Federal Acquisition Regulation Header
a line underlining the words Federal Acquisition Regulation

PART 32--CONTRACT FINANCING

Sec.
#Description
32.000Skip to the next rowSkip to the next subpartScope of part.Skip to the next subpart
32.001Skip to the next rowSkip to the next subpartDefinitions.Skip to the next subpart
32.002Skip to the next rowSkip to the next subpartApplicability of subparts.Skip to the next subpart
32.003Skip to the next rowSkip to the next subpartSimplified acquisition procedures financing.Skip to the next subpart
32.004Skip to the next rowSkip to the next subpartContract performance in foreign countries.Skip to the next subpart
32.005Skip to the next rowSkip to the next subpartConsideration for contract financing.Skip to the next subpart
32.006Skip to the next rowSkip to the next subpartReduction or suspension of contract payments upon finding of fraud.Skip to the next subpart
32.006-1Skip to the next rowSkip to the next subpartGeneral.Skip to the next subpart
32.006-2Skip to the next rowSkip to the next subpartDefinitions.Skip to the next subpart
32.006-3Skip to the next rowSkip to the next subpartResponsibilities.Skip to the next subpart
32.006-4Skip to the next rowSkip to the next subpartProcedures.Skip to the next subpart
32.006-5Skip to the next subpartReporting.
Subpart 32.1--Non-Commercial Item Purchase Financing
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#Description
32.100Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.101Skip to the next rowSkip to the next subpartAuthority.Skip to the next subpart
32.102Skip to the next rowSkip to the next subpartDescription of contract financing methods.Skip to the next subpart
32.103Skip to the next rowSkip to the next subpartProgress payments under construction contracts.Skip to the next subpart
32.104Skip to the next rowSkip to the next subpartProviding contract financing.Skip to the next subpart
32.105Skip to the next rowSkip to the next subpartUses of contract financing.Skip to the next subpart
32.106Skip to the next rowSkip to the next subpartOrder of preference.Skip to the next subpart
32.107Skip to the next rowSkip to the next subpartNeed for contract financing not a deterrent.Skip to the next subpart
32.108Skip to the next rowSkip to the next subpartFinancial consultation.Skip to the next subpart
32.109Skip to the next rowSkip to the next subpartTermination financing.Skip to the next subpart
32.110Skip to the next rowSkip to the next subpart[Reserved]Skip to the next subpart
32.111Skip to the next rowSkip to the next subpartContract clauses for non-commercial purchases.Skip to the next subpart
32.112Skip to the next rowSkip to the next subpartPayment of subcontractors under contracts for non-commercial items.Skip to the next subpart
32.112-1Skip to the next rowSkip to the next subpartSubcontractor assertions of nonpayment.Skip to the next subpart
32.112-2Skip to the next rowSkip to the next subpartSubcontractor requests for information.Skip to the next subpart
32.113Skip to the next rowSkip to the next subpartCustomary contract financing.Skip to the next subpart
32.114Skip to the next subpartUnusual contract financing.
Subpart 32.2--Commercial Item Purchase Financing
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#Description
32.200Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.201Skip to the next rowSkip to the next subpartStatutory authority.Skip to the next subpart
32.202Skip to the next rowSkip to the next subpartGeneral.Skip to the next subpart
32.202-1Skip to the next rowSkip to the next subpartPolicy.Skip to the next subpart
32.202-2Skip to the next rowSkip to the next subpartTypes of payments for commercial item purchases.Skip to the next subpart
32.202-3Skip to the next rowSkip to the next subpartConducting market research about financing terms.Skip to the next subpart
32.202-4Skip to the next rowSkip to the next subpartSecurity for Government financing.Skip to the next subpart
32.203Skip to the next rowSkip to the next subpartDetermining contract financing terms.Skip to the next subpart
32.204Skip to the next rowSkip to the next subpartProcedures for contracting officer-specified commercial contract financing.Skip to the next subpart
32.205Skip to the next rowSkip to the next subpartProcedures for offeror-proposed commercial contract financing.Skip to the next subpart
32.206Skip to the next rowSkip to the next subpartSolicitation provisions and contract clauses.Skip to the next subpart
32.207Skip to the next subpartAdministration and payment of commercial financing payments.
Subpart 32.3--Loan Guarantees for Defense Production
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#Description
32.300Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.301Skip to the next rowSkip to the next subpartDefinitions.Skip to the next subpart
32.302Skip to the next rowSkip to the next subpartAuthority.Skip to the next subpart
32.303Skip to the next rowSkip to the next subpartGeneral.Skip to the next subpart
32.304Skip to the next rowSkip to the next subpartProcedures.Skip to the next subpart
32.304-1Skip to the next rowSkip to the next subpartApplication for guarantee.Skip to the next subpart
32.304-2Skip to the next rowSkip to the next subpartCertificate of eligibility.Skip to the next subpart
32.304-3Skip to the next rowSkip to the next subpartAsset formula.Skip to the next subpart
32.304-4Skip to the next rowSkip to the next subpartGuarantee amount and maturity.Skip to the next subpart
32.304-5Skip to the next rowSkip to the next subpartAssignment of claims under contracts.Skip to the next subpart
32.304-6Skip to the next rowSkip to the next subpartOther collateral security.Skip to the next subpart
32.304-7Skip to the next rowSkip to the next subpartContract surety bonds and loan guarantees.Skip to the next subpart
32.304-8Skip to the next rowSkip to the next subpartOther borrowing.Skip to the next subpart
32.305Skip to the next rowSkip to the next subpartLoan guarantees for terminated contracts.Skip to the next subpart
32.306Skip to the next subpartLoan guarantees for subcontracts.
Subpart 32.4--Advance Payments for Non-Commercial Items
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#Description
32.400Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.401Skip to the next rowSkip to the next subpartStatutory authority.Skip to the next subpart
32.402Skip to the next rowSkip to the next subpartGeneral.Skip to the next subpart
32.403Skip to the next rowSkip to the next subpartApplicability.Skip to the next subpart
32.404Skip to the next rowSkip to the next subpartExclusions.Skip to the next subpart
32.405Skip to the next rowSkip to the next subpartApplying Pub. L. 85-804 to advance payments under sealed bid contracts.Skip to the next subpart
32.406Skip to the next rowSkip to the next subpartLetters of credit.Skip to the next subpart
32.407Skip to the next rowSkip to the next subpartInterest.Skip to the next subpart
32.408Skip to the next rowSkip to the next subpartApplication for advance payments.Skip to the next subpart
32.409Skip to the next rowSkip to the next subpartContracting officer action.Skip to the next subpart
32.409-1Skip to the next rowSkip to the next subpartRecommendation for approval.Skip to the next subpart
32.409-2Skip to the next rowSkip to the next subpartRecommendation for disapproval.Skip to the next subpart
32.409-3Skip to the next rowSkip to the next subpartSecurity, supervision, and covenants.Skip to the next subpart
32.410Skip to the next rowSkip to the next subpartFindings, determination, and authorization.Skip to the next subpart
32.411Skip to the next rowSkip to the next subpartAgreement for special bank account.Skip to the next subpart
32.412Skip to the next subpartContract clause.
Subpart 32.5--Progress Payments Based on Costs
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#Description
32.500Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.501Skip to the next rowSkip to the next subpartGeneral.Skip to the next subpart
32.501-1Skip to the next rowSkip to the next subpartCustomary progress payment rates.Skip to the next subpart
32.501-2Skip to the next rowSkip to the next subpartUnusual progress payments.Skip to the next subpart
32.501-3Skip to the next rowSkip to the next subpartContract price.Skip to the next subpart
32.501-4Skip to the next rowSkip to the next subpart[Reserved]Skip to the next subpart
32.501-5Skip to the next rowSkip to the next subpartOther protective terms.Skip to the next subpart
32.502Skip to the next rowSkip to the next subpartPreaward matters.Skip to the next subpart
32.502-1Skip to the next rowSkip to the next subpartUse of customary progress payments.Skip to the next subpart
