DFARS Part 32

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Defense Federal Acquisition Regulation Supplement
Part 232--Contract Financing

TABLE OF CONTENTS

232.006 Reduction or suspension of contract payments upon finding of fraud.
232.006-5 Reporting.
232.070 Responsibilities
232.071 Contract Finance Committee.
232.072 Financial responsibility of contractors.
232.072-1 Required financial reviews.
232.072-2 Appropriate information.
232.072-3 Cash flow forecasts.

SUBPART 232.1--NON-COMMERCIAL ITEM PURCHASE FINANCING
232.102 Description of contract financing methods.
232.102-70 Provisional delivery payments.
232.108 Financial consultation.

SUBPART 232.2--COMMERCIAL ITEM PURCHASE FINANCING
232.202-4 Security for Government financing.
232.206 Solicitation provisions and contract clauses.
232.207 Administration and payment of commercial financing payments.

SUBPART 232.3--LOAN GUARANTEES FOR DEFENSE PRODUCTION
232.302 Authority.

SUBPART 232.4--ADVANCE PAYMENTS
232.404 Exclusions.
232.409 Contracting officer action.
232.409-1 Recommendation for approval.
232.410 Findings, determination, and authorization.
232.412 Contract clause.
232.412-70 Additional clauses.
232.470 Advance payment pool.

SUBPART 232.5--PROGRESS PAYMENTS BASED ON COSTS
232.501 General.
232.501-1 Customary progress payment rates.
232.501-2 Unusual progress payments.
232.501-3 Contract price.
232.502 Preaward matters.
232.502-1 Use of customary progress payments.
232.502-1-70 Customary foreign military sale progress payments.
232.502-1-71 Customary flexible progress payments.
232.502-4 Contract clauses.
232.502-4-70 Additional clauses.
232.503 Postaward matters.
232.503-6 Suspension or reduction of payments.
232.503-15 Application of Government title terms.

TABLE OF CONTENTS (Continued)

SUBPART 232.6--CONTRACT DEBTS
232.605 Responsibilities and cooperation among Government officials.
232.606 Debt determination and collection.
232.610 Demand for payment of contract debt.
232.616 Compromise actions.
232.617 Contract clause.
232.670 Transfer of responsibility for debt collection.
232.671 Bankruptcy reporting.

SUBPART 232.7--CONTRACT FUNDING
232.702 Policy.
232.703 Contract funding requirements.
232.703-1 General.
232.703-70 Military construction appropriations act restriction.
232.704 Limitation of cost or funds.
232.704-70 Incrementally funded fixed-price contracts.
232.705 Contract clause.
232.705-70 Clause for limitation of Government's obligation.

SUBPART 232.8--ASSIGNMENT OF CLAIMS
232.803 Policies.
232.805 Procedure.
232.806 Contract clause.

SUBPART 232.9--PROMPT PAYMENT
232.903 Policy.
232.905 Invoice payments.
232.906 Contract financing payments.

SUBPART 232.10--PERFORMANCED-BASED PAYMENTS

232.1001 Policy.
232.1004 Procedure.
232.1007 Administration and payment of performance-based payments.
[per D.L. 98-009, Effective 1 June 1998]
SUBPART 232.11--ELECTRONIC FUNDS TRANSFER
232.1101 Policy.
232.1103 Contract clause.]

PART 232 CONTRACT FINANCING

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

232.006-5 Reporting.
Departments and agencies in accordance with department/agency procedures, shall prepare and submit to the Under Secretary of Defense (Acquisition and Technology), through the Director of Defense Procurement, annual reports (Report Control Symbol DD-ACQ(A) 1891) containing the information required by FAR 32.006-5.

