[Federal Register Volume 60, Number 50 (Wednesday, March 15, 1995)]
[Proposed Rules]
[Pages 14156-14170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6294]




[[Page 14155]]

_______________________________________________________________________

Part IV

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Parts 32 and 52



Federal Acquisition Regulation, Contract Financing; Proposed Rule and 
Notice

  Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / 
Proposed Rules    
[[Page 14156]] 

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 32 and 52

[FAR Case 94-764]
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: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule is issued pursuant to the Federal 
Acquisition Streamlining Act of 1994, Public Law 103-355 (the Act). The 
Federal Acquisition Regulatory Council is considering 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.

DATES: Comment Due Date: Comments should be submitted on or before May 
15, 1995 to be considered in the formulation of a final rule.
    Public Meeting: A public meeting will be held on April 3, 1995, at 
1 p.m.
    Oral/Written Statements: Views to be presented at the public 
meeting should be sent, in writing, to the FAR Secretariat, at the 
address given below, not later than March 29, 1995.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (VRS), 18th & F 
Streets NW., Room 4037, Washington, DC 20405, Telephone: (202) 501-
4755.
    The public meeting will be held at: General Services Administration 
Auditorium, 18th & F Streets NW., First Floor, Washington, DC 20405.
    Please cite FAR case 94-764 in all correspondence related to this 
case.

FOR FURTHER INFORMATION CONTACT: Mr. John Galbraith, Contract 
Financing/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 FAR 
case 94-764.

SUPPLEMENTARY INFORMATION:

A. Background

    The Federal Acquisition Streamlining Act of 1994, Pub. L. 103-355, 
provides authorities that streamline the acquisition process and 
minimize burdensome government-unique requirements. Major changes that 
can be expected in the acquisition process as a result of Federal 
Acquisition Streamlining Act implementation include changes in the 
areas of Commercial Item Acquisition, Simplified Acquisition 
Procedures, the Truth in Negotiations Act, and Introduction of the 
Federal Acquisition Computer Network (FACNET).
    This notice announces FAR revisions under FAR case 94-764, Contract 
Financing. Sections 2001 and 2051 of the Federal Acquisition 
Streamlining Act of 1994 (Pub. L. 103-355), 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 revised the authority for Government 
financing of purchases of non-commercial items. In order to promptly 
achieve the benefits of the provisions of the Act, the Government is 
issuing implementing regulations on an expedited basis. We believe 
prompt publication of proposed rules provides the public the 
opportunity to participate more fully in the process of developing 
regulations.
    Subsections 2001(f) and 2051(e) provide specific authority for 
Government financing of purchases of commercial items. These sections 
amended 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.
    To implement these changes, the DOD, NASA, and GSA propose to amend 
the FAR by revising Subparts 32.0, 32.1, and 32.5; by adding new 
Subparts 32.2 and 32.10; and by adding new clauses to 52.232.
    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

    Subpart 32.0 now contains the general policy and guidance which is 
applicable to Government contract financing of both commercial and non-
commercial items.
    Subpart 32.1 (Non-commercial 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 Purchase Financing) contains the policy 
and guidance applicable to contract financing of commercial purchases. 
This subpart is wholly new. Current contract financing policy 
discourages the use of Government contract financing for commercial 
items (see current FAR 32.502-1(c)), and if financing is provided, it 
is commonly Progress Payments Based on Cost. The new statute places 
Government financing of commercial purchases on a different statutory 
basis than that for non-commercial purchases. As a result, the new 
subpart provides policy concerning market research about financing, 
security for the taxpayer's money, and determining the best interest of 
the United States. 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 [[Page 14157]] financing in 
contracts. To assist in considering installment payment financing 
issues, public comments are sought as to whether or not installment 
payment financing at 32.206(f) and 52.232-AB should be incorporated 
into the FAR.
    The proposed installment payment clause is intended to permit 
contracting officers to incorporate financing into contracts for 
commercial items without any administrative effort beyond incorporation 
of the clause. It is intended to be an alternative that may be used 
when the contracting officer determines that the administrative cost of 
contract financing for a commercial item would otherwise prohibit its 
use.
    The table below shows how the Installment Payments for Commercial 
Items clause arithmetic would work for a contract which is awarded in 
January with various deliveries starting in April and ending in 
September (bolded numbers indicate delivery payments after liquidation 
of installment payments).

                                                   Installment Payments for Commercial Items (Example)                                                  
                                                       [Amounts shown in thousands of dollars ($)]                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Qty   $/Unit  $Total    Jan     Feb     Mar     Apr     May    June    July     Aug    Sept    Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Item 0001.......................................      20      20     400      70      70      70      70     120  ......  ......  ......  ......     400
    Do..........................................      20      20     400  ......      70      70      70      70     120  ......  ......  ......     400
    Do..........................................      20      20     400  ......  ......      70      70      70      70     120  ......  ......     400
    Do..........................................      20      20     400  ......  ......  ......      70      70      70      70     120  ......     400
    Do..........................................      20      20     400  ......  ......  ......  ......      70      70      70      70     120     400
Item 0002.......................................       2      15      30       7       7       7       9  ......  ......  ......  ......  ......      30
    Do..........................................       2      15      30  ......       7       7       7       9  ......  ......  ......  ......      30
    Do..........................................       2      15      30  ......  ......       7       7       7       9  ......  ......  ......      30
    Do..........................................       2      15      30  ......  ......  ......       7       7       7       9  ......  ......      30
    Do..........................................       2      15      30  ......  ......  ......  ......       7       7       7       9  ......      30
Iteam 0003......................................      10      40     400      56      56      56      56      56     120  ......  ......  ......     400
    Do..........................................      10      40     400  ......      56      56      56      56      56     120  ......  ......     400
    Do..........................................      10      40     400  ......  ......      56      56      56      56      56     120  ......     400
    Do..........................................      10      40     400  ......  ......  ......      56      56      56      56      56     120     400
Finance payment.................................  ......  ......  ......     133     266     399     525     525     392     259     126       o   2,625
Delivery payment................................  ......  ......  ......       o       o       o       9     129     249     249     249     240   1,125
Total payment...................................  ......  ......   3,750     133     266     399     534     654     641     508     375     240   3,750
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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. Under the current FAR, contract 
financing for non-commercial items is primarily through progress 
payments based on cost and through other specialized contract financing 
mechanisms for specific types of procurements (for example percentage-
of-completion progress payments for shipbuilding or construction). This 
new subpart 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.
    FAR 52.232 is amended to add the additional clauses and 
solicitation provisions required to implement the new statutory 
authorities. Under the current FAR, the contracting officer can insert 
a complete, fully contained progress payment clause in a contract and 
proceed with the procurement with minimal administrative cost. 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.