32.502-2Skip to the next rowSkip to the next subpartContract finance office clearance.Skip to the next subpart
32.502-3Skip to the next rowSkip to the next subpartSolicitation provisions.Skip to the next subpart
32.502-4Skip to the next rowSkip to the next subpartContract clauses.Skip to the next subpart
32.503Skip to the next rowSkip to the next subpartPostaward matters.Skip to the next subpart
32.503-1Skip to the next rowSkip to the next subpartContractor requests.Skip to the next subpart
32.503-2Skip to the next rowSkip to the next subpartSupervision of progress payments.Skip to the next subpart
32.503-3Skip to the next rowSkip to the next subpartInitiation of progress payments and review of accounting system.Skip to the next subpart
32.503-4Skip to the next rowSkip to the next subpartApproval of progress payment requests.Skip to the next subpart
32.503-5Skip to the next rowSkip to the next subpartAdministration of progress payments.Skip to the next subpart
32.503-6Skip to the next rowSkip to the next subpartSuspension or reduction of payments.Skip to the next subpart
32.503-7Skip to the next rowSkip to the next subpartLimitation on general and administrative expenses (G&A) for progress payments.Skip to the next subpart
32.503-8Skip to the next rowSkip to the next subpartLiquidation rates--ordinary method.Skip to the next subpart
32.503-9Skip to the next rowSkip to the next subpartLiquidation rates--alternate method.Skip to the next subpart
32.503-10Skip to the next rowSkip to the next subpartEstablishing alternate liquidation rates.Skip to the next subpart
32.503-11Skip to the next rowSkip to the next subpartAdjustments for price reduction.Skip to the next subpart
32.503-12Skip to the next rowSkip to the next subpartMaximum unliquidated amount.Skip to the next subpart
32.503-13Skip to the next rowSkip to the next subpartQuarterly statements for price revision contracts.Skip to the next subpart
32.503-14Skip to the next rowSkip to the next subpartProtection of Government title.Skip to the next subpart
32.503-15Skip to the next rowSkip to the next subpartApplication of Government title terms.Skip to the next subpart
32.503-16Skip to the next rowSkip to the next subpartRisk of loss.Skip to the next subpart
32.504Skip to the next subpartSubcontracts.
Subpart 32.6--Contract Debts
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#Description
32.600Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.601Skip to the next rowSkip to the next subpartDefinition.Skip to the next subpart
32.602Skip to the next rowSkip to the next subpartGeneral.Skip to the next subpart
32.603Skip to the next rowSkip to the next subpartApplicability.Skip to the next subpart
32.604Skip to the next rowSkip to the next subpartExclusions.Skip to the next subpart
32.605Skip to the next rowSkip to the next subpartResponsibilities and cooperation among Government officials.Skip to the next subpart
32.606Skip to the next rowSkip to the next subpartDebt determination and collection.Skip to the next subpart
32.607Skip to the next rowSkip to the next subpartTax credit.Skip to the next subpart
32.608Skip to the next rowSkip to the next subpartNegotiation of contract debts.Skip to the next subpart
32.609Skip to the next rowSkip to the next subpartMemorandum of pricing agreement with refund.Skip to the next subpart
32.610Skip to the next rowSkip to the next subpartDemand for payment of contract debt.Skip to the next subpart
32.611Skip to the next rowSkip to the next subpartRoutine setoff.Skip to the next subpart
32.612Skip to the next rowSkip to the next subpartWithholding and setoff.Skip to the next subpart
32.613Skip to the next rowSkip to the next subpartDeferment of collection.Skip to the next subpart
32.614Skip to the next rowSkip to the next subpartInterest.Skip to the next subpart
32.614-1Skip to the next rowSkip to the next subpartInterest charges.Skip to the next subpart
32.614-2Skip to the next rowSkip to the next subpartInterest credits.Skip to the next subpart
32.615Skip to the next rowSkip to the next subpartDelays in receipt of notices or demands.Skip to the next subpart
32.616Skip to the next rowSkip to the next subpartCompromise actions.Skip to the next subpart
32.617Skip to the next subpartContract clause.
Subpart 32.7--Contract Funding
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#Description
32.700Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.701Skip to the next rowSkip to the next subpart[Reserved]Skip to the next subpart
32.702Skip to the next rowSkip to the next subpartPolicy.Skip to the next subpart
32.703Skip to the next rowSkip to the next subpartContract funding requirements.Skip to the next subpart
32.703-1Skip to the next rowSkip to the next subpartGeneral.Skip to the next subpart
32.703-2Skip to the next rowSkip to the next subpartContracts conditioned upon availability of funds.Skip to the next subpart
32.703-3Skip to the next rowSkip to the next subpartContracts crossing fiscal years.Skip to the next subpart
32.704Skip to the next rowSkip to the next subpartLimitation of cost or funds.Skip to the next subpart
32.705Skip to the next rowSkip to the next subpartContract clauses.Skip to the next subpart
32.705-1Skip to the next rowSkip to the next subpartClauses for contracting in advance of funds.Skip to the next subpart
32.705-2Skip to the next subpartClauses for limitation of cost or funds.
Subpart 32.8--Assignment of Claims
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#Description
32.800Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.801Skip to the next rowSkip to the next subpartDefinitions.Skip to the next subpart
32.802Skip to the next rowSkip to the next subpartConditions.Skip to the next subpart
32.803Skip to the next rowSkip to the next subpartPolicies.Skip to the next subpart
32.804Skip to the next rowSkip to the next subpartExtent of assignee's protection.Skip to the next subpart
32.805Skip to the next rowSkip to the next subpartProcedure.Skip to the next subpart
32.806Skip to the next subpartContract clauses.
Subpart 32.9--Prompt Payment
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#Description
32.900Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.901Skip to the next rowSkip to the next subpartApplicability.Skip to the next subpart
32.902Skip to the next rowSkip to the next subpartDefinitions.Skip to the next subpart
32.903Skip to the next rowSkip to the next subpartPolicy.Skip to the next subpart
32.904 Skip to the next rowSkip to the next subpartResponsibilities.Skip to the next subpart
32.905Skip to the next rowSkip to the next subpartInvoice payments.Skip to the next subpart
32.906Skip to the next rowSkip to the next subpartContract financing payments.Skip to the next subpart
32.907Skip to the next rowSkip to the next subpartInterest penalties.Skip to the next subpart
32.907-1Skip to the next rowSkip to the next subpartLate invoice payment.Skip to the next subpart
32.907-2Skip to the next rowSkip to the next subpartLate contract financing payment.Skip to the next subpart
32.908Skip to the next rowSkip to the next subpartContract clauses.Skip to the next subpart
32.909Skip to the next subpartContractor inquiries.
Subpart 32.10--Performance-Based Payments
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#Description
32.1000Skip to the next rowSkip to the next subpartScope of subpart.Skip to the next subpart
32.1001Skip to the next rowSkip to the next subpartPolicy.Skip to the next subpart
32.1002Skip to the next rowSkip to the next subpartBases for performance-based payments.Skip to the next subpart
32.1003Skip to the next rowSkip to the next subpartCriteria for use.Skip to the next subpart
32.1004Skip to the next rowSkip to the next subpartProcedure.Skip to the next subpart
32.1005Skip to the next rowSkip to the next subpartContract clauses.Skip to the next subpart
32.1006Skip to the next rowSkip to the next subpartAgency approvals.Skip to the next subpart
32.1007Skip to the next rowSkip to the next subpartAdministration and payment of performance-based payments.Skip to the next subpart
32.1008Skip to the next rowSkip to the next subpartSuspension or reduction of performance-based paymentsSkip to the next subpart
32.1009Skip to the next rowSkip to the next subpartTitle.Skip to the next subpart
32.1010Skip to the next subpartRisk of loss.
Subpart 32.11--Electronic Funds Transfer
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#Description
32.1100Skip to the next rowSkip to the contentScope of subpart.Skip to the content
32.1101Skip to the next rowSkip to the contentPolicy.Skip to the content
32.1102Skip to the next rowSkip to the contentAssignment of claims.Skip to the content
32.1103Skip to the contentContract clauses.

