14156 Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules

DEPARTMENT OF DEFENSE

GENERAL SERVICES

ADMINISTRATION

NATIONAL AERONAUTICS AND

SPACE ADMINISTRATION

48 CFR Parts 32 and 52

[FAR Case 94–764]

RIN 9000–AG36

Federal Acquisition Regulation;

Contract Financing

AGENCIES: Department of Defense (DOD),

General Services Administration (GSA),

and National Aeronautics and Space

Administration (NASA).

ACTION: Proposed rule.

SUMMARY: This proposed rule is issued

pursuant to the Federal Acquisition

Streamlining Act of 1994, Public Law

103–355 (the Act). The Federal

Acquisition Regulatory Council is

considering amending the Federal

Acquisition Regulation (FAR) pertaining

to contract financing as a result of

changes to 10 U.S.C. 2307 and 41 U.S.C.

255 by Sections 2001 and 2051 of the

Act. This regulatory action was subject

to Office of Management and Budget

review under Executive Order 12866,

dated September 30, 1993.

DATES: Comment Due Date: Comments

should be submitted on or before May

15, 1995 to be considered in the

formulation of a final rule.

Public Meeting: A public meeting will

be held on April 3, 1995, at 1 p.m.

Oral/Written Statements: Views to be

presented at the public meeting should

be sent, in writing, to the FAR

Secretariat, at the address given below,

not later than March 29, 1995.

ADDRESSES: Interested parties should

submit written comments to: General

Services Administration, FAR

Secretariat (VRS), 18th & F Streets NW.,

Room 4037, Washington, DC 20405,

Telephone: (202) 501–4755.

The public meeting will be held at:

General Services Administration

Auditorium, 18th & F Streets NW., First

Floor, Washington, DC 20405.

Please cite FAR case 94–764 in all

correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: Mr.

John Galbraith, Contract Financing/

Payment Team Leader, at (703) 697–

6710 in reference to this FAR case. For

general information, contact the FAR

Secretariat, Room 4037, GS Building,

Washington, DC 20405 (202) 501–4755.

Please cite FAR case 94–764.

SUPPLEMENTARY INFORMATION:

A. Background

The Federal Acquisition Streamlining

Act of 1994, Pub. L. 103–355, provides

authorities that streamline the

acquisition process and minimize

burdensome government-unique

requirements. Major changes that can be

expected in the acquisition process as a

result of Federal Acquisition

Streamlining Act implementation

include changes in the areas of

Commercial Item Acquisition,

Simplified Acquisition Procedures, the

Truth in Negotiations Act, and

Introduction of the Federal Acquisition

Computer Network (FACNET).

This notice announces FAR revisions

under FAR case 94–764, Contract

Financing. Sections 2001 and 2051 of

the Federal Acquisition Streamlining

Act of 1994 (Pub. L. 103–355),

substantially changed the statutory

authorities for Government financing of

contracts. Subsections 2001(f) and

2051(e) provide specific authority for

Government financing of purchases of

commercial items, and subsections

2001(b) and 2051(b) substantially

revised the authority for Government

financing of purchases of noncommercial items. In order to promptly

achieve the benefits of the provisions of

the Act, the Government is issuing

implementing regulations on an

expedited basis. We believe prompt

publication of proposed rules provides

the public the opportunity to participate

more fully in the process of developing

regulations.

Subsections 2001(f) and 2051(e)

provide specific authority for

Government financing of purchases of

commercial items. These sections

amended 10 U.S.C. 2307 and 41 U.S.C.

255 by adding a new paragraph,

Conditions for Payments for

Commercial Items, to each. These

paragraphs authorize the Government to

provide contract financing with certain

limitations:

• The financing must be in the best

interest of the Government;

• The financing cannot exceed 15

percent until some performance of work

under the contract;

• The terms and conditions must be

appropriate or customary in the

commercial marketplace.

The above statutory provisions also

remove from financing of commercial

purchases certain restrictions applicable

to financing of non-commercial

purchases by other provisions of 10

U.S.C. 2307 and 41 U.S.C. 255.

Subsections 2001(b) and 2051(b)

amend the authority for Government

financing of non-commercial purchases

by authorizing financing on the basis of

certain classes of measures of

performance.

To implement these changes, the

DOD, NASA, and GSA propose to

amend the FAR by revising Subparts

32.0, 32.1, and 32.5; by adding new

Subparts 32.2 and 32.10; and by adding

new clauses to 52.232.

The statutory changes create a

fundamental distinction between

financing of purchases of commercial

and non-commercial items. As a result,

the subparts of Part 32, Contract

Financing, fall into three logical

categories:

• Subparts applicable to both

commercial and non-commercial

financing;

• Subparts applicable to only

commercial financing; and

• Subparts applicable to only noncommercial financing.

The specific subparts in each category

are identified at 32.002 (Applicability of

Subparts).

Subpart Discussion

Subpart 32.0 now contains the general

policy and guidance which is applicable

to Government contract financing of

both commercial and non-commercial

items.

Subpart 32.1 (Non-commercial

Purchase Financing) now contains the

general policy and guidance applicable

to non-commercial purchases. The

content of this subpart reflects existing

policy and guidance that previously

appeared in other locations in Part 32.

These policies have been moved to

Subpart 32.1 to give them general

applicability to all forms of financing of

non-commercial items.

Subpart 32.2 (Commercial Purchase

Financing) contains the policy and

guidance applicable to contract

financing of commercial purchases. This

subpart is wholly new. Current contract

financing policy discourages the use of

Government contract financing for

commercial items (see current FAR

32.502–1(c)), and if financing is

provided, it is commonly Progress

Payments Based on Cost. The new

statute places Government financing of

commercial purchases on a different

statutory basis than that for noncommercial purchases. As a result, the

new subpart provides policy concerning

market research about financing,

security for the taxpayer’s money, and

determining the best interest of the

United States. The new subpart

provides several alternative procedures

for establishing contract financing terms

for commercial items. The new subpart

also provides standard terms for use of

contracting officers in establishing
Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules 14157

financing in contracts. To assist in

considering installment payment

financing issues, public comments are

sought as to whether or not installment

payment financing at 32.206(f) and

52.232–AB should be incorporated into

the FAR.

The proposed installment payment

clause is intended to permit contracting

officers to incorporate financing into

contracts for commercial items without

any administrative effort beyond

incorporation of the clause. It is

intended to be an alternative that may

be used when the contracting officer

determines that the administrative cost

of contract financing for a commercial

item would otherwise prohibit its use.

The table below shows how the

Installment Payments for Commercial

Items clause arithmetic would work for

a contract which is awarded in January

with various deliveries starting in April

and ending in September (bolded

numbers indicate delivery payments

after liquidation of installment

payments).

INSTALLMENT PAYMENTS FOR COMMERCIAL ITEMS (EXAMPLE)

[Amounts shown in thousands of dollars ($)]

Qty $/Unit $Total Jan Feb Mar Apr May June July Aug Sept Total

Item 0001 ..................................... 20 20 400 70 70 70 70 120 ......... ......... ......... ......... 400

Do ......................................... 20 20 400 ......... 70 70 70 70 120 ......... ......... ......... 400

Do ......................................... 20 20 400 ......... ......... 70 70 70 70 120 ......... ......... 400

Do ......................................... 20 20 400 ......... ......... ......... 70 70 70 70 120 ......... 400

Do ......................................... 20 20 400 ......... ......... ......... ......... 70 70 70 70 120 400

Item 0002 ..................................... 2 15 30 7 7 7 9 ......... ......... ......... ......... ......... 30

Do ......................................... 2 15 30 ......... 7 7 7 9 ......... ......... ......... ......... 30

Do ......................................... 2 15 30 ......... ......... 7 7 7 9 ......... ......... ......... 30

Do ......................................... 2 15 30 ......... ......... ......... 7 7 7 9 ......... ......... 30

Do ......................................... 2 15 30 ......... ......... ......... ......... 7 7 7 9 ......... 30

Iteam 0003 ................................... 10 40 400 56 56 56 56 56 120 ......... ......... ......... 400

Do ......................................... 10 40 400 ......... 56 56 56 56 56 120 ......... ......... 400

Do ......................................... 10 40 400 ......... ......... 56 56 56 56 56 120 ......... 400

Do ......................................... 10 40 400 ......... ......... ......... 56 56 56 56 56 120 400

Finance payment ......................... ......... ......... ......... 133 266 399 525 525 392 259 126 o 2,625

Delivery payment ......................... ......... ......... ......... o o o 9 129 249 249 249 240 1,125

Total payment .............................. ......... ......... 3,750 133 266 399 534 654 641 508 375 240 3,750

Subpart 32.5 (Progress Payments

Based on Costs) has been slightly

modified to reflect the separation of

commercial from non-commercial items

and to reflect the general policy in 32.1

for availability of financing for noncommercial purchases.

Subpart 32.10 (Performance-Based

Payments) contains the policy and

guidance applicable to contract

financing through performance-based

payments. This is a wholly new subpart.