Public Meeting

    The FAR Council is interested in an exchange of ideas and opinions 
with respect to the regulatory implementation of the Act. For that 
reason, the FAR Council is conducting a series of public meetings. The 
public is encouraged to furnish its views; the FAR Council anticipates 
that public comments will be very helpful in formulating final rules.
    The public meeting on this rule (FAR case 94-764) will be held on 
April 3, 1995, at 1 p.m., to enable the public to present its views on 
this rule. This meeting will coincide with the meeting on Commercial 
Items (FAR case 94-790) which is now also scheduled for April 3, 1995. 
Persons or organizations wishing to make presentations will be allowed 
10 minutes each, provided they notify the FAR Secretariat at (202) 501-
4755 and submit written statements of the presentation by March 29, 
1995. Persons or organizations with similar positions are encouraged to 
select a common spokesman for presentation of their views. This 
meeting, in conjunction with the Federal Register notice soliciting 
public comments on the rule, will be the only opportunity for the 
public to present its views.

B. Regulatory Flexibility Act

    This proposed 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 (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 in markets where customer 
financing is a market practice; and because the implementation of 
subsection 2001(b) and subsection 2051(b) of the Federal Acquisition 
Streamlining Act of 1994 (Public Law 103-355) 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. An Initial Regulatory Flexibility Analysis has 
been [[Page 14158]] performed. Comments from small entities concerning 
the affected FAR subparts will be considered in accordance with 5 
U.S.C. 610 of the Act. Such comments must be submitted separately and 
should cite 5 U.S.C. 601, et seq. (FAR case 94-764), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 96-511) is deemed to apply 
because the proposed rule contains information collection requirements. 
Accordingly, a request for approval of a new information collection 
requirement concerning Contract Financing is being submitted to the 
Office of Management and Budget under 44 U.S.C. 3501, et seq. Public 
comments concerning this request are invited in a Federal Register 
notice which appears elsewhere in this issue.

List of Subjects in 48 CFR Parts 32 and 52

    Government procurement.

    Dated: March 8, 1995.
Capt. Barry L. Cohen,
Project Manager for the Implementation of the Federal Acquisition 
Streamlining Act of 1994.

    Therefore, it is proposed that 48 CFR Parts 32 and 52 be amended as 
set forth below:

PART 32--CONTRACT FINANCING

    1. The authority citation for 48 CFR Parts 32 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).

    2. Section 32.000 is amended in 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.
    3. 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 of the 
financing arrangement by higher management. It is expected that 
contracting officers will have the necessary training and resources to 
routinely arrange and/or administer (including paying) any financing 
terms the agency deems customary for that agency.
    Unusual contract financing means any financing not deemed customary 
contract financing by the agency. Normally, unusual contract financing 
is that 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 of the financing arrangement by higher 
management. Arranging and/or administering (including paying) unusual 
contract financing may require more and/or different training or 
resources than the agency routinely makes available for such 
operations, or may have greater or different risks than the financing 
arrangements deemed customary by the agency.
    4. Sections 32.002 through 32.005 are added to read as follows:


32.002  Applicability of subparts.

    (a) The following subparts of this part are applicable to all 
purchases subject to part 32:
    (1) Subpart 32.0, General.
    (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 Purchase Financing, is applicable only 
to purchases of commercial items under authority of 48 CFR part 12.
    (c) The following subparts of this part are applicable to all 
purchases made under any authority other than 48 CFR Part 12:
    (1) Subpart 32.1, Non-Commercial Purchase Financing.
    (2) Subpart 32.4, Advance Payments.
    (3) Subpart 32.5, Progress Payments for Supplies or Services.
    (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 48 CFR 
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 worth of the contract financing 
to the contractor is expected to be reflected in one or both of (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 
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), the contract shall not provide for any other type of 
specific charges, such as interest, on contract financing.
    5. Subpart 32.1 heading and section 32.100 are revised to read as 
follows: [[Page 14159]] 

Subpart 32.1--Non-Commercial Purchase Financing


32.100  Scope of subpart.

    This subpart provides policies and procedures applicable generally 
to contract financing and payment for any purchases other than 
purchases of commercial items in accordance with 48 CFR Part 12.


32.101  [Amended]

    6. Section 32.101 is amended by removing the period at the end of 
the section and inserting in its place ``, as amended.''
    7. Section 32.102 is amended in the last sentence of paragraph (a) 
by 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''; and adding paragraphs (b)(4) and (f) to read 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; and by removing the word ``the'' in the second 
sentence.
    9. Section 32.104 is amended by adding paragraphs (c) through (f) 
to read as follows:


32.104  Providing contract financing.

* * * * *
    (c) Subject to specific agency regulations, contract financing may 
be provided when the contracting officer determines it is in the best 
interest of the Government. Unless authorized by agency regulation, 
contract financing shall not be provided for awards expected to be less 
than the simplified acquisition procedure threshold, and unless the 
provision of financing is restricted to small businesses, shall not be 
provided for awards expected to be less than $1 million.
    (d) Whenever practical, contracting officers should use 
performance-based payments (see subpart 32.10).
    (e) For competitive awards, the contracting officer shall include 
the intended contract financing terms in the solicitation, in 
accordance with this part and any agency regulations. Contract 
financing shall not be a factor in the evaluation of resulting 
proposals, and proposals which contain alternative financing terms 
shall not be accepted (but see subparts 14.2 and 15.6 concerning 
alternative proposals and amendments of solicitations).
    (f) When only one source is solicited, the contracting officer 
shall include the intended contract financing terms in the solicitation 
in accordance with this part and any agency regulations. In 
negotiations of the resulting contract, if the contract financing is to 
be through performance-based payments in accordance with subpart 32.10, 
the contracting officer shall ensure that the combination of price and 
financing is fair and reasonable, all factors, including financing cost 
to the Treasury, considered.
    10. 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]

    11. Section 32.110 is removed and reserved.


32.111  Contract clauses for non-commercial purchases.

    12. The section heading for 32.111 is revised to read as set forth 
above.
    13. Sections 32.113 and 32.114 are added to read as follows:

    (Note to Readers: The proposed text of 32.112 is contained in 
FAR case 94-762, which was published for public comment at 60 FR 
6602, February 2, 1995. Comments concerning the proposed text for 
32.112 should be submitted separately and reference that FAR case 
94-762.)


