[Federal Register Volume 60, Number 186 (Tuesday, September 26, 1995)]
[Rules and Regulations]
[Pages 49707-49720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23866]
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DEPARTMENT OF DEFENSE
48 CFR Parts 1, 32, 42, and 52
[FAC 90-33; FAR Case 94-764; Item I]
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: Final rule.
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SUMMARY: This final rule is issued pursuant to the Federal Acquisition
Streamlining Act of 1994, Public Law 103-355 (the Act). The Federal
Acquisition Regulatory Council is 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.
EFFECTIVE DATE: October 1, 1995.
FOR FURTHER INFORMATION CONTACT: Mr. John Galbraith, Contract
Financing/
[[Page 49708]]
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 FAC 90-33;
FAR case 94-764.
SUPPLEMENTARY INFORMATION:
A. Background
The Federal Acquisition Streamlining Act of 1994, Pub. L. 103-355
(the Act), provides authorities that streamline the acquisition process
and minimize burdensome government-unique requirements.
This rule implements sections 2001 and 2051 of the Act which
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 revise the
authority for Government financing of purchases of non-commercial
items.
Subsections 2001(f) and 2051(e) amend 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.
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 non-commercial financing.
The specific subparts in each category are identified at 32.002
(Applicability of subparts).
Subpart Discussion
Sections 32.000 thru 32.005 now contain the general policy and
guidance which is applicable to Government contract financing of both
commercial and non-commercial items.
Subpart 32.1 (Non-commercial Item 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 Item Purchase Financing) contains the
policy and guidance applicable to contract financing of commercial
purchases. This subpart is wholly new. The new statute places
Government financing of commercial purchases on a different statutory
basis than for non-commercial purchases. As a result, 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
financing in contracts.
The installment payment clause permits contracting officers to
incorporate financing into contracts for commercial items without any
administrative effort beyond incorporation of the clause.
Subpart 32.4 has been renamed ``Advanced Payments for Non-
Commercial Items'', in order to reduce the confusion between this
financing mechanism and commercial advance payments under subpart 32.2.
Subpart 32.4 does not apply to commercial advance payments.
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 non-commercial 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 which 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.
Subpart 42.3 (Contract Administration) is amended to reflect
delegations of functions for commercial financing and for performance
based payments.
FAR 52.232 is amended to add the additional clauses and
solicitation provisions required to implement the new statutory
authorities. 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.
B. Regulatory Flexibility Act
This 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 (Act) (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; and because the implementation
of subsection 2001(b) and subsection 2051(b) of the Act permits
contract financing of purchases of non-commercial 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. A Final Regulatory Flexibility Analysis (FRFA)
has been performed and will be provided to the Chief Counsel for
Advocacy for the Small Business Administration. A copy of the FRFA may
be obtained from the FAR Secretariat.
C. Paperwork Reduction Act
The Paperwork Reduction Act (Pub. L. 96-511) is deemed to apply
because the rule contains information collection requirements. A
request for approval of the information collection requirement
concerning Contract Financing was submitted to OMB and approved through
May 31, 1998, OMB Control 9000-0138. Public comments concerning this
request were invited through a Federal Register notice at 60 FR 14171,
March 15, 1995.
D. Public Comments
A proposed rule was published in the Federal Register at 60 FR
14156, March
[[Page 49709]]
15, 1995. During the public comment period, 263 comments were received.
Agency Discretion
A number of commentors expressed concern over the provisions for
agency discretion in the coverage. This discretion is unavoidable. The
changes in the statutes cause contract financing to become a larger
issue in conducting procurements. Given the wide differences in the
various parts of the Executive Branch, and the even wider differences
in the things many of them procure and finance, Government-wide
regulation could not reasonably provide the breadth and depth of
coverage needed to avoid the use of agency discretion.
Subcontracting Financing
A number of commentors raised the issue of Government contract
financing for commercial subcontractors. The most recent comments have
also raised the issue of commercial subcontracts under cost-
reimbursement contracts, and subcontractor performance-based payments.