Under the current FAR, contract

financing for non-commercial items is

primarily through progress payments

based on cost and through other

specialized contract financing

mechanisms for specific types of

procurements (for example percentageof-completion progress payments for

shipbuilding or construction). This new

subpart provides the policy and

procedures for establishing and

administering performance-based

payments. Performance-based payments

under this subpart are applicable only to

non-commercial purchases.

FAR 52.232 is amended to add the

additional clauses and solicitation

provisions required to implement the

new statutory authorities. Under the

current FAR, the contracting officer can

insert a complete, fully contained

progress payment clause in a contract

and proceed with the procurement with

minimal administrative cost. For

performance-based financing and

commercial financing (except for

installment payments), contracting

officers will have to determine the form

of contract financing and write

individualized contract terms

establishing the computation of

amounts and certain other contract

financing terms.

Public Meeting

The FAR Council is interested in an

exchange of ideas and opinions with

respect to the regulatory

implementation of the Act. For that

reason, the FAR Council is conducting

a series of public meetings. The public

is encouraged to furnish its views; the

FAR Council anticipates that public

comments will be very helpful in

formulating final rules.

The public meeting on this rule (FAR

case 94–764) will be held on April 3,

1995, at 1 p.m., to enable the public to

present its views on this rule. This

meeting will coincide with the meeting

on Commercial Items (FAR case 94–790)

which is now also scheduled for April

3, 1995. Persons or organizations

wishing to make presentations will be

allowed 10 minutes each, provided they

notify the FAR Secretariat at (202) 501–

4755 and submit written statements of

the presentation by March 29, 1995.

Persons or organizations with similar

positions are encouraged to select a

common spokesman for presentation of

their views. This meeting, in

conjunction with the Federal Register

notice soliciting public comments on

the rule, will be the only opportunity for

the public to present its views.

B. Regulatory Flexibility Act

This proposed rule is expected to

have a significant economic impact on

a substantial number of small entities

within the meaning of the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq.,

because the proposed implementation of

subsection 2001(f) and subsection

2051(e) of the Federal Acquisition

Streamlining Act of 1994 (Public Law

103–355) will substantially increase the

availability of Government contract

financing for purchases of commercial

items, thereby benefiting many small

entities making commercial sales in

markets where customer financing is a

market practice; and because the

implementation of subsection 2001(b)

and subsection 2051(b) of the Federal

Acquisition Streamlining Act of 1994

(Public Law 103–355) permits contract

financing of purchases of noncommercial items upon the basis of

performance, without requiring

contractor cost accounting systems for

the contract financing, thereby

benefiting many small entities who Do

not use such systems. An Initial

Regulatory Flexibility Analysis has been
14158 Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules

performed. Comments from small

entities concerning the affected FAR

subparts will be considered in

accordance with 5 U.S.C. 610 of the Act.

Such comments must be submitted

separately and should cite 5 U.S.C. 601,

et seq. (FAR case 94–764), in

correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act (Pub.

L. 96–511) is deemed to apply because

the proposed rule contains information

collection requirements. Accordingly, a

request for approval of a new

information collection requirement

concerning Contract Financing is being

submitted to the Office of Management

and Budget under 44 U.S.C. 3501, et

seq. Public comments concerning this

request are invited in a Federal Register

notice which appears elsewhere in this

issue.

List of Subjects in 48 CFR Parts 32 and

52

Government procurement.

Dated: March 8, 1995.

Capt. Barry L. Cohen,

Project Manager for the Implementation of

the Federal Acquisition Streamlining Act of

1994.

Therefore, it is proposed that 48 CFR

Parts 32 and 52 be amended as set forth

below:

PART 32—CONTRACT FINANCING

1. The authority citation for 48 CFR

Parts 32 and 52 continues to read as

follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C.

chapter 137; and 42 U.S.C. 2473(c).

2. Section 32.000 is amended in

paragraph (e) by removing the word

‘‘and’’; in paragraph (f) by removing the

period and inserting a semicolon in its

place; and by adding paragraphs (g) and

(h) to read as follows:

32.000 Scope of part.

* * * * *

(g) Financing of purchases of

commercial items; and

(h) Performance-based payments.

3. Section 32.001 is amended by

revising the section heading and adding,

in alphabetical order, the definitions

Customary contract financing and

Unusual contract financing to read as

follows:

32.001 Definitions.

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 of the

financing arrangement by higher

management. It is expected that

contracting officers will have the

necessary training and resources to

routinely arrange and/or administer

(including paying) any financing terms

the agency deems customary for that

agency.

Unusual contract financing means

any financing not deemed customary

contract financing by the agency.

Normally, unusual contract financing is

that 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 of the financing

arrangement by higher management.

Arranging and/or administering

(including paying) unusual contract

financing may require more and/or

different training or resources than the

agency routinely makes available for

such operations, or may have greater or

different risks than the financing

arrangements deemed customary by the

agency.

4. Sections 32.002 through 32.005 are

added to read as follows:

32.002 Applicability of subparts.

(a) The following subparts of this part

are applicable to all purchases subject to

part 32:

(1) Subpart 32.0, General.

(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.

(b) Subpart 32.2, Commercial

Purchase Financing, is applicable only

to purchases of commercial items under

authority of 48 CFR part 12.

(c) The following subparts of this part

are applicable to all purchases made

under any authority other than 48 CFR

Part 12:

(1) Subpart 32.1, Non-Commercial

Purchase Financing.

(2) Subpart 32.4, Advance Payments.

(3) Subpart 32.5, Progress Payments

for Supplies or Services.

(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 48 CFR 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 worth of the

contract financing to the contractor is

expected to be reflected in one or both

of (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 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), the

contract shall not provide for any other

type of specific charges, such as interest,

on contract financing.

5. Subpart 32.1 heading and section

32.100 are revised to read as follows:
Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules 14159

Subpart 32.1—Non-Commercial

Purchase Financing

32.100 Scope of subpart.

This subpart provides policies and

procedures applicable generally to

contract financing and payment for any

purchases other than purchases of

commercial items in accordance with 48

CFR Part 12.

32.101 [Amended]

6. Section 32.101 is amended by

removing the period at the end of the

section and inserting in its place ‘‘, as

amended.’’

7. Section 32.102 is amended in the

last sentence of paragraph (a) by

removing the word ‘‘subadvances’’ and

inserting in its place ‘‘advances’’; in

paragraph (b)(2) by removing the word

‘‘or’’; in paragraph (b)(3) by removing

the period and inserting in its place ‘‘;

or’’; and adding paragraphs (b)(4) and (f)

to read as follows:

32.102 Description of contract financing

methods.

* * * * *

(b) * * *

(4) Performance-based payments.

* * * * *

(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.

8. Section 32.103 is amended by

revising the section heading to read as

set forth above; and by removing the

word ‘‘the’’ in the second sentence.

9. Section 32.104 is amended by

adding paragraphs (c) through (f) to read

as follows:

32.104 Providing contract financing.

* * * * *

(c) Subject to specific agency

regulations, contract financing may be

provided when the contracting officer

determines it is in the best interest of

the Government. Unless authorized by

agency regulation, contract financing

shall not be provided for awards

expected to be less than the simplified

acquisition procedure threshold, and

unless the provision of financing is

restricted to small businesses, shall not

be provided for awards expected to be

less than $1 million.

(d) Whenever practical, contracting

officers should use performance-based

payments (see subpart 32.10).

(e) For competitive awards, the

contracting officer shall include the

intended contract financing terms in the

solicitation, in accordance with this part

and any agency regulations. Contract

financing shall not be a factor in the

evaluation of resulting proposals, and

proposals which contain alternative

financing terms shall not be accepted

(but see subparts 14.2 and 15.6

concerning alternative proposals and

amendments of solicitations).

(f) When only one source is solicited,

the contracting officer shall include the

intended contract financing terms in the

solicitation in accordance with this part

and any agency regulations. In

negotiations of the resulting contract, if

the contract financing is to be through

performance-based payments in

accordance with subpart 32.10, the

contracting officer shall ensure that the

combination of price and financing is

fair and reasonable, all factors,

including financing cost to the Treasury,

considered.

10. Section 32.106 is amended in the

introductory text by inserting after

‘‘Government’s’’ the word ‘‘best’’; and

by revising paragraphs (b) and (d) to

read as follows:

32.106 Order of preference.

* * * * *

(b) Customary contract financing (see

32.113).

* * * * *

(d) Unusual contract financing (see

32.114).

* * * * *

32.110 [Reserved]

11. Section 32.110 is removed and

reserved.

32.111 Contract clauses for noncommercial purchases.

12. The section heading for 32.111 is

revised to read as set forth above.

13. Sections 32.113 and 32.114 are

added to read as follows:

(Note to Readers: The proposed text of

32.112 is contained in FAR case 94–762,

which was published for public comment at

60 FR 6602, February 2, 1995. Comments

concerning the proposed text for 32.112

should be submitted separately and reference

that FAR case 94–762.)

