existing contracts, the agency shall not consider the percentage of guarantee

requested by the financing institution in determining the contractor’s eligibility.

32.304-3 Asset formula.

(a) Under guaranteed loans made primarily for working capital purposes, the agency shall normally

limit the guarantee, by use of an asset formula, to an amount that does not exceed a specified

percentage (90 percent or less) of the contractor’s investment (e.g., payrolls and inventories) in

defense production contracts. The asset formula may include all items under defense contracts for

which the contractor would be entitled to payment on performance or termination. The formula shall

exclude-

(1) Amounts for which the contractor has not done any work or made any expenditure;

(2) Amounts that would become due as the result of later performance under the contracts; and

(3) Cash collateral or bank deposit balances.

(b) Progress payments are deducted from the asset formula.

(c) The agency may relax the asset formula to an appropriate extent for the time actually necessary

for contract performance, if the contractor’s working capital and credit are inadequate.

32.304-4 Guarantee amount and maturity.

The agency may change the guarantee amount or maturity date, within the limitations at 32.304-3,

as follows:

(a) If the contractor enters into additional defense production contracts after the application for, but

before authorization of, a guarantee, the agency may adjust the loan guarantee amount or maturity

date to meet any significant increase in financing need.

(b) If the contractor enters into defense production contracts during the term of the guaranteed

loan, the parties may adjust the existing guarantee agreement to provide for financing the new

contracts. Pertinent information and the Federal Reserve Bank reports will be submitted to the

guaranteeing agency under the procedures for the original guarantee application, described in
32.304-1. Normally, a new certificate of eligibility is required.

32.304-5 Assignment of claims under contracts.

(a) The agency shall generally require a contractor that is provided a guaranteed loan to execute an

assignment of claims under defense production contracts (including any contracts entered into

during the term of the guaranteed loan that are eligible for financing under the loan); however, the

agency need not require assignment if any of the following conditions are present:

(1) The contractor’s financial condition is so strong that the protection to the Government provided

by an assignment of claims is unnecessary.

(2) In connection with the assignment of claims under a major contract, the increased protection of

the loan that would be provided by the assignments under additional, relatively smaller contracts is

not considered necessary by the agency.

(3) The assignment of claims would create an administrative burden disproportionate to the

protection required; e.g., if the contractor has a large number of contracts with individually small

dollar amounts.

(b) The contractor shall also execute an assignment of claims if requested to do so by the guarantor

or the financing institution.

(c) A subcontract or purchase order issued to a subcontractor shall not be considered eligible for

financing under guaranteed loans when the issuer of the subcontract or purchase order reserves-

(1) The privilege of making payments directly to the assignor or to the assignor and assignee jointly,

after notice of the assignment, or

(2) The right to reduce or set off assigned proceeds under defense production contracts by reason of

claims against the borrower arising after notice of assignment and independently of defense

production contracts under which the borrower is the seller.

32.304-6 Other collateral security.

The following are examples of other forms of security that, although seldom invoked under

guaranteed loans, may be required when considered necessary for protection of the Government

interest:

(a) Mortgages on fixed assets.

(b) Liens against inventories.

(c) Endorsements.

(d) Guarantees.

(e) Subordinations or standbys of other indebtedness.
32.304-7 Contract surety bonds and loan guarantees.

(a) Contract surety bonds are incompatible with the Government’s interests under guaranteed loans,

unless the interests of the surety are subordinated to the guaranteed loan.

(b) If a substantial share of the contractor’s defense contracts are covered by surety bonds, or the

amount of the bond is substantial in relation to the contractor’s net worth, the agency shall not

authorize the guarantee of a loan on a bonded contract unless the surety enters into an agreement

with the financing institution to subordinate the surety’s rights and claims in favor of the guaranteed

loan.

(c) The agency approval of a guarantee for a loan involving relatively substantial subcontracts

covered by surety bonds shall also depend on the establishment of a reasonable allocation

agreement between the sureties and the financing institution. The agreement should give the

financing institution the benefit, with regard to payments to be made on the contract, of the portion

of its loans fairly attributable to expenditures made under the bonded subcontracts before notice of

default.

32.304-8 Other borrowing.

(a) Because of the limitations under guaranteed loans, some contractors seek to supplement the loan

by other borrowing (outside the guarantee) from the financing institution or other sources. It has

been recognized in practice that, while prohibition of borrowings outside the guaranteed loan is

preferable when practicable in a given V-loan case, such other borrowings should be permitted when

necessary.

(b) If the agency consents to the contractor obtaining other borrowing during the guaranteed loan

period, the agency shall apply the following restrictions:

(1) A reasonable limit on the amount of other borrowing.

(2) If guaranteed and unguaranteed loans are made by the same financing institution, a requirement

that any collateral security requested by the institution under the unguaranteed loan is also to be

secondary collateral for the guaranteed loan.

(3) A requirement that the contractor provide appropriate documentation to the guaranteeing

agency, at intervals not longer than 30 days, to disclose outstanding unguaranteed borrowings.

32.305 Loan guarantees for terminated contracts.

(a) The purpose of guaranteed loans; i.e., to provide for financing based on the borrower’s

recoverable investment in defense production contracts, may also apply to contracts that have been

terminated (partially or totally) for the convenience of the Government. Guaranteed loans also may

be made before such termination if it is known that termination of particular contracts for the

convenience of the Government is about to occur. These loans are expected to provide necessary

financing pending termination settlements and payments. They may also finance continuing

performance of defense production contracts that are eligible for guaranteed loans.

(b) The procedure for such guarantees is substantially the same as that outlined in 32.304, except
that certificates of eligibility are not required for (1) contracts that have been totally terminated or

(2) the terminated portion of contracts that have been partially terminated. The agency shall take

precautions necessary to avoid Government losses and to ensure the loans will be self-liquidating

from the proceeds of defense production contracts.

(c) Loan guarantees for contract termination financing shall not be provided before specific contract

terminations are certain.

32.306 Loan guarantees for subcontracts.

If the request for a loan guarantee concerns a subcontractor that is financially weak in comparison

with its contractor, the Government’s interests may be fostered by the contractor making progress

payments to the subcontractor. If so, the agency shall try to arrange for the contractor to provide

the progress payments. As a result, the need for the loan guarantee may be reduced or eliminated

and the contractor would bear part or all of the risk of loss arising from the selection of the

subcontractor.

Subpart 32.4 - Advance Payments for Other Than

Commercial Acquisitions

32.400 Scope of subpart.

This subpart provides policies and procedures for advance payments on prime contracts and

subcontracts. It does not include policies and procedures for advance payments for the types of

transactions listed in 32.404. This subpart does not apply to commercial advance payments, which

are subject to subpart 32.2.

32.401 Statutory authority.

The agency may authorize advance payments in negotiated and sealed bid contracts if the action is

appropriate under-

(a) 41 U.S.C.chapter 45;

(b) 10 U.S.C. chapter 277; or

(c) Pub.L.85-804 (50 U.S.C.1431-1435) and Executive Order10789, November 14,1958 (3 CFR1958

Supp. pp. 72-74) (see subpart 50.1 for other applications of this statute).

32.402 General.

(a) A limitation on authority to grant advance payments under Pub.L.85-804 (50 U.S.C.1431-1435) is

described at 50.102-3(b)(4).

(b) Advance payments may be provided on any type of contract; however, the agency shall authorize
advance payments sparingly. Except for the contracts described in 32.403(a) and (b), advance

payment is the least preferred method of contract financing (see 32.106) and generally they should

not be authorized if other types of financing are reasonably available to the contractor in adequate

amounts. Loans and credit at excessive interest rates or other exorbitant charges, or loans from

other Government agencies, are not considered reasonably available financing.

(c) If statutory requirements and standards for advance payment determinations are met, the

contracting officer shall generally recommend that the agency authorize advance payments.

(1) The statutory requirements are that-

(i) The contractor gives adequate security;

(ii) The advance payments will not exceed the unpaid contract price (see 32.410(b), paragraph

(a)(2)); and

(iii) The agency head or designee determines, based on written findings, that the advance payment-

(A) Is in the public interest (under 32.401(a) or (b)); or

(B) Facilitates the national defense (under 32.401(c)).

(2) The standards for advance payment determinations are that-

(i) The advance payments will not exceed the contractor’s interim cash needs based on-

(A) Analysis of the cash flow required for contract performance;

(B) Consideration of the reimbursement or other payment cycle; and

(C) To the extent possible, employment of the contractor’s own working capital;

(ii) The advance payments are necessary to supplement other funds or credit available to a

contractor;

(iii) The recipient is otherwise qualified as a responsible contractor;

(iv) The Government will benefit from performance prospects or there are other practical

advantages; and

(v) The case fits one or more of the categories described in 32.403.

(d) If necessary, the agency may authorize advance payments in addition to progress or partial

payments on the same contract (see 32.501-1(c)).

(e) Each agency that provides advance payments shall-

(1) Place the responsibility for making findings and determinations, and for approval of contract

terms concerning advance payments (see 32.410), at an organizational level high enough to ensure

uniform application of this subpart (see the limitation at 50.102-1(b) which also applies to advance

payments authorized under Pub.L.85-804 (50 U.S.C.1431-1435)); and

(2) Establish procedures for coordination, before advance payment authorization, with the activity

that provides contract financing support.
(f) If the contract provides for advance payments under Pub.L.85-804, the contracting officer shall

ensure conformance with the requirements of 50.103-7.

32.403 Applicability.

Advance payments may be considered useful and appropriate for the following:

(a) Contracts for experimental, research, or development work with nonprofit educational or

research institutions.

(b) Contracts solely for the management and operation of Government-owned plants.

(c) Contracts for acquisition, at cost, of property for Government ownership.

(d) Contracts of such a highly classified nature that the agency considers it undesirable for national

security to permit assignment of claims under the contract.

(e) Contracts entered into with financially weak contractors whose technical ability is considered

essential to the agency. In these cases, the agency shall closely monitor the contractor’s

performance and financial controls to reduce the Government’s financial risk.

(f) Contracts for which a loan by a private financial institution is not practicable, whether or not a

loan guarantee under this part is issued; for example, if-

(1) Financing institutions will not assume a reasonable portion of the risk under a guaranteed loan;

(2) Loans with reasonable interest rates or finance charges are not available to the contractor; or

(3) Contracts involve operations so remote from a financial institution that the institution could not

be expected to suitably administer a guaranteed loan.

(g) Contracts with small business concerns, under which circumstances that make advance

payments appropriate often occur (but see 32.104(b)).

(h) Contracts under which exceptional circumstances make advance payments the most

advantageous contract financing method for both the Government and the contractor.

32.404 Exclusions.

(a) This subpart does not apply to advance payments authorized by law for-

(1) Rent;

(2) Tuition;

(3) Insurance premiums;

(4) Expenses of investigations in foreign countries;

(5) Extension or connection of public utilities for Government buildings or installations;
(6) Subscriptions to publications;

(7) Purchases of supplies or services in foreign countries, if-

(i) The purchase price does not exceed $15,000 (or equivalent amount of the applicable foreign

currency); and

(ii) The advance payment is required by the laws or government regulations of the foreign country

concerned;

(8) Enforcement of the customs or narcotics laws; or

(9) Other types of transactions excluded by agency procedures under statutory authority.

(b) Agencies may issue their own instructions to deal with advance payment items in paragraph (a)

of this section authorized under statutes relevant to their agencies.

32.405 Applying Pub.L.85-804 to advance payments under sealed bid

contracts.

(a) Actions that designated agencies may take to facilitate the national defense without regard to

other provisions of law relating to contracts, as explained in 50.101-1(a), also include making

advance payments. These advance payments may be made at or after award of sealed bid contracts,

as well as negotiated contracts.

(b) Bidders may request advance payments before or after award, even if the invitation for bids does

not contain an advance payment provision. However, the contracting officer shall reject any bid

requiring that advance payments be provided as a basis for acceptance.

(c) When advance payments are requested, the agency may-

(1) Enter into the contract and provide for advance payments conforming to this part 32;

(2) Enter into the contract without providing for advance payments if the contractor does not

actually need advance payments; or

(3) Deny award of the contract if the request for advance payments has been disapproved under

32.409-2 and funds adequate for performance are not otherwise available to the offeror.

32.406 Letters of credit.

(a) The Department of the Treasury (Treasury) prescribes regulations and instructions covering the

use of letters of credit for advance payments under contracts. See Treasury Department

Circular1075 (31 CFR Part 205), and the implementing instructions in the Treasury Financial

Manual, available in offices providing financial advice and assistance.

(b) If agencies provide advance payments to contractors, use of the following methods is required

unless the agency has obtained a waiver from the Treasury Department:

(1) By letter of credit if the contracting agency expects to have a continuing relationship with the
contractor for a year or more, with advances totaling at least $120,000 a year.

(2) By direct Treasury check if the circumstances do not meet the criteria in paragraph (b)(1) of this

section.

(c) If the agency has entered into multiple contracts (or a combination of contract(s) and assistance

agreement(s)) involving eligibility of a contractor for more than one letter of credit, the agency shall

follow arrangements made under Treasury procedures for-

(1) Consolidating funding to the same contractor under one letter of credit or

(2) Replacing multiple letters of credit with a single letter of credit.

(d) The letter of credit enables the contractor to withdraw Government funds in amounts needed to

cover its own disbursements of cash for contract performance. Whenever feasible, the agency shall,

under the direction and approval of the Department of the Treasury, use a letter of credit method

that requires the contractor not to withdraw the Government funds until the contractor’s checks

have been-

(1) Forwarded to the payees (delay of drawdown technique), or

(2) Presented to the contractor’s bank for payment (checks paid technique) (see 31 CFR205.3 and

205.4(d)).

(e) The Treasury regulations provide for terminating the advance financing arrangement if the

contractor is unwilling or unable to minimize the elapsed time between receipt of the advance and

disbursement of the funds. In such cases, if reversion to normal payment methods is not feasible, the

Treasury regulation provides for use of a working capital method of advance; i.e., for limiting

advances to-

(1) Only the estimated disbursements for a given initial period; and

(2) Subsequently, for only actual cash disbursements (31 CFR205.3(k) and 205.7).

32.407 Interest.

(a) Except as provided in paragraph (d) of this section, the contracting officer shall charge interest

on the daily unliquidated balance of all advance payments at the higher of-

(1) The published prime rate of the financial institution (depository) in which the special account

(see 32.409-3) is established; or

(2) The rate established by the Secretary of the Treasury under 50 U.S.C. App.1215(b)(2).

(b) The interest rate for advance payments shall be adjusted for changes in the prime rate of the

depository and the semiannual determination by the Secretary of the Treasury under 50 U.S.C.

App.1215(b)(2). The contracting officer shall obtain data from the depository on changes in the

interest rate during the month. Interest shall be computed at the end of each month on the daily

unliquidated balance of advance payments at the applicable daily interest rate.

(c) Interest shall be required on contracts that are for acquisition, at cost, of property for

Government ownership, if the contracts are awarded in combination with, or in contemplation of,
supply contracts or subcontracts.

(d) The agency head or designee may authorize advance payments without interest under the

following types of contracts, if in the Government’s interest:

(1) Contracts for experimental, research, or development work (including studies, surveys, and

demonstrations in socio-economic areas) with nonprofit education or research institutions.

(2) Contracts solely for the management and operation of Government-owned plants.

(3) Cost-reimbursement contracts with governments, including State or local governments, or their

instrumentalities.

(4) Other classes of contracts, or unusual cases, for which the exclusion of interest on advances is

specifically authorized by agency procedures.

(e) If a contract provides for interest-free advance payments, the contracting officer may require the

contractor to charge interest on advances or downpayments to subcontractors and credit the

Government for the proceeds from the interest charges. Interest rates shall be determined as

described in paragraphs (a) and (b) of this section. The contracting officer need not require the

contractor to charge interest on an advance to a subcontractor that is an institution of the kind

described in paragraph (d)(1) of this section.

(f) The contracting officer shall not allow interest charges, required by this 32.407, as reimbursable

costs under cost-reimbursement contracts, whether the interest charge was incurred by the prime

contractor or a subcontractor.

32.408 Application for advance payments.

(a) A contractor may apply for advance payments before or after the award of a contract.

(b) The contractor shall submit any advance payment request in writing to the contracting officer

and provide the following information:

(1) A reference to the contract if the request concerns an existing contract, or a reference to the

solicitation if the request concerns a proposed contract.

(2) A cash flow forecast showing estimated disbursements and receipts for the period of contract

performance. If the application pertains to a type of contract described in 32.403(a) or (b), the

contractor shall limit the forecast to the contract to be financed by advance payments.

(3) The proposed total amount of advance payments.

(4) The name and address of the financial institution at which the contractor expects to establish a

special account as depository for the advance payments. If advance payments in the form of a letter

of credit are anticipated, the contractor shall identify the specific account at the financial institution

to be used. This paragraph (b)(4) is not applicable if an alternate method is used under agency

procedures.

(5) A description of the contractor’s efforts to obtain unguaranteed private financing or a V-loan (see

32.301) under eligible contracts. This requirement is not applicable to the contract types described

in 32.403(a) or (b).
(6) Other information appropriate to an understanding of (i) the contractor’s financial condition and

need, (ii) the contractor’s ability to perform the contract without loss to the Government, and

(iii)financial safeguards needed to protect the Government’s interest. Ordinarily, if the contract is a

type described in 32.403(a) or (b), the contractor may limit the response to this paragraph (b)(6) to

information on the contractor’s reliability, technical ability, and accounting system and controls.

