Government Financing

What general criteria must the CO apply in determining whether to provide for government financing in the initial solicitation?

The CO must make a determination whether to provide for government financing in the initial solicitation. In making this determination, the CO must apply FAR Part 32 criteria and consider financing provisions and clauses when otherwise responsible firms would be unable to compete. For example, include financing provisions and clauses when:

Contractors would not be able to bill for the first delivery of products, or other performance milestones, for a substantial amount of time normally six months or more (four months for small business concerns)

Otherwise responsible firms in the market are likely to have an actual financial need or may not be able to obtain private financing for the work.

What are the criteria for providing government financing for noncommercial contracts?

Unless otherwise authorized by agency regulation, contract financing may be provided in contracts for noncommercial items. The contracting officer must:

Provide government financing only to the extent actually needed for prompt and efficient performance

Administer contract financing so as to aid, not impede, the acquisition

Avoid any undue risk of monetary loss to the government through the financing

Include the form of contract financing deemed to be in the government's best interest in the solicitation

Monitor the contractor's use of the contract financing provided and the contractor's financial status.

What are the criteria for providing government financing for commercial contracts?

Commercial interim payments and commercial advance payments may be made under the following circumstances:

The contract item financed is a commercial supply or service.

The contract price exceeds the simplified acquisition threshold.

The CO determines that government financing is appropriate or customary in the commercial marketplace.

Authorizing this form of contract financing is in the best interest of the government.

Adequate security is obtained.

Prior to any performance of work under the contract, the aggregate of commercial advance payments will not exceed 15 percent of the contract price.

The contract is awarded on the basis of competitive procedures or, if only one offer is solicited, the financing is expected to be substantially more advantageous to the offeror than the offeror's normal method of customer financing.

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

What methods of government financing are available?

The available methods of government financing include:

Advance payments, which are advances of money by the government to a prime contractor before, in anticipation of, and for the purpose of complete performance under a contract. Advance payments are expected to be liquidated from payments due to the contractor incidental to performance of the contract. They differ from progress and partial payments in that they are not based on contractor performance (that is, they are more like an upfront loan to the contractor).

Progress payments, based on costs incurred as work under the contract progresses, or based on a percentage or stage of completion of the contract work.

Loan guarantees by Federal Reserve banks for contracts related to national defense.

Partial payments for accepted supplies and services, based on performance.

Performance-based payments, measured by objective, quantifiable methods; defined events; or other measures of result.

What methods of payment may the CO select?

The CO must select an available method of payment and related clauses that will minimize the government's overhead for making contract payments, while preserving opportunities for small business concerns to compete for federal contracts. Payment alternatives include:

Electronic Funds Transfer (EFT), Central Contractor Registration (CCR)

EFT other than CCR

Governmentwide commercial purchase card

Payment by a third party.

How does the CO determine whether to require bonds for a contract?

The CO will also be required to determine whether to require bonds in accordance with FAR Part 28. The Miller Act (40 U.S.C. 270a-270f) specifically mandates performance and payment bonds for all construction contracts exceeding $150,000 unless waived (see FAR 28.102-1). For other contracts, the CO must identify and review data from acquisition histories and the market in terms of performance risks, and he or she must especially consider any government financing being provided when considering bond requirements.

What types of bonds are available for the CO's consideration?

The CO may consider the following bond types (see FAR Part 28 for descriptions of bonds and other financial protections):

Performance bond

Annual performance bond

Payment bond

Annual bid bond

Advance payment bond

Patent infringement bond

Some combination of these bonds.

What is the COR's role in financing and bond needs assessment?

The CO will identify and obtain independent information on the contractor's financial status from auditors, the Small Business Administration (SBA), and other sources such as sureties, commercial underwriting institutions, and banks. The CO must make a critical determination regarding the financial risk associated with each requirement. A major element of this risk determination is the contractor's responsibility.

The COR must evaluate the contractor's responsibility; that is, he or she must verify that the contractor has adequate production capability and a satisfactory past performance record. The COR makes a technical assessment of these factors and advises the CO of his or her findings. Based on this assistance, the CO will then agree to provide financing for, and require bonds only from, firms that are otherwise responsible and have a valid need for financial assistance.

When communicating with the CO about financing and bond determinations, the COR should use the opportunity to acquire knowledge of the different types of financing and bond determinations and the associated risks of each type for future contract monitoring duties.

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