32.113 Customary contract financing.

The following contract financing

arrangements are customary contract

financing when provided in accordance

with this part 32 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 48 CFR part 36,

in accordance with this part;

(c) For small businesses, financing of

contracts for supplies or services with a

contract price equal to or greater than

the simplified acquisition procedure

threshold through customary

performance-based payments in

accordance with subpart 32.10, or

customary progress payments in

accordance with subpart 32.5 (but not

both);

(d) Financing of contracts for supplies

or services with a contract price of $1

million or more, through customary

performance-based payments in

accordance with subpart 32.10, or

customary progress payments in

accordance with subpart 32.5 (but not

both);

(e) Financing of contracts for supplies

or services through Advance Payments

in accordance with subpart 32.4;

(f) Financing of contracts for supplies

or services through Guaranteed Loans in

accordance with subpart 32.3; or

(g) Financing of contracts for supplies

or services through any appropriate

combination of Advance Payments,

Guaranteed Loans, and either customary

performance-based payments or

customary progress payments (but not

both) in accordance with their

respective subparts.

32.114 Unusual contract financing.

Any contract financing arrangement

that deviates from the policy,

procedures, terms, or conditions of 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.

14. Subpart 32.2, consisting of

sections 32.200 through 32.207, is

added to read as follows:

Subpart 32.2—Commercial Purchase

Financing

Sec.

32.200 Scope of subpart.

32.201 Statutory authority.

32.202 General.

32.202–1 Policy.

32.202–2 Types of payments for

commercial purchases.

32.202–3 Conducting market research about

financing terms.

32.202–4 Security for Government

financing.

32.203 Procedures for determining contract

financing terms.

32.204 Procedures for contracting officerspecified commercial contract financing.

32.205 Procedures for offeror-proposed

commercial contract financing.

32.206 Construction of contract clauses.

32.207 Administration and payment of

commercial financing payments.
14160 Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules

32.200 Scope of subpart.

This subpart provides policies and

procedures for commercial financing

arrangements under commercial

purchases pursuant to 48 CFR part 12.

This subpart does not apply to any

purchase made under other authority.

32.201 Statutory authority.

10 U.S.C. 2307(f) and 41 U.S.C. 255(f)

provide that payment for commercial

items may be made under such terms

and conditions as the head of the agency

determines are appropriate or customary

in the commercial marketplace and are

in the best 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

Government purchases of commercial

items, 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

shall 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 item;

(2) The contracting officer determines

that it is customary in the commercial

marketplace to make financing

payments for the item;

(3) Authorizing this form of contract

financing is in the best interest of the

Government (see 32.202–1(e));

(4) Adequate security is obtained (see

32.202–4);

(5) Prior to any performance of work

under the contract, the aggregate of

commercial advance payments shall not

exceed 15 percent of the contract price;

and

(6) 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 financing to be provided)

if the financing is expected to be

substantially more advantageous to the

offeror than the offerors normal method

of customer financing.

(c) Difference from non-commercial

financing. Government financing of

commercial purchases under this

subpart 32.2 is expected to be different

from that used for non-commercial

purchases under subpart 32.1 and its

related subparts. While the contracting

officer may adapt techniques and

procedures from the non-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 48 CFR part 32 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. (1)

The statute does not allow contract

financing by the Government where it is

not in the best interest of the United

States. The contracting officer in

deciding for individual procurements

whether to use contract financing and,

if so, the methods and techniques

therefor, shall consider the interests of

the United States in accordance with

agency regulations. The interests of the

United States may include—

(i) The cost to the Government of

providing the financing (e.g., Treasury

borrowing costs);

(ii) The transaction costs to the

Government of establishing and

negotiating the financing terms, and

administrative costs of administering

the financing terms;

(iii) Execution of Executive branch

and agency policy;

(iv) Compliance with fiscal and

budgetary requirements;

(v) Promotion of competition through

new market entrants;

(vi) Acquisition of advanced, state-ofthe-art technology; and

(vii) Integration of the industrial bases

for defense, commercial, and

Governmental markets.

(2) In considering policy to determine

whether financing is in the best interest

of the Government, the best interests of

the Government are usually served by

an appropriate trade-off of the

transaction costs of the procurement,

against the optimizing of the price and

financing of the individual purchase.

Agencies may find that certain types of

procurements, certain types of items, or

certain dollar levels of procurements do

not justify the transaction costs of

financing or do not justify high-cost

procedures for determining financing.

The specifics of these factors will vary

from agency to agency, and, possibly,

from office to office or time to time.

32.202–2 Types of payments for

commercial purchases.

These definitions reflect distinctions

made in the statutory commercial

financing authority and the

implementation of the Prompt Payment

Act.

Commercial advance payment 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.

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). The

difference between a commercial

advance and commercial interim

payment for Government contract

purposes is whether some performance

of the work under the contract has been

accomplished.

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.

32.202–3 Conducting market research

about financing terms.

(a) If contract financing is expected to

be in the best interest of the Government

(see 32.202–1(e) of this subpart),

contract financing shall be a subject

included in the market research

conducted in accordance with 48 CFR

part 10 (Market Research). Contracting

officers shall determine for commercial

purchases in the appropriate market—

(1) The extent to which other buyers

provide contract financing for purchases

in that market;

(2) The overall level of financing

normally provided;

(3) The amount or percentages of any

payments equivalent to commercial

advance payments (32.202–2);

(4) The basis for any payments

equivalent to commercial interim

payments (32.202–2), as well as the

frequency, and amounts or percentages;

and
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(5) Any special or unusual payment

terms applicable to the equivalent of

delivery payments (32.202–2).

(b) When adequate and current

information is already available,

contract financing market research does

not have to be repeated. Similarly,

procuring activities making repetitive

purchases in specific markets may

provide contracting officers with

contract financing terms for use in

purchases in those markets.

(c) Customary standard market terms

means those contract financing terms

and conditions that are the usual,

regular terms offered by a substantial

number of sellers to equivalent buyers

of the item in that market at that time.

Customary standard market terms are

not required to be identical for all

sellers, but are expected to be similar.

Terms may reasonably vary in

percentages, or timing, or other terms

and still be considered customary

standard market terms, so long as they

do not significantly differ in the overall

impact upon the Government, including

the impact upon the integrity of

competitive procurements. If the extent

of variation in the terms offered by

diverse sellers is such that some

potential offerors would be significantly

advantaged or disadvantaged by a

synthesis of the various terms, the

contracting officer may find there are no

customary standard market terms. The

extent of analysis applied in making

these determinations should be

commensurate with the expected size of

the contract and amount of contract

financing.

32.202–4 Security for Government

financing.

(a) Policy. 10 U.S.C. 2307(f) and 41

U.S.C. 255(f) require the Government to

obtain adequate security for

Government financing. The contracting

officer shall determine what security the

Government will accept, which shall be

specified in the solicitation. 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. The value of the

security must be at least equal to the

unliquidated amount of contract

financing payments to be made to the

contractor. If acceptable to the

contracting officer, the resulting

contract shall specify the security (see

32.206(b)(1)(iv) and also paragraph (f),

Security for Government Financing of

the clause at 52.232–AA, Standard

Terms for Government Financing of

Purchases of Commercial Items, or

paragraph (f) of the clause at 52.232–AB,

Installment Payments for Commercial

Items). The amount of security provided

by the contractor may be adjusted from

time to time during the period of

performance, so long as it is always

equal to or greater than the amount of

unliquidated financing that is paid to

the contractor. Paragraphs (b), (c), and

(d) of this section list some (but not all)

forms of security that the contracting

officer may find acceptable. There is no

order of preference in this listing, and

a form not listed is of equal

acceptability if the contracting officer

finds it adequate.

(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,

the contractor’s inventory. Contracting

officers may be flexible in the choice of

assets, so long as it is adequate. 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. (1)

Contracting officers may consider the

guidance at 28.203–2, 28.203–3, 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 section, the term surety

and/or individual surety should be

interpreted to mean offeror and/or

contractor.

(2) Subject to agency regulations, the

contracting officer may also consider the

net worth of the offeror in relation to the

maximum amount of Government funds

at risk. If the contracting officer finds

that the unencumbered net worth of the

offeror will be significantly in excess of

the total unliquidated Government

financing (on all Government contracts

using this form of security), and the

offeror agrees to provide additional

security should that net worth become

encumbered or materially reduced, the

contracting officer may determine the

Government has adequate security.

(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 48 CFR 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) Title to identified contractor assets

of adequate worth.

32.203 Procedures for determining

contract financing terms.

(a) Selection procedure. When the

criteria in 32.202–1(b) are met:

(1) If market research discloses that

contract financing is not customary in

the commercial market, the contracting

officer shall not provide for financing in

the solicitation and contract;

(2) If market research discloses

customary standard market terms for

commercial financing in a market, the

contracting officer shall use the

contracting officer-specified financing

procedure at 32.204 and specify the

customary standard market terms in the

solicitation and contract; or

(3) If market research discloses that

contract financing is customary in the

commercial market but there are no

customary standard market terms, the

contracting officer shall, in accordance

with agency regulations, use the

contracting officer-specified procedure

at 32.204, the offeror-proposed

procedure at 32.205, or other agency

specified procedure or technique. If

agency regulations do not provide

otherwise, the contracting officer shall

use the contracting officer-specified

procedure at 32.204 for purchases

expected to be less than $5 million and

may use the offeror-proposed procedure

at 32.205 for purchases expected to be

$5 million or more.

