[Federal Register Volume 65, Number 85 (Tuesday, May 2, 2000)]
[Proposed Rules]
[Pages 25614-25615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10906]



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Part III





Department of Defense

General Services Administration

National Aeronautics and Space Administration





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48 CFR Parts 32 and 52



Federal Acquisition Regulation; Advance Payments for Non-Commercial 
Items; Proposed Rule

  Federal Register / Vol. 65, No. 85 / Tuesday, May 2, 2000 / Proposed 
Rules  

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 32 and 52

[FAR Case 1999-016]
RIN 9000-AI74


Federal Acquisition Regulation; Advance Payments for Non-
Commercial Items

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to permit federally insured credit 
unions to participate in the maintenance of special accounts for 
advance payments.

DATES: Interested parties should submit comments in writing on or 
before July 3, 2000, to be considered in the formulation of a final 
rule.

ADDRESSES: Submit written comments to: General Services Administration, 
FAR Secretariat (MVRS), 1800 F Street, NW, Room 4035, ATTN: Laurie 
Duarte, Washington, DC 20405.
    Submit electronic comments via the Internet to:
[email protected]
    Please submit comments only and cite FAR case 1999-016 in all 
correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC, 20405, at (202) 501-4755 for information 
pertaining to status or publication schedules. For clarification of 
content, contact Mr. Jeremy Olson, at (202) 501-0692. Please cite FAR 
case 1999-016.

SUPPLEMENTARY INFORMATION:

A. Background

    FAR 32.4, Advance Payments for Non-Commercial Items, requires, 
unless exempted by FAR 32.409-3(e) or (f), that contractors deposit 
advance payments in special accounts separate from their general or 
other funds. FAR 32.411 and other FAR text exclude credit unions from 
participating in the maintenance of these special accounts by requiring 
that contractors establish these special accounts only at banks that 
are members of the Federal Reserve System (FRS) or insured by the 
Federal Deposit Insurance Corporation (FDIC). However, many credit 
unions are federally insured through the National Credit Union 
Administration (NCUA). Therefore, these credit unions are able to 
provide the Government a measure of security for Federal funds advanced 
to contractors, as well as those banks that are members of the FRS or 
insured by FDIC.
    The proposed rule amends FAR 32.4 and FAR 52.232-12 to change 
certain terminology (e.g., change the word ``bank'' to financial 
institution'') to provide contractors an additional option of 
depositing advance payments in special accounts maintained by credit 
unions insured by NCUA. This revision will foster competition among 
financial institutions who are in the business of providing special 
accounts for advance payment funds, without increasing the risk to the 
Government.
    This rule was not subject to Office of Management and Budget review 
under Section 6(b) of Executive Order 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

B. Regulatory Flexibility Act

    The Councils do not expect this proposed rule 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 rule only applies to the very limited number of contractors 
that receive advance payments and deposit these payments in special 
accounts. An Initial Regulatory Flexibility Analysis has, therefore, 
not been performed. Comments are invited from small businesses and 
other interested parties. The Councils will consider comments from 
small entities concerning the affected FAR subparts 32 and 52 in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 601 et seq., (FAR case 
1999-016), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose information collection requirements 
that require the approval of the Office of Management and Budget under 
44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 32 and 52:

    Government procurement.

    Dated: April 27, 2000.
Edward C. Loeb,
Director Federal Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA propose that 48 CFR parts 32 and 52 
be amended as set forth below:
    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).

PART 32--CONTRACT FINANCING

    2. Revise paragraph (a)(1) of section 32.407 to read as follows:


32.407  Interest.

    (a) * * *
    (1) The published prime rate of the financial institution 
(depository) in which the special account (see 32.409-3) is 
established; or
* * * * *


32.408  [Amended]

    3. Amend paragraph (b)(4) of section 32.408 by removing ``bank'' 
both times it appears and adding ``financial institution'' in its 
place.
    4. Amend section 32.409-3 as follows:
    a. In paragraph (a) remove ``bank'' and add ``special'' in its 
place;
    b. In paragraphs (b)(2), (c)(2), and (e) remove ``bank''.
    c. Revise paragraph (f)(1); and
    d. In paragraph (g) remove ``bank'' both times it appears.
    The revised text reads as follows:


32.409-3  Security, supervision, and covenants.

