Transcript FAR Part 32: Contract Financing

FAR Part 32: Contract Financing
November 27, 2012
SCOPE
• Contract financing covers types of payments to
contractors before USG accepts product or
service
• Advance, interim, partial or progress
• It is not
• payment for invoices, partial deliveries or for
lease or rental
• for purchases under Part 13 (simplified
acquisitions) unless agency permits
32.003 – 32.104
Reasons for Financing
•
•
•
•
Only to extent needed for prompt performance
Aids acquisition and reduces risk of loss
In Government’s best interest
Use of provided financing monitored;
Performance based or advance payments
• Made when working capital affected
• Private financing unavailable
• Payments are self-liquidating
32.104-105
Order of Preference
•
•
•
•
•
Private financing
Customary contract financing
Loan guarantees
Unusual contract financing
Advance payments
• Need for financing not a handicap for company
• Not disqualified if need not identified prior to award
32.106-107
Non-commercial Financing Boundaries
• Small business
• 4 month time frame before invoicing
• Contract price > SAT ($150,000)
• For IDIQ/BOA aggregate value > SAT
• Other businesses
• 6 month time frame before invoicing
• Price > $2.5M for individual contract or IDIQ/BOA
aggregate
• Limited to contract values > SAT
32.104
Subcontractors
• May be financed by Prime under CR contracts
only if 32.110 conditions met
• If Subcontractor asserts non-payment, CO
investigates. If Prime non-compliant:
• Encourages timely payment to sub
• Reduces or suspends payments to Prime
• If Prime’s certification of payment inaccurate,
administrative or remedial actions possible
32.110, 32.112
Commercial Item Financing
• Subject to Part 12
• Financing generally Contractor’s responsibility
• Advance payments
•
•
•
•
If commercial marketplace financing customary
Aggregate payments ≤15% of contract price
Contract must be >SAT
Different terms from non-commercial financing
• CO conducts market research, obtains security
equal to unliquidated amount financed
32.200-32.202-4
Commercial Financing Terms
• Solicitation Terms
• Contractor not unresponsive if terms not used
• Financing not basis for adjustment of price
• Contractor may propose financing terms
• Contract financing terms include
• Payment amount(s) – installment payments limited
to 70% or lower
• Contractor entitlement, Payment liquidation
• Security – CO responsible for monitoring
32.206, 32.207
Loan Guarantees – Defense Production
• Guaranteed or V loan:
• Max. guarantee authorized annually by Congress;
less than 100% unless exceptional or vital
• Authorized agencies:
• Defense, Energy, Commerce, Interior, Agriculture,
GSA, NASA
• No inter-agency loan guarantees
• Difference from conventional loan: agency may
be obligated to purchase percentage of loan
and share losses
32.300-302
1
Loan Guarantees - Procedures
9
Contractor applies for
loan from financial
institution
2
Bank receives guarantee
and makes loan
Bank requests federal
guarantee
3
Contractor submits
application to
district FR Bank
FR Bank executes and
delivers guarantee
agreement to financing
institution; prescribes
regulations, rates, fees,
procedures
4a
FR Bank submits
application, contracts
to FR Board
5
FR Board sends
package to agency for
eligibility
determination
4b
6
In parallel, FR Bank
investigates contractor
credit, reports to agency
Federal agency determines
contractor eligibility, issues
certificate; reviews FR Board Ts & Cs;
provides authorization to FR Bank via
FR Board
32.304-1 – 32.304-2
8
7
FR Board transfers
authorization to FR Bank
Certificate of Eligibility
• Issued by CO based on determining
• Guarantee in USG interest
• Contractor has facilities and management to
perform
• No practical alternate source without prejudice to
national defense (n/a for SBC)
• Contractor’s past performance and meeting
schedules
• If certificate not justified, CO documents and
provides to agency contract financing office
32.304-2
Loan Guarantees – Procedures (cont.)