While a recommendation to adopt these policies may be made, they are a
refinement of policy, not essential to the initial implementation of
the Act. The FARC will consider addressing the issue of subcontractor
financing policy changes as a new policy issue at a later time.
Policy for Use of Contract Financing
FAR 32.203 (Determining Contract Financing Terms) has been
extensively streamlined to increase the contracting officer's
discretion in using financing for commercial item purchases. A major
factor was industry advice that generally there are no organized
markets with ``customary'' financing terms. In most situations
financing terms are highly elastic and mutable; depending upon the
relative size of the purchase, the relative costs of capital of the
respective parties, the internal management objectives of the parties,
the state of the world, national, and local economies and business
cycles, the financial rating and reputation of the buyer and seller,
and the parties' relative bargaining powers. It was concluded that it
is not feasible at the beginning of this policy to establish at the
Federal level a hard rule, for use of financing for all commercial
purchases, that will always be in the best interests of the Government.
It is expected that individual agencies will begin to discover markets
and products where there is some consistency of practice (without anti-
trust implications). The results of this exploration of commercial item
purchasing may ultimately be collectable at the FAR level.
Guidance on Security
A number of commentors discussed the guidance on security for
commercial item financing. The authorizing statute explicitly requires
security for all commercial financing. The rule provides the widest
discretion to the contracting officers in complying with this
requirement, however, it is necessarily different from the practices of
profit-making businesses. It should be noted that in business, losses,
from credit risk are a cost of sales. In business, credit losses are
offset by resulting profits. In Government, credit losses are absolute,
there are no offsetting profits. Thus, security will always be more
critical to the Government.
Previous comments had complained that the OMB A-94 Circular rate
previously proposed was not widely available. Those comments had lead
to the adoption of the Treasury Note rate as being widely available in
many newspapers throughout the country. However, in view of the advice
that this rate is not uniformly reported, and to insure an
authoritative interest rate for evaluating the cost to the Government
of offeror-proposed financing, the coverage has been changed to specify
the OMB A-94 interest rate for this evaluation.
Installment Payments
A number of commentors have recommended the extension of the
concept of installment payments to non-commercial item financing. For a
number of legal and practical reasons, that cannot be done. However,
this final rule contains the installment payment provisions of the
proposed rule for use in commercial item purchases.
Relation to Other Agency-Specific Financing Methods
Comments were received concerning the relationship of performance-
based payments as implemented in subpart 32.10, to other agency-
specific, or product-specific forms of performance-based financing.
There are a number of specialized forms of contract financing, such as
shipbuilding progress payments and construction progress payments, that
are based on measures of contractor performance, such as percentage of
completion. In addition, some agencies have also developed specialized
financing terms that are based on measures of contractor performance,
for example, milestone billings. Subpart 32.10 is designed for use with
any of the bases for measuring contractor performance provided for in
the Act. It is therefore broader and more general than specifically
tailored contract financing provisions. The policy and procedures in
subpart 32.10 do not supersede or alter the existing forms of
performance-based contract financing, nor are agencies restricted in
future developments of innovative policy.
Combinations of Types of Financing
A large number of commentors urged allowing both progress payments
based on costs, and performance-based payments, in the same contract.
Previous review of the legal, computational, payment, and liquidation
aspects of such a combination has indicated it is not practical. The
issue has been reconsidered and no change is warranted.
Performance-Based Financing on Undefinitized Contracts
Some commentors raised the issue of performance-based payments on
undefinitized contracts, arguing that this should be allowed. While the
rule does not accept the concept of performance-based payments during
the period the contract is undefinitized, the clause prescription has
been modified to facilitate the negotiation of the Performance-Based
Payment schedule for use after definitization.
Performance-Based Payments as Delivery Payments
A number of commentors recommended, rather than treating
performance-based payments as contract financing payments, that they be
treated as delivery payments. This idea, while attractive from an
accounting standpoint, is not new. It has been repeatedly considered
over the years. However, there are a number of essentially legal issues
that have discouraged creation of a ``delivery payment contract
financing'' mechanism. Both agency and industry commentors were invited
to propose specific contractual language and provide the legal analysis
needed to consider such a concept. The FAR Council will, in the future,
consider such proposals, should they be submitted.