* * * * *
    (f) * * *
    (1) The use under a cost-reimbursement contract of Federal funds 
deposited in the contractor's account at a financial institution 
(without the contractor acquiring title to the funds); and
* * * * *
    5. In section 32.410, revise the second sentence in paragraph 
(a)(4) of the ``Findings, Determination, and Authorization for Advance 
Payments Findings'' to read as follows:


32.410  Findings, determination, and authorization.

* * * * *

    (a) * * *
    (4) * * * The clause requires that all payments will be 
deposited in a special account at the contractor's financial 
institution and that the Government will have a paramount lien on 
(i) the credit balance in the special account, (ii) any supplies 
contracted for, and (iii) any material or other property acquired 
for performance of the contract. * * *
* * * * *

[[Page 25615]]

    6. The section heading and text of 32.411 is revised to read as 
follows:


32.411  Agreement for special account at a financial institution.

    The contracting officer shall use substantially the following form 
of agreement for a special account for advance payments:

AGREEMENT FOR SPECIAL ACCOUNT

    This agreement is entered into this ________ day of ________, 
20________, between the United States of America, (the Government) 
represented by the Contracting Officer executing this agreement, 
________ [Insert the name of the Contractor], a ________ [Insert the 
name of the State of incorporation] corporation (the Contractor), 
and ________, a financial institution operating under the laws of 
________, located at ________ the financial institution.

RECITALS

    (a) Under date of ________, 20________, the Government and the 
Contractor entered into Contract No. ________, or a related 
supplemental agreement, providing for advance payments to the 
Contractor. A copy of the advance payment terms was furnished to the 
financial institution.
    (b) The contract or supplemental agreement requires that amounts 
advanced to the Contractor be deposited separate from the 
Contractor's general or other funds, in a Special Account at a 
member bank of the Federal Reserve System, any ``insured'' bank 
within the meaning of the Act creating the Federal Deposit Insurance 
Corporation (12 U.S.C. 1811), or a credit union insured by the 
National Credit Union Administration. The parties agree to deposit 
the amounts with the financial institution, which meets the 
requirement.
    (c) This Special Account is designated ``________ [Insert the 
Contractor's name], ________ [Insert the name of the Government 
agency] Special Account.''

COVENANTS

    In consideration of the foregoing, and for other good and 
valuable considerations, the parties agree to the following 
conditions:
    (a) The Government shall have a lien on the credit balance in 
the account to secure the repayment of all advance payments made to 
the Contractor. The lien is paramount to any lien or claim of the 
financial institution regarding the account.
    (b) The financial institution is bound by the terms of the 
contract relating to the deposit and withdrawal of funds in the 
Special Account, but is not responsible for the application of funds 
withdrawn from the account. The financial institution shall act on 
written directions from the Contracting Officer, the administering 
office, or a duly authorized representative of either. The financial 
institution is not liable to any party to this agreement for any 
action that complies with the written directions. Any written 
directions received by the financial institution through the 
Contracting Officer on ________ [Insert the name of the agency] 
stationery and purporting to be signed by, or by the direction of 
________ or duly authorized representative, shall be, as far as the 
rights, duties, and liabilities of the financial institution are 
concerned, considered as being properly issued and filed with the 
financial institution by the ________ [Insert the name of the 
agency].
    (c) The Government, or its authorized representatives, shall 
have access to the books and records maintained by the financial 
institution regarding the Special Account at all reasonable times 
and for all reasonable purposes, including (but not limited to), the 
inspection or copying of the books and records and any and all 
pertinent memoranda, checks, correspondence, or documents. The 
financial institution shall preserve the books and records for a 
period of 6 years after the closing of this Special Account.
    (d) In the event of the service of any writ of attachment, levy 
of execution, or commencement of garnishment proceedings regarding 
the Special Account, the financial institution will promptly notify 
________ [Insert the name of the administering office].
    (e) While this Special Account exists, the financial institution 
shall inform the Government each month of the financial institutions 
published prime interest rate and changes to the rate during the 
month. The financial institution shall give this information to the 
Contracting Officer on the last business day of the month. [This 
covenant will not be included in the Special Account Agreements 
covering interest-free advance payments.]
    Each of the parties to this agreement has executed the agreement 
on ________, 20________.
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[Signatures and Official Titles]