(b) Summary of contracting officerspecified financing procedure. Under

the contracting officer-specified

procedure at 32.204, the Government

specifies the contract financing terms in

the solicitation. The contracting officer

does not evaluate or adjust prices for

financing terms. Contracting officerspecified contract financing terms are

designed to allow reasonable contract

financing of purchases with minimum

transaction costs. Under this procedure,

the contract financing for any particular

procurement is based upon the

financing terms commonly used in the

particular market, or the terms the

Government finds appropriate to the

purchase.

(c) Summary of offeror-proposed

financing procedure. Under the offerorproposed procedure at 32.205, offerors

are invited to propose contract financing
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terms. The contracting officer then

evaluates all of the financing terms and

prices to determine the evaluated price.

The evaluated price is based upon the

net cost to the Government of the

proposed price and financing terms.

(d) Front-end loading of financing

terms. In establishing contract financing

terms, the contracting officer must be

aware of certain risks. While contract

financing payments may be made at the

beginning and during the early period of

a contract, very high amounts of

financing early in the contract may

unduly increase the risk to the

Government. Contracting officers cannot

consider various aspects of financing

separately; 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. Under

the contracting-officer specified

procedure, large, early, contract

financing payments are not prohibited if

they are the customary standard market

terms and an appropriate quality of

security is obtained. Under the offerorproposed procedure, large, early,

contract financing payments are not

prohibited if such payments are usual or

common in the offeror’s sales equivalent

to the size and type of the instant

Government purchase and an

appropriate quality of security is

obtained.

(e) Optional nature of contract

financing terms. (1) A contracting officer

determination that contract financing is

customary in a commercial market,

while establishing the Government’s

authority to offer or agree to contract

financing, does not preclude an offeror

from bidding or proposing on the basis

of no contract financing. Similarly, the

presence of a contract financing clause

in a contract does not preclude

contractor forbearance in its exercise

(see 32.207(f)).

(2) For solicitations under contracting

officer-specified procedures, an offer

stating that the contracting officerspecified contract financing terms will

not be used by the offeror does not alter

the evaluation of the offer (see

32.204(b)) nor does it render the offer

nonresponsive or otherwise

unacceptable. In the event of award to

an offeror whose offer declined the

proposed contract financing, the

contract financing provisions shall not

be included in the resulting contract.

(3) For solicitations under offerorproposed procedures, a proposal

containing no contract financing

provisions or stating that contract

financing is not proposed, shall, in lieu

of the computation in 32.205(c), be

evaluated as having no additional cost

to the United States for providing

contract financing.

32.204 Procedures for contracting-officerspecified commercial contract financing.

(a) Financing terms. Under this

procedure, the solicitation specifies the

financing terms that will be used in any

resulting contract.

(b) Determination of contract

financing terms. The contracting officer

shall determine the contract financing

terms based upon the results of market

research and prepare a written rationale

for the terms. If the contracting officer

determines there is variation between

sellers within the customary standard

market terms (see 32.202–3(c)), the

contract financing terms specified by

the contracting officer shall be within

those variations. The financing terms

shall be incorporated in the solicitation.

Contract financing shall not be a factor

in evaluation of resulting proposals, and

proposals of alternative financing terms

shall not be accepted (but see 14.208

and 15.606 concerning amendments of

solicitations). 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 interest of the

United States.

(b) Solicitations. The contracting

officer shall include in the solicitation

the Invitation to Propose Contract

Financing Terms at 52.232–AC. The

contracting officer shall also—

(1) Specify the effective 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 (c)(4) of this section).

(c) Evaluation of proposals. (1) When

contract financing terms vary between

offerors, the contracting officer must

adjust each proposed price for

evaluation purposes to reflect the cost to

the United States of providing the

proposed financing in order to

determine the total cost to the United

States of that particular combination of

price and financing.

(2) Contract financing results in the

Government making financing payments

earlier than it otherwise would as

delivery payments. The cost to the

Government of providing contract

financing is the Government’s imputed

cost of those earlier-than-otherwiserequired payments. In order to

determine the cost to the Government

for providing financing, the contracting

officer must compute that imputed cost

of financing 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 between the date of payment 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 time value of offeror-proposed

contract financing arrangements shall be

calculated using as the interest rate the

Nominal Discount Rate specified in

Appendix C of OMB Circular A–94,

Benefit-Cost Analysis of Federal

Programs; Guidelines and Discounts,

appropriate to the period of contract

financing. This Appendix is updated

yearly and is available from the Office

of Economic Policy in the Office of

Management and Budget (OMB).

32.206 Construction of contract clauses.

(a) Unless otherwise authorized by

agency regulations, the contract shall

contain the paragraph entitled Payment

of the clause at 52.212–4. If the contract

will provide for contract financing, the

contracting officer shall construct a

solicitation provision and contract

clause for any resulting contract. 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

Invitation to Propose Financing Terms

at 52.232–AC 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 have the following structure:

(1) One or more paragraphs describing

the—

(i) Computation of the financing

payment amounts;

(ii) Specific conditions of contractor

entitlement to those financing

payments;

(iii) Liquidation of those financing

payments by delivery payments;

(iv) Specifics of the security under the

contract, any terms or conditions

specifically applicable thereto; and

(v) Frequency, form, and any

additional content of the contractor’s

request for financing payment (in

addition to the requirements of the

clause Standard Terms for Government

Financing of Purchases of Commercial

Items at 52.232–AA), which paragraph
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shall limit the frequency of requests to

no more than one per month, unless

otherwise authorized by agency

regulation.

(2) Unless agency regulations

authorize alterations, the unaltered text

of the clause at 52.232–AA, Standard

Terms for Government Financing of

Purchases of Commercial Items.

(c) Computation of amounts, and

contractor entitlement provisions.

Contracts shall provide that delivery

payments shall be made only for

completed goods 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. It is expected that the

basis for payment for customary

standard market terms is one that is

documented by the records and controls

maintained by a prudent business

person in the normal course of business

in that market. Therefore, in

establishing the basis for contract

financing payments under the

contracting-officer specified procedure,

the contracting officer normally should

be guided by the customary standard

market terms. Under the offerorproposed procedure, the offeror is

responsible for proposing terms it can

implement.

(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.

(e) 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 contract

financing and invoice payments for noncommercial purchases. The contracting

officer, in constructing financing and

payment terms for commercial

purchases, 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.

(f) Installment payment financing for

commercial items. Contracting officers

may insert the clause at 52.232–AB,

Installment Payments for Commercial

Items, in contracts and solicitations in

lieu of constructing a specific clause in

accordance with paragraphs (b) through

(e) of this section when the contracting

officer determines that this clause is

appropriate and in the best interest of

the Government.

(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

interest of the Government.

(2) Authorized types of installment

financing payments and rates.

Installment financing payments may be

made using the clause at 52.232–AB,

Installment Payments for Commercial

Items, either at the 70 percent financing

rate cited in the clause or at any other

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 financing payments are

authorized. Monthly installment

financing payment amounts are to be

calculated by the contractor pursuant to

the instructions in the contract clause

only for items authorized to receive

installment financing payments.

(4) Liquidating installment payment

financing payments. If installment

financing 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 financing

payments made for the item in order to

liquidate all installment financing

payments previously made for the item.

The contractors 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) Reviews. Because the basis for

payments can vary widely, the

contracting officer is responsible for

determining what reviews, either pre- or

post- payment, are required for

protection of the Government’s

interests. The contracting officer, in

approving financing payments, may rely

upon contractor certifications and

internal management, accounting, and

data practices or systems, provided the

contracting officer has determined that

those practices or systems are reliable

and that appropriate reviews are

conducted to verify their continued

reliability.

(d) Financial surveillance. The

contracting officer is responsible for

monitoring the contractor’s overall

financial condition. The contract

financing provisions, entitled

Suspension and Reduction of Financing

Payments, and Reports and Government

Access, of the clauses at 52.232–AA and

52.232–AB, specifically give the

Government rights to information in this

area.

(e) 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.

(f) Limits on Government access. (1)

Unless the contractor requests contract

financing under a contract financing

clause, the associated Government

rights granted by the Records, reports

and access provisions of the contract

financing clauses (e.g., access to

records) are inoperative.

(2) The Government rights granted by

the Records, reports, and access

provisions of contract financing clauses

are for the purpose of ensuring the

accuracy and safety of the Government’s

financing payments and shall not be

used for any other purpose.

15. Section 32.501–1 is amended by

revising paragraph (d) to read as

follows:

32.501–1 Customary progress payment

rates.

* * * * *

(d) In accordance with the Defense

Procurement Improvement Act of 1986

(Pub. L. 99–145), as amended, and, for

civilian agencies, in accordance with 41
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U.S.C. 255, as amended, progress

payments are limited to 80 percent on

work accomplished under undefinitized

contract actions. A higher rate is not

authorized under unusual progress

payments or other customary progress

payments for the undefinitized actions.