232.070 Responsibilities.
(a) The Director of Defense Procurement, Office of the Under Secretary of Defense (Acquisition and Technology) (OUSD(A&T)DP) is responsible for ensuring uniform administration of DoD contract
financing, including DoD contract financing policies and important related procedures. Agency discretion under FAR Part 32 is at the DoD level and is not delegated to the departments and agencies. Proposals
by the departments and agencies, to exercise agency discretion, shall be submitted to OUSD(A&T)DP through the DoD Contract Finance Committee (see 232.071).
(b) Departments and agencies are responsible for their day-to-day contract financing operations. Refer specific cases involving financing policy or important procedural issues to OUSD(A&T)DP for consideration
through the department/agency Contract Finance Committee members (also see Subpart 204.1 for deviation request and approval procedures).
(c) The Under or Assistant Secretary, or other designated official, responsible for the comptroller function within the department or agency is the focal point for financing matters at the department/agency headquarters. Departments and agencies may establish contract financing offices at operational levels.
(1) Department/agency contract financing offices are--
(i) Army: Office of the Assistant Secretary of the Army (Financial Management);
(ii) Navy: Office of the Assistant Secretary of the Navy (Financial Management and Comptroller), Office of Financial Operations;
(iii) Air Force: Air Force Contract Financing Office (SAF/FMPB);
(iv) Defense agencies: Office of the agency comptroller.
(2) Contract financing offices should participate in--
(i) Developing regulations for contract financing;
(ii) Developing contract provisions for contract financing; and
(iii) Resolving specific cases that involve unusual contract financing requirements.

232.071 Contract Finance Committee.
(a) The Contract Finance Committee consists of--
(1) A representative of OUSD(A&T)DP, serving as the Chair;
(2) A representative of the Comptroller of the Department of Defense;
(3) A representative of the Defense Finance and Accounting Service;
(4) A representative of the Civilian Agency Acquisition Council (for matters pertaining to the FAR);
(5) A representative of the National Aeronautics and Space Administration (for matters pertaining to the FAR);
(6) An advisory consultant from the Defense Contract Audit Agency; and
(7) Two representatives of each military department and the Defense Logistics Agency (one representing contracting and one representing the contract finance office).
(b) The Committee--
(1) Advises and assists OUSD(A&T)DP in ensuring proper and uniform application of policies, procedures, and forms;
(2) Is responsible for formulating, revising, and promulgating uniform contract financing regulations;
(3) May recommend to the Secretary of Defense through OUSD(A&T)DP further policy directives on financing; and
(4) Meets at the request of the Chair or a member.

232.072 Financial responsibility of contractors.
Use the policies and procedures in this section in determining the financial capability of current or prospective contractors.

232.072-1 Required financial reviews.
The contracting officer shall perform a financial review when the contracting officer does not otherwise have sufficient information to make a positive determination of financial responsibility. In addition, the contracting officer shall consider performing a financial review--
(a) Prior to award of a contract, when--
(1) The contractor is on a list requiring preaward clearance or other special clearance before award;
(2) The contractor is listed on the Consolidated List of Contractors Indebted to the Government (Hold-Up List), or is otherwise known to be indebted to the Government;
(3) The contractor may receive Government assets such as contract financing payments or Government property;
(4) The contractor is experiencing performance difficulties on other work; or
(5) The contractor is a new company or a new supplier of the item.
(b) At periodic intervals after award of a contract, when--
(1) Any of the conditions in paragraphs (a)(2) through (a)(5) of this subsection are applicable; or
(2) There is any other reason to question the contractor's ability to finance performance and completion of the contract.