List of Subjects in 48 CFR Parts 1, 32, 42, and 52
Government procurement.
Dated: September 20, 1995.
Edward C. Loeb,
Deputy Project Manager for the Implementation of the Federal
Acquisition Streamlining Act of 1994.
Therefore, 48 CFR parts 1, 32, 42, and 52 are amended as set forth
below:
[[Page 49710]]
1. The authority citation for 48 CFR parts 1, 32, 42, 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).
PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM
2. The table in section 1.106 is amended under the ``FAR Segment''
and ``OMB Control Number'' columns by revising entries ``32.1'' and
``32.5'' and adding entries, in numerical order, to read as follows:
1.106 OMB approval under the Paperwork Reduction Act.
* * * * *
------------------------------------------------------------------------
FAR segment OMB control No
------------------------------------------------------------------------
* * * * *
32.000............................................ 9000-0138.
32.1.............................................. 9000-0070 and 9000-
0138.
32.2.............................................. 9000-0138.
* * * * *
32.5.............................................. 9000-0010 and 9000-
0138.
* * * * *
32.10............................................. 9000-0138.
* * * * *
52.232-29......................................... 9000-0138.
52.232-30......................................... 9000-0138.
52.232-31......................................... 9000-0138.
52.232-32......................................... 9000-0138.
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* * * * *
PART 32--CONTRACT FINANCING
3. Section 32.000 is amended at the end of 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.
4. 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 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.
5. Sections 32.002 through 32.005 are added to read as follows:
Sec.
32.002 Applicability of subparts.
32.003 Simplified acquisition procedures financing.
32.004 Contract performance in foreign countries.
32.005 Consideration for contract financing.
32.002 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.
(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.
6. Subpart 32.1 heading and section 32.100 are revised to read as
follows:
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 [Amended]
7. Section 32.101 is amended by removing the period at the end of
the section and inserting in its place ``, as amended.''
8. Section 32.102 is amended in the last sentence of paragraph (a)
by
[[Page 49711]]
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''; adding paragraphs (b)(4) and (f); and in paragraph (d) by adding
at the end of the first sentence ``and 10 U.S.C. 2307''. The revised
text reads 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.
9. Section 32.104 is amended by adding paragraphs (c) and (d) to
read as follows:
32.104 Providing 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.
9. 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]
10. Section 32.110 is removed and reserved.
32.111 Contract clauses for non-commercial purchases.
11. The section heading for 32.111 is revised to read as set forth
above.
12. Sections 32.113 and 32.114 are added to read as follows:
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.
13. Subpart 32.2, consisting of sections 32.200 through 32.207, is
added to read as follows:
Subpart 32.2--Commercial Item 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 item purchases.
32.202-3 Conducting market research about financing terms.
32.202-4 Security for Government financing.
32.203 Determining contract financing terms.
32.204 Procedures for contracting officer-specified commercial
contract financing.
32.205 Procedures for offeror-proposed commercial contract
financing.
32.206 Solicitation provisions and contract clauses.
32.207 Administration and payment of commercial financing payments.
Subpart 32.2--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
in part 13;
(3) The contracting officer determines that it is appropriate or
customary in the
[[Page 49712]]
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
[[Page 49713]]
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 15.606 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
[[Page 49714]]
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 32.4--Advance Payments for Non-Commercial Items
14. Subpart 32.4 heading is revised to read as set forth above.
15. Section 32.400 is amended by adding a third sentence to read as
follows:
32.400 Scope of subpart.
* * * This subpart does not apply to commercial advance payments,
which are subject to subpart 32.2.
16. 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 (Public Law 99-145), as amended, and for civilian agencies, in
accordance with 41 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.
[[Page 49715]]
32.501-4 [Reserved]
17. Section 32.501-4 is removed and reserved.
18. 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 subsection,''; 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 subsection,''.
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 threshold;
or
* * * * *
19. Subpart 32.10, consisting of sections 32.1000 through 32.1010,
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 Contract clauses.