32.113  Customary contract financing.

    The following contract financing arrangements are customary 
contract financing when provided in accordance with this part 32 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 48 CFR part 36, in accordance with 
this part;
    (c) For small businesses, financing of contracts for supplies or 
services with a contract price equal to or greater than the simplified 
acquisition procedure threshold through customary performance-based 
payments in accordance with subpart 32.10, or customary progress 
payments in accordance with subpart 32.5 (but not both);
    (d) Financing of contracts for supplies or services with a contract 
price of $1 million or more, through customary performance-based 
payments in accordance with subpart 32.10, or customary progress 
payments in accordance with subpart 32.5 (but not both);
    (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 customary performance-based payments or customary progress 
payments (but not both) in accordance with their respective subparts.


32.114  Unusual contract financing.

    Any contract financing arrangement that deviates from the policy, 
procedures, terms, or conditions of 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.
    14. Subpart 32.2, consisting of sections 32.200 through 32.207, is 
added to read as follows:

Subpart 32.2--Commercial 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 purchases.
32.202-3  Conducting market research about financing terms.
32.202-4  Security for Government financing.
32.203  Procedures for 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  Construction of contract clauses.
32.207  Administration and payment of commercial financing payments. 
[[Page 14160]] 


32.200  Scope of subpart.

    This subpart provides policies and procedures for commercial 
financing arrangements under commercial purchases pursuant to 48 CFR 
part 12. This subpart does not apply to any purchase made under other 
authority.


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 Government 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 shall 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 item;
    (2) The contracting officer determines that it is customary in the 
commercial marketplace to make financing payments for the item;
    (3) Authorizing this form of contract financing is in the best 
interest of the Government (see 32.202-1(e));
    (4) Adequate security is obtained (see 32.202-4);
    (5) Prior to any performance of work under the contract, the 
aggregate of commercial advance payments shall not exceed 15 percent of 
the contract price; and
    (6) 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 financing to be provided) if the financing 
is expected to be substantially more advantageous to the offeror than 
the offerors normal method of customer financing.
    (c) Difference from non-commercial financing. Government financing 
of commercial purchases under this subpart 32.2 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 48 CFR 
part 32 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. (1) The statute does not allow 
contract financing by the Government where it is not in the best 
interest of the United States. The contracting officer in deciding for 
individual procurements whether to use contract financing and, if so, 
the methods and techniques therefor, shall consider the interests of 
the United States in accordance with agency regulations. The interests 
of the United States may include--
    (i) The cost to the Government of providing the financing (e.g., 
Treasury borrowing costs);
    (ii) The transaction costs to the Government of establishing and 
negotiating the financing terms, and administrative costs of 
administering the financing terms;
    (iii) Execution of Executive branch and agency policy;
    (iv) Compliance with fiscal and budgetary requirements;
    (v) Promotion of competition through new market entrants;
    (vi) Acquisition of advanced, state-of-the-art technology; and
    (vii) Integration of the industrial bases for defense, commercial, 
and Governmental markets.
    (2) In considering policy to determine whether financing is in the 
best interest of the Government, the best interests of the Government 
are usually served by an appropriate trade-off of the transaction costs 
of the procurement, against the optimizing of the price and financing 
of the individual purchase. Agencies may find that certain types of 
procurements, certain types of items, or certain dollar levels of 
procurements do not justify the transaction costs of financing or do 
not justify high-cost procedures for determining financing. The 
specifics of these factors will vary from agency to agency, and, 
possibly, from office to office or time to time.


32.202-2  Types of payments for commercial purchases.

    These definitions reflect distinctions made in 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.
    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). The difference between a commercial 
advance and commercial interim payment for Government contract purposes 
is whether some performance of the work under the contract has been 
accomplished.
    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.

    (a) If contract financing is expected to be in the best interest of 
the Government (see 32.202-1(e) of this subpart), contract financing 
shall be a subject included in the market research conducted in 
accordance with 48 CFR part 10 (Market Research). Contracting officers 
shall determine for commercial purchases in the appropriate market--
    (1) The extent to which other buyers provide contract financing for 
purchases in that market;
    (2) The overall level of financing normally provided;
    (3) The amount or percentages of any payments equivalent to 
commercial advance payments (32.202-2);
    (4) The basis for any payments equivalent to commercial interim 
payments (32.202-2), as well as the frequency, and amounts or 
percentages; and [[Page 14161]] 
    (5) Any special or unusual payment terms applicable to the 
equivalent of delivery payments (32.202-2).
    (b) When adequate and current information is already available, 
contract financing market research does not have to be repeated. 
Similarly, procuring activities making repetitive purchases in specific 
markets may provide contracting officers with contract financing terms 
for use in purchases in those markets.
    (c) Customary standard market terms means those contract financing 
terms and conditions that are the usual, regular terms offered by a 
substantial number of sellers to equivalent buyers of the item in that 
market at that time. Customary standard market terms are not required 
to be identical for all sellers, but are expected to be similar. Terms 
may reasonably vary in percentages, or timing, or other terms and still 
be considered customary standard market terms, so long as they do not 
significantly differ in the overall impact upon the Government, 
including the impact upon the integrity of competitive procurements. If 
the extent of variation in the terms offered by diverse sellers is such 
that some potential offerors would be significantly advantaged or 
disadvantaged by a synthesis of the various terms, the contracting 
officer may find there are no customary standard market terms. The 
extent of analysis applied in making these determinations should be 
commensurate with the expected size of the contract and amount of 
contract financing.


32.202-4  Security for Government financing.