232.072-2 Appropriate information.
(a) The contracting officer shall obtain the type and depth of financial and other information that is required to establish a contractor's financial capability or disclose a contractor's financial condition. While the contracting officer should not request information that is not necessary for protection for the Government's interests, the contracting officer must insist upon obtaining the information that is necessary. The unwillingness or inability of a contractor to present reasonably requested information in a timely manner, especially information that a prudent business person would be expected to have and to use in the professional management of a business, may be a material fact in the determination of the contractor's responsibility
and prospects for contract completion.
(b) The contracting officer shall obtain the following information to the extent required to protect the Government's interest. In addition, if the contracting officer concludes that information not listed in paragraphs (b)(1) through (b)(10) of this subsection is required to comply with 232.072-1, that information should be requested. The information must be for the person(s) who are legally liable for contract performance. If the contractor is not a corporation, the contracting officer shall obtain the required information for each individual/joint venturer/partner:
(1) Balance sheet and income statement--
(i) For the current fiscal year (interim);
(ii) For the most recent fiscal year and, preferably, for the 2 preceding fiscal years. These should be certified by an independent public accountant or by an appropriate officer of the firm; and
(iii) Forecasted for each fiscal year for the remainder of the period of contract performance.
(2) Summary history of the contractor and its principal managers, disclosing any previous insolvencies--corporate or personal, and describing its products or services.
(3) Statement of all affiliations disclosing--
(i) Material financial interests of the contractor;
(ii) Material financial interests in the contractor;
(iii) Material affiliations of owners, officers, directors, major stockholders; and
(iv) The major stockholders if the contractor is not a widely-traded, publicly-held corporation.
(4) Statement of all forms of compensation to each officer, manager, partner, joint venturer, or proprietor, as appropriate--
(i) Planned for the current year;
(ii) Paid during the past 2 years; and
(iii) Deferred to future periods.
(5) Business base and forecast that--
(i) Shows, by significant markets, existing contracts and outstanding offers, including those under negotiation; and
(ii) Is reconcilable to indirect cost rate projections.
(6) Cash forecast for the duration of the contract (see 232.072-3).
(7) Financing arrangement information that discloses--
(i) Availability of cash to finance contract performance;
(ii) Contractor's exposure to financial crisis from creditor's demands;
(iii) Degree to which credit security provisions could conflict with Government title terms under contract financing;
(iv) Clearly stated confirmations of credit with no unacceptable qualifications;
(v) Unambiguous written agreement by a creditor if credit

(8) Statement of all state, local, and Federal tax accounts, including special mandatory contributions, e.g., environmental superfund.
(9) Description and explanation of the financial effect of issues such as--
(i) Leases, deferred purchase arrangements, or patent or royalty arrangements;
(ii) Insurance, when relevant to the contract;
(iii) Contemplated capital expenditures, changes in equity, or contractor debt load;
(iv) Pending claims either by or against the contractor;
(v) Contingent liabilities such as guarantees, litigation, environmental, or product liabilities;
(vi) Validity of accounts receivable and actual value of inventory, as assets; and
(vii) Status and aging of accounts payable.
(10) Significant ratios such as--
(i) Inventory to annual sales;
(ii) Inventory to current assets;
(iii) Liquid assets to current assets;
(iv) Liquid assets to current liabilities;
(v) Current assets to current liabilities; and
(vi) Net worth to net debt.

232.072-3 Cash flow forecasts.
(a) A contractor must be able to sustain a sufficient cash flow to perform the contract. When there is doubt regarding the sufficiency of a contractor's cash flow, the contracting officer should require the contractor to submit a cash flow forecast covering the duration of the contract.
(b) A contractor's inability of refusal to prepare and provide cash flow forecasts or to reconcile actual cash flow with previous forecasts is a strong indicator of serious managerial deficiencies or potential
contract cost or performance problems.
(c) Single or one-time cash flow forecasts are of limited forecasting power. As such, they should be limited to preaward survey situations. Reliability of cash flow forecasts can be established only by comparing a series of previous actual cash flows with the corresponding forecasts and examining the causes of any differences.
(d) Cash flow forecasts must--
(1) Show the origin and use of all material amounts of cash within the entire business unit responsible for contract performance, period by period, for the length of the contract (or until the risk of a cash crisis ends); and
(2) Provide an audit trail to the data and assumptions used to prepare it.
(e) Cash flow forecasts can be no more reliable than the assumptions on which they are based. Most important of these assumptions are--
(1) Estimated amounts and timing of purchases and payments for materials, parts, components, subassemblies, and services;
(2) Estimated amounts and timing of payments of purchase or production of capital assets, test facilities, and tooling;
(3) Amounts and timing of fixed cash charges such as debt installments, interest, rentals, taxes, and indirect costs;
(4) Estimated amounts and timing of payments for projected labor, both direct and indirect;
(5) Reasonableness of projected manufacturing and production schedules;
(6) Estimated amounts and timing of billings to customers (including progress payments), and customer payments;
(7) Estimated amounts and timing of cash receipts from lenders or other credit sources, and liquidation of loans; and
(8) Estimated amount and timing of cash receipt from other sources.
(f) The contracting officer should review the assumptions underlying the cash flow forecasts. In determining whether the assumptions are reasonable and realistic, the contracting officer should consult with--
(1) The contractor;
(2) Government personnel in the areas of finance, engineering production, cost, and price analysis; or
(3) Prospective supply, subcontract, and loan or credit sources.