32.409 Contracting officer action.

After analysis of the contractor’s application and any appropriate investigation, the contracting

officer shall recommend approval or disapproval and transmit the request and recommendation to

the approving authority designated under 32.402(e).

32.409-1 Recommendation for approval.

If recommending approval, the contracting officer shall transmit the following, under agency

procedures, to the approving authority:

(a) Contract data, including-

(1) Identification and date of the award;

(2) Citation of the appropriation;

(3) Type and dollar amount of the contract;

(4) Items to be supplied, schedule of deliveries or performance, and status of any deliveries or

performance;

(5) The contract fee or profit contemplated; and

(6) A copy of the contract, if available.

(b) The contractor’s request and supporting information.

(c) A report on the contractor’s past performance, responsibility, technical ability, and plant

capacity.

(d) Comments on-

(1) The contractor’s need for advance payments; and

(2) Potential Government benefits from the contract performance.

(e) Proposed advance payment contract terms, including proposed security requirements.

(f) The findings, determination, and authorization (see 32.410).

(g) The recommendation for approval of the advance payment request.

(h) Justification of any proposal for waiver of interest charges (see 32.407).
32.409-2 Recommendation for disapproval.

If recommending disapproval, the contracting officer shall, under agency procedures, transmit-

(a) The items prescribed in 32.409-1(a), (b), and (c); and

(b) The recommendation for disapproval and the reasons.

32.409-3 Security, supervision, and covenants.

(a) If advance payments are approved, the contracting officer shall enter into an agreement with the

contractor covering special accounts and suitable covenants protecting the Government’s interest

(see 32.411). This requirement generally applies under all statutory authorities, but modified

requirements applicable to certain specific cases are prescribed in paragraphs (e) through (g) of this

section.

(b) The agency shall-

(1) Ensure that the amount of advance payments does not exceed the contractor’s financial needs,

and

(2) Closely supervise the contractor’s withdrawal of funds from special accounts in which the

advance payments are deposited.

(c) In the terms of the agreement, the contracting officer should provide for a paramount lien in

favor of the Government. This lien may supplement or replace other security requirements. The lien

should cover-

(1) Supplies being acquired;

(2) Any credit balance in the special account in which advance payments are deposited; and

(3) All property that the contractor acquires for performing the contract, except to the extent to

which the Government otherwise has valid title to the property.

(d) Security requirements vary to fit the circumstances of different cases. Minimum security

requirements are covered by the clauses prescribed in the contract. The contracting officer may

supplement these as necessary in each case for protection of the Government’s interest. Examples of

additional security terms are-

(1) Personal or corporate endorsements or guarantees;

(2) Pledges of collateral;

(3) Subordination or standby of other indebtedness;

(4) Controls or limitations on profit distributions, salaries, bonuses or commissions, rentals and

royalties, capital expenditures, creation of liens, retirement of stock or debt, and creation of

additional obligations; and

(5) Advance payment bonds (rarely required).
(e) In an advance payment agreement with an instrumentality of the Government, a State, a local

government, or an agency or instrumentality of a State or local government, the contracting officer

may omit the requirement for deposit of the advances in a special account, if the official approving

the advance determines that other adequate security exists to protect the Government’s interest.

(f) The requirements of this 32.409-3 do not apply when using letters of credit if an agency’s

procedures provide for-

(1) The use under a cost-reimbursement contract of Federal funds deposited in the contractor’s

account at a financial institution (without the contractor acquiring title to the funds); and

(2) The security of such deposit of public moneys in accordance with governing regulations of the

Treasury Department.

(g) If a separate special account is not required; e.g., advance payment by a letter of credit, an

agency may require a special account for an individual case, or classes of cases, if the circumstances

warrant.

32.410 Findings, determination, and authorization.

(a) Each determination concerning advance payments shall be supported by written findings (see

32.402(c)(1)(iii)).

(b) The following is an example of the format and text of findings, determination, and authorization

with alternative words, phrases, and paragraphs to be selected to conform to the circumstances

involved:

Findings, Determination, and Authorization for Advance Payments

Findings

(a) The undersigned hereby finds that:

(1) The ________________ [Insert the name of the contracting activity] and ________________ [Insert the

name of the contractor] (have entered) (propose to enter) into (negotiated) (sealed bid) Contract

No.____________, dated __________. [Summarize the specific facts and significant circumstances

concerning the contract and the contractor, that, together with the other findings, will clearly

support the determination below.]

(2) Advance payments (in an amount not to exceed $______________ at any time outstanding) (in an

aggregate amount not exceeding $________, less the aggregate amounts repaid, or withdrawn by the

Government) are required by the Contractor to perform under the contract. The amount does not

exceed the unpaid contract price or the estimated interim cash needs arising during the

reimbursement cycle.

(3) The advance payments are necessary for prompt, efficient contract performance that will benefit

the Government.

(4) The proposed advance payment clause provides for security for the protection of the

Government. The clause requires that all payments will be deposited in a special account at the

Contractor’s financial institution and that the Government will have a paramount lien on (i) the

credit balance in the special account, (ii) any supplies contracted for, and (iii)any material or other
property acquired for performance of the contract. [Insert the following, if applicable: (The

Contractor’s financial management system provides for effective control over and accountability for

all Federal funds under governing regulations of the Treasury Department.)(An advance payment

bond is required.)] This security is considered adequate.

(5) Advance payments are the only adequate means of financing available to the Contractor, and the

amount designated in (2) of this section is based, to the extent possible, on the use of the

Contractor’s own working capital in performing the contract. [Insert paragraph(6), (7), or (8), as

applicable.]

(6) The Contractor is a nonprofit (educational) (and) (research) institution, and the contract is for

(experimental) (,) (research and development) work.

(7) The contract is solely for the management and operation of a Government-owned plant.

(8) The following unusual facts and circumstances favor making advance payments to the Contractor

without interest: [List the pertinent facts and circumstances.]

Determination

(b) Based on the findings in paragraph (a) of this section, the undersigned determined that the

making of the proposed advance payments, (with interest at the rate of ______ [Insert the interest

rate computed in accordance with 32.407 ] percent on the daily unliquidated balance of the advance

payments,) (without interest, except as provided by the proposed advance payment clause,) (is in the

public interest) (will facilitate the national defense).

Authorization

(c) The advance payments, of which (the amount at any time outstanding) (the aggregate amount,

less the aggregate amounts repaid, or withdrawn by the Government), shall not exceed

$_____________, are hereby authorized under ( 41 U.S.C. chapter 45, Contract Financing) (10 U.S.C.

chapter 277) (the Extraordinary Contracting Authority of Government Agencies in Connection with

National Defense Functions (50 U.S.C.1431-1435) and Executive Order No.10789 of November

14,1958 (3 CFR 1958 Supp. pp. 72-74)) [or, if other, cite appropriate authority] on (terms

substantially as contained in the proposed advance payment clause, a copy (an outline) of which is

annexed to this authorization) (the following terms:) [Insert the appropriate terms.] (All prior

authorizations for advance payments under Contract No. _________ are superseded.)

__________________________________________________ [Signature]

__________________________________________________ [Name Typed]

__________________________________________________ [Titleof Authorized Official]

[Each Findings, Determination, and Authorization shall be individually prepared to fit the particular

circumstances at hand.Paragraphs(a)(1), (2), (3) and (4) and paragraphs (b) and (c) shall be used in

each case. If the contract is (a) for experimental, developmental or research work and with a

nonprofit educational or research institution, or (b) only for management and operation of a

Government-owned plant, paragraph (a)(5) should not be included.If the advance payment is to be

made without interest to the contractor, include paragraph (a)(6), (7), or (8). If any advance

payments have previously been authorized for the contract, include the final sentence of paragraph

(c). The alternate parenthetical wording or other modifications may be used as appropriate.The

paragraphs actually used shall be renumbered sequentially.]
32.411 Agreement for special account at a financial institution.

The contracting officer must use substantially the following form of agreement for a special account

for advance payments:

Agreement for Special Account

This agreement is entered into this _____ day of _____, 20___, between the United States of America

(the Government), represented by the Contracting Officer executing this agreement, _____ [Insert

the name of the Contractor], a _____ [Insert the name of the State of incorporation] corporation (the

Contractor), and _____, a financial institution operating under the laws of _____, located at

____________ (the financial institution).

Recitals

(a) Under date of _____, 20__, the Government and the Contractor entered into Contract No. _____, or

a related supplemental agreement, providing for advance payments to the Contractor. A copy of the

advance payment terms was furnished to the financial institution.

(b) The contract or supplemental agreement requires that amounts advanced to the Contractor be

deposited separate from the Contractor’s general or other funds, in a Special Account at a member

bank of the Federal Reserve System, any "insured" bank within the meaning of the Act creating the

Federal Deposit Insurance Corporation (12 U.S.C.1811), or a credit union insured by the National

Credit Union Administration. The parties agree to deposit the amounts with the financial institution,

which meets the requirement.

(c) This Special Account is designated "________ [Insert the Contractor’s name], _____________ [Insert

the name of the Government agency] Special Account."

Covenants

In consideration of the foregoing, and for other good and valuable considerations, the parties agree

to the following conditions:

(a) The Government shall have a lien on the credit balance in the account to secure the repayment of

all advance payments made to the Contractor. The lien is paramount to any lien or claim of the

financial institution regarding the account.

(b) The financial institution is bound by the terms of the contract relating to the deposit and

withdrawal of funds in the Special Account, but is not responsible for the application of funds

withdrawn from the account. The financial institution shall act on written directions from the

Contracting Officer, the administering office, or a duly authorized representative of either. The

financial institution is not liable to any party to this agreement for any action that complies with the

written directions. Any written directions received by the financial institution through the

Contracting Officer on _____ [Insert the name of the agency] stationery and purporting to be signed

by, or by the direction of _____ or duly authorized representative, shall be, as far as the rights,

duties, and liabilities of the financial institution are concerned, considered as being properly issued

and filed with the financial institution by the _____ [Insert the name of the agency].

(c) The Government, or its authorized representatives, shall have access to the books and records

maintained by the financial institution regarding the Special Account at all reasonable times and for

all reasonable purposes, including (but not limited to), the inspection or copying of the books and
records and any and all pertinent memoranda, checks, correspondence, or documents. The financial

institution shall preserve the books and records for a period of 6 years after the closing of this

Special Account.

(d) In the event of the service of any writ of attachment, levy of execution, or commencement of

garnishment proceedings regarding the Special Account, the financial institution will promptly notify

______ [Insert the name of the administering office].

(e) While this Special Account exists, the financial institution shall inform the Government each

month of the financial institution’s published prime interest rate and changes to the rate during the

month. The financial institution shall give this information to the Contracting Officer on the last

business day of the month. [This covenant will not be included in the Special Account Agreements

covering interest-free advance payments.]

Each of the parties to this agreement has executed the agreement on _________________, 20____.

__________________________________________________ __________________________________________________

[Signatures and Official Titles]

32.412 Contract clause.

(a) The contracting officer shall insert the clause at 52.232-12, Advance Payments, in solicitations

and contracts under which the Government will provide advance payments, except as provided in

32.412(b).

(b) If the agency desires to waive the countersignature requirement because of the contractor’s

financial strength, good performance record, and favorable experience concerning cost

disallowances, the contracting officer shall use the clause with its Alternate I.

(c) If a cost-reimbursement contract is contemplated, the contracting officer shall use the clause

with its AlternateII.

(d) If the agency considers a more rapid liquidation appropriate, the contracting officer shall use the

clause with its AlternateIII.

(e) If the agency provides advance payments under the contract at no interest to the prime

contractor, the contracting officer shall use the clause with its AlternateIV.

(f) If the requirement for a special account is eliminated in accordance with 32.409-3(e) or (g), the

contracting officer shall insert in the solicitation or contract the clause set forth in Alternate V of

52.232-12, Advance Payments, instead of the basic clause.

Subpart 32.5 - Progress Payments Based on Costs

32.500 Scope of subpart.

This subpart prescribes policies, procedures, forms, solicitation provisions, and contract clauses for

providing contract financing through progress payments based on costs. This subpart does not apply
to-

(a) Payments under cost-reimbursement contracts, but see 32.110 for progress payments made to

subcontractors under cost-reimbursement prime contracts; or

(b) Contracts for construction or for shipbuilding or ship conversion, alteration, or repair, when the

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

32.501 General.

Progress payments may be customary or unusual. Customary progress payments are those made

under the general guidance in this subpart, using the customary progress payment rate, the cost

base, and frequency of payment established in the Progress Payments clause, and either the

ordinary liquidation method or the alternate method as provided in subsections 32.503-8 and

32.503-9. Any other progress payments are considered unusual, and may be used only in exceptional

cases when authorized in accordance with subsection 32.501-2.

32.501-1 Customary progress payment rates.

(a) The customary progress payment rate is 80 percent, applicable to the total costs of performing

the contract. The customary rate for contracts with small business concerns is 85 percent.

(b) The contracting officer must-

(1) Consider any rate higher than those permitted in paragraph (a) of this section an unusual

progress payment; and

(2) Not include a higher rate in a contract unless advance agency approval is obtained as prescribed

in 32.501-2.

(c) When advance payments and progress payments are authorized under the same contract, the

contracting officer must not authorize a progress payment rate higher than the customary rate.

(d) In accordance with 10 U.S.C. 3804(b) and 41 U.S.C.4504(b), the limit for progress payments is

80 percent on work accomplished under undefinitized contract actions. The contracting officer must

not authorize a higher rate under unusual progress payments or other customary progress payments

for the undefinitized actions.

32.501-2 Unusual progress payments.

(a) The contracting officer may provide unusual progress payments only if-

(1) The contract necessitates predelivery expenditures that are large in relation to contract price

and in relation to the contractor’s working capital and credit;

(2) The contractor fully documents an actual need to supplement any private financing available,

including guaranteed loans; and
(3) The contractor’s request is approved by the head of the contracting activity or a designee. In

addition, see 32.502-2.

(b) The excess of the unusual progress payment rate approved over the customary progress payment

rate should be the lowest amount possible under the circumstances.

(c) Progress payments will not be considered unusual merely because they are on letter contracts or

the definitive contracts that supersede letter contracts.

32.501-3 Contract price.

(a) For the purpose of making progress payments and determining the limitation on progress

payments, the contract price shall be as follows:

(1) Under firm-fixed price contracts, the contract price is the current amount fixed by the contract

plus the not-to-exceed amount for any unpriced modifications.

(2) If the contract is redeterminable or subject to economic price adjustment, the contract price is

the initial price until modified.

(3) Under a fixed-price incentive contract, the contract price is the target price plus the not-toexceed amount of unpriced modifications. However, if the contractor’s properly incurred costs

exceed the target price, the contracting officer may provisionally increase the price up to the ceiling

or maximum price.

(4) Under a letter contract, the contract price is the maximum amount obligated by the contract as

modified.

(5) Under an unpriced order issued against a basic ordering agreement, the contract price is the

maximum amount obligated by the order, as modified.

(6) Any portion of the contract specifically providing for reimbursement of costs only shall be

excluded from the contract price.

(b) The contracting officer shall not make progress payments or increase the contract price beyond

the funds obligated under the contract, as amended.

32.501-4 [Reserved]

32.501-5 Other protective terms.

If the contracting officer considers it necessary for protection of the Government’s interest,

protective terms such as the following may be used in addition to the Progress Payments clause of

the contract:

(a) Personal or corporate guarantees.

(b) Subordinations or standbys of indebtedness.
(c) Special bank accounts.

(d) Protective covenants of the kinds in paragraph (p) of the clause at 52.232-12, Advance Payments.

(e) A provision, included in the solicitation and resultant contract when first article testing is

required (see subpart 9.3), limiting progress payments on first article work by a stated amount or

percentage.

32.502 Preaward matters.

This section covers matters that generally are relevant only before contract award. This does not

preclude taking actions discussed here after award, if appropriate; e.g., postaward addition of a

Progress Payments clause for consideration.

32.502-1 Use of customary progress payments.

The contracting officer may use a Progress Payments clause in solicitations and contracts, in

accordance with this subpart. The contracting officer must reject as nonresponsive bids conditioned

on progress payments when the solicitation did not provide for progress payments.

32.502-2 Contract finance office clearance.

The contracting officer shall obtain the approval of the contract finance office or other offices

designated under agency procedures before taking any of the following actions:

(a) Providing a progress payment rate higher than the customary rate (see 32.501-1).

(b) Deviating from the progress payments terms prescribed in this part.

(c) Providing progress payments to a contractor-

(1) Whose financial condition is in doubt;

(2) Who has had an advance payment request or loan guarantee denied for financial reasons (or

approved but withdrawn or lapsed) within the previous 12 months; or

(3) Who is named in the consolidated list of contractors indebted to the United States (known

commonly as the "Hold-up List").

32.502-3 Solicitation provisions.

(a) The contracting officer shall insert the provision at 52.232-13, Notice of Progress Payments, in

invitations for bids and requests for proposals that include a Progress Payments clause.

