Overview
FAR 32.102 defines and distinguishes the various methods the Government uses to provide financial support to contractors during contract performance. These methods include advance payments, progress payments (cost or stage-based), loan guarantees, and performance-based payments, as well as the use of partial delivery payments to assist contractor liquidity.
Key Rules
- Advance Payments: These are payments made prior to performance and are not measured by work benchmarks. They are liquidated as the contractor performs and may be passed down from prime contractors to subcontractors.
- Cost-Based Progress Payments: These are disbursed based on the actual costs a contractor incurs. They specifically exclude payments for partial deliveries, performance-based milestones, or percentage-of-completion stages.
- Loan Guarantees: These involve Federal Reserve banks guaranteeing private loans for contractors specifically involved in national defense acquisitions.
- Partial Deliveries: Agencies are generally required to pay for partial deliveries of supplies or services as they are accepted, unless the contract explicitly prohibits it. While technically a "payment method" rather than "financing," it serves a financing function by improving cash flow.
- Stage-of-Completion Progress Payments: These are based on a percentage of work accomplished. On undefinitized contract actions, these payments are capped at 80% of eligible costs.
- Performance-Based Payments: These are financing payments tied to the achievement of objective, quantifiable milestones or specific results rather than incurred costs.
Practical Implications
- Cash Flow Management: Contractors can use partial delivery clauses to maintain liquidity without the administrative complexity of formal financing methods like cost-based progress payments.
- Accounting Alignment: Contractors must ensure their accounting and project management systems are capable of supporting the specific financing method chosen—such as tracking incurred costs for progress payments versus documenting objective milestones for performance-based payments.