SUBPART 232.1--NON-COMMERCIAL ITEM PURCHASE FINANCING

232.102 Description of contract financing methods.
(e)(2) Progress payments based on percentage or stage of completion are authorized only for contracts for construction (as defined in FAR 36.102), shipbuilding, and ship conversion, alteration, or repair. However, percentage or state of completion methods of measuring contractor performance may be used for performance-based payments in accordance with FAR Subpart 32.10.

232.102-70 Provisional delivery payments.

232.108 Financial consultation.

SUBPART 232.2--COMMERCIAL ITEM PURCHASE FINANCING

232.202-4 Security for Government financing.
(a)(2) When determining whether an offeror's financial condition is adequate security, see 232.072-2 and 232.072-3 for guidance. It should be noted that an offeror's financial condition may be sufficient to make the contractor responsible for award purposes, but may not be
adequate security for commercial contract financing.

232.206 Solicitation provisions and contract clauses.
(d) Instructions for multiple appropriations. If the contract contains foreign military sales requirements, the contracting officer shall provide instructions for distribution of the contract financing payments to each country's account.
(f) Prompt payment for commercial purchase payments. The contracting officer shall incorporate the following standard prompt payment terms for commercial item contract financing:
(i) Commercial advance payments: The contractor entitlement date specified in the contract, or 30 days after receipt by the designated billing office of a proper request for payment, whichever is later.
(ii) Commercial interim payments: The contractor entitlement date specified in the contract, or 14 days after receipt by the designated billing office of a proper request for payment, whichever is later. The prompt payment standards for commercial delivery payments shall be the same as specified in FAR Subpart 32.9 for invoice payments for the item delivered.
(g) Installment payment financing for commercial items. Installment payment financing shall not be used for DoD contracts, unless market research has established that this form of contract financing is both appropriate and customary in the commercial marketplace. When installment payment financing is used, the contracting officer shall use the ceiling percentage of contract price that is customary in the particular marketplace (not to exceed the maximum rate established in FAR 52.232-30).

232.207 Administration and payment of commercial financing payments.

SUBPART 232.3--LOAN GUARANTEES FOR DEFENSE PRODUCTION

232.302 Authority.

SUBPART 232.4--ADVANCE PAYMENTS

232.404 Exclusions.

232.409 Contracting officer action.

232.409-1 Recommendation for approval.
To ensure uniform application of this subpart (see FAR 32.402(e)(1)), the departmental/agency contract financing office shall prepare the documents required by FAR 32.409-1(e) and (f).

232.410 Findings, determination, and authorization.

"(4) The proposed advance payment clause contains appropriate provisions as security for advance payments. These provisions include a requirement that the outstanding advance payments will beliquidated from cost reimbursements as they become due the contractor. This security is considered adequate to protect the interest of the Government."

232.412 Contract clause.

232.412-70 Additional clauses.

232.470 Advance payment pool.

SUBPART 232.5--PROGRESS PAYMENTS BASED ON COST

232.501 General.
In DoD, customary progress payments may be either uniform or flexible (FAR 32.501-1(a)). See also 232.501-1 and 232.502-1-71.

232.501-1 Customary progress payment rates.

232.501-2 Unusual progress payments.

232.501-3 Contract price.

232.502 Preaward matters.

232.502-1 Use of customary progress payments.

232.502-1-70 Customary foreign military sale progress payments.

232.502-1-71 Customary flexible progress payments.