32.501–4 [Removed]

16. Section 32.501–4 is removed.

17. Section 32.502–1 is amended in

paragraph (a) introductory text by

removing the phrase ‘‘paragraphs (b)

and (c) below,’’ and inserting in its

place ‘‘paragraph (b) of this section,’’; by

revising paragraph (b) introductory text

and (b)(1); by removing paragraph (c);

by redesignating paragraph (d) as

paragraph (c); and in newly designated

paragraph (c)(1) by removing the phrase

‘‘through (c) above,’’ and inserting in its

place ‘‘and (b) of this section,’’. The

revised text reads as follows:

32.502–1 Use of customary progress

payments.

* * * * *

(b) To reduce undue administrative

effort and expense, unless otherwise

provided in agency regulations, the

contracting officer shall not provide for

progress payments on contracts of less

than $1 million unless—

(1) The contractor is a small business

concern and the contract will be equal

to or greater than the simplified

acquisition procedure threshold; or

* * * * *

18. Subpart 32.10, consisting of

sections 32.1000 through 32.1011, is

added to read as follows:

Subpart 32.10—Performance-Based

Payments

Sec.

32.1000 Scope of subpart.

32.1001 Policy.

32.1002 Bases for performance-based

payments.

32.1003 Criteria for use.

32.1004 Procedure.

32.1005 Solicitation provisions and

contract clause.

32.1006 Agency approvals.

32.1007 Administration of performancebased payments.

32.1008 Suspension or reduction of

performance-based payments.

32.1009 Title.

32.1010 Risk of loss.

32.1011 Performance-based payments for

events.

32.1000 Scope of subpart.

This subpart provides policy and

procedures, and prescribes contract

clauses for performance-based payments

under non-commercial purchases

pursuant to subpart 32.1. This subpart

does not apply to—

(a) Payments under costreimbursement contracts;

(b) 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;

(c) Contracts for research or

development; or

(d) Contracts awarded through sealed

bid procedures.

32.1001 Policy.

(a) Performance-based payments are

contract financing payments and, when

authorized by the contract, are to be

used to pay a contractor on bases which

do not involve acceptance by the

Government.

(b) Performance-based payments are

fully recoverable, in the same manner as

progress payments, in the event of

default. Except as provided in

32.1003(c), where performance-based

payments are used, they shall be the

exclusive method of contract financing

in the contract in accordance with

subpart 32.1.

(c) Contractors shall maintain an

appropriate investment in their contract

at all times.

(d) For Government accounting

purposes, performance-based payments

should be treated like progress

payments based on costs under subpart

32.5.

(e) Performance-based payments are

contract financing payments and,

therefore, are not subject to the interestpenalty provisions of prompt payment.

However, these payments shall be made

in accordance with the agency’s policy

for contract financing payments.

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, or

(c) Other quantifiable measures of

results.

32.1003 Criteria for use.

Performance-based payments shall be

used only if the following conditions are

met:

(a) The contract meets any criteria

established by agency regulations in

accordance with subpart 32.1,

(b) The contract is a definitized fixedprice type contract, and

(c) The contract does not provide for

other methods of contract financing,

except that advance payments in

accordance with subpart 32.4, or

Guaranteed Loans in accordance with

subpart 32.3 may be used.

32.1004 Procedure.

Performance-based financing

payments may be made either on a

whole contract basis or on a deliverable

item basis, unless otherwise prescribed

by agency regulations.

(a) Establishing performance bases.

Each event or performance criteria that

will trigger payment of a performancebased finance payment amount 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 criteria.

An event need not be a critical event in

order to trigger a payment, but

successful performance of each such

event or performance criteria shall be

readily verifiable. A contractor shall not

be paid for an event or performance

criteria until previously scheduled

events or prior performance criteria

have been successfully performed. If

payment of performance-based finance

amounts is on a deliverable item basis,

each event or performance criteria shall

be part of the performance necessary for

that deliverable item and shall be

identified to a specific contract line item

or subline item.

(b) Establishing performance-based

finance payment amounts. The

contracting officer responsible for

establishing the price of a contract also

shall establish a complete, fully defined

schedule of performance-based

payments when establishing the price of

the contract. If a contract action

significantly affects the price, or event

or performance criteria, the contracting

officer responsible for pricing the

contract modification shall adjust the

performance-based payment schedule

appropriately. The payment amounts

should be adequate to ensure that the

contractor maintains an appropriate

investment in work in process inventory

and total performance-based finance

payments shall not exceed 75 percent of

the contract price, if on a whole contract

basis, or 75 percent of the delivery item

price if on a delivery item basis.

Performance-based finance payment

amounts may be established on the basis

of—

(1) The estimated projected cost of

performance of the entire contract, or of

specific line items, as of the date of each

event;

(2) The estimated projected cost of

performance of the entire contract, or of

specific line items, as of the date of

attainment of each performance criteria;

(3) The estimated projected cost of

performance of particular events; or
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(4) Any other rational basis

determined by the contracting officer or

agency procedures.

(c) Instructions for multiple

appropriations. If the whole contract

approach is used and there is more than

one appropriation account (or sub

account) funding payments under the

contract, the contracting officer shall

include in the contract instructions for

distribution of financing payments to

the respective funds accounts.

(d) Liquidating performance-based

finance payments. Performance-based

finance amounts shall be liquidated by

deducting a percentage or a designated

dollar amount from the delivery

payment.

(1) If the performance-based finance

payments are on a delivery item basis,

the liquidation amount for each such

line item shall be 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 shall be by either

predesignated liquidation amounts or a

liquidation percentage. In order to

ensure proper liquidation, performancebased financing payments made after

any payment for a deliverable item shall

be adjusted to reflect the amount of

previous delivery payments. (For

example, if $3 million of performancebased financing payments have been

made under a $10 million contract, the

liquidation percentage would be 30

percent.)

(e) Late payment penalties.

Performance-based payments are

contract financing payments and,

therefore, are not subject to the interestpenalty provisions of the Prompt

Payment Act in accordance with subpart

32.9. However, these payments shall be

made in accordance with the agency’s

policy for contract financing payments.

32.1005 Solicitation provisions and

contract clause.

(a) If performance-based contract

financing will be provided, the

contracting officer shall insert the clause

at 52.232–BD, Performance-Based

Payments, with the description of the

basis for payment and liquidation as

required in 32.1004 in the solicitation

and resulting contract.

(b) The contracting officer shall insert

the provision at 52.232–BB, Notice of

Performance-Based Payments, in

requests for proposals that include a

Performance-Based Payments clause.

(c) Unless otherwise directed by

agency regulations in accordance with

32.104(c), if it is expected that the

award will be for less than $1 million,

the contracting officer shall insert the

provision at 52.232–BC, Notice of

Availability of Performance-Based

Payments Exclusively for Small

Business Concerns, in solicitations that

include the Performance-Based Payment

clause.

32.1006 Agency approvals.

The contracting officer shall obtain

such approvals as are required by

agency regulations.

32.1007 Administration of performancebased payments.

(a) Administration. The extent of

supervision of performance-based

payments shall vary inversely with the

contractor’s experience, performance

record, reliability, quality of

management, financial strength, and the

adequacy of the records, accounts and

controls established by the contractor

for the administration of the clause.

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 the Government’s interests.

(b) Approval of requests. If the

contracting officer has satisfied himself

that the contractor’s internal records

and controls and management

arrangements are accurate and reliable

for all aspects of administration of

performance-based payments, the

contracting officer may rely upon those

in approving any particular request for

payment. In such event, the contracting

officer shall determine the degree of risk

to the Government’s interests, and shall

arrange an appropriate schedule of postpayment reviews and verifications.

Where the contracting officer is not

satisfied, the contracting officer shall

require such reviews and verifications

before approval for payment, as the

contracting officer finds appropriate for

the protection of the Government’s

interests.

32.1008 Suspension or reduction of

performance-based payments.

(a) General. The Performance-Based

Payments clause provides the

Government the right to reduce or

suspend performance-based payments

or to increase the liquidation, under

specified conditions. These conditions

and actions are discussed in paragraphs

(b) through (d) of this section.

(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 (e) of

the Performance-Based Payments clause

at 52.232–BD 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 efficient and reliable records,

accounts, and controls adequate for

proper administration of the clause. If

these are deemed inadequate,

performance-based payments shall be

suspended (or payments for events for

which the records, accounts, or controls

are unacceptable 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

(e)(1) of the Performance-Based Payment

clause at 52.232–BD, other than to

correct overpayments and collect

amounts due from the contractor (see

also 32.1007(c)).

(c) Unsatisfactory financial condition.

(1) If the contracting officer finds that

contract performance (including full

liquidation of performance-based

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 performance-based

payments would increase the probable

loss to the Government, the contracting

officer shall suspend performance-based

payments and all other payments until

the unliquidated balance of

performance-based payments is

eliminated.

(d) Delinquency in payment of costs

of performance. If the contracting officer

determines the contractor is delinquent

in paying the costs of contract

performance in the ordinary course of
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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 performancebased payments if the contractor agrees

to—

(1) Cure the payment delinquencies;

(2) Avoid further delinquencies; and

(3) Make additional arrangements

adequate for completing the contract

without loss to the Government.