32.1006 Agency approvals.
32.1007 Administration and payment of performance-based payments.
32.1008 Suspension or reduction of performance-based payments.
32.1009 Title.
32.1010 Risk of loss.
32.1000 Scope of subpart.
This subpart provides policy and procedures for performance-based
payments under non-commercial purchases pursuant to subpart 32.1. This
subpart does not apply to--
(a) Payments under cost-reimbursement 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 or competitive negotiation
procedures.
32.1001 Policy.
(a) Performance-based payments are contract financing payments that
are not payment for accepted items.
(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), performance-based payments shall not be used
when other forms of contract financing are provided.
(c) For Government accounting purposes, performance-based payments
should be treated like progress payments based on costs under subpart
32.5.
(d) Performance-based payments are contract financing payments and,
therefore, are not subject to the interest-penalty provisions of prompt
payment (see subpart 32.9). However, these payments shall be made in
accordance with the agency's policy for prompt payment of contract
financing payments.
(e) Performance-based payments are the preferred financing method
when the contracting officer finds them practical, and the contractor
agrees to their use.
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 contracting officer and offeror are able to agree on the
performance-based payment terms;
(b) The contract is a definitized fixed-price type contract (but
see 32.1005(b)); 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 payments may be made either on a whole contract
or on a deliverable item basis, unless otherwise prescribed by agency
regulations. Financing payments to be made on a whole contract basis
are applicable to the entire contract, and not to specific deliverable
items. Financing payments to be made on a deliverable item basis are
applicable to a specific individual deliverable item. (A deliverable
item for these purposes is a separate item with a distinct unit price.
Thus, a contract line item for 10 airplanes, with a unit price of
$1,000,000 each, has ten deliverable items--the separate planes. A
contract line item for 1 lot of 10 airplanes, with a lot price of
$10,000,000, has only one deliverable item--the lot.)
(a) Establishing performance bases. (1) The basis for performance-
based payments may be either specifically described events (e.g.,
milestones) or some measurable criterion of performance. Each event or
performance criterion that will trigger a finance payment shall be an
integral and necessary part of contract performance and shall be
identified in the contract, along with a description of what
constitutes successful performance of the event or attainment of the
performance criterion. The signing of contracts or modifications, the
exercise of options, or other such actions shall not be events or
criteria for performance-based payments. An event need not be a
critical event in order to trigger a payment, but successful
performance of each such event or performance criterion shall be
readily verifiable.
(2) Events or criteria may be either severable or cumulative. The
successful completion of a severable event or criterion is independent
of the accomplishment of any other event or criterion. Conversely, the
successful accomplishment of a cumulative event or criterion is
dependent upon the previous accomplishment of another event. A contract
may provide for more than one series of severable and/or cumulative
performance events or criteria performed in parallel. The following
shall be included in the contract:
(i) The contract shall not permit payment for a cumulative event or
criterion until the dependent event or criterion has been successfully
completed.
(ii) Severable events or criteria shall be specifically identified
in the contract.
(iii) The contract shall identify which events or criteria are
preconditions for the successful achievement of each cumulative event
or criterion.
(iv) If payment of performance-based finance amounts is on a
deliverable item basis, each event or performance criterion shall be
part of the performance necessary for that
[[Page 49716]]
deliverable item and shall be identified to a specific contract line
item or subline item.
(b) Establishing performance-based finance payment amounts. (1) The
contracting officer shall establish a complete, fully defined schedule
of events or performance criteria and payment amounts when negotiating
contract terms. If a contract action significantly affects the price,
or event or performance criterion, the contracting officer responsible
for pricing the contract modification shall adjust the performance-
based payment schedule appropriately.
(2) Total performance-based payments shall not exceed 90 percent of
the contract price if on a whole contract basis, or 90 percent of the
delivery item price if on a delivery item basis. The amount of each
performance-based payment shall be specifically stated either as a
dollar amount or as a percentage of a specifically identified price
(e.g., contract price, or unit price of the deliverable item). The
payment of contract financing has a cost to the Government in terms of
interest paid by the Treasury to borrow funds to make the payment.