32.412  [Amended]

    7. Amend paragraph (f) of section 32.412 by removing ``bank''.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    8. Amend section 52.232-12 as follows:
    a. Revise the date of the clause;
    b. Revise paragraph (b);
    c. Remove ``bank'' from paragraphs (c) and (d);
    d. Revise paragraph (f)(3);
    e. Revise paragraph (g);
    f. Remove ``bank'' from paragraphs (h), (k)(1) introductory text, 
(k)(1)(iv), (k)(2)(i), and (m)(1) each time it appears.
    g. Revise paragraph (p)(11);
    h. Amend Alternate II by revising the date to read ``(DATE)''; and 
removing ``bank'' from paragraph (c);
    i. Amend Alternate V by revising the date to read ``(DATE)''; and 
removing from the introductory paragraph ``bank''; and
    j. Revise the heading of the clause in Alternate V and paragraph 
(m)(11).
    The revised text reads as follows:


52.232-12  Advance Payments.

* * * * *

ADVANCE PAYMENTS (DATE)

* * * * *
    (b) Special account. Until (1) the Contractor has liquidated all 
advance payments made under the contract and related interest 
charges and (2) the administering office has approved in writing the 
release of any funds due and payable to the Contractor, all advance 
payments and other payments under this contract shall be made by 
check payable to the Contractor marked for deposit only in the 
Contractor's special account with the ________ [insert the name of 
the financial institution]. None of the funds in the special account 
shall be mingled with other funds of the Contractor. Withdrawals 
from the special account may be made only by check of the Contractor 
countersigned by the Contracting Officer or a Government 
countersigning agent designated in writing by the Contracting 
Officer.
* * * * *
    (f) * * *
    (3) If interest is required under the contract, the Contracting 
Officer shall determine a daily interest rate based on the higher of 
(i) the published prime rate of the financial institution 
(depository) in which the special account is established or (ii) the 
rate established by the Secretary of the Treasury under Pub. L. 92-
41 (50 U.S.C. App. 1215(b)(2)). The Contracting Officer shall revise 
the daily interest rate during the contract period in keeping with 
any changes in the cited interest rates.
* * * * *
    (g) Financial institution agreement. Before an advance payment 
is made under this contract, the Contractor shall transmit to the 
administering office, in the form prescribed by the administering 
office, an agreement in triplicate from the financial institution in 
which the special account is established, clearly setting forth the 
special character of the account and the responsibilities of the 
financial institution under the account. The Contractor shall select 
a financial institution that is a member bank of the Federal Reserve 
System, an ``insured'' bank within the meaning of the Federal 
Deposit Insurance Corporation Act (12 U.S.C. 1811), or is a credit 
union insured by the National Credit Union Administration.
* * * * *
    (p) * * *
    (11) Deposit any of its fund except in a bank or trust company 
insured by the Federal Deposit Insurance Corporation or a credit 
union insured by the National Credit Union Administration;
* * * * *

ADVANCE PAYMENTS WITHOUT SPECIAL ACCOUNT (DATE)

* * * * *
    (m) * * *
    (11) Deposit any of its funds except in a bank or trust company 
insured by the Federal Deposit Insurance Corporation or a credit 
union insured by the National Credit Union Administration;
* * * * *
[FR Doc. 00-10906 Filed 5-1-00; 8:45 am]
BILLING CODE 6820-EP-U