32.1009 Title.

(a) Since the Performance-Based

Payment clause at 52.232–BD gives the

Government title to all of the property

described in paragraph (f) of the clause,

the contracting officer must ensure that

the Government title to this property 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 Payment clause at

52.232–BD, 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

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 Performance-Based

Payments clause at 52.232–BD, and

except for normal spoilage, the

contractor bears the risk for loss, theft,

destruction, or damage to property

affected by the clause, even though title

is vested in the Government, unless the

Government has expressly assumed this

risk. The clauses prescribed in 32.1005

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 part of or

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 Payment clause. In

addition, while the contractor is not

required to repay previous performancebased 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.

32.1011 Performance-based payments for

events.

The following policy and procedures

apply to the use of performance-based

payments based upon specific events

(milestones):

(a) The performance-based payment

shall be based on a program event,

identified to a specific contract line item

or subline item, and liquidated by

deduction of the performance-based

payments from the price of the item in

the contract.

(b) Each event for which a

performance-based payment is

established shall have a description of

what constitutes successful

performance.

(c) Because performance-based

payments are liquidated by deduction

from a specific delivery, each event for

which a performance-based payment is

established shall be part of the

performance of a specific deliverable

item under the contract.

(d) It is not required that the

performance-based payment amount be

based on the cost of performing an

event; however, there must be a rational

basis for the payment amount

established.

(e) The contracting officer awarding

the contract is responsible for

establishing a complete, fully defined

schedule of performance-based

payments prior to award of the contract.

(f) The performance-based payments

shall be set forth in the contract, be

reasonably priced, and be based on

meaningful program events.

(g) The contracting officer shall not

approve a performance-based payment

until the contractor has successfully

performed the specified event,

notwithstanding the contractor’s failure

to perform is without fault or negligence

on the contractor’s part. However, if a

contracting officer determines that the

failure to perform was Governmentcaused (and it can be established that

the contractor would have successfully

performed the event otherwise), the

effect upon the contractor of the delay

in performance payment for the event

may be considered if contract

adjustment results.

PART 52—SOLICITATION PROVISIONS

AND CONTRACT CLAUSES

19. Sections 52.232–AA through

52.232–BD are added to read as follows:

§ 52.232–AA Standard Terms for

Government Financing of Purchases of

Commercial Items.

In accordance with 32.206(b)(2),

insert the following clause:

Standard Terms for Government Financing

of Purchases of Commercial Items (Date)

If contract financing will be provided

under this contract, the terms and conditions

of this clause shall apply, in addition to any

other provisions of this contract. If the

contract financing terms of this contract

resulted from an Invitation to Propose

Financing Terms (FAR 52.232–AC), no

financing payment shall be made in any

greater amount or at any earlier date than

specified in the listing contained in the

contractor’s proposal as accepted by the

contracting officer.

(a) Reduction or suspension of payments.

The Contracting Officer may reduce or

suspend financing payments, liquidate

financing payments by deduction from any

payment for accepted supplies or services

under this or any other contract, or take a

combination of these actions, after finding

upon substantial evidence any of the

following conditions—

(1) The Contractor failed to comply with

any contract term or condition;

(2) Performance of this contract is

endangered by the Contractor’s unsatisfactory

financial condition; or

(3) The Contractor fails to provide the

Government, upon request, a satisfactory

assurance of future performance.

(b) Records, reports, and access. The

Contractor shall maintain records and

controls adequate for administration of this

clause. For the sole purpose of administering

this clause, the Contractor shall promptly

furnish reports, certificates, financial

statements, and other pertinent information

requested by the Contracting Officer, and

shall give the Government reasonable

opportunity to examine and verify the

Contractor’s records and controls required for

administration of this clause, and to examine

and verify the Contractor’s performance of

this contract.

(c) Special terms regarding termination for

cause. If this contract is terminated for cause,

the Contractor shall, on demand, repay to the

Government the amount of unliquidated

performance payments. The Government

shall be liable for no payment except as

provided by the Termination for Cause term

of the clause at 52.212–4.
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(d) Reservation of rights. (1) No payment

under this clause shall (i) excuse the

Contractor from performance of obligations

under this contract, or (ii) constitute a waiver

of any of the rights or remedies of the parties

under the contract.

(2) The Government’s rights and remedies

under this clause (i) shall not be exclusive,

but rather shall be in addition to any other

rights and remedies provided by law or this

contract; and (ii) shall not be affected by

delayed, partial, or omitted exercise of any

right, remedy, power, or privilege, nor shall

such exercise or any single exercise preclude

or impair any further exercise under this

clause or the exercise of any other right,

power, or privilege of the Government.

(e) Contractor certification and

acknowledgment of criminal and civil

penalties. As required in the paragraph

concerning the content of the Contractor’s

request for financing payment, the Contractor

shall make the following certification in each

request for financing payment:

I certify to the best of my knowledge and

belief that—

(1) This request for financing payment is

true and correct;

(2) All payments requested are properly

due in accordance with the contract, and that

except as disclosed to the Contracting Officer

by written communication dated lllll,

the deliverable items for which payments are

requested will be delivered or performed in

accordance with the contract;

(3) There has been no impairment or

diminution of the Government’s security

under this contract (except as reported in

writing on lllll);

(4) There has been no materially adverse

change in the financial condition of the

Contractor since the submission by the

Contractor to the Government of the most

recent written information dated lllll;

and,

(5) After the making of this requested

Financing Payment, the amount of all such

payments will not exceed any limitation in

the contract, and the amount of all payments

under the contract will not exceed any

limitation in the contract.

(6) I understand that inaccurate

information provided to the Government may

subject me and/or others to civil and/or

criminal penalties for false claims or false

statements pursuant to 31 U.S.C. 3729 and 18

U.S.C. 1001.

(f) Security for Government financing. In

the event the Contractor fails to provide

adequate security, as required in this

contract, no financing payment shall be made

under this contract. Upon receipt of the

adequate security, financing payments shall

be made, including all previous payments to

which the Contractor is entitled, in

accordance with the terms of the provisions

for contract financing. If at any time the

Contracting Officer determines that the

security provided by the Contractor is

insufficient, the Contractor shall promptly

provide such additional security as the

Contracting Officer determines necessary. In

the event the Contractor fails to provide such

additional security, the Contracting Officer

may find the Contractor to have failed to

comply with a requirement of the contract as

provided in paragraph (a), Reduction or

suspension of payments.

(g) Content of Contractor’s request for

financing payment term. The Contractor’s

request for financing payment shall contain

the following:

(1) The name and address of the

Contractor;

(2) The date of the request for Financing

Payment;

(3) The contract number and/or other

identifier of the contract or order under

which the request is made;

(4) An appropriately itemized and totaled

statement of the financing payments

requested and such other information as is

necessary for computation of the payment,

prepared in accordance with the direction of

the Contracting Officer; and

(5) A certification by a Contractor official

authorized to bind the Contractor, as

specified in paragraph (e), Contractor

certification and acknowledgment of criminal

and civil penalties.

(End of clause)

§ 52.232–AB Installment Payments for

Commercial Items.

As prescribed in 32.206(e), insert the

following clause:

Installment Payments for Commercial Items

(Date)

Installment financing payments shall be

made to the Contractor when requested, as

work progresses, but not more frequently

than monthly, in amounts approved by the

Contracting Officer under the following

conditions:

(a) Computation of amounts. Installment

payment financing shall be paid to the

Contractor when requested for each

separately priced unit of supply (but not for

services) of each contract line item in

amounts approved by the Contracting Officer

pursuant to this clause.

(1) Number of installment payments for

each contract line item. Each separately

priced unit of each contract line item is

authorized a fixed number of monthly

installment payments. The number of

installment payments authorized for each

unit of a contract line item is equal to the

number of months from the date of contract

award to the date one month before the first

delivery of the first separately priced unit of

the contract line item. For example, if the

first scheduled delivery of any separately

priced unit of a contract line item is nine (9)

months after award of the contract, all

separately priced units of that contract line

item are authorized eight (8) installment

payments.

(2) Amount of each installment payment.

The amount of each installment payment for

each separately priced unit of each contract

line item is equal to 70 percent of the unit

price divided by the number of installment

payments authorized for that unit.

(3) Date of each installment payment.

Installment payments for any particular

separately priced unit of a contract line item

begin the number of months prior to the

delivery of that unit that are equal to the

number of installment payments authorized

for that unit. For example, if eight (8)

installment payments are authorized for each

separately priced unit of a contract line item,

the first installment payment for any

particular unit of that contract line item

would be eight (8) months before the

scheduled delivery date for that unit. The last

installment payment is due one (1) month

before scheduled delivery of a unit.

(4) Limitation on Payment. Prior to the

payment for acceptance of a separately priced

unit of a contract line item, the sum of all

installment payments for that unit shall not

exceed 70 percent of the price of that unit.

(b) Contractor request for installment

payment. The Contractor may submit

Requests for Payment of Installment

Payments not more frequently than monthly,

in a form and manner acceptable to the

Contracting Officer. Unless otherwise

authorized by the Contracting Officer, all

installments in any month for which

payment is being requested shall be included

in a single request, appropriately itemized

and totaled.