32.000 Scope of part.

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

(a) Payment methods, including partial payments and progress payments based on percentage or stage of completion;

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

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

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

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

(f) Selected payment clauses;

(g) Financing of purchases of commercial items;

(h) Performance-based payments; and

(i) Electronic funds transfer payments.

32.001 Definitions.

"Contract action," as used in this part, means an action resulting in a contract, as defined in FAR Subpart 2.1, including contract modifications for additional supplies or services, but not including contract modifications that are within the scope and under the terms of the contract, such as contract modifications issued pursuant to the Changes clause, or funding and other administrative changes.

"Customary contract financing" means that financing deemed by an agency to be available for routine use by contracting officers. Most customary contract financing arrangements should be usable by contracting officers without specific reviews or approvals by higher management.

"Unusual contract financing" means any financing not deemed customary contract financing by the agency. Unusual contract financing is financing that is legal and proper under applicable laws, but that the agency has not authorized contracting officers to use without specific reviews or approvals by higher management.

32.002 Applicability of subparts.

(a) The following sections and subparts of this part are applicable to all purchases subject to Part 32:

(1) Sections 32.000 through 32.005.

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

(3) Subpart 32.6, Contract Debts.

(4) Subpart 32.7, Contract Funding.

(5) Subpart 32.8, Assignment of Claims.

(6) Subpart 32.9, Prompt Payment.

(7) Subpart 32.11, Electronic Funds Transfer.

(b) Subpart 32.2, Commercial Item Purchase Financing, is applicable only to purchases of commercial items under authority of Part 12.

(c) The following subparts of this part are applicable to all purchases made under any authority other than Part 12:

(1) Subpart 32.1, Non-Commercial Item Purchase Financing.

(2) Subpart 32.4, Advance Payments For Non-Commercial Items.

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

(4) Subpart 32.10, Performance-Based Payments.

32.003 Simplified acquisition procedures financing.

Unless agency regulations otherwise permit, contract financing shall not be provided for purchases made under the authority of Part 13.

32.004 Contract performance in foreign countries.

The enforceability of contract provisions for security of Government financing in a foreign jurisdiction is dependent upon local law and procedure. Prior to providing contract financing where foreign jurisdictions may become involved, the contracting officer shall ensure the Government's security is enforceable. This may require the provision of additional or different security than that normally provided for in the standard contract clauses.

32.005 Consideration for contract financing.

(a) Requirement. When a contract financing clause is included at the inception of a contract, there shall be no separate consideration for the contract financing clause. The value of the contract financing to the contractor is expected to be reflected in either (1) a bid or negotiated price that will be lower than such price would have been in the absence of the contract financing, or (2) contract terms and conditions, other than price, that are more beneficial to the Government than they would have been in the absence of the contract financing. Adequate new consideration is required for changes to, or the addition of, contract financing after award.

(b) Amount of new consideration. The contractor may provide new consideration by monetary or nonmonetary means, provided the value is adequate. The fair and reasonable consideration should approximate the amount by which the price would have been less had the contract financing terms been contained in the initial contract. In the absence of definite information on this point, the contracting officer should apply the following criteria in evaluating whether the proposed new consideration is adequate:

(1) The value to the contractor of the anticipated amount and duration of the contract financing at the imputed financial costs of the equivalent working capital.