(b)
(1) Under the authority of the statutes cited in 32.101, an invitation for bids may restrict the

availability of progress payments to small business concerns only.

(2) The contracting officer shall insert the provision at 52.232-14, Notice of Availability of Progress

Payments Exclusively for Small Business Concerns, in invitations for bids if it is anticipated that-

(i) Both small business concerns and others may submit bids in response to the same invitation; and

(ii) Only the small business bidders would need progress payments.

(c) The contracting officer shall insert the provision at 52.232-15, Progress Payments Not Included,

in invitations for bids if the solicitation will not contain one of the provisions prescribed in

paragraphs (a) and (b) of this section.

32.502-4 Contract clauses.

(a)

(1) Insert the clause at 52.232-16, Progress Payments, in-

(i) Solicitations that may result in contracts providing for progress payments based on costs; and

(ii) Fixed-price contracts under which the Government will provide progress payments based on

costs.

(2) If advance agency approval has been given in accordance with 32.501-1, the contracting officer

may substitute a different customary rate for other than small business concerns for the progress

payment and liquidation rate indicated.

(3) If an unusual progress payment rate is approved for the prime contractor (see 32.501-2),

substitute the approved rate for the customary rate in paragraphs (a)(1), (a)(6), and (b) of the clause.

(4) If the liquidation rate is changed from the customary progress payment rate (see 32.503-8 and

32.503-9), substitute the new rate for the rate in paragraphs (a)(1), (a)(6), and (b) of the clause.

(5) If an unusual progress payment rate is approved for a subcontract (see 32.504(c) and 32.501-2),

modify paragraph (j)(6) of the clause to specify the new rate, the name of the subcontractor, and

that the new rate shall be used for that subcontractor in lieu of the customary rate.

(b) If the contractor is a small business concern, use the clause with its AlternateI.

(c) If the contract is a letter contract, use the clause with its AlternateII.

(d) If the contractor is not a small business concern, and progress payments are authorized under an

indefinite-delivery contract, basic ordering agreement, or their equivalent, use the clause with its

AlternateIII.

(e) If the nature of the contract necessitates separate progress payment rates for portions of work

that are clearly severable and accounting segregation would be maintained (e.g., annual production

requirements), describe the application of separate progress payment rates in a supplementary

special provision within the contract. The contractor must submit separate progress payment
requests and subsequent invoices for the severable portions of work in order to maintain accounting

integrity.

32.503 Postaward matters.

This section covers matters that are generally relevant only after award of a contract. This does not

preclude taking actions discussed here before award, if appropriate; e.g., preaward review of

accounting systems and controls.

32.503-1 [Reserved]

32.503-2 Supervision of progress payments.

(a) The extent of progress payments supervision, by prepayment review or periodic review, should

vary inversely with the contractor’s experience, performance record, reliability, quality of

management, and financial strength, and with the adequacy of the contractor’s accounting system

and controls. Supervision shall be of a kind and degree sufficient to provide timely knowledge of the

need for, and timely opportunity for, any actions necessary to protect Government interests.

(b) The administering office must keep itself informed of the contractor’s overall operations and

financial condition, since difficulties encountered and losses suffered in operations outside the

particular progress payment contract may affect adversely the performance of that contract and the

liquidation of the progress payments.

(c) For contracts with contractors-

(1) Whose financial condition is doubtful or not strong in relation to progress payments outstanding

or to be outstanding;

(2) With management of doubtful capacity;

(3) Whose accounting controls are found by experience to be weak; or

(4) Experiencing substantial difficulties in performance, full information on progress under the

contract involved (including the status of subcontracts) and on the contractor’s other operations and

overall financial condition should be obtained and analyzed frequently, with a view to protecting the

Government’s interests better and taking such action as may be proper to make contract

performance more certain.

(d) So far as practicable, all cost problems, particularly those involving indirect costs, that are likely

to create disagreements in future administration of the contract should be identified and resolved at

the inception of the contract (see 31.109).

32.503-3 Initiation of progress payments and review of accounting system.

(a) For contractors that the administrative contracting officer (ACO) has found by previous

experience or recent audit review (within the last 12 months) to be-
(1) Reliable, competent, and capable of satisfactory performance;

(2) Possessed of an adequate accounting system and controls; and

(3) In sound financial condition, progress payments in amounts requested by the contractor should

be approved as a matter of course.

(b) For all other contractors, the ACO shall not approve progress payments before determining (1)

that (i) the contractor will be capable of liquidating any progress payments or (ii) the Government is

otherwise protected against loss by additional protective provisions, and (2) that the contractor’s

accounting system and controls are adequate for proper administration of progress payments. The

services of the responsible audit agency or office should be used to the greatest extent practicable.

However, if the auditor so advises, a complete audit may not be necessary.

32.503-4 Approval of progress payment requests.

(a) When the reliability of the contractor and the adequacy of the contractor’s accounting system

and controls have been established (see 32.503-3 of this section) the ACO may, in approving any

particular progress payment request (including initial requests on new contracts), rely upon that

accounting system and upon the contractor’s certification, without requiring audit or review of the

request before payment.

(b) The ACO should not routinely ask for audits of progress payment requests. However, when there

is reason to-

(1) Question the reliability or accuracy of the contractor’s certification; or

(2) Believe that the contract will involve a loss, the ACO should ask for a review or audit of the

request before payment is approved or the request is otherwise disposed of.

(c) When there is reason to doubt the amount of a progress payment request, only the doubtful

amount should be withheld, subject to later adjustment after review or audit; any clearly proper and

due amounts should be paid without awaiting resolution of the differences.

32.503-5 Administration of progress payments.

(a) While the ACO may, in approving progress payment requests under 32.503-3 of this section, rely

on the contractor’s accounting system and certification without prepayment review, postpayment

reviews (including audits when considered necessary) shall be made periodically, or when

considered desirable by the ACO to determine the validity of progress payments already made and

expected to be made.

(b) These postpayment reviews or audits shall, as a minimum, include a determination of whether or

not-

(1) The unliquidated progress payments are fairly supported by the value of the work accomplished

on the undelivered portion of the contract;

(2) The applicable limitation on progress payments in the Progress Payments clause has been

exceeded;
(3)

(i) The unpaid balance of the contract price will be adequate to cover the anticipated cost of

completion; or

(ii) The contractor has adequate resources to complete the contract; and

(4) There is reason to doubt the adequacy and reliability of the contractor’s accounting system and

controls and certification.

(c) Under indefinite-delivery contracts, the contracting officer should administer progress payments

made under each individual order as if the order constituted a separate contract, unless agency

procedures provide otherwise. When the contract will be administered by an agency other than the

awarding agency, the contracting officer shall coordinate with the contract administration office if

the awarding agency wants the administration of progress payments to be on a basis other than

order-by-order.

32.503-6 Suspension or reduction of payments.

(a) General. The Progress Payments clause provides a Government right to reduce or suspend

progress payments, or to increase the liquidation rate, under specified conditions. These conditions

and actions are discussed in paragraphs (b) through (g) of this subsection.

(1) The contracting officer shall take these actions only in accordance with the contract terms and

never precipitately or arbitrarily. These actions should be taken only after-

(i) Notifying the contractor of the intended action and providing an opportunity for discussion;

(ii) Evaluating the effect of the action on the contractor’s operations, based on the contractor’s

financial condition, projected cash requirements, and the existing or available credit arrangements;

and

(iii) Considering the general equities of the particular situation.

(2) The contracting officer shall take immediate unilateral action only if warranted by circumstances

such as overpayments or unsatisfactory contract performance.

(3) In all cases, the contracting officer shall-

(i) Act fairly and reasonably;

(ii) Base decisions on substantial evidence; and

(iii) Document the contract file. Findings made under paragraph (c) of the Progress Payments clause

shall be in writing.

(b) Contractor noncompliance.

(1) The contractor must comply with all material requirements of the contract. This includes the

requirement to maintain an efficient and reliable accounting system and controls, adequate for the

proper administration of progress payments. If the system or controls are deemed inadequate,
progress payments shall be suspended (or the portion of progress payments associated with the

unacceptable portion of the contractor’s accounting system shall be suspended) until the necessary

changes have been made.

(2) If the contractor fails to comply with the contract without fault or negligence, the contracting

officer will not take action permitted by paragraph (c)(1) of the Progress Payments clause, other

than to correct overpayments and collect amounts due from the contractor.

(c) Unsatisfactory financial condition.

(1) If the contracting officer finds that contract performance (including full liquidation of progress

payments) is endangered by the contractor’s financial condition, or by a failure to make progress,

the contracting officer shall require the contractor to make additional operating or financial

arrangements adequate for completing the contract without loss to the Government.

(2) If the contracting officer concludes that further progress payments would increase the probable

loss to the Government, the contracting officer shall suspend progress payments and all other

payments until the unliquidated balance of progress payments is eliminated.

(d) Excessive inventory. If the inventory allocated to the contract exceeds reasonable requirements

(including a reasonable accumulation of inventory for continuity of operations), the contracting

officer should, in addition to requiring the transfer of excessive inventory from the contract, take

one or more of the following actions, as necessary, to avoid or correct overpayment:

(1) Eliminate the costs of the excessive inventory from the costs eligible for progress payments, with

appropriate reduction in progress payments outstanding.

(2) Apply additional deductions to billings for deliveries (increase liquidation).

(e) Delinquency in payment of costs of performance.

(1) If the contractor is delinquent in paying the costs of contract performance in the ordinary course

of business, the contracting officer shall evaluate whether the delinquency is caused by an

unsatisfactory financial condition and, if so, shall apply the guidance in paragraph (c) of this section.

If the contractor’s financial condition is satisfactory, the contracting officer shall not deny progress

payments if the contractor agrees to-

(i) Cure the payment delinquencies;

(ii) Avoid further delinquencies; and

(iii) Make additional arrangements adequate for completing the contract without loss to the

Government.

(2) If the contractor has, in good faith, disputed amounts claimed by subcontractors, suppliers, or

others, the contracting officer shall not consider the payments delinquent until the amounts due are

established by the parties through litigation or arbitration. However, the amounts shall be excluded

from costs eligible for progress payments so long as they are disputed.

(3) Determinations of delinquency in making contributions under employee pension, profit sharing,

or stock ownership plans, and exclusion of costs for such contributions from progress payment
requests, shall be in accordance with paragraph (a)(3) of the clause at 52.232-16, Progress

Payments, without regard to the provisions of 32.503-6.

(f) Fair value of undelivered work. Progress payments must be commensurate with the fair value of

work accomplished in accordance with contract requirements. The contracting officer must adjust

progress payments when necessary to ensure that the fair value of undelivered work equals or

exceeds the amount of unliquidated progress payments. On loss contracts, the application of a loss

ratio as provided at paragraph (g) of this subsection constitutes this adjustment.

(g) Loss contracts.

(1) If the sum of the total costs incurred under a contract plus the estimated costs to complete the

performance are likely to exceed the contract price, the contracting officer shall compute a loss ratio

factor and adjust future progress payments to exclude the element of loss. The loss ratio factor is

computed as follows:

(i) Revise the current contract price used in progress payment computations (the current ceiling

price under fixed-price incentive contracts) to include the not-to-exceed amount for any pending

change orders and unpriced orders.

(ii) Divide the revised contract price by the sum of the total costs incurred to date plus the estimated

additional costs of completing the contract performance.

(2) If the contracting officer believes a loss is probable, future progress payment requests shall be

modified as follows:

(i) The contract price shall be the revised amount computed under paragraph (g)(1)(i) of this section.

(ii) The total costs eligible for progress payments shall be the product of-

(A) the sum of paid costs eligible for progress payments times;

(B) the loss ratio factor computed under paragraph (g)(1)(ii) of this section.

(iii) The costs applicable to items delivered, invoiced, and accepted shall not include costs in excess

of the contract price of the items.

(3) The contracting officer may use audit assistance, technical services, management reports, and

other sources of pertinent data to evaluate progress payment requests. If the contracting officer

concludes that the contractor’s figures in the contractor’s progress payment request are not correct,

the contracting officer shall-

(i) In the manner prescribed in paragraph (g)(4) of this section, prepare a supplementary analysis to

be attached to the contractor’s request;

(ii) Advise the contractor in writing of the differences; and

(iii) Adjust all further progress payments in accordance with paragraph (g)(1) of this section, using

the contracting officer’s figures, until the difference is resolved.

(4) The following is an example of the supplementary analysis required in paragraph (g)(3) of this

subsection:
Section I:

Contract price $2,850,000

Change orders and unpriced orders (to extent funds have been obligated) $150,000

Revised contract price $3,000,000

Section II:

Total costs incurred to date $2,700,000

Estimated additional costs to complete $900,000

Total costs to complete $3,600,000

Total costs eligible for progress payments $2,700,000

Loss ratio factor 83.3%

Recognized costs for progress payments $2,249,100

Progress payment rate 80.0%

Alternate amount to be used $1,799,280

Section III:

Factored costs of items delivered* $750,000

Recognized costs applicable to undelivered items ($2,249,100–$750,000) $1,499,100

*This amount must be the same as the contract price of the items delivered.
32.503-7 [Reserved]

32.503-8 Liquidation rates-ordinary method.

The Government recoups progress payments through the deduction of liquidations from payments

that would otherwise be due to the contractor for completed contract items. To determine the

amount of the liquidation, the contracting officer applies a liquidation rate to the contract price of

contract items delivered and accepted. The ordinary method is that the liquidation rate is the same

as the progress payment rate. At the beginning of a contract, the contracting officer must use this

method.

32.503-9 Liquidation rates-alternate method.

(a) The liquidation rate determined under 32.503-8 shall apply throughout the period of contract

performance unless the contracting officer adjusts the liquidation rate under the alternate method in

this 32.503-9. The objective of the alternate liquidation rate method is to permit the contractor to

retain the earned profit element of the contract prices for completed items in the liquidation

process. The contracting officer may reduce the liquidation rate if-

(1) The contractor requests a reduction in the rate;

(2) The rate has not been reduced in the preceding 12 months;

(3) The contract delivery schedule extends at least 18 months from the contract award date;

(4) Data on actual costs are available-

(i) For the products delivered, or

(ii) If no deliveries have been made, for a performance period of at least 12 months;

(5) The reduced liquidation rate would result in the Government recouping under each invoice the

full extent of the progress payments applicable to the costs allocable to that invoice;

(6) The contractor would not be paid for more than the costs of items delivered and accepted (less

allocable progress payments) and the earned profit on those items;

(7) The unliquidated progress payments would not exceed the limit prescribed in paragraph (a)(5) of

the Progress Payments clause;

(8) The parties agree on an appropriate rate; and

(9) The contractor agrees to certify annually, or more often if requested by the contracting officer,

that the alternate rate continues to meet the conditions of subsections5, 6, and 7 of this section.The

certificate must be accompanied by adequate supporting information.

(b) The contracting officer shall change the liquidation rate in the following circumstances:

(1) The rate shall be increased for both previous and subsequent transactions, if the contractor

experiences a lower profit rate than the rate anticipated at the time the liquidation rate was
associated with contract items already delivered, as well as subsequent progress payments.

(2) The rate shall be increased or decreased in keeping with the successive changes to the contract

price or target profit when-

(i) The target profit is changed under a fixed-price incentive contract with successive targets; or

(ii) A redetermined price involves a change in the profit element under a contract with prospective

price redetermination at stated intervals.

(c) Whenever the liquidation rate is changed, the contracting officer shall issue a contract

modification to specify the new rate in the Progress Payments clause.Adequate consideration for

these contract modifications is provided by the consideration included in the initial contract.The

parties shall promptly make the payment or liquidation required in the circumstances.

32.503-10 Establishing alternate liquidation rates.

(a) The contracting officer must ensure that the liquidation rate is-

(1) High enough to result in Government recoupment of the applicable progress payments on each

billing; and

(2) Supported by documentation included in the administration office contract file.

(b) The minimum liquidation rate is the expected progress payments divided by the contract

price.Each of these factors is discussed below:

(1) The contracting officer must compute the expected progress payments by multiplying the

estimated cost of performing the contract by the progress payment rate.

(2) For purposes of computing the liquidation rate, the contracting officer may adjust the estimated

cost and the contract price to include the estimated value of any work authorized but not yet priced

and any projected economic adjustments; however, the contracting officer’s adjustment must not

exceed the Government’s estimate of the price of all authorized work or the funds obligated for the

contract.

(3) The following are examples of the computation. Assuming an estimated price of $2,200,000 and

total estimated costs eligible for progress payments of $2,000,000:

(i) If the progress payment rate is 80 percent, the minimum liquidation rate should be 72.7 percent,

computed as follows:

(ii) If the progress payment rate is 85 percent, the minimum liquidation rate should be 77.3 percent,

computed as follows:
(4) Minimum liquidation rates will generally be expressed to tenths of apercent. Decimals between

tenths will be rounded up to the next highest tenth (not necessarily the nearest tenth), since

rounding down would produce a rate below the minimum rate calculated.

32.503-11 Adjustments for price reduction.

(a) If a retroactive downward price reduction occurs under a redeterminable contract that provides

for progress payments, the contracting officer shall-

(1) Determine the refund due and obtain repayment from the contractor for the excess of payments

made for delivered items over amounts due as recomputed at the reduced prices; and

(2) Increase the unliquidated progress payments amount for overdeductions made from the

contractor’s billings for items delivered.