    (a) Policy. 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 determine what security the Government will 
accept, which shall be specified in the solicitation. 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. The value 
of the security must be at least equal to the unliquidated amount of 
contract financing payments to be made to the contractor. If acceptable 
to the contracting officer, the resulting contract shall specify the 
security (see 32.206(b)(1)(iv) and also paragraph (f), Security for 
Government Financing of the clause at 52.232-AA, Standard Terms for 
Government Financing of Purchases of Commercial Items, or paragraph (f) 
of the clause at 52.232-AB, Installment Payments for Commercial Items). 
The amount of security provided by the contractor may be adjusted from 
time to time during the period of performance, so long as it is always 
equal to or greater than the amount of unliquidated financing that is 
paid to the contractor. Paragraphs (b), (c), and (d) of this section 
list some (but not all) forms of security that the contracting officer 
may find acceptable. There is no order of preference in this listing, 
and a form not listed is of equal acceptability if the contracting 
officer finds it adequate.
    (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, the contractor's inventory. 
Contracting officers may be flexible in the choice of assets, so long 
as it is adequate. 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. (1) Contracting officers may consider 
the guidance at 28.203-2, 28.203-3, and 28.204 in determining which 
types of assets may be acceptable as security. For the purpose of 
applying the guidance in part 28 to this section, the term surety and/
or individual surety should be interpreted to mean offeror and/or 
contractor.
    (2) Subject to agency regulations, the contracting officer may also 
consider the net worth of the offeror in relation to the maximum amount 
of Government funds at risk. If the contracting officer finds that the 
unencumbered net worth of the offeror will be significantly in excess 
of the total unliquidated Government financing (on all Government 
contracts using this form of security), and the offeror agrees to 
provide additional security should that net worth become encumbered or 
materially reduced, the contracting officer may determine the 
Government has adequate security.
    (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 48 CFR 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.


32.203  Procedures for determining contract financing terms.
    (a) Selection procedure. When the criteria in 32.202-1(b) are met:
    (1) If market research discloses that contract financing is not 
customary in the commercial market, the contracting officer shall not 
provide for financing in the solicitation and contract;
    (2) If market research discloses customary standard market terms 
for commercial financing in a market, the contracting officer shall use 
the contracting officer-specified financing procedure at 32.204 and 
specify the customary standard market terms in the solicitation and 
contract; or
    (3) If market research discloses that contract financing is 
customary in the commercial market but there are no customary standard 
market terms, the contracting officer shall, in accordance with agency 
regulations, use the contracting officer-specified procedure at 32.204, 
the offeror-proposed procedure at 32.205, or other agency specified 
procedure or technique. If agency regulations do not provide otherwise, 
the contracting officer shall use the contracting officer-specified 
procedure at 32.204 for purchases expected to be less than $5 million 
and may use the offeror-proposed procedure at 32.205 for purchases 
expected to be $5 million or more.
    (b) Summary of contracting officer-specified financing procedure. 
Under the contracting officer-specified procedure at 32.204, the 
Government specifies the contract financing terms in the solicitation. 
The contracting officer does not evaluate or adjust prices for 
financing terms. Contracting officer-specified contract financing terms 
are designed to allow reasonable contract financing of purchases with 
minimum transaction costs. Under this procedure, the contract financing 
for any particular procurement is based upon the financing terms 
commonly used in the particular market, or the terms the Government 
finds appropriate to the purchase.
    (c) Summary of offeror-proposed financing procedure. Under the 
offeror-proposed procedure at 32.205, offerors are invited to propose 
contract financing [[Page 14162]] terms. The contracting officer then 
evaluates all of the financing terms and prices to determine the 
evaluated price. The evaluated price is based upon the net cost to the 
Government of the proposed price and financing terms.
    (d) Front-end loading of financing terms. In establishing contract 
financing terms, the contracting officer must be aware of certain 
risks. While contract financing payments may be made at the beginning 
and during the early period of a contract, very high amounts of 
financing early in the contract may unduly increase the risk to the 
Government. Contracting officers cannot consider various aspects of 
financing separately; 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. Under the 
contracting-officer specified procedure, large, early, contract 
financing payments are not prohibited if they are the customary 
standard market terms and an appropriate quality of security is 
obtained. Under the offeror-proposed procedure, large, early, contract 
financing payments are not prohibited if such payments are usual or 
common in the offeror's sales equivalent to the size and type of the 
instant Government purchase and an appropriate quality of security is 
obtained.
    (e) Optional nature of contract financing terms. (1) A contracting 
officer determination that contract financing is customary in a 
commercial market, while establishing the Government's authority to 
offer or agree to contract financing, does not preclude an offeror from 
bidding or proposing on the basis of no contract financing. Similarly, 
the presence of a contract financing clause in a contract does not 
preclude contractor forbearance in its exercise (see 32.207(f)).
    (2) For solicitations under contracting officer-specified 
procedures, 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 (see 32.204(b)) nor does it render the 
offer nonresponsive or otherwise unacceptable. In the event of award to 
an offeror whose offer declined the proposed contract financing, the 
contract financing provisions shall not be included in the resulting 
contract.
    (3) For solicitations under offeror-proposed procedures, a proposal 
containing no contract financing provisions or stating that contract 
financing is not proposed, shall, in lieu of the computation in 
32.205(c), be evaluated as having no additional cost to the United 
States for providing contract financing.


32.204  Procedures for contracting-officer-specified commercial 
contract financing.

    (a) Financing terms. Under this procedure, the solicitation 
specifies the financing terms that will be used in any resulting 
contract.
    (b) Determination of contract financing terms. The contracting 
officer shall determine the contract financing terms based upon the 
results of market research and prepare a written rationale for the 
terms. If the contracting officer determines there is variation between 
sellers within the customary standard market terms (see 32.202-3(c)), 
the contract financing terms specified by the contracting officer shall 
be within those variations. The financing terms shall be incorporated 
in the solicitation. Contract financing shall not be a factor in 
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). 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 
interest of the United States.
    (b) Solicitations. The contracting officer shall include in the 
solicitation the Invitation to Propose Contract Financing Terms at 
52.232-AC. The contracting officer shall also--
    (1) Specify the effective 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 (c)(4) of this section).
    (c) Evaluation of proposals. (1) When contract financing terms vary 
between offerors, the contracting officer must adjust each proposed 
price for evaluation purposes to reflect the cost to the United States 
of providing the proposed financing in order to determine the total 
cost to the United States of that particular combination of price and 
financing.
    (2) Contract financing results in the Government making financing 
payments earlier than it otherwise would as delivery payments. The cost 
to the Government of providing contract financing is the Government's 
imputed cost of those earlier-than-otherwise-required payments. In 
order to determine the cost to the Government for providing financing, 
the contracting officer must compute that imputed cost of financing 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 between the date of payment 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 offeror-proposed 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. This Appendix is 
updated yearly and is available from the Office of Economic Policy in 
the Office of Management and Budget (OMB).