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

(c) Interest. Except as provided in Subpart 32.4, Advance Payments for Non-Commercial Items, the contract shall not provide for any other type of specific charges, such as interest, for contract financing.

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

32.006-1 General.

(a) Under Title 10 of the United States Code, the statutory authority implemented by this section is available only to the Department of Defense; this statutory authority is not available to the National Aeronautics and Space Administration or the United States Coast Guard. Under the Federal Property and Administrative Services Act (41 U.S.C. 255), this statutory authority is available to all agencies subject to that Act.

(b) 10 U.S.C. 2307(h)(2) and 41 U.S.C. 255, as amended by the Federal Acquisition Streamlining Act of 1994, Public Law 103-355, provide for a reduction or suspension of further payments to a contractor when the agency head determines there is substantial evidence that the contractor's request for advance, partial, or progress payments is based on fraud. This authority does not apply to commercial interim payments under Subpart 32.2, or performance-based payments under Subpart 32.10.

(c) The agency head may not delegate his or her responsibilities under these statutes below Level IV of the Executive Schedule.

(d) Authority to reduce or suspend payments under these statutes is in addition to other Government rights, remedies, and procedures.

(e) In accordance with these statutes, agency head determinations and decisions under this section may be made for an individual contract or any group of contracts affected by the fraud.

32.006-2 Definitions.

As used in this section--

"Remedy coordination official" means the person or entity in the agency who coordinates within that agency the administration of criminal, civil, administrative, and contractual remedies resulting from investigations of fraud or corruption related to procurement activities. (See 10 U.S.C. 2307(h)(10) and 41 U.S.C. 255(g)(9).)

"Substantial evidence" means information sufficient to support the reasonable belief that a particular act or omission has occurred.

32.006-3 Responsibilities.

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

(b) Government personnel shall report suspected fraud related to advance, partial, or progress payments in accordance with agency regulations.

32.006-4 Procedures.

(a) In any case in which an agency's remedy coordination official finds substantial evidence that a contractor's request for advance, partial, or progress payments under a contract awarded by that agency is based on fraud, the remedy coordination official shall recommend that the agency head reduce or suspend further payments to the contractor. The remedy coordination official shall submit to the agency head a written report setting forth the remedy coordination official's findings that support each recommendation.

(b) Upon receiving a recommendation from the remedy coordination official under paragraph (a) of this subsection, the agency head shall determine whether substantial evidence exists that the request for payment under a contract is based on fraud.

(c) If the agency head determines that substantial evidence exists, the agency head may reduce or suspend further payments to the contractor under the affected contract(s). Such reduction or suspension shall be reasonably commensurate with the anticipated loss to the Government resulting from the fraud.

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

(1) A recommendation from investigating officers that disclosure of the allegations of fraud to the contractor may compromise an ongoing investigation;

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

(3) The contractor's overall financial condition and ability to continue performance if payments are reduced or suspended;

(4) The contractor's essentiality to the national defense, or to the execution of the agency's official business; and

(5) Assessment of all documentation concerning the alleged fraud, including documentation submitted by the contractor in its response to the notice required by paragraph (e) of this subsection.

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

(1) Notify the contractor in writing of the action pro-posed by the remedy coordination official and the reasons therefor (such notice must be sufficiently specific to permit the contractor to collect and present evidence addressing the aforesaid reasons); and

(2) Provide the contractor an opportunity to submit information within a reasonable time, in response to the action proposed by the remedy coordination official.

(f) When more than one agency has contracts affected by the fraud, the agencies shall consider designating one agency as the lead agency for making the determination and decision.

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

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

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

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

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

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

32.006-5 Reporting.

(a) In accordance with 41 U.S.C. 255, the head of an agency, other than the Department of Defense, shall prepare a report for each fiscal year in which a recommendation has been received pursuant to 32.006-4(a). Reports within the Department of Defense shall be prepared in accordance with 10 U.S.C. 2307.

(b) In accordance with 41 U.S.C. 255 and 10 U.S.C. 2307, each report shall contain--

(1) Each recommendation made by the remedy coordination official;

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

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

Subpart 32.1--Non-Commercial Item Purchase Financing

32.100 Scope of subpart.

This subpart provides policies and procedures applicable to contract financing and payment for any purchases other than purchases of commercial items in accordance with Part 12.

32.101 Authority.

The basic authority for the contract financing described in this part is contained in section 305 of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 255), section 2307 of the Armed Services Procurement Act (10 U.S.C. 2307), and Title III of the Defense Production Act of l950 (50 U.S.C. App. 2091), as amended.

32.102 Description of contract financing methods.

(a) Advance payments are advances of money by the Government to a prime contractor before, in anticipation of, and for the purpose of complete performance under one or more contracts. They are expected to be liquidated from payments due to the contractor incident to performance of the contracts. Since they are not measured by performance, they differ from partial, progress, or other payments based on the performance or partial performance of a contract. Advance payments may be made to prime contractors for the purpose of making advances to subcontractors.

(b) Progress payments based on costs are made on the basis of costs incurred by the contractor as work progresses under the contract. This form of contract financing does not include--

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

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

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

(4) Performance-based payments.

(c) Loan guarantees are made by Federal Reserve banks, on behalf of designated guaranteeing agencies, to enable contractors to obtain financing from private sources under contracts for the acquisition of supplies or services for the national defense.

(d) Partial payments for accepted supplies and services that are only a part of the contract requirements are authorized under 41 U.S.C. 255 and 10 U.S.C. 2307. Office of Management and Budget Circular A-125, Prompt Payment, requires agencies to pay for partial delivery of supplies or partial performance of services unless specifically prohibited by the contract. Although partial payments generally are treated as a method of payment and not as a method of contract financing, using partial payments can assist contractors to participate in Government contracts without, or with minimal, contract financing. When appropriate, contract statements of work and pricing arrangements shall be designed to permit acceptance and payment for discrete portions of the work, as soon as accepted (but see 32.903(f)(2)).

(e)(1) Progress payments based on a percentage or stage of completion are authorized by the statutes cited in 32.101.

(2) This type of progress payment may be used as a payment method under agency procedures. Agency procedures must ensure that payments are commensurate with work accomplished, which meets the quality standards established under the contract. Furthermore, progress payments may not exceed 80 percent of the eligible costs of work accomplished on undefinitized contract actions.