(b) The contracting officer shall also increase the unliquidated progress payments amount if the

contractor makes an interim or voluntary price reduction under a redeterminable or incentive

contract.

32.503-12 Maximum unliquidated amount.

(a) The contracting officer shall ensure that any excess of the unliquidated progress payments over

the contractual limitation in paragraph (a) of the Progress Payments clause in the contract is

promptly corrected through one or more of the following actions:

(1) Increasing the liquidation rate.

(2) Reducing the progress payment rate.

(3) Suspending progress payments.

(b) The excess described in paragraph (a) of this section is most likely to arise under the following

circumstances:

(1) The costs of performance exceed the contract price.

(2) The alternate method of liquidation (see 32.503-9)is used and the actual costs of performance

exceed the cost estimates used to establish the liquidation rate.

(3) The rate of progress or the quality of contract performance is unsatisfactory.

(4) The rate of rejections, waste, or spoilage is exces-sive.

(c) As required, the services of the responsible audit agency or office should be fully utilized, along

with the services of qualified cost analysis and engineering personnel.

32.503-13 [Reserved]
32.503-14 Protection of Government title.

(a) Since the Progress Payments clause gives the Government title to all of the materials, work-inprocess, finished goods, and other items of property described in paragraph (d) of the Progress

Payments clause, under the contract under which progress payments have been made, the ACO

must ensure that the Government title to these inventories is not compromised by other

encumbrances. Ordinarily, the ACO, in the absence of reason to believe otherwise, may rely upon

the contractor’s certification contained in the progress payment request.

(b) If the ACO becomes aware of any arrangement or condition that would impair the Government’s

title to the property affected by progress payment, the ACO shall require additional protective

provisions (see 32.501-5) to establish and protect the Government’s title.

(c) The existence of any such encumbrance is a violation of the contractor’s obligations under the

contract, and the ACO may, if necessary, suspend or reduce progress payments under the terms of

the Progress Payments clause covering failure to comply with any material requirement of the

contract. In addition, if the contractor fails to disclose an existing encumbrance in the progress

payments certification, the ACO should consult with legal counsel concerning possible violation of 31

U.S.C.3729, the False Claims Act.

32.503-15 Application of Government title terms.

(a) Property to which the Government obtains title by operation of the Progress Payments clause

solely is not, as a consequence, Government-furnished property.

(b) Although property title is vested in the Government under the Progress Payments clause, the

acquisition, handling, and disposition of certain types of property are governed by-

(1) The clause at 52.245-1, Government Property; and

(2) The termination clauses at 52.249, for termination inventory.

(c) The contractor may sell or otherwise dispose of current production scrap in the ordinary course

of business on its own volition, even if title has vested in the Government under the Progress

Payments clause. The contracting officer shall require the contractor to credit the costs of the

contract performance with the proceeds of the scrap disposition.

(d) When the title to materials or other inventories is vested in the Government under the Progress

Payments clause, the contractor may transfer the inventory items from the contract for its own use

or other disposition only if, and on terms, approved by the contracting officer. The contractor shall-

(1) Eliminate the costs allocable to the transferred property from the costs of contract performance,

and

(2) Repay or credit to the Government an amount equal to the unliquidated progress payments,

allocable to the transferred property.

(e) If excess property remains after the contract performance is complete and all contractor

obligations under the contract are satisfied, including full liquidation of progress payments, the

excess property is outside the scope of the Progress Payments clause. Therefore, the contractor
holds title to it.

32.503-16 Risk of loss.

(a) Under the Progress Payments clause, and except for normal spoilage, the contractor bears the

risk of loss for Government property under the clause, even though title is vested in the Government,

unless the Government has expressly assumed this risk. The clauses prescribed in this regulation

related to progress payments, default, and terminations do not constitute a Government assumption

of this risk.

(b) If a loss occurs in connection with property for which the contractor bears the risk, the

contractor is obligated to repay to the Government the amount of unliquidated progress payments

based on costs allocable to the property.

(c) The contractor is not obligated to pay for the loss of property for which the Government has

assumed the risk of loss. However, a serious loss may impede the satisfactory progress of contract

performance, so that the contracting officer may need to act under paragraph (c)(5) of the Progress

Payments clause.

32.504 Subcontracts under prime contracts providing progress payments.

(a) Subcontracts may include either performance-based payments, provided they meet the criteria in

32.1003, or progress payments, provided they meet the criteria in subpart 32.5 for customary

progress payments, but not both. Subcontracts for commercial purchases may include commercial

product or commercial service purchase financing terms, provided they meet the criteria in

32.202-1.

(b) The contractor’s requests for progress payments may include the full amount of commercial

product or commercial service purchase financing payments, performance-based payments, or

progress payments to a subcontractor, whether paid or unpaid, provided that unpaid amounts are

limited to amounts determined due and that the contractor will pay-

(1) In accordance with the terms and conditions of a subcontract or invoice; and

(2) Ordinarily within 30 days of the submission of the contractor’s progress payment request to the

Government.

(c) If the contractor is considering making unusual progress payments to a subcontractor, the

parties will be guided by the policies in 32.501-2. If the Government approves unusual progress

payments for the subcontract, the contracting officer must issue a contract modification to specify

the new rate in paragraph (j)(6) of the clause at 52.232-16, Progress Payments, in the prime

contract. This will allow the contractor to include the progress payments to the subcontractor in the

cost basis for progress payments by the Government. This modification is not a deviation and does

not require the clearance prescribed in 32.502-2(b).

(d) The contractor has a duty to ensure that financing payments to subcontractors conform to the

standards and principles prescribed in paragraph (j) of the Progress Payments clause in the prime

contract. Although the contracting officer should, to the extent appropriate, review the subcontract

as part of the overall administration of progress payments in the prime contract, there is no special
requirement for contracting officer review or consent merely because the subcontract includes

financing payments, except as provided in paragraph (c) of this section. However, the contracting

officer must ensure that the contractor has installed the necessary management control systems,

including internal audit procedures.

(e) When financing payments are in the form of progress payments, the Progress Payments clause at

52.232-16 requires that the subcontract include the substance of the Progress Payments clause in

the prime contract, modified to indicate that the contractor, not the Government, awards the

subcontract and administers the progress payments. The following exceptions apply to wording

modifications:

(1) The subcontract terms on title to property under progress payments shall provide for vesting of

title in the Government, not the contractor, as in paragraph (d) of the Progress Payments clause in

the prime contract. A reference to the contractor may, however, be substituted for "Government" in

paragraph (d)(2)(iv) of the clause.

(2) In the subcontract terms on reports and access to records, the contractor shall not delete the

references to "Contracting Officer" and "Government" in adapting paragraph (g) of the Progress

Payments clause in the contract, but may expand the terms as follows:

(i) The term "Contracting Officer" may be changed to "Contracting Officer or Prime Contractor."

(ii) The term "the Government" may be changed to "the Government or Prime Contractor."

(3) The subcontract special terms regarding default shall include paragraph (h) of the Progress

Payments clause in the contract through its subdivision (i). The rest of paragraph (h) is optional.

(f) When financing payments are in the form of performance-based payments, the PerformanceBased Payments clause at 52.232-32 requires that the subcontract terms include the substance of

the Performance-Based Payments clause, modified to indicate that the contractor, not the

Government, awards the subcontract and administers the performance-based payments, and include

appropriately worded modifications similar to those noted in paragraph (e) of this section.

(g) When financing payments are in the form of commercial product or commercial service purchase

financing, the subcontract must include a contract financing clause structured in accordance with

32.206.

Subpart 32.6 - Contract Debts

32.600 Scope of subpart.

This subpart prescribes policies and procedures for identifying, collecting, and deferring collection

of contract debts (including interest, if applicable). Sections 32.607, 32.608, and 32.610 of this

subpart do not apply to claims against common carriers for transportation overcharges and freight

and cargo losses (31 U.S. C. 3726).

32.601 General.
(a) Contract debts are amounts that-

(1) Have been paid to a contractor to which the contractor is not currently entitled under the terms

and conditions of the contract; or

(2) Are otherwise due from the contractor under the terms and conditions of the contract.

(b) Contract debts include, but are not limited to, the following:

(1) Billing and price reductions resulting from contract terms for price redetermination or for

determination of prices under incentive type contracts.

(2) Price or cost reductions for defective certified cost or pricing data.

(3) Financing payments determined to be in excess of the contract limitations at 52.232-16(a)(7),

Progress Payments, or 52.232-32(d)(2), Performance-Based Payments, or any contract clause for

financing of commercial products or commercial services.

(4) Increases to financing payment liquidation rates.

(5) Overpayments disclosed by quarterly statements required under price redetermination or

incentive contracts.

(6) Price adjustments resulting from Cost Accounting Standards (CAS) noncompliances or changes

in cost accounting practice.

(7) Reinspection costs for nonconforming supplies or services.

(8) Duplicate or erroneous payments.

(9) Damages or excess costs related to defaults in performance.

(10) Breach of contract obligations concerning progress payments, performance-based payments,

advance payments, financing of commercial products or commercial services, or Governmentfurnished property.

(11) Government expense of correcting defects.

(12) Overpayments related to errors in quantity or billing or deficiencies in quality.

(13) Delinquency in contractor payments due under agreements or arrangements for deferral or

postponement of collections.

(14) Reimbursement of amounts due under 33.102(b)(3) and 33.104(h)(8).

32.602 Responsibilities.

(a) The contracting officer has primary responsibility for identifying and demanding payment of

contract debts except those resulting from errors made by the payment office. The contracting

officer shall not collect contract debts or otherwise agree to liquidate contract debts (e.g., offset the

amount of the debt against existing unpaid bills due the contractor, or allow contractors to retain

contract debts to cover amounts that may become payable in future periods).
(b) The payment office has primary responsibility for-

(1) Collecting contract debts identified by contracting officers;

(2) Identifying and collecting duplicate and erroneous payments; and

(3) Authorizing the liquidation of contract debts in accordance with agency procedures.

32.603 Debt determination.

(a) If the contracting officer has any indication that a contractor owes money to the Government

under a contract, the contracting officer shall determine promptly whether an actual debt is due and

the amount. Any unnecessary delay may contribute to-

(1) Loss of timely availability of the funds to the program for which the funds were initially provided;

(2) Increased difficulty in collecting the debt; or

(3) Actual monetary loss to the Government.

(b) The amount of indebtedness determined by the contracting officer shall be an amount that-

(1) Is based on the merits of the case; and

(2) Is consistent with the contract terms.

32.604 Demand for payment.

(a) Except as provided in paragraph (c) of this section, the contracting officer shall take the

following actions:

(1) Issue the demand for payment as soon as the contracting officer has determined that an actual

debt is due the Government and the amount.

(2) Issue the demand for payment even if-

(i) The debt is or will be the subject of a bilateral modification;

(ii) The contractor is otherwise obligated to pay the money under the existing contract terms; or

(iii) The contractor has agreed to repay the debt.

(3) Issue the demand for payment as a part of the final decision, if a final decision is required by

32.605(a).

(b) The demand for payment shall include the following:

(1) A description of the debt, including the debt amount.

(2) A distribution of the principal amount of the debt by line(s) of accounting subject to the

following:
(i) If the debt affects multiple lines of accounting, the contracting officer shall, to the maximum

extent practicable, identify all affected lines of accounting. If it is not practicable to identify all

affected lines of accounting, the contracting officer may select representative lines of accounting in

accordance with paragraph (b)(2)(ii) of this section.

(ii) In selecting representative lines of accounting, the contracting officer shall-

(A) Consider the affected departments or agencies, years of appropriations, and the predominant

types of appropriations; and

(B) Not distribute to any line of accounting an amount of the principal in excess of the total

obligation for the line of accounting; and

(iii) Include the lines of accounting even if the associated funds are expired or cancelled. While

cancelled funds will be deposited in a miscellaneous receipt account of the Treasury if collected, the

funds are tracked under the closed year appropriation(s) to comply with the Anti-Deficiency Act.

(iv) If the debt affects multiple contracts and the lines of accounting are not readily available, the

contracting officer shall-

(A) Issue the demand for payment without the distribution of the principal amount to the affected

lines of accounting;

(B) Include a statement in the demand for payment advising when the distribution will be provided;

and

(C) Provide the distribution by the date identified in the demand for payment.

(3) The basis for and amount of any accrued interest or penalty.

(4)

(i) For debts resulting from specific contract terms (e.g., debts resulting from incentive clause

provisions, Quarterly Limitation on Payments Statement, Cost Accounting Standards, price

reduction for defective pricing), a notification stating that payment should be made promptly, and

that interest is due in accordance with the terms of the contract. Interest shall be computed from the

date specified in the applicable contract clause until repayment by the contractor. The interest rate

shall be the rate specified in the applicable contract clause. In the case of a debt arising from a price

reduction for defective pricing, or as specifically set forth in a Cost Accounting Standards (CAS)

clause in the contract, interest is computed from the date of overpayment by the Government until

repayment by the contractor at the underpayment rate established by the Secretary of the Treasury,

for the periods affected, under 26 U.S.C . 6621(a)(2).

(ii) For all other contract debts, a notification stating that any amounts not paid within 30 days from

the date of the demand for payment will bear interest. Interest shall be computed from the date of

the demand for payment until repayment by the contractor. The interest rate shall be the interest

rate established by the Secretary of the Treasury, as provided in 41 U.S.C. 7109, which is applicable

to the period in which the amount becomes due, and then at the rate applicable for each six-month

period as established by the Secretary until the amount is paid.

(5) A statement advising the contractor-
(i) To contact the contracting officer if the contractor believes the debt is invalid or the amount is

incorrect; and

(ii) If the contractor agrees, to remit a check payable to the agency’s payment office annotated with

the contract number along with a copy of the demand for payment to the payment office identified in

the contract or as otherwise specified in the demand letter in accordance with agency procedures.

(6) Notification that the payment office may initiate procedures, in accordance with the applicable

statutory and regulatory requirements, to offset the debt against any payments otherwise due the

contractor.

(7) Notification that the debt may be subject to administrative charges in accordance with the

requirements of 31U.S. C. 3717(e) and the Debt Collection Improvement Act of 1996.

(8) Notification that the contractor may submit a request for installment payments or deferment of

collection if immediate payment is not practicable or if the amount is disputed.

(c) Except as provided in paragraph (d) of this section, the contracting officer should not issue a

demand for payment if the contracting officer only becomes aware of the debt when the contractor-

(1) Provides a lump sum payment or submits a credit invoice. (A credit invoice is a contractor’s

request to liquidate the debt against existing unpaid bills due the contractor); or

(2) Notifies the contracting officer that the payment office overpaid on an invoice payment. When

the contractor provides the notification, the contracting officer shall notify the payment office of the

overpayment.

(d) If a demand for payment was not issued as provided for in paragraph (c) of this section, the

contracting officer shall issue a demand for payment no sooner than 30 days after the contracting

officer becomes aware of the debt unless-

(1) The contractor has liquidated the debt;

(2) The contractor has requested an installment payment agreement; or

(3) The payment office has issued a demand for payment.

(e) The contracting officer shall-

(1) Furnish a copy of the demand for payment to the contractor by certified mail, return receipt

requested, or by any other method that provides evidence of receipt; and

(2) Forward a copy of the demand to the payment office.

32.605 Final decisions.

(a) The contracting officer shall issue a final decision as required by 33.211 if-

(1) The contracting officer and the contractor are unable to reach agreement on the existence or

amount of a debt in a timely manner;

(2) The contractor fails to liquidate a debt previously demanded by the contracting officer within the
timeline specified in the demand for payment unless the amounts were not repaid because the

contractor has requested an installment payment agreement; or

(3) The contractor requests a deferment of collection on a debt previously demanded by the

contracting officer (see 32.607-2).

(b) If a demand for payment was previously issued for the debt, the demand for payment included in

the final decision shall identify the same due date as the original demand for payment.

(c) The contracting officer shall-

(1) Furnish the decision to the contractor by certified mail, return receipt requested, or by any other

method that provides evidence of receipt; and

(2) Forward a copy to the payment office identified in the contract.

32.606 Debt collection.

(a) If the contractor has not liquidated the debt within 30 days of the date due or requested

installment payments or deferment of collection, the payment office shall initiate withholding of

principal, interest, penalties, and administrative charges. In the event the contract is assigned under

the Assignment of Claims Act of 1940 (31 U.S .C. 3727 and 41U.S .C. 6305), the rights of the

assignee will be scrupulously respected and withholding of payments shall be consistent with those

rights. For additional information on assignment of claims, see subpart 32.8.

(b) As provided for in the Debt Collection Improvement Act of 1996 (31 U.S .C. 3711(g)(1)), payment

offices are required to transfer any debt that is delinquent more than 180 days to the Department of

Treasury for collection.

(c) The contracting officer shall periodically follow up with the payment office to determine whether

the debt has been collected and credited to the correct appropriation(s).

32.607 Installment payments and deferment of collection.

(a) The contracting officer shall not approve or deny a contractor’s request for installment payments

or deferment of collections. The office designated in agency procedures is responsible for approving

or denying requests for installment payments or deferment of collections.