Because the contracting officer has wide discretion as to the timing
and amount of the performance-based payments, the contracting officer
must ensure that the total contract price is fair and reasonable, all
factors (including the financing costs to the Treasury of the
performance-based payments) considered. Performance-based payment
amounts may be established on any rational basis determined by the
contracting officer, or agency procedures, which may include (but are
not limited to)--
(i) Engineering estimates of stages of completion;
(ii) Engineering estimates of hours or other measures of effort to
be expended in performance of an event or achievement of a performance
criterion; or
(iii) The estimated projected cost of performance of particular
events.
(3) When subsequent contract modifications are issued, the
performance-based payment schedule shall be adjusted as necessary to
reflect the actions required by those contract modifications.
(c) Instructions for multiple appropriations. If there is more than
one appropriation account (or subaccount) funding payments on the
contract, the contracting officer shall provide instructions to the
Government payment office for distribution of financing payments to the
respective funds accounts. Distribution instructions must be consistent
with the contract's liquidation provisions.
(d) Liquidating performance-based finance payments. Performance-
based amounts shall be liquidated by deducting a percentage or a
designated dollar amount from the delivery payments. The contracting
officer shall specify the liquidation rate or designated dollar amount
in the contract. The method of liquidation shall ensure complete
liquidation no later than final payment.
(1) If the performance-based payments are established on a delivery
item basis, the liquidation amount for each 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 predesignated liquidation
amounts or liquidation percentages.
32.1005 Contract clauses.
(a) If performance-based contract financing will be provided, the
contracting officer shall insert the clause at 52.232-32, Performance-
Based Payments, in the solicitation and contract with the description
of the basis for payment and liquidation as required in 32.1004.
(b) In solicitations for undefinitized contracts, the contracting
officer may include the clause at 52.232-32, Performance-Based
Payments, with a provision that the clause is not effective until the
contract is definitized and the performance-based payment schedule is
included in the contract.
32.1006 Agency approvals.
The contracting officer shall obtain such approvals as are required
by agency regulations.
32.1007 Administration and payment of performance-based payments.
(a) Responsibility. The contracting officer responsible for
administration of the contract shall be responsible for review and
approval of performance-based payments.
(b) Approval of financing requests. Unless otherwise provided in
agency regulations, or by agreement with the appropriate payment
official--
(1) The contracting officer shall be responsible for receiving,
approving, and transmitting all performance-based payment requests to
the appropriate payment office; and
(2) Each approval shall specify the amount to be paid, necessary
contractual information, and the appropriation account(s) (see
32.1004(c)) to be charged for the payment.
(c) Reviews. The contracting officer is responsible for determining
what reviews are required for protection of the Government's interests.
The contracting officer should consider the contractor's 0experience,
performance record, reliability, financial strength, and the adequacy
of controls established by the contractor for the administration of
performance-based payments. Based upon the risk to the Government,
post-payment reviews and verifications should normally be arranged as
considered appropriate by the contracting officer. If considered
necessary by the contracting officer, pre-payment reviews may be
required.
(d) Incomplete performance. The contracting officer shall not
approve a performance-based payment until the specified event or
performance criterion has been successfully accomplished in accordance
with the contract. If an event is cumulative, the contracting officer
shall not approve the performance-based payment unless all identified
preceding events or criteria are accomplished.
(e) Government-caused delay. Entitlement to a performance-based
payment is solely on the basis of successful performance of the
specified events or performance criteria. However, if there is a
Government-caused delay, the contracting officer may renegotiate the
performance-based payment schedule, to facilitate contractor billings
for any successfully accomplished portions of the delayed event or
criterion.
32.1008 Suspension or reduction of performance-based payments.
The contracting officer shall apply the policy and procedures in
paragraphs (a), (b), (c), and (e) of 32.503-6, Suspension or reduction
of payments, whenever exercising the Government's rights to suspend or
reduce performance-based payments in accordance with paragraph (e) of
the clause at 52.232-32, Performance-Based Payments.