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

(1) Performance measured by objective, quantifiable methods;

(2) Accomplishment of defined events; or

(3) Other quantifiable measures of results.

32.103 Progress payments under construction contracts.

When satisfactory progress has not been achieved by a contractor during any period for which a progress payment is to be made, a percentage of the progress payment may be retained. Retainage should not be used as a substitute for good contract management, and the contracting officer should not withhold funds without cause. Determinations to retain and the specific amount to be withheld shall be made by the contracting officers on a case-by-case basis. Such decisions will be based on the contracting officer's assessment of past performance and the likelihood that such performance will continue. The amount of retainage withheld shall not exceed 10 percent of the approved estimated amount in accordance with the terms of the contract and may be adjusted as the contract approaches completion to recognize better than expected performance, the ability to rely on alternative safeguards, and other factors. Upon completion of all contract requirements, retained amounts shall be paid promptly.

32.104 Providing contract financing.

(a) Prudent contract financing can be a useful working tool in Government acquisition by expediting the performance of essential contracts. Government financing shall be provided only to the extent actually needed for prompt and efficient performance, considering the availability of private financing. Contract financing shall be administered so as to aid, not impede, the acquisition. At the same time, the contracting officer shall avoid any undue risk of monetary loss to the Government through the financing. The contractor's use of the contract financing provided and the contractor's financial status shall be monitored.

(b) If the contractor is a small business concern, the contracting officer shall give special attention to meeting the contractor's contract financing need. However, a contractor's receipt of a certificate of competency from the Small Business Administration has no bearing on the contractor's need for or entitlement to contract financing.

(c) Subject to specific agency regulations, the contracting officer may provide customary contract financing in accordance with 32.113. Unusual contract financing shall not be provided except as authorized in 32.114.

(d) Unless otherwise authorized by agency regulation, contract financing may be provided for contracts with--

(1) Small business concerns, when the contract price will be greater than the simplified acquisition threshold; or

(2) Other than small business concerns, when the contract price will be $1 million or more, or for a group of contracts, whose prices are greater than the simplified acquisition threshold, that total $1 million or more.

32.105 Uses of contract financing.

(a) Contract financing methods covered in this part are intended to be self-liquidating through contract performance. Consequently, agencies shall only use the methods for financing of contractor working capital, not for the expansion of contractor-owned facilities or the acquisition of fixed assets. However, under loan guarantees, exceptions may be made for--

(1) Facilities expansion of a minor or incidental nature, if a relatively small part of the guaranteed loan is used for the expansion and the contractor's repayment would not be delayed or impaired; or

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

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

32.106 Order of preference.

The contracting officer shall consider the following order of preference when a contractor requests contract financing, unless an exception would be in the Government's best interest in a specific case:

(a) Private financing without Government guarantee. It is not intended, however, that the contractor be required to obtain private financing--

(1) At unreasonable terms; or

(2) From other agencies.

(b) Customary contract financing (see 32.113).

(c) Loan guarantees.

(d) Unusual contract financing (see 32.114).

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

32.107 Need for contract financing not a deterrent.

(a) If the contractor or offeror meets the standards prescribed for responsible prospective contractors at 9.104, the contracting officer shall not treat the contractor's need for contract financing as a handicap for a contract award; e.g., as a responsibility factor or evaluation criterion.

(b) The contractor should not be disqualified from contract financing solely because the contractor failed to indicate a need for contract financing before the contract was awarded.

32.108 Financial consultation.

Each contracting office should have available and use the services of contract financing personnel competent to evaluate credit and financial problems. In resolving any questions concerning--

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

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

32.109 Termination financing.

To encourage contractors to invest their own funds in performance despite the susceptibility of the contract to termination for the convenience of the Government, the contract financing procedures under this part may be applied to the financing of terminations either in connection with or independently of financing for contract performance (see 49.112-1).

32.110 [Reserved]

32.111 Contract clauses for non-commercial purchases.

(a) The contracting officer shall insert the following clauses, appropriately modified with respect to payment due dates, in accordance with agency regulations--

(1) The clause at 52.232-1, Payments, in solicitations and contracts when a fixed-price supply contract, a fixed-price service contract, or a contract for nonregulated communication services is contemplated;

(2) The clause at 52.232-2, Payment under Fixed-Price Research and Development Contracts, in solicitations and contracts when a fixed-price research and development contract is contemplated;

(3) The clause at 52.232-3, Payments under Personal Services Contracts, in solicitations and contracts for personal services;

(4) The clause at 52.232-4, Payments under Transportation Contracts and Transportation-Related Services Contracts, in solicitations and contracts for transportation or transportation-related services;

(5) The clause at 52.232-5, Payments under Fixed-Price Construction Contracts, in solicitations and contracts for construction when a fixed-price contract is contemplated; and

(6) The clause at 52.232-6, Payments under Communication Service Contracts with Common Carriers, in solicitations and contracts for regulated communication services by common carriers.

(b) The contracting officer shall insert the clause at 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts, appropriately modified with respect to payment due dates in accordance with agency regulations, in solicitations and contracts when a time-and-materials or labor-hour contract is contemplated. If (i) the nature of the work to be performed requires the contractor to furnish material that is regularly sold to the general public in the normal course of business by the contractor and (ii) the price is under the limitations prescribed in 16.601(b)(3), the contracting officer shall use the clause with its Alternate I. If a labor-hour contract is contemplated, and if no specific reimbursement for materials furnished is intended, the contracting officer may use the clause with its Alternate II.

(c) The contracting officer shall insert the following clauses, appropriately modified with respect to payment due dates in accordance with agency regulations:

(1) The clause at 52.232-8, Discounts for Prompt Payment, in solicitations and contracts when a fixed-price supply contract or fixed-price service contract is contemplated.

(2) A clause, substantially the same as the clause at 52.232-9, Limitation on Withholding of Payments, in solicitations and contracts when a supply contract, research and development contract, service contract, time-and-materials contract, or labor-hour contract is contemplated that includes two or more terms authorizing the temporary withholding of amounts otherwise payable to the contractor for supplies delivered or services performed.

(d) The contracting officer shall insert the following clauses, appropriately modified with respect to payments due dates in accordance with agency regulations:

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

(2) The clause at 52.232-11, Extras, in solicitations and contracts when a fixed-price supply contract, fixed-price service contract, or a transportation contract is contemplated.