(c) Adequate progress and approval for

payment. An installment payment under this

clause is a contract financing payment under

the Prompt Payment clause of this contract,

and except as provided below, approved

requests shall be paid within thirty (30) days

of submittal of a proper request for payment.

Payment is not required, and the prompt

payment period shall not begin, until the

Contracting Officer approves the request, if

the Contracting Officer—

(1) Requires substantiation of adequate

progress;

(2) Inquires into the status of performance;

(3) Inquires into any of the conditions

listed in paragraph (e), Reduction or

suspension of payments, of this clause; or

(4) Inquires into the Contractor

certification.

(d) Liquidation of installment payments.

(1) Installment payments shall be liquidated

by deducting from the invoice payment made

upon acceptance of each item the total

unliquidated amount of installment

payments made for that separately priced

unit of that contract line item.

(2) If at any time the amount of payments

under this contract exceeds any limitation in

this contract, the Contractor shall repay to

the Government the excess. Unless otherwise

determined by the Contracting Officer, such

excess shall be credited as a reduction in the

unliquidated installment payment balance(s)

for the related deliverable item(s), after

adjustment of delivery payments and

balances for any retroactive price

adjustments.

(3) The liquidation amounts for each unit

of each line item shall be clearly delineated

in each request for delivery payment

submitted by the Contractor.

(e) Reduction or suspension of installment

payments. The Contracting Officer may

reduce or suspend Installment Payments,

liquidate Installment Payments by deduction

from any payment for accepted supplies or

services under this or any other contract, or

take a combination of these actions, after

finding upon substantial evidence any of the

following conditions:

(1) The Contractor failed to comply with

any contract term or condition;
14168 Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules

(2) Performance of this contract is

endangered by the Contractor’s unsatisfactory

financial condition; or

(3) The Contractor fails to provide the

Government, upon request, a satisfactory

assurance of future performance.

(f) Security for installment payment

financing. In the event the Contractor fails to

provide adequate security as required in this

contract, no financing payment shall be made

under this contract. Upon receipt of the

adequate security, financing payments shall

be made, including all previous payments to

which the Contractor is entitled, in

accordance with the terms of the provisions

for contract financing. If at any time the

Contracting Officer determines that the

security provided by the Contractor is

insufficient, the Contractor shall promptly

provide such additional security as the

Contracting Officer determines necessary. In

the event the Contractor fails to provide such

additional security, the Contracting Officer

may find the Contractor to have failed to

comply with a material requirement of the

contract as provided in paragraph (e),

Reduction or suspension of installment

payments, of this clause.

(g) Records, reports, and access. The

Contractor shall maintain records and

controls adequate for administration of this

clause. For the sole purpose of administering

this clause, the Contractor shall promptly

furnish reports, certificates, financial

statements, and other pertinent information

requested by the Contracting Officer, and

shall give the Government reasonable

opportunity to examine and verify the

Contractor’s records and controls required for

administration of this clause, and to examine

and verify the Contractor’s performance of

this contract.

(h) Special terms regarding termination for

cause. If this contract is terminated for cause,

the Contractor shall, on demand, repay to the

Government the amount of unliquidated

performance payments. The Government

shall be liable for no payment except as

provided by the Termination for Cause term

of the clause at 52.212–4.

(i) Reservation of rights. (1) No payment or

vesting of title under this clause shall (i)

excuse the Contractor from performance of

obligations under this contract, or (ii)

constitute a waiver of any of the rights or

remedies of the parties under the contract.

(2) The Government’s rights and remedies

under this clause (i) shall not be exclusive,

but rather shall be in addition to any other

rights and remedies provided by law or this

contract, and (ii) shall not be affected by

delayed, partial, or omitted exercise of any

right, remedy, power, or privilege, nor shall

such exercise or any single exercise preclude

or impair any further exercise under this

clause or the exercise of any other right,

power, or privilege of the Government.

(j) Content of Contractor’s request for

installment payment. The Contractor’s

request for installment payment shall contain

the following:

(1) The name and address of the

Contractor;

(2) The date of the request for Installment

Payment;

(3) The contract number and/or other

identifier of the contract or order under

which the request is made;

(4) An itemized and totaled statement of

the items, related deliverable items, and

installment payment(s) being requested for

each separately priced unit of each contract

line item; and

(5) A certification by a Contractor official

authorized to bind the Contractor, as

specified in paragraph (k).

(k) Contractor certification. As required in

paragraph (j)(5) of this clause, the Contractor

shall make the following certification in each

Request for Installment Payment:

I certify to the best of my knowledge and

belief that—

(1) This request for installment payment is

true and correct;

(2) All installment payments requested are

properly due in accordance with the contract,

and that except as disclosed to the

Contracting Officer by written

communication dated llll, the

deliverable items for which Installment

Payments are requested will be delivered or

performed in accordance with the contract;

(3) There are no encumbrances (except as

reported in writing on lllll) against the

property acquired or produced for, and

allocated or properly chargeable to the

contract which would affect or impair the

Government’s security;

(4) There has been no materially adverse

change in the financial condition of the

Contractor since the submission by the

Contractor to the Government of the most

recent written information dated lllll;

and,

(5) After the making of this requested

Installment Payment, the amount of all

payments for each deliverable item for which

Installment Payments have been requested

will not exceed any limitation in the

contract, and the amount of all payments

under the contract will not exceed any

limitation in the contract.

(6) I understand that inaccurate

information provided to the Government may

subject me and/or others to civil and/or

criminal penalties for false claims or false

statements pursuant to 31 U.S.C. 3729 and 18

U.S.C. 1001.

(End of clause)

52.232–AC Invitation to Propose Financing

Terms.

The contracting officer shall include

this provision as specified in 32.205(b)

and 32.206.

Invitation to Propose Financing Terms (Date)

(a) The offeror is invited to propose terms

under which the Government shall make

contract financing payments to the contractor

during performance of this contract. The

financing terms proposed by the offeror shall

be a factor in the evaluation of the

contractor’s proposal. The financing terms of

the successful offeror and the clause,

Standard Terms for Government Financing of

Purchases of Commercial Items, at 52.232–

AA, shall be incorporated in any resulting

contract.

(b) The offeror agrees that in the event of

any conflict between the terms proposed by

the offeror and the terms in the clause

Standard Terms for Government Financing of

Purchases of Commercial Items at 52.232–

AA, the terms of the clause Standard Terms

for Government Financing of Purchases of

Commercial Items at 52.232–AA shall

govern.

(c) Because of statutory limitations (10

U.S.C. 2307(f) and 41 U.S.C. 255(f)), the

offeror’s proposed financing shall not be

acceptable if it does not conform to the

following limitations:

(1) Delivery payments shall be made only

for supplies delivered and accepted, or

services rendered and accepted in

accordance with the Payment term,

(2) Contract financing payments shall not

exceed 15 percent of the contract price in

advance of any performance of work under

the contract,

(3) The terms and conditions of the

contract financing must be appropriate or

customary in the commercial marketplace,

and

(4) The terms and conditions of the

contract financing must be in the best interest

of the United States.

(d) The offeror’s proposal of financing

terms shall include the following:

(1) The proposed contractual language

describing the contract financing (see FAR

32.202–3 for appropriate definitions of types

of payments),

(2) A listing of the earliest time and

greatest amount at which each contract

financing payment may be payable and the

amount of each delivery payment. Any

resulting contract shall provide that no

contract financing payment shall be made at

any earlier time or in any greater amount

than shown in the offeror’s listing.

(e) The offeror’s proposed prices and

financing terms shall be evaluated to

determine the cost to the United States of the

proposal. This evaluation shall be done using

the interest rate and delivery schedule

specified elsewhere in this solicitation.

(End of provision)

52.232–BB Notice of Performance-Based

Payments.

As prescribed in 32.1005(b), insert the

following provision:

Notice of Performance-Based Payments

(Date)

The need for customary performance-based

payments conforming to the regulations in

Subpart 32.10 of the Federal Acquisition

Regulation (FAR) will not be considered as

a handicap or adverse factor in the award of

the contract. The Performance-Based

Payments clause included in this solicitation,

and the description of the basis for payment

and liquidation, will be included in any

resulting contract. Even though the clause is

included in the contract, the clause shall be

inoperative during any time the Contractor’s

records, accounts, or controls are determined

by the Government to be inadequate for

administration of this clause.
Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules 14169

(End of provision)

52.232–BC Notice of Availability of

Performance-Based Payments Exclusively

for Small Business Concerns.

As provided in 32.1005(c), insert the

following provision:

Notice of Availability of Performance-Based

Payments Exclusively for Small Business

Concerns (Date)

The Performance-Based Payments clause

will be available only to small business

concerns. Any bid conditioned upon

inclusion of a performance-based payment

clause in the resulting contract will be

rejected as nonresponsive if the bidder is not

a small business concern.

(End of provision)

52.232–BD Performance-Based Payments.

As prescribed in 32.1005(a), insert the

following clause:

Performance-Based Payments (Date)

In accordance with the provisions of this

clause, and the contract’s description of the

basis for payment, the Contractor shall be

paid contract financing payments based upon

performance under the following conditions:

(a) Amount of payments and limitations on

payments. Subject to such other limitations

and conditions as are specified in this

contract and this clause, the amount of

payments and limitations on payments shall

be specified in the contract’s description of

the basis for payment.