(b) If a contractor has not appealed the debt or filed an action under the Disputes clause of the

contract and the contractor has submitted a proposal for debt deferment or installment payments-

(1) The office designated in agency procedures may arrange for deferment/installment payments if

the contractor is unable to pay at once in full or the contractor’s operations under national defense

contracts would be seriously impaired. The arrangement shall include appropriate covenants and

securities and should be limited to the shortest practicable maturity; and

(2) The deferment/installment agreement shall include a specific schedule or plan for payment. It

should permit the Government to make periodic financial reviews of the contractor and to require

payments earlier than required by the agreement if the Government considers the contractor’s

ability to pay improved. It should also provide for required stated or measurable payments on the
occurrence of specific events or contingencies that improve the contractor’s ability to pay.

(c) If not already applicable under the contract terms, interest on contract debt shall be made an

element of any agreement entered into for installment payments or deferment of collection.

32.607-1 Installment payments.

If a contractor requests an installment payment agreement, the contracting officer shall notify the

contractor to send a written request for installment payments to the office designated in agency

procedures.

32.607-2 Deferment of collection.

(a) All requests for deferment of collection must be submitted in writing to the contracting officer.

(1) If the contractor has appealed the debt under the procedures of the Disputes clause of the

contract, the information with the request for deferment may be limited to an explanation of the

contractor’s financial condition.

(2) Actions filed by contractors under the Disputes Clause shall not suspend or delay collection.

(3) If there is no appeal pending or action filed under the Disputes clause of the contract, the

following information about the contractor should be submitted with the request:

(i) Financial condition.

(ii) Contract backlog.

(iii) Projected cash receipts and requirements.

(iv) The feasibility of immediate payment of the debt.

(v) The probable effect on operations of immediate payment in full.

(b) Upon receipt of the contractor’s written request, the contracting officer shall promptly provide a

notification to the payment office and advise the payment office that the contractor’s request is

under consideration.

(c)

(1) The contracting officer should consider any information necessary to develop a recommendation

on the deferment request.

(2) The contracting officer shall forward the following to the office designated in agency procedures

for a decision:

(i) A copy of the contractor’s request for a deferment of collection.

(ii) A written recommendation on the request and the basis for the recommendation including the

advisability of deferment to avoid possible overcollections.
(iii) A statement as to whether the contractor has an appeal pending or action filed under the

Disputes clause of the contract and the docket number if the appeal has been filed.

(iv) A copy of the contracting officer’s final decision (see 32.605).

(d) The office designated in agency procedures may authorize a deferment pending the resolution of

appeal to avoid possible overcollections. The agency is required to use unexpired funds to pay

interest on overcollections.

(e) Deferments pending disposition of appeal may be granted to small business concerns and

financially weak contractors, balancing the need for Government security against loss and undue

hardship on the contractor.

(f) The deferment agreement shall not provide that a claim of the Government will not become due

and payable pending mutual agreement on the amount of the claim or, in the case of a dispute, until

the decision is reached.

(g) At a minimum, the deferment agreement shall contain the following:

(1) A description of the debt.

(2) The date of first demand for payment.

(3) Notice of an interest charge, in conformity with 32.608 and the FAR clause at 52.232-17,

Interest; or, in the case of a debt arising from a defective pricing or a CAS noncompliance

overpayment, interest, as prescribed by the applicable Price Reduction for Defective Certified Cost

or Pricing Data or CAS clause (see 32.607(c)).

(4) Identification of the office to which the contractor is to send debt payments.

(5) A requirement for the contractor to submit financial information requested by the Government

and for reasonable access to the contractor’s records and property by Government representatives.

(6) Provision for the Government to terminate the deferment agreement and accelerate the maturity

of the debt if the contractor defaults or if bankruptcy or insolvency proceedings are instituted by or

against the contractor.

(7) Protective requirements that are considered by the Government to be prudent and feasible in the

specific circumstances. The coverage of protective terms at 32.409 and 32.501-5 may be used as a

guide.

(h) If a contractor appeal of the debt determination is pending, the deferment agreement shall also

include a requirement that the contractor shall-

(1) Diligently prosecute the appeal; and

(2) Pay the debt in full when the appeal is decided, or when the parties reach agreement on the debt

amount.

(i) The deferment agreement may provide for the right to make early payments without prejudice,

for refund of overpayments, and for crediting of interest.
32.608 Interest.

32.608-1 Interest charges.

Unless specified otherwise in the clause at 52.232-17, Interest, interest charges shall apply to any

contract debt unpaid after 30 days from the issuance of a demand unless-

(a) The contract is a kind excluded under 32.611; or

(b) The contract or debt has been exempted from interest charges under agency procedures.

32.608-2 Interest credits.

(a) An equitable interest credit shall be applied under the following circumstances:

(1) When the amount of debt initially determined is subsequently reduced; e.g., through a successful

appeal.

(2) When any amount collected by the Government is in excess of the amount found to be due on

appeal under the Disputes Clause of the contract.

(3) When the collection procedures followed in a given case result in an overcollection of the debt

due.

(4) When the responsible official determines that the Government has unduly delayed payments to

the contractor on the same contract at some time during the period to which the interest charge

applied, provided an interest penalty was not paid for such late payment.

(b) Any appropriate interest credits shall be computed under the following procedures:

(1) Interest at the rate under 52.232-17 shall be charged on the reduced debt from the date of

collection by the Government until the date the monies are remitted to the contractor.

(2) Interest may not be reduced for any time between the due date under the demand and the period

covered by a deferment of collection, unless the contract includes an interest clause; e.g., the clause

prescribed in 32.611.

(3) Interest shall not be credited in an amount that, when added to other amounts refunded or

released to the contractor, exceeds the total amount that has been collected, or withheld for the

purpose of collecting the debt. This limitation shall be further reduced by the amount of any

limitation applicable under paragraph (b)(2) of this subsection.

32.609 Delays in receipt of notices or demands.

If interest is accrued based on the date of the demand letter and delivery of the demand letter is

delayed by the Government (e.g., undue delay after dating at the originating office or delays in the

mail), the date of the debt and accrual of interest shall be extended to a time that is fair and

reasonable under the particular circumstances.
32.610 Compromising debts.

For debts under $100,000, excluding interest, the designated agency official may compromise the

debt pursuant to the Federal Claims Collection Standards (31 CFR part 902) and agency regulations.

Unless specifically authorized by agency procedures, contracting officers cannot compromise debts.

32.611 Contract clause.

(a) The contracting officer shall insert the clause at 52.232-17, Interest, in solicitations and contracts

unless it is contemplated that the contract will be in one or more of the following categories:

(1) Contracts at or below the simplified acquisition threshold.

(2) Contracts with Government agencies.

(3) Contracts with a State or local government or instrumentality.

(4) Contracts with a foreign government or instrumentality.

(5) Contracts without any provision for profit or fee with a nonprofit organization.

(6) Contracts described in subpart 5.5, Paid Advertisements.

(7) Any other exceptions authorized under agency procedures.

(b) The contracting officer may insert the FAR clause at 52.232-17, Interest, in solicitations and

contracts when it is contemplated that the contract will be in any of the categories specified in

32.611(a).

Subpart 32.7 - Contract Funding

32.700 Scope of subpart.

This subpart (a) describes basic requirements for contract funding and (b) prescribes procedures for

using limitation of cost or limitation of funds clauses. Detailed acquisition funding requirements are

contained in agency fiscal regulations.

32.701 [Reserved]

32.702 Policy.

No officer or employee of the Government may create or authorize an obligation in excess of the

funds available, or in advance of appropriations (Anti-Deficiency Act,31 U.S.C.1341), unless

otherwise authorized by law. Before executing any contract, the contracting officer shall-

(a) Obtain written assurance from responsible fiscal authority that adequate funds are available or
(b) Expressly condition the contract upon availability of funds in accordance with 32.703-2.

32.703 Contract funding requirements.

32.703-1 General.

(a) If the contract is fully funded, funds are obligated to cover the price or target price of a fixedprice contract or the estimated cost and any fee of a cost-reimbursement contract.

(b) If the contract is incrementally funded, funds are obligated to cover the amount allotted and any

corresponding increment of fee.

32.703-2 Contracts conditioned upon availability of funds.

(a) Fiscal year contracts. The contracting officer may initiate a contract action properly chargeable

to funds of the new fiscal year before these funds are available, provided that the contract includes

the clause at 52.232-18, Availability of Funds (see 32.706-1(a)). This authority may be used only for

operation and maintenance and continuing services (e.g., rentals, utilities, and supply items not

financed by stock funds)-

(1) Necessary for normal operations; and

(2) For which Congress previously had consistently appropriated funds, unless specific statutory

authority exists permitting applicability to other requirements.

(b) Indefinite-quantity or requirements contracts. A one-year indefinite-quantity or requirements

contract for services that is funded by annual appropriations may extend beyond the fiscal year in

which it begins; provided, that-

(1) Any specified minimum quantities are certain to be ordered in the initial fiscal year (see 37.106)

and

(2) The contract includes the clause at 52.232-19, Availability of Funds for the Next Fiscal Year (see

32.706-1(b)).

(c) Acceptance of supplies or services. The Government shall not accept supplies or services under a

contract conditioned upon the availability of funds until the contracting officer has given the

contractor notice, to be confirmed in writing, that funds are available.

32.703-3 Contracts crossing fiscal years.

(a) A contract that is funded by annual appropriations may not cross fiscal years, except in

accordance with statutory authorization (e.g., 41 U.S.C.6302, 31 U.S.C.1308, 42 U.S.C.2459a, 42

U.S.C.3515, and paragraph (b) of this subsection), or when the contract calls for an end product that

cannot feasibly be subdivided for separate performance in each fiscal year (e.g., contracts for expert

or consultant services).
(b) The head of an executive agency, except NASA, may enter into a contract, exercise an option, or

place an order under a contract for severable services for a period that begins in one fiscal year and

ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed

does not exceed oneyear (10 U.S.C. 3133 and 41 U.S.C.3902). Funds made available for a fiscal year

may be obligated for the total amount of an action entered into under this authority.

32.704 Limitation of cost or funds.

(a)

(1) When a contract contains the clause at 52.232-20, Limitation of Cost; or 52.232-22, Limitation of

Funds, the contracting officer, upon learning that the contractor is approaching the estimated cost

of the contract or the limit of the funds allotted, shall promptly obtain funding and programming

information pertinent to the contract’s continuation and notify the contractor in writing that-

(i) Additional funds have been allotted, or the estimated cost has been increased, in a specified

amount;

(ii) The contract is not to be further funded and that the contractor should submit a proposal for an

adjustment of fee, if any, based on the percentage of work completed in relation to the total work

called for under the contract;

(iii) The contract is to be terminated; or

(A) The Government is considering whether to allot additional funds or increase the estimated cost-

(B) The contractor is entitled by the contract terms to stop work when the funding or cost limit is

reached; and

(C) Any work beyond the funding or cost limit will be at the contractor’s risk.

(2) Upon learning that a partially funded contract containing any of the clauses referenced in

paragraph (a)(1) of this section will receive no further funds, the contracting officer shall promptly

give the contractor written notice of the decision not to provide funds.

(b) Under a cost-reimbursement contract, the contracting officer may issue a change order, a

direction to replace or repair defective items or work, or a termination notice without immediately

increasing the funds available. Since a contractor is not obligated to incur costs in excess of the

estimated cost in the contract, the contracting officer shall ensure availability of funds for directed

actions. The contracting officer may direct that any increase in the estimated cost or amount allotted

to a contract be used for the sole purpose of funding termination or other specified expenses.

(c) Government personnel encouraging a contractor to continue work in the absence of funds will

incur a violation of Revised Statutes section 3679 (31 U.S.C.1341) that may subject the violator to

civil or criminal penalties.

32.705 Unenforceability of Unauthorized Obligations.

Many supplies or services are acquired subject to supplier license agreements. These are
particularly common in information technology acquisitions, but they may apply to any supply or

service. For example, computer software and services delivered through the internet (web services)

are often subject to license agreements, referred to as End User License Agreements (EULA), Terms

of Service (TOS), or other similar legal instruments or agreements. Many of these agreements

contain indemnification clauses that are inconsistent with Federal law and unenforceable, but which

could create a violation of the Anti-Deficiency Act (31 U.S.C. 1341) if agreed to by the Government.

32.706 Contract clauses.

32.706-1 Clauses for contracting in advance of funds.

(a) Insert the clause at 52.232-18, Availability of Funds, in solicitations and contracts if the contract

will be chargeable to funds of the new fiscal year and the contract action will be initiated before the

funds are available.

(b) The contracting officer shall insert the clause at 52.232-19, Availability of Funds for the Next

Fiscal Year, in solicitations and contracts if a one-year indefinite-quantity or requirements contract

for services is contemplated and the contract-

(1) Is funded by annual appropriations; and

(2) Is to extend beyond the initial fiscal year (see 32.703-2(b)).

32.706-2 Clauses for limitation of cost or funds.

(a) The contracting officer shall insert the clause at 52.232-20, Limitation of Cost, in solicitations

and contracts if a fully funded cost-reimbursement contract is contemplated, whether or not the

contract provides for payment of a fee.

(b) The contracting officer shall insert the clause at 52.232-22, Limitation of Funds, in solicitations

and contracts if an incrementally funded cost-reimbursement contract is contemplated.

32.706-3 Clause for unenforceability of unauthorized obligations.

The contracting officer shall insert the clause at 52.232-39, Unenforceability of Unauthorized

Obligations in all solicitations and contracts.

Subpart 32.8 - Assignment of Claims

32.800 Scope of subpart.

This subpart prescribes policies and procedures for the assignment of claims under the Assignment

of Claims Act of1940, as amended, (31 U.S.C.3727, 41 U.S.C.6305) (hereafter referred to as "the

Act").
32.801 Definitions.

Designated agency, as used in this subpart, means any department or agency of the executive

branch of the United States Government (see 32.803(d)).

No-setoff commitment, as used in this subpart, means a contractual undertaking that, to the extent

permitted by the Act, payments by the designated agency to the assignee under an assignment of

claims will not be reduced to liquidate the indebtedness of the contractor to the Government.

32.802 Conditions.

Under the Assignment of Claims Act, a contractor may assign moneys due or to become due under a

contract if all the following conditions are met:

(a) The contract specifies payments aggregating $1,000 or more.

(b) The assignment is made to a bank, trust company, or other financing institution, including any

Federal lending agency.

(c) The contract does not prohibit the assignment.

(d) Unless otherwise expressly permitted in the contract, the assignment-

(1) Covers all unpaid amounts payable under the contract;

(2) Is made only to one party, except that any assignment may be made to one party as agent or

trustee for two or more parties participating in the financing of the contract; and

(3) Is not subject to further assignment.

(e) The assignee sends a written notice of assignment together with a true copy of the assignment

instrument to the-

(1) Contracting officer or the agency head;

(2) Surety on any bond applicable to the contract; and

(3) Disbursing officer designated in the contract to make payment.

32.803 Policies.

(a) Any assignment of claims that has been made under the Act to any type of financing institution

listed in 32.802(b) may thereafter be further assigned and reassigned to any such institution if the

conditions in 32.802(d) and (e) continue to be met.

(b) A contract may prohibit the assignment of claims if the agency determines the prohibition to be

in the Government’s interest.

(c) Under a requirements or indefinite quantity type contract that authorizes ordering and payment

by multiple Government activities, amounts due for individual orders for $1,000 or more may be
assigned.

(d) Any contract of a designated agency (see FAR 32.801), except a contract under which full

payment has been made, may include a no-setoff commitment only when a determination of need is

made by the head of the agency, in accordance with the Presidential delegation of authority dated

October 3,1995, and after such determination has been published in the Federal Register. The

Presidential delegation makes such determinations of need subject to further guidance issued by the

Office of Federal Procurement Policy. The following guidance has been provided:

Use of the no-setoff provision may be appropriate to facilitate the national defense; in the event of a

national emergency or natural disaster; or when the use of the no-setoff provision may facilitate

private financing of contract performance. However, in the event an offeror is significantly indebted

to the United States, the contracting officer should consider whether the inclusion of the no-setoff

commitment in a particular contract is in the best interests of the United States. In such an event,

the contracting officer should consult with the Government officer(s) responsible for collecting the

debt(s).

(e) When an assigned contract does not include a no-setoff commitment, the Government may apply

against payments to the assignee any liability of the contractor to the Government arising

independently of the assigned contract if the liability existed at the time notice of the assignment

was received even though that liability had not yet matured so as to be due and payable.

32.804 Extent of assignee’s protection.

(a) No payments made by the Government to the assignee under any contract assigned in

accordance with the Act may be recovered on account of any liability of the contractor to the

Government. This immunity of the assignee is effective whether the contractor’s liability arises from

or independently of the assigned contract.

(b) Except as provided in paragraph (c) of this section, the inclusion of a no-setoff commitment in an

assigned contract entitles the assignee to receive contract payments free of reduction or setoff for-

(1) Any liability of the contractor to the Government arising independently of the contract; and

(2) Any of the following liabilities of the contractor to the Government arising from the assigned

contract:

(i) Renegotiation under any statute or contract clause.

(ii) Fines.

(iii) Penalties, exclusive of amounts that may be collected or withheld from the contractor under, or

for failure to comply with, the terms of the contract.

(iv) Taxes or social security contributions.

(v) Withholding or nonwithholding of taxes or social security contributions.