32.206  Construction of contract clauses.

    (a) Unless otherwise authorized by agency regulations, the contract 
shall contain the paragraph entitled Payment of the clause at 52.212-4. 
If the contract will provide for contract financing, the contracting 
officer shall construct a solicitation provision and contract clause 
for any resulting contract. 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 Invitation to Propose 
Financing Terms at 52.232-AC 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 have the following 
structure:
    (1) One or more paragraphs describing the--
    (i) Computation of the financing payment amounts;
    (ii) Specific conditions of contractor entitlement to those 
financing payments;
    (iii) Liquidation of those financing payments by delivery payments;
    (iv) Specifics of the security under the contract, any terms or 
conditions specifically applicable thereto; and
    (v) Frequency, form, and any additional content of the contractor's 
request for financing payment (in addition to the requirements of the 
clause Standard Terms for Government Financing of Purchases of 
Commercial Items at 52.232-AA), which paragraph [[Page 14163]] shall 
limit the frequency of requests to no more than one per month, unless 
otherwise authorized by agency regulation.
    (2) Unless agency regulations authorize alterations, the unaltered 
text of the clause at 52.232-AA, Standard Terms for Government 
Financing of Purchases of Commercial Items.
    (c) Computation of amounts, and contractor entitlement provisions. 
Contracts shall provide that delivery payments shall be made only for 
completed goods 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. It is expected that the basis for payment for customary 
standard market terms is one that is documented by the records and 
controls maintained by a prudent business person in the normal course 
of business in that market. Therefore, in establishing the basis for 
contract financing payments under the contracting-officer specified 
procedure, the contracting officer normally should be guided by the 
customary standard market terms. Under the offeror-proposed procedure, 
the offeror is responsible for proposing terms it can implement.
    (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.
    (e) 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 contract financing and invoice payments for non-commercial 
purchases. The contracting officer, in constructing financing and 
payment terms for commercial purchases, 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.
    (f) Installment payment financing for commercial items. Contracting 
officers may insert the clause at 52.232-AB, Installment Payments for 
Commercial Items, in contracts and solicitations in lieu of 
constructing a specific clause in accordance with paragraphs (b) 
through (e) of this section when the contracting officer determines 
that this clause is appropriate and in the best interest of the 
Government.
    (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 interest of the Government.
    (2) Authorized types of installment financing payments and rates. 
Installment financing payments may be made using the clause at 52.232-
AB, Installment Payments for Commercial Items, either at the 70 percent 
financing rate cited in the clause or at any other 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 financing payments are authorized. Monthly 
installment financing payment amounts are to be calculated by the 
contractor pursuant to the instructions in the contract clause only for 
items authorized to receive installment financing payments.
    (4) Liquidating installment payment financing payments. If 
installment financing 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 financing payments made 
for the item in order to liquidate all installment financing payments 
previously made for the item. The contractors 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) Reviews. Because the basis for payments can vary widely, the 
contracting officer is responsible for determining what reviews, either 
pre- or post- payment, are required for protection of the Government's 
interests. The contracting officer, in approving financing payments, 
may rely upon contractor certifications and internal management, 
accounting, and data practices or systems, provided the contracting 
officer has determined that those practices or systems are reliable and 
that appropriate reviews are conducted to verify their continued 
reliability.
    (d) Financial surveillance. The contracting officer is responsible 
for monitoring the contractor's overall financial condition. The 
contract financing provisions, entitled Suspension and Reduction of 
Financing Payments, and Reports and Government Access, of the clauses 
at 52.232-AA and 52.232-AB, specifically give the Government rights to 
information in this area.
    (e) 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.
    (f) Limits on Government access. (1) Unless the contractor requests 
contract financing under a contract financing clause, the associated 
Government rights granted by the Records, reports and access provisions 
of the contract financing clauses (e.g., access to records) are 
inoperative.
    (2) The Government rights granted by the Records, reports, and 
access provisions of contract financing clauses are for the purpose of 
ensuring the accuracy and safety of the Government's financing payments 
and shall not be used for any other purpose.
    15. 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 (Pub. L. 99-145), as amended, and, for civilian agencies, in 
accordance with 41 [[Page 14164]] 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.


32.501-4  [Removed]

    16. Section 32.501-4 is removed.
    17. 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 section,''; 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 section,''. 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 procedure 
threshold; or
* * * * *
    18. Subpart 32.10, consisting of sections 32.1000 through 32.1011, 
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  Solicitation provisions and contract clause.
32.1006  Agency approvals.
32.1007  Administration of performance-based payments.
32.1008  Suspension or reduction of performance-based payments.
32.1009  Title.
32.1010  Risk of loss.
32.1011  Performance-based payments for events.


32.1000  Scope of subpart.

    This subpart provides policy and procedures, and prescribes 
contract clauses 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 procedures.


32.1001  Policy.

    (a) Performance-based payments are contract financing payments and, 
when authorized by the contract, are to be used to pay a contractor on 
bases which do not involve acceptance by the Government.
    (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), where performance-based payments are used, they 
shall be the exclusive method of contract financing in the contract in 
accordance with subpart 32.1.
    (c) Contractors shall maintain an appropriate investment in their 
contract at all times.
    (d) For Government accounting purposes, performance-based payments 
should be treated like progress payments based on costs under subpart 
32.5.
    (e) Performance-based payments are contract financing payments and, 
therefore, are not subject to the interest-penalty provisions of prompt 
payment. However, these payments shall be made in accordance with the 
agency's policy for contract financing payments.