32.112 Payment of subcontractors under contracts for non-commercial items.

32.112-1 Subcontractor assertions of nonpayment.

(a) In accordance with Section 806(a)(4) of Pub. L. 102-190, as amended by Sections 2091 and 8105 of Pub. L. 103-355, upon the assertion by a subcontractor or supplier of a Federal contractor that the subcontractor or supplier has not been paid in accordance with the payment terms of the subcontract, purchase order, or other agreement with the prime contractor, the contracting officer may determine--

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

(i) Progress payments to the subcontractor or supplier in compliance with Chapter 39 of Title 31, United States Code (Prompt Payment Act); or

(ii) Final payment to the subcontractor or supplier in compliance with the terms of the subcontract, purchase order, or other agreement with the prime contractor;

(2) For a contract other than construction, whether the contractor has made progress payments, final payments, or other payments to the subcontractor or supplier in compliance with the terms of the subcontract, purchase order, or other agreement with the prime contractor; or

(3) For any contract, whether the contractor's certification of payment of a subcontractor or supplier accompanying its payment request to the Government is accurate.

(b) If, in making the determination in paragraphs (a)(1) and (2) of this subsection, the contracting officer finds the prime contractor is not in compliance, the contracting officer may--

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

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

(c) If the contracting officer determines that a certification referred to in paragraph (a)(3) of this subsection is inaccurate in any material respect, the contracting officer shall initiate administrative or other remedial action.

32.112-2 Subcontractor requests for information.

(a) In accordance with Section 806(a)(1) of Pub. L. 102-190, as amended by Sections 2091 and 8105 of Pub. L. 103-355, upon the request of a subcontractor or supplier under a Federal contract for a non-commercial item, the contracting officer shall promptly advise the subcontractor or supplier as to--

(1) Whether the prime contractor has submitted requests for progress payments or other payments to the Federal Government under the contract; and

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

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

(1) Specifically authorized under criteria established by an Executive order to be kept classified in the interest of national defense or foreign policy; and

(2) Properly classified pursuant to such Executive order.

32.113 Customary contract financing.

The following contract financing arrangements are customary contract financing when provided in accordance with this part and agency regulations--

(a) Financing of shipbuilding, or ship conversion, alteration, or repair, when agency regulations provide for progress payments based on a percentage or stage of completion;

(b) Financing of construction or architect-engineer services purchased under the authority of Part 36;

(c) Financing of contracts for supplies or services awarded under the sealed bid method of procurement in accordance with Part 14, or under the competitive negotiation method of procurement in accordance with Part 15, through progress payments based on costs in accordance with Subpart 32.5;

(d) Financing of contracts for supplies or services awarded under a sole-source acquisition as defined in Part 6 and using the procedures of Part 15, through either progress payments based on costs in accordance with Subpart 32.5, or performance-based payments in accordance with Subpart 32.10 (but not both). Performance-based payments are the preferred method when the contracting officer finds them practical, and the contractor agrees to their use;

(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 performance-based payments or progress payments (but not both) in accordance with their respective subparts.

32.114 Unusual contract financing.

Any contract financing arrangement that deviates from this part is unusual contract financing. Unusual contract financing shall be authorized only after approval by the head of the agency or as provided for in agency regulations.

Subpart 32.2--Commercial Item Purchase Financing

32.200 Scope of subpart.

This subpart provides policies and procedures for commercial financing arrangements under commercial purchases pursuant to Part 12.

32.201 Statutory authority.

10 U.S.C. 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 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 may include appropriate financing terms in contracts for commercial purchases when doing so will be in the best interest of the Government.

(b) Authorization. Commercial interim payments and commercial advance payments may be made under the following circumstances--

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

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

(3) The contracting officer determines that it is appropriate or customary in the commercial marketplace to make financing payments for the item;

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

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

(6) Prior to any performance of work under the contract, the aggregate of commercial advance payments shall not exceed 15 percent of the contract price;

(7) The contract is awarded on the basis of competitive procedures or, if only one offer is solicited, adequate consideration is obtained (based on the time value of the additional financing to be provided) if the financing is expected to be substantially more advantageous to the offeror than the offeror's normal method of customer financing; and

(8) The contracting officer obtains concurrence from the payment office concerning liquidation provisions when required by 32.206(e).

(c) Difference from non-commercial financing. Government financing of commercial purchases under this subpart 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 this part is unusual contract financing and requires advance approval in accordance with agency procedures. If not otherwise specified, such unusual contract financing shall be approved by the head of the contracting activity.

(e) Best interest of the Government. The statutes cited in 32.201 do not allow contract financing by the Government unless it is in the best interest of the United States. Agencies may establish standards to determine whether contract financing is in the best interest of the Government. These standards may be for certain types of procurements, certain types of items, or certain dollar levels of procurements.

32.202-2 Types of payments for commercial item purchases.

These definitions incorporate the requirements of 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, Advance Payments for Non-Commercial Items.

"Commercial interim payment" means any payment that is not a commercial advance payment or a delivery payment. These payments are contract financing payments for prompt payment purposes (i.e., not subject to the interest penalty provisions of the Prompt Payment Act in accordance with Subpart 32.9). A commercial interim payment is given to the contractor after some work has been done, whereas a commercial advance payment is given to the contractor when no work has been done.

"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.

Contract financing may be a subject included in the market research conducted in accordance with Part 10. If market research for contract financing is conducted, the contracting officer should consider--

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

(b) The overall level of financing normally provided;

(c) The amount or percentages of any payments equivalent to commercial advance payments (see 32.202-2);

(d) The basis for any payments equivalent to commercial interim payments (see 32.202-2), as well as the frequency, and amounts or percentages; and

(e) Methods of liquidation of contract financing payments and any special or unusual payment terms applicable to delivery payments (see 32.202-2).

32.202-4 Security for Government financing.

(a) Policy. (1) 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 specify in the solicitation the type of security the Government will accept. If the Government is willing to accept more than one form of security, the offeror shall be required to specify the form of security it will provide. If acceptable to the contracting officer, the resulting contract shall specify the security (see 32.206(b)(1)(iv)).

(2) Subject to agency regulations, the contracting officer may determine the offeror's financial condition to be adequate security, provided the offeror agrees to provide additional security should that financial condition become inadequate as security (see paragraph (c) of the clause at 52.232-29, Terms for Financing of Purchases of Commercial Items). Assessment of the contractor's financial condition shall consider both net worth and liquidity. If the contracting officer finds the offeror's financial condition is not adequate security, the contracting officer shall require other adequate security. Paragraphs (b), (c), and (d) of this subsection list other (but not all) forms of security that the contracting officer may find acceptable.