(c) In some circumstances, a setoff may be appropriate even though the assigned contract includes a

no-setoff commitment; e.g.-

(1) When the assignee has neither made a loan under the assignment nor made a commitment to do
so; or

(2) To the extent that the amount due on the contract exceeds the amount of any loans made or

expected to be made under a firm commitment for financing.

32.805 Procedure.

(a) Assignments.

(1) Assignments by corporations shall be-

(i) Executed by an authorized representative;

(ii) Attested by the secretary or the assistant secretary of the corporation; and

(iii) Impressed with the corporate seal or accompanied by a true copy of the resolution of the

corporation’s board of directors authorizing the signing representative to execute the assignment.

(2) Assignments by a partnership may be signed by one partner, if the assignment is accompanied by

adequate evidence that the signer is a general partner of the partnership and is authorized to

execute assignments on behalf of the partner-ship.

(3) Assignments by an individual shall be signed by that individual and the signature acknowledged

before a notary public or other person authorized to administer oaths.

(b) Filing. The assignee shall forward to each party specified in 32.802(e) an original and three

copies of the notice of assignment, together with one true copy of the instrument of assignment. The

true copy shall be a certified duplicate or photostat copy of the original assignment.

(c) Format for notice of assignment. The following is a suggested format for use by an assignee in

providing the notice of assignment required by 32.802(e).

Notice of Assignment

To: ___________ [Address to one of the parties specified in 32.802(e)].

This has reference to Contract No. __________ dated ______, entered into between ______ [Contractor’s

name and address] and ______ [Government agency, name of office, and address], for ________

[Describe nature of the contract].

Moneys due or to become due under the contract described above have been assigned to the

undersigned under the provisions of the Assignment of Claims Act of1940, as amended, (31

U.S.C.3727, 41 U.S.C.6305).

A true copy of the instrument of assignment executed by the Contractor on ___________ [Date], is

attached to the original notice.

Payments due or to become due under this contract should be made to the undersigned assignee.

Please return to the undersigned the three enclosed copies of this notice with appropriate notations

showing the date and hour of receipt, and signed by the person acknowledging receipt on behalf of
the addressee.

Very truly yours,

__________________________________________________ [Name of Assignee]

By _______________________________________________ [Signature of Signing Officer]

__________________________________________________ [Titleof Signing Officer]

__________________________________________________ [Address of Assignee]

Acknowledgement

Receipt is acknowledged of the above notice and of a copy of the instrument of assignment. They

were received ____(a.m.) (p.m.) on ______, 20___.

__________________________________________________ [Signature]

__________________________________________________ [Title]

__________________________________________________ On behalf of

__________________________________________________ [Name of Addressee of this Notice]

(d) Examination by the Government. In examining and processing notices of assignment and before

acknowledging their receipt, contracting officers should assure that the following conditions and any

additional conditions specified in agency regulations, have been met:

(1) The contract has been properly approved and executed.

(2) The contract is one under which claims may be assigned.

(3) The assignment covers only money due or to become due under the contract.

(4) The assignee is registered separately in the System for Award Management unless one of the

exceptions in 4.1102 applies.

(e) Release of assignment.

(1) A release of an assignment is required whenever-

(i) There has been a further assignment or reassignment under the Act; or

(ii) The contractor wishes to reestablish its right to receive further payments after the contractor’s

obligations to the assignee have been satisfied and a balance remains due under the contract.

(2) The assignee, under a further assignment or reassignment, in order to establish a right to receive

payment from the Government, must file with the addressees listed in 32.802(e) a-

(i) Written notice of release of the contractor by the assigning financing institution;

(ii) Copy of the release instrument;
(iii) Written notice of the further assignment or reassignment; and

(iv) Copy of the further assignment or reassignment instrument.

(3) If the assignee releases the contractor from an assignment of claims under a contract, the

contractor, in order to establish a right to receive payment of the balance due under the contract,

must file a written notice of release together with a true copy of the release of assignment

instrument with the addressees noted in 32.802(e).

(4) The addressee of a notice of release of assignment or the official acting on behalf of that

addressee shall acknowledge receipt of the notice.

32.806 Contract clauses.

(a)

(1) The contracting officer shall insert the clause at 52.232-23, Assignment of Claims, in solicitations

and contracts expected to exceed the micro-purchase threshold, unless the contract will prohibit the

assignment of claims (see 32.803(b)). The use of the clause is not required for purchase orders.

However, the clause may be used in purchase orders expected to exceed the micro-purchase

threshold, that are accepted in writing by the contractor, if such use is consistent with agency

policies and regulations.

(2) If a no-setoff commitment has been authorized (see 32.803(d)), the contracting officer shall use

the clause with its AlternateI.

(b) The contracting officer shall insert the clause at 52.232-24, Prohibition of Assignment of Claims,

in solicitations and contracts for which a determination has been made under agency regulations

that the prohibition of assignment of claims is in the Government’s interest.

Subpart 32.9 - Prompt Payment

32.900 Scope of subpart.

This subpart prescribes policies, procedures, and clauses for implementing Office of Management

and Budget (OMB) prompt payment regulations at 5 CFR Part 1315.

32.901 Applicability.

(a) This subpart applies to invoice payments on all contracts, except contracts with payment terms

and late payment penalties established by other governmental authority (e.g., tariffs).

(b) This subpart does not apply to contract financing payments (see definition at 32.001).
32.902 Definitions.

As used in this subpartDiscount for prompt payment means an invoice payment reduction offered by the contractor for

payment prior to the due date.

Mixed invoice means an invoice that contains items with different payment due dates.

Payment date means the date on which a check for payment is dated or, for an electronic funds

transfer (EFT), the settlement date.

Settlement date, as it applies to electronic funds transfer, means the date on which an electronic

funds transfer payment is credited to the contractor’s financial institution.

32.903 Responsibilities.

(a) Agency heads-

(1) Must establish the policies and procedures necessary to implement this subpart;

(2) May prescribe additional standards for establishing invoice payment due dates (see 32.904)

necessary to support agency programs and foster prompt payment to contractors;

(3) May adopt different payment procedures in order to accommodate unique circumstances,

provided that such procedures are consistent with the policies in this subpart;

(4) Must inform contractors of points of contact within their cognizant payment offices to enable

contractors to obtain status of invoices; and

(5) May authorize the use of the accelerated payment methods specified at 5 CFR 1315.5, but see

32.009-1(a).

(b) When drafting solicitations and contracts, contracting officers must identify for each line item

number, subline item number, or exhibit line item number-

(1) The applicable Prompt Payment clauses that apply to each item when the solicitation or contract

contains items that will be subject to different payment terms; and

(2) The applicable Prompt Payment food category (e.g., which item numbers are meat or meat food

products, which are perishable agricultural commodities), when the solicitation or contract contains

multiple payment terms for various classes of foods and edible products.

32.904 Determining payment due dates.

(a) General. Agency procedures must ensure that, when specifying due dates, contracting officers

give full consideration to the time reasonably required by Government officials to fulfill their

administrative responsibilities under the contract.

(b) Payment due dates. Except as prescribed in paragraphs (c) through (f) of this section, or as
authorized in 32.908(a)(2) or (c)(2), the due date for making an invoice payment is as follows:

(1) The later of the following two events:

(i) The 30 thday after the designated billing office receives a proper invoice from the contractor

(except as provided in paragraph (b)(3) of this section).

(ii) The 30 thday after Government acceptance of supplies delivered or services performed.

(A) For a final invoice, when the payment amount is subject to contract settlement actions,

acceptance is deemed to occur on the effective date of the contract settlement.

(B) For the sole purpose of computing an interest penalty that might be due the contractor-

(1) Government acceptance is deemed to occur constructively on the 7 thday after the contractor

delivers supplies or performs services in accordance with the terms and conditions of the contract,

unless there is a disagreement over quantity, quality, or contractor compliance with a contract

requirement;

(2) If actual acceptance occurs within the constructive acceptance period, the Government must

base the determination of an interest penalty on the actual date of acceptance;

(3) The constructive acceptance requirement does not compel Government officials to accept

supplies or services, perform contract administration functions, or make payment prior to fulfilling

their responsibilities; and

(4) Except for a contract for the purchase of a commercial product or commercial service, including

a brand-name commercial product for authorized resale (e.g.,commissary items), the contracting

officer may specify a longer period for constructive acceptance in the solicitation and resulting

contract, if required to afford the Government a reasonable opportunity to inspect and test the

supplies furnished or to evaluate the services performed. The contracting officer must document in

the contract file the justification for extending the constructive acceptance period beyond 7 days.

Extended acceptance periods must not be a routine agency practice and must be used only when

necessary to permit proper Government inspection and testing of the supplies delivered or services

performed.

(2) If the contract does not require submission of an invoice for payment (e.g.,periodic lease

payments), the contracting officer must specify the due date in the contract.

(3) If the designated billing office fails to annotate the invoice with the actual date of receipt at the

time of receipt, the invoice payment due date is the 30 thday after the date of the contractor's

invoice, provided the designated billing office receives a proper invoice and there is no disagreement

over quantity, quality, or contractor compliance with contract requirements.

(c) Architect-engineer contracts.

(1) The due date for making payments on contracts that contain the clause at 52.232-10, Payments

Under Fixed-Price Architect-Engineer Contracts, is as follows:

(i) The due date for work or services completed by the contractor is the later of the following two

events:
(A) The 30 thday after the designated billing office receives a proper invoice from the contractor.

(B) The 30 thday after Government acceptance of the work or services completed by the contractor.

(1) For a final invoice, when the payment amount is subject to contract settlement actions (e.g.,

release of claims), acceptance is deemed to occur on the effective date of the settlement.

(2) For the sole purpose of computing an interest penalty that might be due the contractor,

Government acceptance is deemed to occur constructively on the 7 thday after the contractor

completes the work or services in accordance with the terms and conditions of the contract (see also

paragraph (c)(2) of this section). If actual acceptance occurs within the constructive acceptance

period, the Government must base the determination of an interest penalty on the actual date of

acceptance.

(ii) The due date for progress payments is the 30 thday after Government approval of contractor

estimates of work or services accomplished. For the sole purpose of computing an interest penalty

that might be due the contractor-

(A) Government approval is deemed to occur constructively on the 7 thday after the designated

billing office receives the contractor estimates (see also paragraph (c)(2) of this section).

(B) If actual approval occurs within the constructive approval period, the Government must base the

determination of an interest penalty on the actual date of approval.

(iii) If the designated billing office fails to annotate the invoice or payment request with the actual

date of receipt at the time of receipt, the payment due date is the 30 thday after the date of the

contractor’s invoice or payment request, provided the designated billing office receives a proper

invoice or payment request and there is no disagreement over quantity, quality, or contractor

compliance with contract requirements.

(2) The constructive acceptance and constructive approval requirements described in paragraphs

(c)(1)(i) and (ii) of this section are conditioned upon receipt of a proper payment request and no

disagreement over quantity, quality, contractor compliance with contract requirements, or the

requested progress payment amount. These requirements do not compel Government officials to

accept work or services, approve contractor estimates, perform contract administration functions, or

make payment prior to fulfilling their responsibilities. The contracting officer may specify a longer

period for constructive acceptance or constructive approval, if required to afford the Government a

reasonable opportunity to inspect and test the supplies furnished or to evaluate the services

performed. The contracting officer must document in the contract file the justification for extending

the constructive acceptance or approval period beyond 7 days.

(d) Construction contracts.

(1) The due date for making payments on construction contracts is as follows:

(i) The due date for making progress payments based on contracting officer approval of the

estimated amount and value of work or services performed, including payments for reaching

milestones in any project, is 14 days after the designated billing office receives a proper payment

request.

(A) If the designated billing office fails to annotate the payment request with the actual date of

receipt at the time of receipt, the payment due date is the 14 thday after the date of the contractor’s
payment request, provided the designated billing office receives a proper payment request and there

is no disagreement over quantity, quality, or contractor compliance with contract requirements.

(B) The contracting officer may specify a longer period in the solicitation and resulting contract if

required to afford the Government a reasonable opportunity to adequately inspect the work and to

determine the adequacy of the contractor’s performance under the contract. The contracting officer

must document in the contract file the justification for extending the due date beyond 14 days.

(C) The contracting officer must not approve progress payment requests unless the certification and

substantiation of amounts requested are provided as required by the clause at 52.232-5, Payments

Under Fixed-Price Construction Contracts.

(ii) The due date for payment of any amounts retained by the contracting officer in accordance with

the clause at 52.232-5, Payments Under Fixed-Price Construction Contracts, will be as specified in

the contract or, if not specified, 30 days after approval by the contracting officer for release to the

contractor. The contracting officer must base the release of retained amounts on the contracting

officer’s determination that satisfactory progress has been made.

(iii) The due date for final payments based on completion and acceptance of all work (including any

retained amounts), and payments for partial deliveries that have been accepted by the Government

(e.g., each separate building, public work, or other division of the contract for which the price is

stated separately in the contract) is as follows:

(A) The later of the following two events:

(1) The 30 thday after the designated billing office receives a proper invoice from the contractor.

(2) The 30 thday after Government acceptance of the work or services completed by the contractor.

For a final invoice, when the payment amount is subject to contract settlement actions (e.g., release

of contractor claims), acceptance is deemed to occur on the effective date of the contract settlement.

(B) If the designated billing office fails to annotate the invoice with the actual date of receipt at the

time of receipt, the invoice payment due date is the 30 thday after the date of the contractor’s

invoice, provided the designated billing office receives a proper invoice and there is no disagreement

over quantity, quality, or contractor compliance with contract requirements.

(2) For the sole purpose of computing an interest penalty that might be due the contractor for

payments described in paragraph (d)(1)(iii) of this section-

(i) Government acceptance or approval is deemed to occur constructively on the 7 thday after the

contractor completes the work or services in accordance with the terms and conditions of the

contract, unless there is a disagreement over quantity, quality, contractor compliance with a

contract requirement, or the requested amount;

(ii) If actual acceptance occurs within the constructive acceptance period, the Government must

base the determination of an interest penalty on the actual date of acceptance;

(iii) The constructive acceptance requirement does not compel Government officials to accept work

or services, approve contractor estimates, perform contract administration functions, or make

payment prior to fulfilling their responsibilities; and

(iv) The contracting officer may specify a longer period for constructive acceptance or constructive

approval in the solicitation and resulting contract, if required to afford the Government a reasonable
opportunity to adequately inspect the work and to determine the adequacy of the contractor’s

performance under the contract. The contracting officer must document in the contract file the

justification for extending the constructive acceptance or approval beyond 7 days.

(3) Construction contracts contain special provisions concerning contractor payments to

subcontractors, along with special contractor certification requirements. The Office of Management

and Budget has determined that these certifications must not be construed as final acceptance of the

subcontractor’s performance. The certification in 52.232-5(c) implements this determination;

however, certificates are still acceptable if the contractor deletes paragraph (c)(4) of 52.232-5 from

the certificate.

(4)

(i) Paragraph (d) of the clause at 52.232-5, Payments under Fixed-Price Construction Contracts, and

paragraph (e)(6) of the clause at 52.232-27, Prompt Payment for Construction Contracts, provide for

the contractor to pay interest on unearned amounts in certain circumstances. The Government must

recover this interest from subsequent payments to the contractor. Therefore, contracting officers

normally must make no demand for payment. Contracting officers must-

(A) Compute the amount in accordance with the clause;

(B) Provide the contractor with a final decision; and

(C) Notify the payment office of the amount to be withheld.

(ii) The payment office is responsible for making the deduction of interest. Amounts collected in

accordance with these provisions revert to the United States Treasury.

(e) Cost-reimbursement contracts for services. For purposes of computing late payment interest

penalties that may apply, the due date for making interim payments on cost-reimbursement

contracts for services is 30 days after the date of receipt of a proper invoice.

(f) Food and specified items.

If the items delivered are:

Payment must be

made as close as

possible to, but not

later than:

(1) Meat or meat food products. As defined in section 2(a)(3) of the

Packers and Stockyard Act of 1921 (7 U.S.C.182(3)), and as further

defined in Public Law98-181, including any edible fresh or frozen

poultry meat, any perishable poultry meat food product, fresh eggs,

and any perishable egg product.

7th day after

product delivery.

(2) Fresh or frozen fish. As defined in section 204(3) of the Fish and

Seafood Promotion Act of 1986 (16 U.S.C.4003(3)).

7th day after

product delivery.
(3) Perishable agricultural commodities. As defined in section 1(4) of

the Perishable Agricultural Commodities Act of 1930 (7

U.S.C.499a(4)).

10th day after

product delivery,

unless another date

is specified in the

contract.

(4) Dairy products. As defined in section 111(e) of the Dairy

Production Stabilization Act of 1983 (7 U.S.C.4502(e)), edible fats or

oils, and food products prepared from edible fats or oils. Liquid milk,

cheese, certain processed cheese products, butter, yogurt, ice cream,

mayonnaise, salad dressings, and other similar products fall within

this classification. Nothing in the Act limits this classification to

refrigerated products. If questions arise regarding the proper

classification of a specific product, the contracting officer must follow

prevailing industry practices in specifying a contract payment due

date. The burden of proof that a classification of a specific product is,

in fact, prevailing industry practice is upon the contractor making the

representation.

10th day after a

proper invoice has

been received.