(b) Contractor request for performancebased payment. The Contractor may submit

Requests for Payment of Performance-Based

Payments not more frequently than monthly,

in a form and manner acceptable to the

Contracting Officer. Unless otherwise

authorized by the Contracting Officer, all

basis for payment in any period for which

payment is being requested shall be included

in a single request, appropriately itemized

and totaled. The Contractor’s request shall

contain the information and certification

detailed in paragraphs (l) and (m) of this

clause.

(c) Approval and payment of requests. (1)

The Contractor shall not be entitled to

payment of a Request for Performance-Based

Payment prior to successful accomplishment

of the event or performance criteria for which

payment is requested. The Contracting

Officer shall determine whether the event or

performance criteria for which payment is

requested has been successfully

accomplished in accordance with the terms

of the contract. The Contracting Officer may,

at any time, require the Contractor to

substantiate the event or performance criteria

which has been or is represented as being

payable.

(2) A payment under this PerformanceBased Payment clause is a contract financing

payment under the Prompt Payment clause of

this contract, and approved requests shall be

paid in accordance with the prompt payment

period and provisions specified for Contract

Financing Payments by that clause provided,

however, if the Contracting Officer requires

substantiation as provided in paragraph (c)(1)

of this clause, or inquires into the status of

an event or performance criteria, or into any

of the conditions listed in paragraph (e),

Reduction or Suspension of Payments, of this

clause, or into the contractor certification,

payment is not required, and the prompt

payment period shall not begin until the

Contracting Officer approves the request.

(3) The approval by the Contracting Officer

of a Request for Performance-Based Payment

does not constitute an acceptance by the

Government and does not excuse the

Contractor from performance of obligations

under this contract.

(d) Liquidation of performance-based

payments. (1) Performance-based finance

amounts paid prior to payment for delivery

and acceptance of an item shall be liquidated

by deducting a percentage or the designated

dollar amount from the delivery payment. If

the performance-based finance payments are

on a delivery item basis, the liquidation

amount for each such line item shall be the

percent of that delivery item price that was

previously paid under performance-based

finance payments or the designated dollar

amount. If the performance-based finance

payments are on a whole contract basis,

liquidation shall be by either predesignated

liquidation amounts or a liquidation

percentage. If a liquidation percentage is

used, the liquidation percentage for each line

item shall be the percent of the total contract

price that was previously paid under

performance-based finance payments. In

order to ensure proper liquidation,

performance-based financing payments made

after any payment for a deliverable item shall

be adjusted to reflect the amount of previous

delivery payments.

(2) If at any time the amount of payments

under this contract exceeds any limitation in

this contract, the Contractor shall repay to

the Government the excess. Unless otherwise

determined by the Contracting Officer, such

excess shall be credited as a reduction in the

unliquidated performance-based payment

balance(s), after adjustment of invoice

payments and balances for any retroactive

price adjustments.

(e) Reduction or suspension of

performance-based payments. The

Contracting Officer may reduce or suspend

performance-based payments, liquidate

performance-based payments by deduction

from any payment under the contract, or take

a combination of these actions after finding

upon substantial evidence any of the

following conditions:

(1) The Contractor failed to comply with

any material requirement of this contract

(which includes paragraphs (h) and (i) of this

clause).

(2) Performance of this contract is

endangered by the Contractor’s (i) failure to

make progress, or (ii) unsatisfactory financial

condition.

(3) The Contractor is delinquent in

payment of any subcontractor or supplier

under this contract in the ordinary course of

business.

(f)(1) Title. Title to the property described

in this paragraph (f) shall vest in the

Government. Vestiture shall be immediately

upon the date of the first performance-based

payment under this contract, for property

acquired or produced before that date.

Otherwise, vestiture shall occur when the

property is or should have been allocable or

properly chargeable to this contract.

(2) Property, as used in this clause,

includes all of the below-described items

acquired or produced by the Contractor that

are or should be allocable or properly

chargeable to this contract under sound and

generally accepted accounting principles and

practices:

(i) Parts, materials, inventories, and work

in process,

(ii) Special tooling and special test

equipment to which the Government is to

acquire title under any other clause of this

contract,

(iii) Nondurable (i.e., noncapital) tools,

jigs, dies, fixtures, molds, patterns, taps,

gauges, test equipment and other similar

manufacturing aids, title to which would not

be obtained as special tooling under

subparagraph (f)(2)(ii) of this clause, and

(iv) Drawings and technical data, to the

extent the Contractor or subcontractors are

required to deliver them to the Government

by other clauses of this contract.

(3) Although title to property is in the

Government under this clause, other

applicable clauses of this contract, (e.g., the

termination or special tooling clauses), shall

determine the handling and disposition of

the property.

(4) The Contractor may sell any scrap

resulting from production under this

contract, without requesting the Contracting

Officer’s approval, provided that any

significant reduction in the value of the

property to which the Government has title

under this clause is reported in writing to the

Contracting Officer.

(5) In order to acquire for its own use or

dispose of property to which title is vested

in the Government under this clause, the

Contractor must obtain the Contracting

Officer’s advance approval of the action and

the terms. If approved, the basis for payment

to which the property is related shall be

deemed to be not in compliance with the

terms of the contract and not payable (if the

property is part of or needed for

performance), and the Contractor shall

refund the related performance-based

payments in accordance with paragraph (d)

of this clause.

(g) Risk of loss. Before delivery to and

acceptance by the Government, the

Contractor shall bear the risk of loss for

property, the title to which vests in the

Government under this clause, except to the

extent the Government expressly assumes the

risk. If any property is damaged, lost, stolen,

or destroyed, the basis of payment to which

the property is related shall be deemed to be

not in compliance with the terms of the

contract and not payable (if the property is

part of or needed for performance), and the

Contractor shall refund the related

performance-based payments in accordance

with paragraph (d) of this clause.

(h) Records and controls. The Contractor

shall maintain records and controls adequate

for administration of this clause.

(i) Reports and Government access. The

Contractor shall promptly furnish reports,

certificates, financial statements, and other

pertinent information requested by the
14170 Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules

Contracting Officer for the administration of

this clause and to determine that an event or

other criteria prompting a financing payment

has been successfully accomplished. The

Contractor shall give the Government

reasonable opportunity to examine and verify

the Contractor’s records and to examine and

verify the Contractor’s performance of this

contract for administration of this clause.

(j) Special terms regarding default. If this

contract is terminated under the Default

clause, (1) the Contractor shall, on demand,

repay to the Government the amount of

unliquidated performance payments, and (2)

title shall vest in the Contractor, on full

liquidation of all performance-based

payments, for all property for which the

Government elects not to require delivery

under the Default clause of this contract. The

Government shall be liable for no payment

except as provided by the Default clause.

(k) Reservation of rights. (1) No payment or

vesting of title under this clause shall (i)

excuse the Contractor from performance of

obligations under this contract, or (ii)

constitute a waiver of any of the rights or

remedies of the parties under the contract.

(2) The Government’s rights and remedies

under this clause (i) shall not be exclusive,

but rather shall be in addition to any other

rights and remedies provided by law or this

contract, and (ii) shall not be affected by

delayed, partial, or omitted exercise of any

right, remedy, power, or privilege, nor shall

such exercise or any single exercise preclude

or impair any further exercise under this

clause or the exercise of any other right,

power, or privilege of the Government.

(l) Content of Contractor’s request for

performance-based payment. The

Contractor’s Request for Performance-Based

Payment shall contain the following:

(1) The name and address of the

Contractor,

(2) The date of the request for PerformanceBased Payment,

(3) The contract number and/or other

identifier of the contract or order under

which the request is made,

(4) Such information and documentation as

is required by the contract’s description of

the basis for payment, and

(5) A certification by a Contractor official

authorized to bind the Contractor, as

specified in paragraph (m).

(m) Content of Contractor’s certification.

As required in paragraph (l)(5) of this clause,

the Contractor shall make the following

certification in each Request for PerformanceBased Payment:

I certify to the best of my knowledge and

belief—

(1) That this Request for PerformanceBased Payment is true and correct; that this

Request (and attachments) has been prepared

from the books and records of the Contractor,

in accordance with the contract, and the

instructions of the Contracting Officer;

(2) That (except as reported in writing on

lllll), all payments to subcontractors

and suppliers under this contract have been

paid, or will be paid, currently, when due in

the ordinary course of business;

(3) That there are no encumbrances (except

as reported in writing on lllll) against

the property acquired or produced for, and

allocated or properly chargeable to the

contract which would affect or impair the

Government’s title;

(4) That there has been no materially

adverse change in the financial condition of

the Contractor since the submission by the

Contractor to the Government of the most

recent written information dated lllll;

and

(5) That after the making of this requested

Performance-Based Payment, the amount of

all payments for each deliverable item for

which Performance-Based Payments have

been requested will not exceed any limitation

in the contract, and the amount of all

payments under the contract will not exceed

any limitation in the contract.

(End of clause)

[FR Doc. 95–6294 Filed 3–14–95; 8:45 am]

BILLING CODE 6820–34–P