• Working capital loans
• Asset formula limits amount of guarantee amount
to a % of contractor’s defense production contracts
• Includes items for which entitled to payment on
performance or termination minus progress
payments
• Guarantee amount and maturity – adjusted if
new contracts signed which need financing;
generally needs new eligibility certificate
32.304-3, 304-4
Loan Guarantees – Other
• Contractor usually required to execute assignment of
claims; subcontracts generally not eligible for
financing
• Other forms of collateral may be requested
• Contract surety bonds incompatible – interest must be
subordinated to guaranteed loan
• Other borrowing (unguaranteed) generally prohibited
• Termination: guarantee provides necessary financing
pending termination settlements
• Loans need to be self-liquidating from proceeds
• Subcontracts – possible to make progress payments
by contractor, reducing need for guarantee
32.304-5 – 32.306
Advance Payments – Non-Commercial
• Least preferred method, but acceptable for
negotiated/sealed bid contracts if statutorily
authorized
• Statutory requirements: adequate security, ≤
unpaid contract price, in USG best interest or for
national defense
• Standards: don’t exceed interim cash needs;
necessary; contractor qualified; USG benefits
• Applicability: non-profit R&D; M&O only;
acquisition of property for USG; highly classified;
technical competence, financially weak
32.400-32.404
Advance Pmts – Non-Commercial (cont.)
• Agency options with sealed bid contracts
• If requested, agency may comply
• If not needed, award w/o advance payment
• Deny award if request disapproved
• Letters of Credit mechanism required unless waiver
obtained from Treasury
• Applicable when duration > 1year, $120,000 per year,
otherwise Treasury check issued
• Multiple LOCs may be combined into one
• Timing of drawdown and disbursement minimized
• Interest charged on daily unliquidated balance
32.405 – 32.407
Advance Payments – Non-Commercial (cont.)
• Contractor Application
• Reference contract; forecast cash flow, disbursements;
total amount requested; financial institution; efforts to
obtain other financing; financial condition and need,
ability to perform, financial safeguards
• If educational institution or M&O contractor, info limited
to reliability, technical ability, accounting system &
controls
• CO recommends approval or disapproval as a
written finding and may require special account at
financial institution
32.408 - 32.408-11
Progress Payments Based on Cost
• N/A to CR contracts, or construction based on
percentage or stage of completion
• Customary:
• Rate: 80% of total costs (and for undefinitized contract
actions), 85% for SBC; frequency of pmt; ordinary
(liquidation = progress pmt) or alternate liquidation
method (allows contractor to retain earned profit
element of prices for items completed)
• Unusual:
• Used when predelivery expenditures are large relative
to contract price/contractor’s capital; need
documented; HCA approves; rate lowest possible
32.500 – 32.502; 32.503-8; 32.503-9
Progress Payments – Cost (cont.)
• Determining Payment Limitation
• FFP: current fixed amount + NTE amount of unpriced
mods
• Redeterminable or Econ. Pr. Adj.: initial price until
modified
• FPI: target price + NTE amount of unpriced mods
• Letter: max. obligated, as modified
• Unpriced order under BOA: maximum obligated, as
modified
• Reimbursement of costs only – excluded from price
• Payments may not exceed funds obligated
• CO may add additional protective terms
32.501-3 – 32.501-5
Progress Payments – Cost, Preaward (cont.)
• CO must reject bids conditioned on progress
pmts if not in solicitation
• CFO approval for unusual rate, contractor with
history of financial issues; on Hold-up list
• Solicitations – CO may authorize progress
payments to everyone, SBC only, or none
• Contracts – Nature of contract may require
separate payment rates for portions of work
clearly severable; separate payment requests
required from contractor
32.502 – 32.502-4
Progress Payments – Cost, Postaward (cont.)