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 contract meets any criteria established by agency 
regulations in accordance with subpart 32.1,
    (b) The contract is a definitized fixed-price type contract, 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 financing payments may be made either on a whole 
contract basis or on a deliverable item basis, unless otherwise 
prescribed by agency regulations.
    (a) Establishing performance bases. Each event or performance 
criteria that will trigger payment of a performance-based finance 
payment amount 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 criteria. An event need not be a critical 
event in order to trigger a payment, but successful performance of each 
such event or performance criteria shall be readily verifiable. A 
contractor shall not be paid for an event or performance criteria until 
previously scheduled events or prior performance criteria have been 
successfully performed. If payment of performance-based finance amounts 
is on a deliverable item basis, each event or performance criteria 
shall be part of the performance necessary for that deliverable item 
and shall be identified to a specific contract line item or subline 
item.
    (b) Establishing performance-based finance payment amounts. The 
contracting officer responsible for establishing the price of a 
contract also shall establish a complete, fully defined schedule of 
performance-based payments when establishing the price of the contract. 
If a contract action significantly affects the price, or event or 
performance criteria, the contracting officer responsible for pricing 
the contract modification shall adjust the performance-based payment 
schedule appropriately. The payment amounts should be adequate to 
ensure that the contractor maintains an appropriate investment in work 
in process inventory and total performance-based finance payments shall 
not exceed 75 percent of the contract price, if on a whole contract 
basis, or 75 percent of the delivery item price if on a delivery item 
basis. Performance-based finance payment amounts may be established on 
the basis of--
    (1) The estimated projected cost of performance of the entire 
contract, or of specific line items, as of the date of each event;
    (2) The estimated projected cost of performance of the entire 
contract, or of specific line items, as of the date of attainment of 
each performance criteria;
    (3) The estimated projected cost of performance of particular 
events; or [[Page 14165]] 
    (4) Any other rational basis determined by the contracting officer 
or agency procedures.
    (c) Instructions for multiple appropriations. If the whole contract 
approach is used and there is more than one appropriation account (or 
sub account) funding payments under the contract, the contracting 
officer shall include in the contract instructions for distribution of 
financing payments to the respective funds accounts.
    (d) Liquidating performance-based finance payments. Performance-
based finance amounts shall be liquidated by deducting a percentage or 
a designated dollar amount from the delivery payment.
    (1) 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.
    (2) If the performance-based finance payments are on a whole 
contract basis, liquidation shall be by either predesignated 
liquidation amounts or a liquidation percentage. In order to ensure 
proper liquidation, performance-based financing payments made after any 
payment for a deliverable item shall be adjusted to reflect the amount 
of previous delivery payments. (For example, if $3 million of 
performance-based financing payments have been made under a $10 million 
contract, the liquidation percentage would be 30 percent.)
    (e) Late payment penalties. Performance-based payments are contract 
financing payments and, therefore, are not subject to the interest-
penalty provisions of the Prompt Payment Act in accordance with subpart 
32.9. However, these payments shall be made in accordance with the 
agency's policy for contract financing payments.


32.1005  Solicitation provisions and contract clause.

    (a) If performance-based contract financing will be provided, the 
contracting officer shall insert the clause at 52.232-BD, Performance-
Based Payments, with the description of the basis for payment and 
liquidation as required in 32.1004 in the solicitation and resulting 
contract.
    (b) The contracting officer shall insert the provision at 52.232-
BB, Notice of Performance-Based Payments, in requests for proposals 
that include a Performance-Based Payments clause.
    (c) Unless otherwise directed by agency regulations in accordance 
with 32.104(c), if it is expected that the award will be for less than 
$1 million, the contracting officer shall insert the provision at 
52.232-BC, Notice of Availability of Performance-Based Payments 
Exclusively for Small Business Concerns, in solicitations that include 
the Performance-Based Payment clause.


32.1006  Agency approvals.

    The contracting officer shall obtain such approvals as are required 
by agency regulations.


32.1007  Administration of performance-based payments.

    (a) Administration. The extent of supervision of performance-based 
payments shall vary inversely with the contractor's experience, 
performance record, reliability, quality of management, financial 
strength, and the adequacy of the records, accounts and controls 
established by the contractor for the administration of the clause. 
Supervision shall be of a kind and degree sufficient to provide timely 
knowledge of the need for, and timely opportunity for, any actions 
necessary to protect the Government's interests.
    (b) Approval of requests. If the contracting officer has satisfied 
himself that the contractor's internal records and controls and 
management arrangements are accurate and reliable for all aspects of 
administration of performance-based payments, the contracting officer 
may rely upon those in approving any particular request for payment. In 
such event, the contracting officer shall determine the degree of risk 
to the Government's interests, and shall arrange an appropriate 
schedule of post-payment reviews and verifications. Where the 
contracting officer is not satisfied, the contracting officer shall 
require such reviews and verifications before approval for payment, as 
the contracting officer finds appropriate for the protection of the 
Government's interests.


32.1008  Suspension or reduction of performance-based payments.

    (a) General. The Performance-Based Payments clause provides the 
Government the right to reduce or suspend performance-based payments or 
to increase the liquidation, under specified conditions. These 
conditions and actions are discussed in paragraphs (b) through (d) of 
this section.
    (1) The contracting officer shall take these actions only in 
accordance with the contract terms and never precipitately or 
arbitrarily. These actions should be taken only after--
    (i) Notifying the contractor of the intended action and providing 
an opportunity for discussion;
    (ii) Evaluating the effect of the action on the contractor's 
operations, based on the contractor's financial condition, projected 
cash requirements, and the existing or available credit arrangements; 
and
    (iii) Considering the general equities of the particular situation.
    (2) The contracting officer shall take immediate unilateral action 
only if warranted by circumstances such as overpayments or 
unsatisfactory contract performance.
    (3) In all cases, the contracting officer shall (i) act fairly and 
reasonably, (ii) base decisions on substantial evidence, and (iii) 
document the contract file. Findings made under paragraph (e) of the 
Performance-Based Payments clause at 52.232-BD shall be in writing.
    (b) Contractor noncompliance. (1) The contractor must comply with 
all material requirements of the contract. This includes the 
requirement to maintain efficient and reliable records, accounts, and 
controls adequate for proper administration of the clause. If these are 
deemed inadequate, performance-based payments shall be suspended (or 
payments for events for which the records, accounts, or controls are 
unacceptable shall be suspended) until the necessary changes have been 
made.
    (2) If the contractor fails to comply with the contract without 
fault or negligence, the contracting officer will not take action 
permitted by paragraph (e)(1) of the Performance-Based Payment clause 
at 52.232-BD, other than to correct overpayments and collect amounts 
due from the contractor (see also 32.1007(c)).
    (c) Unsatisfactory financial condition. (1) If the contracting 
officer finds that contract performance (including full liquidation of 
performance-based payments) is endangered by the contractor's financial 
condition, or by a failure to make progress, the contracting officer 
shall require the contractor to make additional operating or financial 
arrangements adequate for completing the contract without loss to the 
Government.
    (2) If the contracting officer concludes that further performance-
based payments would increase the probable loss to the Government, the 
contracting officer shall suspend performance-based payments and all 
other payments until the unliquidated balance of performance-based 
payments is eliminated.
    (d) Delinquency in payment of costs of performance. If the 
contracting officer determines the contractor is delinquent in paying 
the costs of contract performance in the ordinary course of 
[[Page 14166]] business, the contracting officer shall evaluate whether 
the delinquency is caused by an unsatisfactory financial condition and, 
if so, shall apply the guidance in paragraph (c) of this section. If 
the contractor's financial condition is satisfactory, the contracting 
officer shall not deny performance-based payments if the contractor 
agrees to--
    (1) Cure the payment delinquencies;
    (2) Avoid further delinquencies; and
    (3) Make additional arrangements adequate for completing the 
contract without loss to the Government.


