Overview
FAR 32.104 establishes the policies and criteria for providing Government contract financing to ensure prompt and efficient contract performance. It directs contracting officers to use financing as a tool to support acquisitions while minimizing financial risk to the Government and prioritizing the needs of small businesses.
Key Rules
- Decision Criteria: Contracting officers (COs) should resolve doubts by including financing in solicitations but must limit it to the extent actually needed for performance, considering the contractor's working capital and availability of private financing.
- Small Business Prioritization: COs must give special attention to the financing needs of small businesses. Notably, the receipt of an SBA Certificate of Competency does not automatically entitle a contractor to financing.
- Customary vs. Unusual Financing: COs may provide customary financing (per 32.113) but are prohibited from providing unusual financing unless specifically authorized under 32.114.
- Monetary Thresholds for Financing:
- Large Businesses: The contract price must be $3.5 million or more.
- Small Businesses: The contract price must exceed the Simplified Acquisition Threshold (SAT).
- Performance Timelines: To qualify for progress payments or performance-based payments, there must be a significant gap between the start of work and the first delivery—typically 4 months or more for small businesses and 6 months or more for large businesses.
- Administrative Responsibility: The CO is required to monitor the contractor's financial status and the specific use of provided financing to avoid undue risk of monetary loss.
Practical Implications
- Cash Flow Management: For long-lead-time contracts, such as major systems or complex manufacturing, this section allows contractors to maintain liquidity without relying solely on private debt, provided they meet the specific lead-time and dollar thresholds.
- Solicitation Strategy: Because COs are encouraged to include financing options when in doubt, contractors should proactively address their financial need during the proposal phase to ensure the appropriate financing clauses are incorporated.