• Supervision according to contractor’s record,
sufficient for action to protect USG
• Monitor losses outside progress payment contract
• Indirect cost issues need early resolution
• Accounting System
• If ACO finds reliable, adequate system, sound
finances: payments approved
• All others: determine liquidation capability, protect
USG against loss; are system and controls adequate;
use of responsible audit agency, if necessary
• Payment Request Approval
• ACO approves w/o audit unless loss anticipated or
doubtful amount of request
32.503 – 32.503-4
Progress Payments – Cost (cont.)
• ACO conducts periodic post-payment reviews
• Under indefinite-delivery contracts, payments handled
for each order as if separate contract
• Suspending or reducing payments - CO notifies
contractor, evaluates impact and documents
actions
• Contractor noncompliance or unsatisfactory financial
condition
• Excessive inventory
• Delinquency in payment of costs of performance
• Fair value of undelivered work (≥ unliquidated pmts)
• Loss contracts (Costs incurred + ETC > total price)
32.503-5 – 32.503-7
Progress Payments – Cost (cont.)
• CO may reduce liquidation rates for contractor
to maintain profit rates; contractor certifies
annually specific conditions met
• Contract modification issued for new rate
• Alternate rates
• Must ensure USG recoups progress pmts each
billing and be supported by documentation
• Min. liquidation rate = expected progress payments
contract price
32.503-8 – 32.503-10
Progress Payments – Cost (cont.)
• Maximum unliquidated amount
• If unliquidated payments exceed contract limit, CO can
increase liquidation rate, reduce progress
• ACO must protect USG title to all materials, WIP,
finished goods and other property – no other
encumbrances allowed
• Subcontracts
• Financing payments must conform to Progress Payments
clause 52.232-16 in Prime, modified appropriately
• If performance-based payments, clause 52.232-32 used
• If commercial item purchase finances, clause structured
according to 32.206.
32.503-12 – 32.504
Contract Debts
• Scope: identifying, collecting and deferring
collection of debts; N/A to common carrier
transportation claims
• Debts are monies due to the USG as a result of price
reductions or adjustments, defective cost/pricing data,
exceeding contract price, increased liquidation rates,
overpayments, reinspection costs, erroneous
payments, breach of contract, damages, or
delinquincy.
• CO responsible for identifying debt and demanding
payment.
• Payment Office collects debt or agrees to offsets
32.600 – 32.602
Contract Debts (cont.)
• CO determines debt promptly, based on merits of
case and contract terms
• Once established, demand letter issued to
contractor, copy to payment office
• If contractor notifies CO of debt, demand not
issued earlier than 30d after notice received.
• CO issues final decision to contractor if agreement
not reached, copy to payment office
• If pmt not made in 30d of due date, withholding
initiated
• After 180d, delinquent debt transferred to Treasury
for collection
32.603-32.605
Contract Debts – Installment Pmts, Deferment
• Agency approves/denies, not CO
• Contractor must submit written request if pmt not
possible in full or contracts impaired
• Agreement: Specific payment schedule based on
specific events, shortest maturity, interest charged
• Deferment – CO forwards request,
recommendation, statement whether appeal
pending and final CO decision to responsible
agency office for authorization
• If appeal pending, payment due in full when decision
reached
32.607
Contract Debts - Interest
• Applies to debt unpaid after 30d from demand
issuance
• Interest credit allowed for successful appeals,
overcollection; may not exceed amount
collected.
• Debts < $100,000 may be settled by agency
• Interest not charged on contracts ≤ SAT, with
other agencies, state or local governments or
instrumentalities, or without provision for profit
or fee with a non-profit organization
32.609 - 32.611
Contract Funding
No officer or employee of USG can create or
authorize obligation in excess of available funds
• Full funding – funds cover price or total estimated
cost
• Incremental funding – funds cover allotted amount
32.700 – 32.702
Contract Funding (cont.)