(3) The value of the security must be at least equal to the maximum unliquidated amount of contract financing payments to be made to the contractor. The value of security may be adjusted periodically during contract performance, as long as it is always equal to or greater than the amount of unliquidated financing.

(b) Paramount lien. (1) The statutes cited in 32.201 provide that if the Government's security is in the form of a lien, such lien is paramount to all other liens and is effective immediately upon the first payment, without filing, notice, or other action by the United States.

(2) When the Government's security is in the form of a lien, the contract shall specify what the lien is upon, e.g., the work in process, the contractor's plant, or the contractor's inventory. Contracting officers may be flexible in the choice of assets. The contract must also give the Government a right to verify the existence and value of the assets.

(3) Provision of Government financing shall be conditioned upon a contractor certification that the assets subject to the lien are free from any prior encumbrances. Prior liens may result from such things as capital equipment loans, installment purchases, working capital loans, various lines of credit, and revolving credit arrangements.

(c) Other assets as security. Contracting officers may consider the guidance at 28.203-2, 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 subsection, the term "surety" and/or "individual surety" should be interpreted to mean "offeror" and/or "contractor."

(d) Other forms of security. Other acceptable forms of security include--

(1) An irrevocable letter of credit from a federally insured financial institution;

(2) A bond from a surety, acceptable in accordance with Part 28 (note that the bond must guarantee repayment of the unliquidated contract financing);

(3) A guarantee of repayment from a person or corporation of demonstrated liquid net worth, connected by significant ownership to the contractor; or

(4) Title to identified contractor assets of adequate worth.

(e) Management of risk and security. In establishing contract financing terms, the contracting officer must be aware of certain risks. For example, very high amounts of financing early in the contract (front-end loading) may unduly increase the risk to the Government. The security and the amounts and timing of financing payments must be analyzed as a whole to determine whether the arrangement will be in the best interest of the Government.

32.203 Determining contract financing terms.

When the criteria in 32.202-1(b) are met, the contracting officer may either specify the financing terms in the solicitation (see 32.204) or permit each offeror to propose its own customary financing terms (see 32.205). When the contracting officer has sufficient information on financing terms that are customary in the commercial marketplace for the item, those terms may be specified in the solicitation.

32.204 Procedures for contracting officer-specified commercial contract financing.

The financing terms shall be included in the solicitation. Contract financing shall not be a factor in the evaluation of resulting proposals, and proposals of alternative financing terms shall not be accepted (but see 14.208 and 15.206 concerning amendments of solicitations). However, an offer stating that the contracting officer-specified contract financing terms will not be used by the offeror does not alter the evaluation of the offer, nor does it render the offer nonresponsive or otherwise unacceptable. In the event of award to an offeror who declined the proposed contract financing, the contract financing provisions shall not be included in the resulting contract. Contract financing shall not be a basis for adjusting offerors' proposed prices, because the effect of contract financing is reflected in each offeror's proposed prices.

32.205 Procedures for offeror-proposed commercial contract financing.

(a) Under this procedure, each offeror may propose financing terms. The contracting officer must then determine which offer is in the best interests of the United States.

(b) Solicitations. The contracting officer shall include in the solicitation the provision at 52.232-31, Invitation to Propose Financing Terms. The contracting officer shall also--

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

(2) Specify the interest rate to be used in the evaluation of financing proposals (see paragraph (c)(4) of this section).

(c) Evaluation of proposals. (1) When contract financing terms vary among offerors, the contracting officer must adjust each proposed price for evaluation purposes to reflect the cost of providing the proposed financing in order to determine the total cost to the Government of that particular combination of price and financing.

(2) Contract financing results in the Government making payments earlier than it otherwise would. In order to determine the cost to the Government of making payments earlier, the contracting officer must compute the imputed cost of those financing payments and add it to the proposed price to determine the evaluated price for each offeror.

(3) The imputed cost of a single financing payment is the amount of the payment multiplied by the annual interest rate, multiplied by the number of years, or fraction thereof, between the date of the financing payment and the date the amount would have been paid as a delivery payment. The imputed cost of financing is the sum of the imputed costs of each of the financing payments.

(4) The time value of proposal-specified 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. Where the period of proposed financing does not match the periods in the OMB Circular, the interest rate for the period closest to the finance period shall be used. Appendix C is updated yearly, and is available from the Office of Economic Policy in the Office of Management and Budget (OMB).

32.206 Solicitation provisions and contract clauses.

(a) The contract shall contain the paragraph entitled "Payment" of the clause at 52.212-4, Contract Terms and Conditions--Commercial Items. If the contract will provide for contract financing, the contracting officer shall construct a solicitation provision and contract clause. This solicitation provision shall be constructed in accordance with 32.204 or 32.205. If the procedure at 32.205 is used, the solicitation provision at 52.232-31, Invitation to Propose Financing Terms, shall be included. The contract clause shall be constructed in accordance with the requirements of this subpart and any agency regulations.

(b) Each contract financing clause shall include:

(1) A description of the--

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

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

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

(iv) Security the contractor will provide for financing payments and any terms or conditions specifically applicable thereto (see 32.202-4); and

(v) Frequency, form, and any additional content of the contractor's request for financing payment (in addition to the requirements of the clause at 52.232-29, Terms for Financing of Purchases of Commercial Items; and

(2) Unless agency regulations authorize alterations, the unaltered text of the clause at 52.232-29, Terms for Financing of Purchases of Commercial Items.

(c) Computation of amounts, and contractor entitlement provisions. (1) Contracts shall provide that delivery payments shall be made only for completed supplies and services accepted by the Government in accordance with the terms of the contract. Contracts may provide for commercial advance and commercial interim payments based upon a wide variety of bases, including (but not limited to) achievement or occurrence of specified events, the passage of time, or specified times prior to the delivery date(s). The basis for payment must be objectively determinable. The clause written by the contracting officer shall specify, to the extent access is necessary, the information and/or facilities to which the Government shall have access for the purpose of verifying the contractor's entitlement to payment of contract financing.