(g) Multiple payment due dates. Contracting officers may encourage, but not require, contractors to

submit separate invoices for products with different payment due dates under the same contract or

order. When an invoice contains items with different payment due dates (i.e.,a mixed invoice), the

payment office will, subject to agency policy-

(1) Pay the entire invoice on the earliest due date; or

(2) Split invoice payments, making payments by the applicable due dates.

32.905 Payment documentation and process.

(a) General. Payment will be based on receipt of a proper invoice and satisfactory contract

performance.

(b) Content of invoices.

(1) A proper invoice must include the following items (except for interim payments on cost

reimbursement contracts for services):

(i) Name and address of the contractor.

(ii) Invoice date and invoice number. (Contractors should date invoices as close as possible to the

date of mailing or transmission.)

(iii) Contract number or other authorization for supplies delivered or services performed (including

order number and line item number).

(iv) Description, quantity, unit of measure, unit price, and extended price of supplies delivered or

services performed.

(v) Shipping and payment terms (e.g., shipment number and date of shipment, discount for prompt
payment terms). Bill of lading number and weight of shipment will be shown for shipments on

Government bills of lading.

(vi) Name and address of contractor official to whom payment is to be sent (must be the same as that

in the contract or in a proper notice of assignment).

(vii) Name (where practicable), title, phone number, and mailing address of person to notify in the

event of a defective invoice.

(viii) Taxpayer Identification Number (TIN). The contractor must include its TIN on the invoice only

if required by agency procedures. (See 4.9 TIN requirements.)

(ix) Electronic funds transfer (EFT) banking information.

(A) The contractor must include EFT banking information on the invoice only if required by agency

procedures.

(B) If EFT banking information is not required to be on the invoice, in order for the invoice to be a

proper invoice, the contractor must have submitted correct EFT banking information in accordance

with the applicable solicitation provision (e.g., 52.232-38, Submission of Electronic Funds Transfer

Information with Offer), contract clause (e.g., 52.232-33, Payment by Electronic Funds TransferSystem for Award Management, or 52.232-34, Payment by Electronic Funds Transfer-Other Than

System for Award Management), or applicable agency procedures.

(C) EFT banking information is not required if the Government waived the requirement to pay by

EFT.

(x) Any other information or documentation required by the contract (e.g., evidence of shipment).

(2) An interim payment request under a cost-reimbursement contract for services constitutes a

proper invoice for purposes of this subsection if it includes all of the information required by the

contract.

(3) If the invoice does not comply with these requirements, the designated billing office must return

it within 7 days after receipt (3 days on contracts for meat, meat food products, or fish; 5 days on

contracts for perishable agricultural commodities, dairy products, edible fats or oils, and food

products prepared from edible fats or oils), with the reasons why it is not a proper invoice. If such

notice is not timely, then the designated billing office must adjust the due date for the purpose of

determining an interest penalty, if any.

(c) Authorization to pay. All invoice payments, with the exception of interim payments on costreimbursement contracts for services, must be supported by a receiving report or other Government

documentation authorizing payment (e.g., Government certified voucher). The agency receiving

official should forward the receiving report or other Government documentation to the designated

payment office by the 5th working day after Government acceptance or approval, unless other

arrangements have been made. This period of time does not extend the due dates prescribed in this

section. Acceptance should be completed as expeditiously as possible. The receiving report or other

Government documentation authorizing payment must, as a minimum, include the following:

(1) Contract number or other authorization for supplies delivered or services performed.

(2) Description of supplies delivered or services performed.
(3) Quantities of supplies received and accepted or services performed, if applicable.

(4) Date supplies delivered or services performed.

(5) Date that the designated Government official-

(i) Accepted the supplies or services; or

(ii) Approved the progress payment request, if the request is being made under the clause at

52.232-5, Payments Under Fixed-Price Construction Contracts, or the clause at 52.232-10, Payments

Under Fixed-Price Architect-Engineer Contracts.

(6) Signature, printed name, title, mailing address, and telephone number of the designated

Government official responsible for acceptance or approval functions.

(d) Billing office. The designated billing office must immediately annotate each invoice with the

actual date it receives the invoice.

(e) Payment office. The designated payment office will annotate each invoice and receiving report

with the actual date it receives the invoice.

32.906 Making payments.

(a) General. The Government will not make invoice payments earlier than 7 days prior to the due

dates specified in the contract unless the agency head determines-

(1) To make earlier payment on a case-by-case basis; or

(2) That the use of accelerated payment methods is necessary. See 32.903(a)(5), but see 32.009-1(a).

(b) Payment office. The designated payment office-

(1) Will mail checks on the same day they are dated;

(2) For payments made by EFT, will specify a date on or before the established due date for

settlement of the payment at a Federal Reserve Bank;

(3) When the due date falls on a Saturday, Sunday, or legal holiday when Government offices are

closed, may make payment on the following working day without incurring a late payment interest

penalty.

(4) When it is determined that the designated billing office erroneously rejected a proper invoice and

upon resubmission of the invoice, will enter in the payment system the original date the invoice was

received by the designated billing office for the purpose of calculating the correct payment due date

and any interest penalties that may be due.

(c) Partial deliveries.

(1) Contracting officers must, where the nature of the work permits, write contract statements of

work and pricing arrangements that allow contractors to deliver and receive invoice payments for

discrete portions of the work as soon as completed and found acceptable by the Government (see
32.102(d)).

(2) Unless specifically prohibited by the contract, the clause at 52.232-1, Payments, provides that

the contractor is entitled to payment for accepted partial deliveries of supplies or partial

performance of services that comply with all applicable contract requirements and for which prices

can be calculated from the contract terms.

(d) Contractor identifier. Each payment or remittance advice will use the contractor invoice number

in addition to any Government or contract information in describing any payment made.

(e) Discounts. When a discount for prompt payment is taken, the designated payment office will

make payment to the contractor as close as possible to, but not later than, the end of the discount

period. The discount period is specified by the contractor and is calculated from the date of the

contractor’s proper invoice. If the contractor has not placed a date on the invoice, the due date is

calculated from the date the designated billing office receives a proper invoice, provided the agency

annotates such invoice with the date of receipt at the time of receipt. When the discount date falls on

a Saturday, Sunday, or legal holiday when Government offices are closed, the designated payment

office may make payment on the following working day and take a discount. Payment terms are

specified in the clause at 52.232-8, Discounts for Prompt Payment.

32.907 Interest penalties.

(a) Late payment. The designated payment office will pay an interest penalty automatically, without

request from the contractor, when all of the following conditions, if applicable, have been met:

(1) The designated billing office received a proper invoice.

(2) The Government processed a receiving report or other Government documentation authorizing

payment, and there was no disagreement over quantity, quality, or contractor compliance with any

contract requirement.

(3) In the case of a final invoice, the payment amount is not subject to further contract settlement

actions between the Government and the contractor.

(4) The designated payment office paid the contractor after the due date.

(5) In the case of interim payments on cost-reimbursement contracts for services, when payment is

made more than 30 days after the designated billing office receives a proper invoice.

(b) Improperly taken discount. The designated payment office will pay an interest penalty

automatically, without request from the contractor, if the Government takes a discount for prompt

payment improperly. The interest penalty is calculated on the amount of discount taken for the

period beginning with the firstday after the end of the discount period through the date when the

contractor is paid.

(c) Failure to pay interest.

(1) The designated payment office will pay a penalty amount, in addition to the interest penalty

amount, only if-

(i) The Government owes an interest penalty of $1 or more;
(ii) The designated payment office does not pay the interest penalty within 10 days after the date the

invoice amount is paid; and

(iii) The contractor makes a written demand to the designated payment office for additional penalty

payment in accordance with paragraph (c)(2) of this section, postmarked not later than 40 days after

the date the invoice amount is paid.

(2)

(i) Contractors must support written demands for additional penalty payments with the following

data. The Government must not request additional data. Contractors must-

(A) Specifically assert that late payment interest is due under a specific invoice, and request

payment of all overdue late payment interest penalty and such additional penalty as may be

required;

(B) Attach a copy of the invoice on which the unpaid late payment interest is due; and

(C) State that payment of the principal has been received, including the date of receipt.

(3) If there is no postmark or the postmark is illegible-

(i) The designated payment office that receives the demand will annotate it with the date of receipt,

provided the demand is received on or before the 40 thday after payment was made; or

(ii) If the designated payment office fails to make the required annotation, the Government will

determine the demand’s validity based on the date the contractor has placed on the demand;

provided such date is no later than the 40 thday after payment was made.

(d) Disagreements.

(1) The payment office will not pay interest penalties if payment delays are due to disagreement

between the Government and contractor concerning-

(i) The payment amount;

(ii) Contract compliance; or

(iii) Amounts temporarily withheld or retained in accordance with the terms of the contract.

(2) The Government and the contractor must resolve claims involving disputes, and any interest that

may be payable in accordance with the Disputes clause.

(e) Computation of interest penalties. The Government will compute interest penalties in accordance

with OMB prompt payment regulations at 5 CFR Part 1315. These regulations are available via the

Internet at http://www.fms.treas.gov/prompt/.

(f) Unavailability of funds. The temporary unavailability of funds to make a timely payment does not

relieve an agency from the obligation to pay interest penalties.
32.908 Contract clauses.

(a) Insert the clause at 52.232-26, Prompt Payment for Fixed-Price Architect-Engineer Contracts, in

solicitations and contracts that contain the clause at 52.232-10, Payments Under Fixed-Price

Architect-Engineer Contracts.

(1) As authorized in 32.904(c)(2), the contracting officer may modify the date in paragraph (a)(4)(i)

of the clause to specify a period longer than 7 days for constructive acceptance or constructive

approval, if required to afford the Government a practicable opportunity to inspect and test the

supplies furnished or evaluate the services performed.

(2) As provided in 32.903, agency policies and procedures may authorize amendment of paragraphs

(a)(1)(i) and (ii) of the clause to insert a period shorter than 30 days (but not less than 7 days) for

making contract invoice payments.

(b) Insert the clause at 52.232-27, Prompt Payment for Construction Contracts, in all solicitations

and contracts for construction (see part 36).

(1) As authorized in 32.904(d)(1)(i)(B), the contracting officer may modify the date in paragraph

(a)(1)(i)(A) of the clause to specify a period longer than 14 days if required to afford the Government

a reasonable opportunity to adequately inspect the work and to determine the adequacy of the

Contractor’s performance under the contract.

(2) As authorized in 32.904(d)(2)(iv), the contracting officer may modify the date in paragraph

(a)(4)(i) of the clause to specify a period longer than 7 days for constructive acceptance or

constructive approval if required to afford the Government a reasonable opportunity to inspect and

test the supplies furnished or evaluate the services performed.

(c) Insert the clause at 52.232-25, Prompt Payment, in all other solicitations and contracts, except

when the clause at 52.212-4, Contract Terms and Conditions-Commercial Products and Commercial

Services, applies, or when payment terms and late payment penalties are established by other

governmental authority (e.g., tariffs).

(1) As authorized in 32.904(b)(1)(ii)(B)(4), the contracting officer may modify the date in paragraph

(a)(5)(i) of the clause to specify a period longer than 7 days for constructive acceptance, if required

to afford the Government a reasonable opportunity to inspect and test the supplies furnished or to

evaluate the services performed, except in the case of a contract for the purchase of a commercial

product or commercial service, including a brand-name commercial product for authorized resale

(e.g., commissary items).

(2) As provided in 32.903, agency policies and procedures may authorize amendment of paragraphs

(a)(1)(i) and (ii) of the clause to insert a period shorter than 30 days (but not less than 7 days) for

making contract invoice payments.

(3) If the contract is a cost-reimbursement contract for services, use the clause with its Alternate I.

32.909 Contractor inquiries.

(a) Direct questions involving-
(1) Delinquent payments to the designated billing office or designated payment office; and

(2) Disagreements in payment amount or timing to the contracting officer for resolution. The

contracting officer must coordinate within appropriate contracting channels and seek the advice of

other offices as necessary to resolve dis-agreements.

(b) Small business concerns may contact the agency’s local small business specialist or

representative from the Office of Small and Disadvantaged Business Utilization to obtain additional

assistance related to payment issues, late payment interest penalties, and information on the Prompt

Payment Act.

Subpart 32.10 - Performance-Based Payments

32.1000 Scope of subpart.

This subpart provides policy and procedures for performance-based payments under noncommercial

purchases pursuant to subpart 32.1.

32.1001 Policy.

(a) Performance-based payments are the preferred Government financing method when the

contracting officer finds them practical, and the contractor agrees to their use.

(b) Performance-based payments are contract financing payments that are not payment for accepted

items.

(c) Performance-based payments are fully recoverable, in the same manner as progress payments, in

the event of default.

(d) Performance-based payments are contract financing payments and, therefore, are not subject to

the interest-penalty provisions of prompt payment (see subpart 32.9). These payments shall be

made in accordance with agency policy.

(e) Performance-based payments shall not be used for-

(1) Payments under cost-reimbursement line items;

(2) Contracts for architect-engineer services or construction, or for shipbuilding or ship conversion,

alteration, or repair, when the contracts provide for progress payments based upon a percentage or

stage of completion; or

(3) Contracts awarded through sealed bid procedures.

32.1002 Bases for performance-based payments.

Performance-based payments may be made on any of the following bases:
(a) Performance measured by objective, quantifiable methods.

(b) Accomplishment of defined events.

(c) Other quantifiable measures of results.

32.1003 Criteria for use.

The contracting officer may use performance-based payments for individual orders and contracts

provided-

(a) The contracting officer and offeror agree on the performance-based payment terms;

(b) The contract, individual order, or line item is a fixed-price type;

(c) For indefinite delivery contracts, the individual order does not provide for progress payments;

and

(d) For other than indefinite delivery contracts, the contract does not provide for progress payments.

32.1004 Procedures.

Performance-based payments may be made either on a whole contract or on a deliverable item basis,

unless otherwise prescribed by agency regulations. Financing payments to be made on a whole

contract basis are applicable to the entire contract, and not to specific deliverable items. Financing

payments to be made on a deliverable item basis are applicable to a specific individual deliverable

item. (A deliverable item for these purposes is a separate item with a distinct unit price. Thus, a line

item for 10 airplanes, with a unit price of $1,000,000 each, has 10 deliverable items-the separate

planes. A line item for 1 lot of 10 airplanes, with a lot price of $10,000,000, has only one deliverable

item-the lot.)

(a) Establishing performance bases.

(1) The basis for performance-based payments may be either specifically described events (e.g.,

milestones) or some measurable criterion of performance. Each event or performance criterion that

will trigger a finance payment shall be an integral and necessary part of contract performance and

shall be identified in the contract, along with a description of what constitutes successful

performance of the event or attainment of the performance criterion. The signing of contracts or

modifications, the exercise of options, the passage of time, or other such occurrences do not

represent meaningful efforts or actions and shall not be identified as events or criteria for

performance-based payments. An event need not be a critical event in order to trigger a payment,

but the Government must be able to readily verify successful performance of each such event or

performance criterion.

(2) Events or criteria may be either severable or cumulative. The successful completion of a

severable event or criterion is independent of the accomplishment of any other event or criterion.

Conversely, the successful accomplishment of a cumulative event or criterion is dependent upon the

previous accomplishment of another event. A contract may provide for more than one series of

severable and/or cumulative performance events or criteria performed in parallel. The contracting
officer shall include the following in the contract:

(i) The contract shall not permit payment for a cumulative event or criterion until the dependent

event or criterion has been successfully completed.

(ii) The contract shall specifically identify severable events or criteria.

(iii) The contract shall specifically identify cumulative events or criteria and identify which events or

criteria are preconditions for the successful achievement of each event or criterion.

(iv) Because performance-based payments are contract financing, events or criteria shall not serve

as a vehicle to reward the contractor for completion of performance levels over and above what is

required for successful completion of the contract.

(v) If payment of performance-based finance amounts is on a deliverable item basis, each event or

performance criterion shall be part of the performance necessary for that deliverable item and shall

be identified to a specific line item or subline item.

(b) Establishing performance-based finance payment amounts.

(1) The contracting officer shall establish a complete, fully defined schedule of events or

performance criteria and payment amounts when negotiating contract terms. If a contract action

significantly affects the price, or event or performance criterion, the contracting officer responsible

for pricing the contract modification shall adjust the performance-based payment schedule

appropriately.

(2) Total performance-based payments shall-

(i) Reflect prudent contract financing provided only to the extent needed for contract performance

(see 32.104(a)); and

(ii) Not exceed 90 percent of the contract price if on a whole contract basis, or 90 percent of the

delivery item price if on a delivery item basis.

(3) The contract shall specifically state the amount of each performance-based payment either as a

dollar amount or as a percentage of a specifically identified price (e.g., contract price or unit price of

the deliverable item). The payment of contract financing has a cost to the Government in terms of

interest paid by the Treasury to borrow funds to make the payment. Because the contracting officer

has wide discretion as to the timing and amount of the performance-based payments, the contracting

officer shall ensure that-

(i) The total contract price is fair and reasonable, all factors considered; and

(ii) Performance-based payment amounts are commensurate with the value of the performance event

or performance criterion and are not expected to result in an unreasonably low or negative level of

contractor investment in the contract. To confirm sufficient investment, the contracting officer may

request expenditure profile information from offerors, but only if other information in the proposal,

or information otherwise available to the contracting officer, is expected to be insufficient.