32.1009  Title.

    (a) Since the Performance-Based Payment clause at 52.232-BD gives 
the Government title to all of the property described in paragraph (f) 
of the clause, the contracting officer must ensure that the Government 
title to this property 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.
    (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 Payment clause at 52.232-BD, 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 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 Performance-Based Payments clause at 52.232-BD, 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 32.1005 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 part of or 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 Payment 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.


32.1011  Performance-based payments for events.

    The following policy and procedures apply to the use of 
performance-based payments based upon specific events (milestones):
    (a) The performance-based payment shall be based on a program 
event, identified to a specific contract line item or subline item, and 
liquidated by deduction of the performance-based payments from the 
price of the item in the contract.
    (b) Each event for which a performance-based payment is established 
shall have a description of what constitutes successful performance.
    (c) Because performance-based payments are liquidated by deduction 
from a specific delivery, each event for which a performance-based 
payment is established shall be part of the performance of a specific 
deliverable item under the contract.
    (d) It is not required that the performance-based payment amount be 
based on the cost of performing an event; however, there must be a 
rational basis for the payment amount established.
    (e) The contracting officer awarding the contract is responsible 
for establishing a complete, fully defined schedule of performance-
based payments prior to award of the contract.
    (f) The performance-based payments shall be set forth in the 
contract, be reasonably priced, and be based on meaningful program 
events.
    (g) The contracting officer shall not approve a performance-based 
payment until the contractor has successfully performed the specified 
event, notwithstanding the contractor's failure to perform is without 
fault or negligence on the contractor's part. However, if a contracting 
officer determines that the failure to perform was Government-caused 
(and it can be established that the contractor would have successfully 
performed the event otherwise), the effect upon the contractor of the 
delay in performance payment for the event may be considered if 
contract adjustment results.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    19. Sections 52.232-AA through 52.232-BD are added to read as 
follows:


Sec. 52.232-AA  Standard Terms for Government Financing of Purchases of 
Commercial Items.

    In accordance with 32.206(b)(2), insert the following clause:

Standard Terms for Government Financing of Purchases of Commercial 
Items (Date)

    If contract financing will be provided under this contract, the 
terms and conditions of this clause shall apply, in addition to any 
other provisions of this contract. If the contract financing terms 
of this contract resulted from an Invitation to Propose Financing 
Terms (FAR 52.232-AC), no financing payment shall be made in any 
greater amount or at any earlier date than specified in the listing 
contained in the contractor's proposal as accepted by the 
contracting officer.
    (a) Reduction or suspension of payments. The Contracting Officer 
may reduce or suspend financing payments, liquidate financing 
payments by deduction from any payment for accepted supplies or 
services under this or any other 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 contract term or 
condition;
    (2) Performance of this contract is endangered by the 
Contractor's unsatisfactory financial condition; or
    (3) The Contractor fails to provide the Government, upon 
request, a satisfactory assurance of future performance.
    (b) Records, reports, and access. The Contractor shall maintain 
records and controls adequate for administration of this clause. For 
the sole purpose of administering this clause, the Contractor shall 
promptly furnish reports, certificates, financial statements, and 
other pertinent information requested by the Contracting Officer, 
and shall give the Government reasonable opportunity to examine and 
verify the Contractor's records and controls required for 
administration of this clause, and to examine and verify the 
Contractor's performance of this contract.
    (c) 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 performance 
payments. The Government shall be liable for no payment except as 
provided by the Termination for Cause term of the clause at 52.212-
4. [[Page 14167]] 
    (d) Reservation of rights. (1) No payment 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) Contractor certification and acknowledgment of criminal and 
civil penalties. As required in the paragraph concerning the content 
of the Contractor's request for financing payment, the Contractor 
shall make the following certification in each request for financing 
payment:
    I certify to the best of my knowledge and belief that--
    (1) This request for financing payment is true and correct;
    (2) All payments requested are properly due in accordance with 
the contract, and that except as disclosed to the Contracting 
Officer by written communication dated __________, the deliverable 
items for which payments are requested will be delivered or 
performed in accordance with the contract;
    (3) There has been no impairment or diminution of the 
Government's security under this contract (except as reported in 
writing on __________);
    (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 Financing Payment, the 
amount of all such payments 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.
    (6) I understand that inaccurate information provided to the 
Government may subject me and/or others to civil and/or criminal 
penalties for false claims or false statements pursuant to 31 U.S.C. 
3729 and 18 U.S.C. 1001.
    (f) 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 the 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 find the Contractor to have failed to comply 
with a requirement of the contract as provided in paragraph (a), 
Reduction or suspension of payments.
    (g) Content of Contractor's request for financing payment term. 
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;
    (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; and
    (5) A certification by a Contractor official authorized to bind 
the Contractor, as specified in paragraph (e), Contractor 
certification and acknowledgment of criminal and civil penalties.

(End of clause)


Sec. 52.232-AB   Installment Payments for Commercial Items.

    As prescribed in 32.206(e), insert the following clause:

Installment Payments for Commercial Items (Date)