(2) If the contract is awarded using the offeror-proposed procedure at 32.205, the clause constructed by the contracting officer under paragraph (b)(1) of this section shall contain the following:

(i) A statement that the offeror's proposed listing of earliest times and greatest amounts of projected financing payments submitted in accordance with paragraph (d)(2) of the provision at 52.232-31, Invitation to Propose Financing Terms, is incorporated into the contract, and

(ii) A statement that financing payments shall be made in the lesser amount and on the later of the date due in accordance with the financing terms of the contract, or in the amount and on the date projected in the listing of earliest times and greatest amounts incorporated in the contract.

(3) If the security accepted by the contracting officer is the contractor's financial condition, the contracting officer shall incorporate in the clause constructed under paragraph (b)(1) of this section the following--

(i) A statement that the contractor's financial condition has been accepted as adequate security for commercial financing payments; and

(ii) A statement that the contracting officer may exercise the Government's rights to require other security under paragraph (c), Security for Government Financing, of the clause at 52.232-29, Terms for Financing of Purchases of Commercial Items, in the event the contractor's financial condition changes and is found not to be adequate security.

(d) Instructions for multiple appropriations. If contract financing is to be computed for the contract as a whole, and if there is more than one appropriation account (or subaccount) funding payments under the contract, the contracting officer shall include, in the contract, instructions for distribution of financing payments to the respective funds accounts. Distribution instructions and contract liquidation instructions must be mutually consistent.

(e) Liquidation. Liquidation of contract financing payments shall be on the same basis as the computation of contract financing payments; that is, financing payments computed on a whole contract basis shall be liquidated on a whole contract basis; and a payment computed on a line item basis shall be liquidated against that line item. If liquidation is on a whole contract basis, the contracting officer shall use a uniform liquidation percentage as the liquidation method, unless the contracting officer obtains the concurrence of the cognizant payment office that the proposed liquidation provisions can be executed by that office, or unless agency regulations provide alternative liquidation methods.

(f) Prompt payment for commercial purchase payments. The provisions of Subpart 32.9, Prompt Payment, apply to contract financing and invoice payments for commercial purchases in the same manner they apply to non-commercial purchases. The contracting officer is responsible for including in the contract all the information necessary to implement prompt payment. In particular, contracting officers must be careful to clearly differentiate in the contract between contract financing and invoice payments and between items having different prompt payment times.

(g) Installment payment financing for commercial items. Contracting officers may insert the clause at 52.232-30, Installment Payments for Commercial Items, in solicitations and contracts in lieu of constructing a specific clause in accordance with paragraphs (b) through (e) of this section, if the contract action qualifies under the criteria at 32.202-1(b) and installment payments for the item are either customary or are authorized in accordance with agency procedures.

(1) Description. Installment payment financing is payment by the Government to a contractor of a fixed number of equal interim financing payments prior to delivery and acceptance of a contract item. The installment payment arrangement is designed to reduce administrative costs. However, if a contract will have a large number of deliveries, the administrative costs may increase to the point where installment payments are not in the best interests of the Government.

(2) Authorized types of installment payment financing and rates. Installment payments may be made using the clause at 52.232-30, Installment Payments for Commercial Items, either at the 70 percent financing rate cited in the clause or at a lower rate in accordance with agency procedures.

(3) Calculating the amount of installment financing payments. The contracting officer shall identify in the contract schedule those items for which installment payment financing is authorized. Monthly installment payment amounts are to be calculated by the contractor pursuant to the instructions in the contract clause only for items authorized to receive installment payment financing.

(4) Liquidating installment payments. If installment payments have been made for an item, the amount paid to the contractor upon acceptance of the item by the Government shall be reduced by the amount of installment payments made for the item. The contractor's request for final payment for each item is required to show this calculation.

32.207 Administration and payment of commercial financing payments.

(a) Responsibility. The contracting officer responsible for administration of the contract shall be responsible for review and approval of contract financing requests.

(b) Approval of financing requests. Unless otherwise provided in agency regulations, or by agreement with the appropriate payment official--

(1) The contracting officer shall be responsible for receiving, approving, and transmitting all contract financing requests to the appropriate payment office; and

(2) Each approval shall specify the amount to be paid, necessary contractual information, and the account(s) (see 32.206(d)) to be charged for the payment.

(c) Management of security. After contract award, the contracting officer responsible for approving requests for financing payments shall be responsible for determining that the security continues to be adequate. If the contractor's financial condition is the Government's security, this contracting officer is also responsible for monitoring the contractor's financial condition.

Subpart 32.3--Loan Guarantees for Defense Production

32.300 Scope of subpart.

This subpart prescribes policies and procedures for designated agencies' guarantees of loans made by private financial institutions to borrowers performing contracts related to national defense (see 30.102).

32.301 Definitions.

"Borrower," as used in this subpart, means a contractor, subcontractor (at any tier), or other supplier who receives a guaranteed loan.

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

"Guaranteed loan" or "V loan," as used in this subpart, means a loan, revolving credit fund, or other financial arrangement made pursuant to Regulation V of the Federal Reserve Board, under which the guaranteeing agency is obligated, on demand of the lender, to purchase a stated percentage of the loan and to share any losses in the amount of the guaranteed percentage.

"Guaranteeing agency," as used in this subpart, means any agency that the President has authorized to guarantee loans, through Federal Reserve Banks, for expediting national defense production.

32.302 Authority.

Congress has authorized Federal Reserve Banks to act, on behalf of guaranteeing agencies, as fiscal agents of the United States in the making of loan guarantees for defense production (Section 301, Defense Production Act of 1950 (50 U.S.C. App. 2091)). By Executive Order 10480, August 14, 1953 (3 CFR 1949-53), as amended, the President has designated the following agencies as guaranteeing agencies:

(a) Department of Defense.

(b) Department of Energy.

(c) Department of Commerce.

(d) Department of the Interior.

(e) Department of Agriculture.

(f) General Services Administration.

(g) National Aeronautics and Space Administration.

32.303 General.

(a) Section 301 of the Defense Production Act authorizes loan guarantees for contract performance or other operations related to national defense, subject to amounts annually authorized by Congress on the maximum obligation of any guaranteeing agency under any loan, discount, advance, or commitment in connection therewith, entered into under section 301. (See 50 U.S.C. App. 2091 for statutory limitations and exceptions concerning the authorization of loan guarantee amounts and the use of loan guarantees for the prevention of insolvency or bankruptcy.)

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

(1) The circumstances are exceptional;

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

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

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

(d) Guaranteed loans are essentially the same as conventional loans made by private financial institutions, except that the guaranteeing agency is obligated, on demand of the