32.1009 Title.
(a) Since the clause at 52.232-32, Performance-Based Payments,
gives the Government title to the property described in paragraph (f)
of the clause, the contracting officer must ensure that the Government
title is not compromised by other encumbrances. Ordinarily, the
contracting officer, in the absence of reason to believe otherwise, may
rely upon the contractor's certification contained in the payment
request.
[[Page 49717]]
(b) If the contracting officer becomes aware of any arrangement or
condition that would impair the Government's title to the property
affected by the Performance-Based Payments clause, the contracting
officer shall require additional protective provisions.
(c) The existence of any such encumbrance is a violation of the
contractor's obligations under the contract, and the contracting
officer may, if necessary, suspend or reduce payments under the terms
of the Performance-Based Payments clause covering failure to comply
with a material requirement of the contract. In addition, if the
contractor fails to disclose an existing encumbrance in the
certification, the contracting officer should consult with legal
counsel concerning possible violation of 31 U.S.C. 3729, the False
Claims Act.
32.1010 Risk of loss.
(a) Under the clause at 52.232-32, Performance-Based Payments, and
except for normal spoilage, the contractor bears the risk 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 this regulation
related to performance-based payments, default, and terminations do not
constitute a Government assumption of risk.
(b) If a loss occurs in connection with property for which the
contractor bears the risk, and the property is needed for performance,
the contractor is obligated to repay the Government the performance-
based payments related to the property.
(c) The contractor is not obligated to pay for the loss of property
for which the Government has assumed the risk of loss. However, a
serious loss may impede the satisfactory progress of contract
performance, so that the contracting officer may need to act under
paragraph (e)(2) of the Performance-Based Payments clause. In addition,
while the contractor is not required to repay previous performance-
based payments in the event of a loss for which the Government has
assumed the risk, such a loss may prevent the contractor from making
the certification required by the Performance-Based Payments clause.
PART 42--CONTRACT ADMINISTRATION
20. Section 42.302 is amended by revising paragraph (a)(12) and
adding (a)(69) to read as follows:
42.302 Contract administration functions.
(a) * * *
(12) Review and approve or disapprove the contractor's requests for
payments under the progress payments or performance-based payments
clauses.
* * * * *
(69) Administer commercial financing provisions and monitor
contractor security to ensure its continued adequacy to cover
outstanding payments, when on-site review is required.
* * * * *
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
21. Sections 52.232-29 through 52.232-32 are added to read as
follows:
52.232-29 Terms for Financing of Purchases of Commercial Items.
As prescribed in 32.206(b)(2), insert the following clause:
Terms for Financing of Purchases of Commerical Items (Oct 1995)
(a) Contractor entitlement to financing payments. The Contractor
may request, and the Government shall pay, a contract financing
payment as specified elsewhere in this contract when: the payment
requested is properly due in accordance with this contract; the
supplies deliverable or services due under the contract will be
delivered or performed in accordance with the contract; and there
has been no impairment or diminution of the Government's security
under this contract.
(b) 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 contract
financing payments. The Government shall be liable for no payment
except as provided by the Termination for Cause paragraph of the
clause at 52.212-4, Contract Terms and Conditions--Commercial Items.
(c) 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 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 collect or liquidate such security that has
been provided and suspend further payments to the Contractor; and
the Contractor shall repay to the Government the amount of
unliquidated financing payments as the Contracting Officer at his
sole discretion deems repayable.
(d) Reservation of rights. (1) No payment or other action by the
Government 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) Content of Contractor's request for financing payment. 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; and
(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.
(f) Limitation on frequency of financing payments. Contractor
financing payments shall be provided no more frequently than
monthly. -
(g) In the event of any conflict between the terms proposed by
the offeror in response to an invitation to propose financing terms
(52.232-31) and the terms in this clause, the terms of this clause
shall govern.
(End of clause)
52.232-30 Installment Payments for Commercial Items.
As prescribed in 32.206(g), insert the following clause:
Installment Payments for Commerical Items (Oct 1995)
(a) Contractor entitlement to financing payments. The Contractor
may request, and the Government shall pay, a contract financing
installment payment as specified in this contract when: the payment
requested is properly due in accordance with this contract; the
supplies deliverable or services due under the contract will be
delivered or performed in accordance with the contract; and there
has been no impairment or diminution of the Government's security
under this contract.