Type of Contract
Fiscal year
Requirements
Initiated before funds available if clause
included
Minimum quantities purchased in 1st
year
Clause
52.232-18 Availability of Funds
Comments
52.232-18 Availability of Funds
Crossing fiscal years
Not allowed if funded by annual
appropriations unless statutory
authority available or if end product
cannot be divided by fiscal year
52.232-19 – Availability of Funds
for Next Fiscal Year
No supplies or services
accepted by USG unless CO
confirms funds available
HCA (except NASA) has
authority to cross fiscal years if
services severable and contract
period < 12 months. Funds may
be obligated for total amount.
Limitation of cost or
funds
When contractor reaches limit, CO
notifies in writing of (1) allocating new
funds; (2) no further funds available; (3)
contract will be terminated; or (4)
options, e.g. if contractor work beyond
limit is at contractor’s risk
Cost reimbursable: funds don’t need to
be increased immediately but change
order, repair/replace or terminate are
options
52.232-20 Limitation of Cost
52.232-22 Limitation of Funds
Indefinite Quantity or
Requirements
32.703-2 – 32.705-2
Assignment of Claims
• Designated Agency - executive branch
• No-setoff commitment – payments by agency not
reduced to liquidate contractor’s indebtedness
• Conditions: Payments ≥ $1000; assignment to
institution or bank; not contractually prohibited;
covers all unpaid amounts; made to 1 party only;
cannot be further assigned
• Assignee sends copy of instrument to CO or HCA,
surety on bond, and disbursing payment officer
• Protection: assignment can’t be revoked or reduced to
make up for any other liabilities due to USG by
contractor
32.800 – 32.804
Assignment of Claims (cont.)
• Entities issue assignments as directed and file
with prescribed parties per 32.802(e)
• Government examines assignment,
acknowledges receipt if all in good order
• Release obtained when
• Further reassignment needed
• Obligations under assignment fulfilled
• Contractor files written notice of release
32.
Prompt Payment
• Subpart N/A for contract financing payments
• Definitions
•
•
•
•
Discount– reduction for payment prior to due date
Mixed invoice – items with different payment dates
Payment date – check date or for EFT, settlement date
Settlement date – date payment credited to bank
• Payment:
• Supplies / services: later of 30d after receipt of proper
invoice or acceptance of supplies/services
• Construction: 14d
• Food: 7d fresh fish, meat; 10d agricultural and dairy
32.900-32.904
Prompt Payment – Invoicing, Interest
• Invoices must be “proper” - complete, correct
• Payments
• USG doesn’t pay earlier than 7d prior to due date
• Payment for discrete/partial deliveries allowed
• Discount payments as close to, not later than, end of discount
period
• Interest – USG pays interest owed for late payments or
improper discount; contractor does not have to request
payment
• Penalties – contractor makes written demand if USG fails to
pay interest; unavailability of funds not excuse from
obligation to pay
• Delinquent payments: questions to billing or payment office
• Disagreement over amount: contact contracting officer
32.905 - 32.909
Performance-Based Payments (non-commercial)
• Preferred financing method
• Fully recoverable in event of default
• Not payment for accepted items or subject to interest
penalties
• Fixed price contract
• Contract does not provide progress payments
• Performance bases
• Milestones or measurable criteria identified in contract;
may be severable
• Payments may be on whole contract or severable
items
32.1000 – 31.1006
Performance Based Payments (cont.)
• CO responsible for admin, review, approval
• May suspend or reduce payments, if applicable
• May renegotiate terms if USG causes delay
• USG has title to property; other encumbrances
violate contractor’s obligations
• Contractor bears risk of loss until delivery,
unless USG assumes risk
32.1007 – 32.1010
Electronic Funds Transfer
• Required for all contract payments
• Some exceptions: office loses ability to make EFT
payments; Payment received outside US/Puerto
Rico; Contract paid in other than US currency;
Classified contract – compromise national security;
Deployed military or emergency situations
• Not a substitute for assignment of claims
• Government wide commercial purchase card
authorizes 3rd party (bank) to make immediate
payment to contractor
• Contractor may not have outstanding debt in CCR
32.1100-1110