    Installment financing payments shall be made to the Contractor 
when requested, as work progresses, but not more frequently than 
monthly, in amounts approved by the Contracting Officer under the 
following conditions:
    (a) 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 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 nine (9) months after award of the contract, 
all separately priced units of that contract line item are 
authorized eight (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 eight (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 eight (8) months before the scheduled delivery date 
for that unit. The last installment payment is due one (1) month 
before scheduled delivery of a unit.
    (4) Limitation on Payment. Prior to the payment for acceptance 
of 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.
    (b) 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 installments in any month for which payment is being 
requested shall be included in a single request, appropriately 
itemized and totaled.
    (c) Adequate progress and approval 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 
below, approved requests shall be paid within thirty (30) days of 
submittal of a proper request for payment. Payment is not required, 
and the prompt payment period shall not begin, until the Contracting 
Officer approves the request, if the Contracting Officer--
    (1) Requires substantiation of adequate progress;
    (2) Inquires into the status of performance;
    (3) Inquires into any of the conditions listed in paragraph (e), 
Reduction or suspension of payments, of this clause; or
    (4) Inquires into the Contractor certification.
    (d) Liquidation of installment payments. (1) Installment 
payments shall be liquidated by deducting from the invoice payment 
made upon acceptance of each item the total unliquidated amount of 
installment payments made for that separately priced unit of that 
contract line item.
    (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 installment payment balance(s) for the related 
deliverable item(s), after adjustment of delivery payments and 
balances for any retroactive price adjustments.
    (3) The liquidation amounts for each unit of each line item 
shall be clearly delineated in each request for delivery payment 
submitted by the Contractor.
    (e) Reduction or suspension of installment payments. The 
Contracting Officer may reduce or suspend Installment Payments, 
liquidate Installment Payments by deduction from any payment for 
accepted supplies or services under this or any other 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 contract term or 
condition; [[Page 14168]] 
    (2) Performance of this contract is endangered by the 
Contractor's unsatisfactory financial condition; or
    (3) The Contractor fails to provide the Government, upon 
request, a satisfactory assurance of future performance.
    (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 the 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 find the Contractor to have failed to comply 
with a material requirement of the contract as provided in paragraph 
(e), Reduction or suspension of installment payments, of this 
clause.
    (g) Records, reports, and access. The Contractor shall maintain 
records and controls adequate for administration of this clause. For 
the sole purpose of administering this clause, the Contractor shall 
promptly furnish reports, certificates, financial statements, and 
other pertinent information requested by the Contracting Officer, 
and shall give the Government reasonable opportunity to examine and 
verify the Contractor's records and controls required for 
administration of this clause, and to examine and verify the 
Contractor's performance of this contract.
    (h) 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 performance 
payments. The Government shall be liable for no payment except as 
provided by the Termination for Cause term of the clause at 52.212-
4.
    (i) 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.
    (j) 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;
    (4) An itemized and totaled statement of the items, related 
deliverable items, and installment payment(s) being requested for 
each separately priced unit of each contract line item; and
    (5) A certification by a Contractor official authorized to bind 
the Contractor, as specified in paragraph (k).
    (k) Contractor certification. As required in paragraph (j)(5) of 
this clause, the Contractor shall make the following certification 
in each Request for Installment Payment:
    I certify to the best of my knowledge and belief that--
    (1) This request for installment payment is true and correct;
    (2) All installment payments requested are properly due in 
accordance with the contract, and that except as disclosed to the 
Contracting Officer by written communication dated ________, the 
deliverable items for which Installment Payments are requested will 
be delivered or performed in accordance with the contract;
    (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 security;
    (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 Installment Payment, the 
amount of all payments for each deliverable item for which 
Installment 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.
    (6) I understand that inaccurate information provided to the 
Government may subject me and/or others to civil and/or criminal 
penalties for false claims or false statements pursuant to 31 U.S.C. 
3729 and 18 U.S.C. 1001.

(End of clause)


52.232-AC  Invitation to Propose Financing Terms.

    The contracting officer shall include this provision as specified 
in 32.205(b) and 32.206.

Invitation to Propose Financing Terms (Date)

    (a) The offeror is invited to propose terms under which the 
Government shall make contract financing payments to the contractor 
during performance of this contract. The financing terms proposed by 
the offeror shall be a factor in the evaluation of the contractor's 
proposal. The financing terms of the successful offeror and the 
clause, Standard Terms for Government Financing of Purchases of 
Commercial Items, at 52.232-AA, 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 
Standard Terms for Government Financing of Purchases of Commercial 
Items at 52.232-AA, the terms of the clause Standard Terms for 
Government Financing of Purchases of Commercial Items at 52.232-AA 
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 term,
    (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 interest 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 32.202-3 for appropriate definitions of types of 
payments),
    (2) A listing of the earliest time 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 time or in 
any 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. This evaluation shall be done using the interest rate and 
delivery schedule specified elsewhere in this solicitation.

(End of provision)


52.232-BB  Notice of Performance-Based Payments.

    As prescribed in 32.1005(b), insert the following provision:

Notice of Performance-Based Payments (Date)

    The need for customary performance-based payments conforming to 
the regulations in Subpart 32.10 of the Federal Acquisition 
Regulation (FAR) will not be considered as a handicap or adverse 
factor in the award of the contract. The Performance-Based Payments 
clause included in this solicitation, and the description of the 
basis for payment and liquidation, will be included in any resulting 
contract. Even though the clause is included in the contract, the 
clause shall be inoperative during any time the Contractor's 
records, accounts, or controls are determined by the Government to 
be inadequate for administration of this clause. [[Page 14169]] 

(End of provision)


52.232-BC  Notice of Availability of Performance-Based Payments 
Exclusively for Small Business Concerns.

    As provided in 32.1005(c), insert the following provision:

Notice of Availability of Performance-Based Payments Exclusively for 
Small Business Concerns (Date)

    The Performance-Based Payments clause will be available only to 
small business concerns. Any bid conditioned upon inclusion of a 
performance-based payment clause in the resulting contract will be 
rejected as nonresponsive if the bidder is not a small business 
concern.

(End of provision)


52.232-BD  Performance-Based Payments.

    As prescribed in 32.1005(a), insert the following clause:

Performance-Based Payments (Date)

    In accordance with the provisions of this clause, and the 
contract's description of the basis for payment, the Contractor 
shall be paid contract financing payments based upon performance 
under the following conditions:
    (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 basis for payment 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 
Payment prior to successful accomplishment of the event or 
performance criteria for which payment is requested. The Contracting 
Officer shall determine whether the event or performance criteria 
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 event 
or performance criteria 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 provided, 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 criteria, or into any of the conditions listed in 
paragraph (e), Reduction or Suspension of Payments, 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 and 
acceptance of an item shall be liquidated by deducting a percentage 
or the 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. If a liquidation percentage is used, the 
liquidation percentage for each line item shall be the percent of 
the total contract price that was previously paid under performance-
based finance payments. In order to ensure proper liquidation, 
performance-based financing payments made after any payment for a 
deliverable item shall be adjusted to reflect the amount of previous 
delivery payments.
    (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 below-
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 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 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.
    (i) Reports and Government access. The Contractor shall promptly 
furnish reports, certificates, financial statements, and other 
pertinent information requested by the [[Page 14170]] Contracting 
Officer for the administration of this clause and to determine that 
an event or other criteria 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 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).
    (m) Content of Contractor's certification. As required in 
paragraph (l)(5) of this clause, the Contractor shall make the 
following certification in each Request for Performance-Based 
Payment:
    I certify to the best of my knowledge and belief--
    (1) That this Request for Performance-Based Payment is true and 
correct; that 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) That (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) That 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) That 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) That 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. 95-6294 Filed 3-14-95; 8:45 am]
BILLING CODE 6820-34-P