(b) 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
[[Page 49718]]
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 9 months after
award of the contract, all separately priced units of that contract
line item are authorized 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 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 8 months before the scheduled delivery date for that
unit. The last installment payment would be 1 month before scheduled
delivery of a unit.
(4) Limitation on payment. Prior to the delivery payment for 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.
(c) 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 installment payments in any month for which payment is
being requested shall be included in a single request, appropriately
itemized and totaled.
(d) Dates 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 in paragraph (e) of this
clause, approved requests shall be paid within 30 days of submittal
of a proper request for payment.
(e) Liquidation of installment payments. Installment payments
shall be liquidated by deducting from the delivery payment of each
item the total unliquidated amount of installment payments made for
that separately priced unit of that contract line item. The
liquidation amounts for each unit of each line item shall be clearly
delineated in each request for delivery payment submitted by the
Contractor.
(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 adequate security, financing payments shall be made,
including all previous payments to which the Contractor is entitled,
in accordance with the terms of the contract. 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 collect or
liquidate such security that has been provided, and suspend further
payments to the Contractor; the Contractor shall repay to the
Government the amount of unliquidated financing payments as the
Contracting Officer at his sole discretion deems repayable.
(g) 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 installment
payments. The Government shall be liable for no payment except as
provided by the Termination for Cause paragraph of the clause at
52.212-4, Contract Terms and Conditions--Commercial Items.
(h) Reservation of rights. (1) No payment, vesting of title
under this clause, or other action taken by the Government 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.
(i) 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; and
(4) An itemized and totaled statement of the items, installment
payment amount, and month for which payment is being requested, for
each separately priced unit of each contract line item.
(End of clause)
52.232-31 Invitation to Propose Financing Terms.
As prescribed in 32.205(b) and 32.206, insert the following
provision:
Invitation to Propose Financing Terms (Oct 1995)
(a) The offeror is invited to propose terms under which the
Government shall make contract financing payments during contract
performance. The financing terms proposed by the offeror shall be a
factor in the evaluation of the offeror's proposal. The financing
terms of the successful offeror and the clause, Terms for Financing
of Purchases of Commercial Items, at 52.232-29, 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 at
52.232-29, Terms for Financing of Purchases of Commercial Items, the
terms of the clause at 52.232-29 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 terms of this contract;
(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 interests 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 32.202-2 for appropriate definitions of types of
payments); and
(2) A listing of the earliest date 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 date or in a
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
using the interest rate and delivery schedule specified elsewhere in
this solicitation.
(End of provision)
52.232-32 Performance-Based Payments.
As prescribed in 32.1005, insert the following clause:
Performance-Based Payments (Oct 1995)
(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 performance-based 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 performance-based payments 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
[[Page 49719]]
payment prior to successful accomplishment of the event or performance
criterion for which payment is requested. The Contracting Officer
shall determine whether the event or performance criterion 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
successful performance of any event or performance criterion which
has been or is represented as being payable.
(2) A payment under this performance-based 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. 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
criterion, or into any of the conditions listed in paragraph (e) 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 of an item
shall be liquidated by deducting a percentage or a 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.
(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
following 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 (the
events or performance criteria) 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 (the events or performance criteria) 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. The
Contractor shall have no entitlement to performance-based payments
during any time the Contractor's records or controls are determined
by the Contracting Officer to be inadequate 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 Contracting Officer for the
administration of this clause and to determine that an event or
other criterion 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-based 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 performance-based 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) of this clause.
(m) Content of Contractor's certification. As required in
paragraph (l)(5) of this clause,
[[Page 49720]]
the Contractor shall make the following certification in each request
for performance-based payment:
I certify to the best of my knowledge and belief that--
(1) This request for performance-based payment is true and
correct; 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) (Except as reported in writing on ______________), 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) There are no encumbrances (except as reported in writing on
______________) 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) 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
______________; and
(5) 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. 95-23866 Filed 9-25-95; 8:45 am]
BILLING CODE 6820-EP-P