(4) Unless agency procedures prescribe the bases for establishing performance-based payment

amounts, contracting officers may establish them on any rational basis, including (but not limited

to)-
(i) Engineering estimates of stages of completion;

(ii) Engineering estimates of hours or other measures of effort to be expended in performance of an

event or achievement of a performance criterion; or

(iii) The estimated projected cost of performance of particular events.

(5) When subsequent contract modifications are issued, the contracting officer shall adjust the

performance-based payment schedule as necessary to reflect the actions required by those contract

modifications.

(c) Instructions for multiple appropriations. If there is more than one appropriation account (or

subaccount) funding payments on the contract, the contracting officer shall provide instructions to

the Government payment office for distribution of financing payments to the respective funds

accounts. Distribution instructions shall be consistent with the contract’s liquidation provisions.

(d) Liquidating performance-based finance payments. Performance-based amounts shall be

liquidated by deducting a percentage or a designated dollar amount from the delivery payments. The

contracting officer shall specify the liquidation rate or designated dollar amount in the contract. The

method of liquidation shall ensure complete liquidation no later than final payment.

(1) If the contracting officer establishes the performance-based payments on a delivery item basis,

the liquidation amount for each line item is the percent of that delivery item price that was

previously paid under performance-based finance payments or the designated dollar amount.

(2) If the performance-based finance payments are on a whole contract basis, liquidation is by

predesignated liquidation amounts or liquidation percentages.

(e) Competitive negotiated solicitations.

(1) If a solicitation requests offerors to propose performance-based payments, the solicitation shall

specify-

(i) What, if any, terms shall be included in all offers; and

(ii) The extent to which and how offeror-proposed performance-based payment terms will be

evaluated. Unless agencies prescribe other evaluation procedures, if the contracting officer

anticipates that the cost of providing performance-based payments would have a significant impact

on determining the best value offer, the solicitation should state that the evaluation of the offeror’s

proposed prices will include an adjustment to reflect the estimated cost to the Government of

providing each offeror’s proposed performance-based payments (see Alternate I to the provision at

52.232-28).

(2) The contracting officer shall-

(i) Review the proposed terms to ensure they comply with this section; and

(ii) Use the adjustment method at 32.205(c) if the price is to be adjusted for evaluation purposes in

accordance with paragraph (e)(1)(ii) of this section.
32.1005 Solicitation provision and contract clause.

(a) Insert the clause at 52.232-32, Performance-Based Payments, in-

(1) Solicitations that may result in contracts providing for performance-based payments; and

(2) Fixed-price contracts under which the Government will provide performance-based payments.

(b)

(1) Insert the solicitation provision at 52.232-28, invitation to Propose Performance-Based Payments,

in negotiated solicitations that invite offerors to propose performance-based payments.

(2) Use the provision with its Alternate I in competitive negotiated solicitations if the Government

intends to adjust proposed prices for proposal evaluation purposes (see 32.1004(e)).

32.1006 [Reserved]

32.1007 Administration and payment of performance-based payments.

(a) Responsibility. The contracting officer responsible for administering performance-based

payments (see 42.302(a)(13)) for the contract shall review and approve all performance-based

payments for that contract.

(b) Approval of financing requests. Unless otherwise provided in agency regulations, or by

agreement with the appropriate payment official-

(1) The contracting officer shall be responsible for receiving, approving, and transmitting all

performance-based payment requests to the appropriate payment office; and

(2) Each approval shall specify the amount to be paid, necessary contractual information, and the

appropriation account(s) (see 32.1004(c)) to be charged for the payment.

(c) Reviews. The contracting officer is responsible for determining what reviews are required for

protection of the Government’s interests. The contracting officer should consider the contractor’s

experience, performance record, reliability, financial strength, and the adequacy of controls

established by the contractor for the administration of performance-based payments. Based upon the

risk to the Government, post-payment reviews and verifications should normally be arranged as

considered appropriate by the contracting officer. If considered necessary by the contracting officer,

pre-payment reviews may be required.

(d) Incomplete performance. The contracting officer shall not approve a performance-based payment

until the specified event or performance criterion has been successfully accomplished in accordance

with the contract. If an event is cumulative, the contracting officer shall not approve the

performance-based payment unless all identified preceding events or criteria are accomplished.

(e) Government-caused delay. Entitlement to a performance-based payment is solely on the basis of

successful performance of the specified events or performance criteria. However, if there is a

Government-caused delay, the contracting officer may renegotiate the performance-based payment
schedule to facilitate contractor billings for any successfully accomplished portions of the delayed

event or criterion.

32.1008 Suspension or reduction of performance-based payments.

The contracting officer shall apply the policy and procedures in paragraphs (a), (b), (c), and (e) of

32.503-6, Suspension or reduction of payments, whenever exercising the Government’s rights to

suspend or reduce performance-based payments in accordance with paragraph (e) of the clause at

52.232-32, Performance-Based Payments.

32.1009 Title.

(a) Since the clause at 52.232-32, Performance-Based Payments, gives the Government title to the

property described in paragraph (f) of the clause, the contracting officer shall ensure that the

Government title is not compromised by other encumbrances. Ordinarily, the contracting officer, in

the absence of reason to believe otherwise, may rely upon the contractor’s certification contained in

the payment request.

(b) If the contracting officer becomes aware of any arrangement or condition that would impair the

Government’s title to the property affected by the Performance-Based Payments clause, the

contracting officer shall require additional protective provisions.

(c) The existence of any such encumbrance is a violation of the contractor’s obligations under the

contract, and the contracting officer may, if necessary, suspend or reduce payments under the terms

of the Performance-Based Payments clause covering failure to comply with a material requirement

of the contract. In addition, if the contractor fails to disclose an existing encumbrance in the

certification, the contracting officer should consult with legal counsel concerning possible violation

of 31 U.S.C.3729, the False Claims Act.

32.1010 Risk of loss.

(a) Under the clause at 52.232-32, Performance-Based Payments, and except for normal spoilage,

the contractor bears the risk of loss for Government property, even though title is vested in the

Government, unless the Government has expressly assumed this risk. The clauses prescribed in this

regulation related to performance-based payments, default, and terminations do not constitute a

Government assumption of risk.

(b) If a loss occurs in connection with property for which the contractor bears the risk, and the

property is needed for performance, the contractor is obligated to repay the Government the

performance-based payments related to the property.

(c) The contractor is not obligated to pay for the loss of property for which the Government has

assumed the risk of loss. However, a serious loss may impede the satisfactory progress of contract

performance, so that the contracting officer may need to act under paragraph (e)(2) of the

Performance-Based Payments clause. In addition, while the contractor is not required to repay

previous performance-based payments in the event of a loss for which the Government has assumed

the risk, such a loss may prevent the contractor from making the certification required by the

Performance-Based Payments clause.
Subpart 32.11 - Electronic Funds Transfer

32.1100 Scope of subpart.

This subpart provides policy and procedures for contract financing and delivery payments to

contractors by electronic funds transfer (EFT).

32.1101 Statutory requirements.

31 U.S.C.3332 requires, subject to implementing regulations of the Secretary of the Treasury at 31

CFR Part 208, that EFT be used to make all contract payments.

32.1102 Definitions.

As used in this subpartElectronic Funds Transfer information (EFT) means information necessary for making a payment by

EFT through specified EFT mechanisms.

Governmentwide commercial purchase card means a card that is similar in nature to a commercial

credit card that is used to make financing and delivery payments for supplies and services. The

purchase card is an EFT method and it may be used as a means to meet the requirement to pay by

EFT, to the extent that purchase card limits do not preclude such payments.

Payment information means the payment advice provided by the Government to the contractor that

identifies what the payment is for, any computations or adjustments made by the Government, and

any information required by the Prompt Payment Act.

32.1103 Applicability.

The Government shall provide all contract payments through EFT except if-

(a) The office making payment under a contract that requires payment by EFT, loses the ability to

release payment by EFT. To the extent authorized by 31 CFR Part 208, the payment office shall

make necessary payments pursuant to paragraph (a)(2) of the clause at either 52.232-33 or

52.232-34 until such time as it can make EFT payments;

(b) The payment is to be received by or on behalf of the contractor outside the United States and

Puerto Rico (but see 32.1106(b));

(c) A contract is paid in other than United States currency (but see 32.1106(b));

(d) Payment by EFT under a classified contract could compromise the safeguarding of classified

information or national security, or arrangements for appropriate EFT payments would be

impractical due to security considerations;
(e) A contract is awarded by a deployed contracting officer in the course of military operations,

including, but not limited to, contingency operations as defined in 2.101, or a contract is awarded by

any contracting officer in the conduct of emergency operations, such as responses to natural

disasters or national or civil emergencies, if-

(1) EFT is not known to be possible; or

(2) EFT payment would not support the objectives of the operation;

(f) The agency does not expect to make more than one payment to the same recipient within a oneyear period;

(g) An agency’s need for supplies and services is of such unusual and compelling urgency that the

Government would be seriously injured unless payment is made by a method other than EFT;

(h) There is only one source for supplies and services and the Government would be seriously

injured unless payment is made by a method other than EFT; or

(i) Otherwise authorized by Department of the Treasury Regulations at 31 CFR Part 208.

32.1104 Protection of EFT information.

The Government shall protect against improper disclosure of contractors’ EFT information.

32.1105 Assignment of claims.

The use of EFT payment methods is not a substitute for a properly executed assignment of claims in

accordance with subpart 32.8. EFT information that shows the ultimate recipient of the transfer to

be other than the contractor, in the absence of a proper assignment of claims, is considered to be

incorrect EFT information within the meaning of the "Suspension of Payment" paragraphs of the EFT

clauses at 52.232-33 and 52.232-34.

32.1106 EFT mechanisms.

(a) Domestic EFT mechanisms. The EFT clauses at 52.232-33 and 52.232-34 are designed for use

with the domestic United States banking system, using United States currency, and only the

specified mechanisms (U.S. Automated Clearing House, and Fedwire Transfer System) of EFT.

However, the head of an agency may authorize the use of any other EFT mechanism for domestic

EFT with the concurrence of the office or agency responsible for making payments.

(b) Nondomestic EFT mechanisms and other than United States currency. The Government shall

provide payment by other than EFT for payments received by or on behalf of the contractor outside

the United States and Puerto Rico or for contracts paid in other than United States currency.

However, the head of an agency may authorize appropriate use of EFT with the concurrence of the

office or agency responsible for making payments if-

(1) The political, financial, and communications infrastructure in a foreign country supports payment

by EFT; or
(2) Payments of other than United States currency may be made safely.

32.1107 Payment information.

The payment or disbursing office shall forward to the contractor available payment information that

is suitable for transmission as of the date of release of the EFT instruction to the Federal Reserve

System.

32.1108 Payment by Governmentwide commercial purchase card.

A Governmentwide commercial purchase card charge authorizes the third party (e.g., financial

institution) that issued the purchase card to make immediate payment to the contractor. The

Government reimburses the third party at a later date for the third party’s payment to the

contractor.

(a) The clause at 52.232-36, Payment by Third Party, governs when a contractor submits a charge

against the purchase card for contract payment. The clause provides that the contractor shall make

such payment requests by a charge to a Government account with the third party at the time the

payment clause(s) of the contract authorizes the contractor to submit a request for payment, and for

the amount due in accordance with the terms of the contract. To the extent that such a payment

would otherwise be approved, the charge against the purchase card should not be disputed when

the charge is reported to the Government by the third party. To the extent that such payment would

otherwise not have been approved, an authorized individual (see 1.603-3) shall take action to remove

the charge, such as by disputing the charge with the third party or by requesting that the contractor

credit the charge back to the Government under the contract.

(b)

(1) Written contracts to be paid by purchase card should include the clause at 52.232-36, Payment

by Third Party, as prescribed by 32.1110(d). However, payment by a purchase card also may be

made under a contract that does not contain the clause to the extent the contractor agrees to accept

that method of payment.

(2)

(i) When it is contemplated that the Governmentwide commercial purchase card will be used as the

method of payment, and the contract or order is above the micro-purchase threshold, contracting

officers are required to verify by looking in the System for Award Management (SAM) whether the

contractor has any delinquent debt subject to collection under the Treasury Offset Program (TOP) at

contract award and order placement. Information on TOP is available at

http://fms.treas.gov/debt/index.html.

(ii) The contracting officer shall not authorize the Governmentwide commercial purchase card as a

method of payment during any period the SAM indicates that the contractor has delinquent debt

subject to collection under the TOP. In such cases, payments under the contract shall be made in

accordance with the clause at 52.232-33, Payment by Electronic Funds Transfer-System for Award

Management, or 52.232-34, Payment by Electronic Funds Transfer-Other Than System for Award

Management, as appropriate (see FAR 32.1110(d)).
(iii) Contracting officers shall not use the presence of the SAM debt flag indicator to exclude a

contractor from receipt of the contract award or issuance or placement of an order.

(iv) The contracting officer may take steps to authorize payment by Governmentwide commercial

purchase card when a contractor alerts the contracting officer that the SAM debt flag indicator has

been changed to no longer show a delinquent debt.

(c) The clause at 52.232-36, Payment by Third Party, requires that the contract-

(1) Identify the third party and the particular purchase card to be used; and

(2) Not include the purchase card account number. The purchase card account number should be

provided separately to the contractor.

32.1109 EFT information submitted by offerors.

If offerors are required to submit EFT information prior to award, the successful offeror is not

responsible for resubmitting this information after award of the contract except to make changes, or

to place the information on invoices if required by agency procedures. Therefore, contracting

officers shall forward EFT information provided by the successful offeror to the appropriate office.

32.1110 Solicitation provision and contract clauses.

(a) The contracting officer shall insert the clause at-

(1) 52.232-33, Payment by Electronic Funds Transfer-System for Award Management, in solicitations

and contracts that include the provision at 52.204-7 System for Award Management, or an agency

clause that requires a contractor to be registered in SAM and maintain registration until final

payment, unless–

(i) Payment will be made through a third party arrangement (see 13.301 and paragraph (d) of this

section); or

(ii) An exception listed in 32.1103(a) through (i) applies.

(2)

(i) 52.232-34, Payment by Electronic Funds Transfer-Other than System for Award Management, in

solicitations and contracts that require EFT as the method for payment but do not include the

provision at 52.204-7, System for Award Management, or a similar agency clause that requires the

contractor to be registered in the SAM.

(ii)

(A) If permitted by agency procedures, the contracting officer may insert in paragraph (b)(1) of the

clause, a particular time after award, such as a fixed number of days, or event such as the

submission of the first request for payment.
(B) If no agency procedures are prescribed, the time period inserted in paragraph (b)(1) of the

clause shall be "no later than 15 days prior to submission of the first request for payment."

(b) If the head of the agency has authorized, in accordance with 32.1106, to use a nondomestic EFT

mechanism, the contracting officer shall insert in solicitations and contracts a clause substantially

the same as 52.232-33 or 52.232-34 that clearly addresses the nondomestic EFT mechanism.

(c) If EFT information is to be submitted to other than the payment office in accordance with agency

procedures, the contracting officer shall insert in solicitations and contracts the clause at 52.232-35,

Designation of Office for Government Receipt of Electronic Funds Transfer Information, or a clause

substantially the same as 52.232-35 that clearly informs the contractor where to send the EFT

information.

(d) If payment under a written contract will be made by a charge to a Government account with a

third party such as a Governmentwide commercial purchase card, then the contracting officer shall

insert the clause at 52.232-36, Payment by Third Party, in solicitations and contracts. Payment by a

purchase card may also be made under a contract that does not contain the clause at 52.232-36, to

the extent the contractor agrees to accept that method of payment. When the clause at 52.232-36 is

included in a solicitation or contract, the contracting officer shall also insert the clause at 52.232-33,

Payment by Electronic Funds Transfer-System for Award Management, or 52.232-34, Payment by

Electronic Funds Transfer-Other Than System for Award Management, as appropriate.

(e) If the contract or agreement provides for the use of delivery orders, and provides that the

ordering office designate the method of payment for individual orders, the contracting officer shall

insert, in the solicitation and contract or agreement, the clause at 52.232-37, Multiple Payment

Arrangements, and, to the extent they are applicable, the clauses at-

(1) 52.232-33, Payment by Electronic Funds Transfer-System for Award Management;

(2) 52.232-34, Payment by Electronic Funds Transfer-Other than System for Award Management;

and

(3) 52.232-36, Payment by Third Party.

(f) If more than one disbursing office will make payment under a contract or agreement, the

contracting officer, or ordering office (if the contract provides for choices between EFT clauses on

individual orders or classes of orders), shall include or identify the EFT clause appropriate for each

office and shall identify the applicability by disbursing office and line item.

(g) If the solicitation contains the clause at 52.232-34, Payment by Electronic Funds Transfer-Other

than System for Award Management, and an offeror is required to submit EFT information prior to

award-

(1) The contracting officer shall insert in the solicitation the provision at 52.232-38, Submission of

Electronic Funds Transfer Information with Offer, or a provision substantially the same; and

(2) For sealed bid solicitations, the contracting officer shall amend 52.232-38 to ensure that a

bidder’s EFT information-

(i) Is not a part of the bid to be opened at the public opening; and

(ii) May not be released to members of the general public who request a copy of the bid.