TABLE 32-1, CUSTOMARY UNIFORM PROGRESS PAYMENT RATES

Uniform Rate Investment Cash Flow

* Flexible progress payments shall not be used for contracts awarded as a result of solicitations issued on or after November 11, 1993.
**See paragraph (b)(5)(ii) for implementation instructions.

232.502-4 Contract clauses.

232.502-4-70 Additional clauses.

232.503 Postaward matters.

232.503-6 Suspension or reduction of payments.

232.503-15 Application of Government title terms.

SUBPART 232.6--CONTRACT DEBTS

232.605 Responsibilities and cooperation among Government officials.

232.606 Debt determination and collection.

232.610 Demand for payment of contract debt.

232.616 Compromise actions.
Only the department/agency contract financing offices (232.108(1)) are authorized to compromise debts covered by this subpart.

232.617 Contract clause.

232.670 Transfer of responsibility for debt collection.
Disbursing officers will transfer responsibility for debt collection to departmental/agency contract financing offices in accordance with comptroller regulations. Notwithstanding the transfer of the debt collection responsibility, contracting officers shall continue to provide assistance as requested by the debt collection office.

232.671 Bankruptcy reporting.

SUBPART 232.7--CONTRACT FUNDING

232.702 Policy.
Fixed-price contracts shall be fully funded except as permitted by 232.703-1.

232.703 Contract funding requirements.

232.703-1 General.

232.703-70 Military construction appropriations act restriction.
Annual military construction appropriations acts restrict the use of funds appropriated by the acts forpayments under cost-plus-fixed-fee contracts (see 216.306(c)).

232.704 Limitation of cost or funds.

232.704-70 Incrementally funded fixed-price contracts.

232.705 Contract clauses.

232.705-70 Clause for limitation of Government's obligation.
Use the clause at 252.232-7007, Limitation of Government's Obligation, in solicitations and resultant incrementally funded fixed-price contracts. The contracting officer may revise the contractor's notification period, in paragraph (c) of the clause, from "ninety" to "thirty" or "sixty" days, as appropriat

SUBPART 232.8--ASSIGNMENT OF CLAIMS

232.803 Policies.

232.805 Procedure.

232.806 Contract clause.

SUBPART 232.9--PROMPT PAYMENT

232.903 Policy.
DoD policy is to assist small disadvantaged business concerns by paying them as quickly as possible after invoices are received and before normal payment due dates established in the contract (see 232.905(2)).

232.905 Invoice payments.

232.906 Contract financing payments.

SUBPART 232.10--PERFORMANCED-BASED PAYMENTS

232.1001 Policy.
(d) The contracting officer shall use the following standard prompt payment terms for performance-based payments: The contractor entitlement date, if any, specified in the contract, or 14 days after receipt by the designated billing office of a proper request for payment, whichever is later.

232.1004 Procedure.
(c) Instructions for multiple appropriations. If the contract contains foreign military sales requirements, the contracting officer shall provide instructions for distribution of the contract financing payments to each country's account.

232.1007 Administration and payment of performance-based payments.
(b)(2) If the contract contains foreign military sales requirements, each approval shall specify the amount of contract financing to be charged to each country's account.

[Added per D.L. 98-009, Effective 1 June 1998]

SUBPART 232.11--ELECTRONIC FUNDS TRANSFER
232.1101 Policy.
[(a) If the payment office is not capable of making payment by electronic funds transfer (EFT), the payment office is relieved of the requirement to pay by EFT if DoD complies with 31 CFR 208.3, which requires written notice and submittal of an implementation plan to the Department of the Treasury, Financial Management Service.

232.1103 Contract clause.

If the solicitation or contract includes the clause at 252.204- 7004, Required Central Contractor Registration, and payment under the contract will be made by electronic funds transfer, use the clause at 252.232-7009, Payment by Electronic Funds Transfer (CCR), instead of the clause at FAR 52.232-33, Mandatory Information for Electronic Funds Transfer Payment, or the clause at FAR 52.232-34, Optional Information for Electronic Funds Transfer Payment.]

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