Overview
FAR 32.105 establishes that contract financing is intended to provide working capital for contract performance and must be self-liquidating, rather than serving as a means for contractors to fund capital improvements or asset acquisitions.
Key Rules
- Self-Liquidation: Financing methods must be designed to be recovered through the delivery of goods or services under the contract.
- Working Capital Limitation: Funds are restricted to operational working capital and may not be used to acquire fixed assets or expand contractor-owned facilities.
- Loan Guarantee Exceptions: Minor or incidental facility expansions may be permitted under loan guarantees if they involve small amounts of capital and do not jeopardize repayment.
- Government Ownership Exception: The restrictions against facility expansion do not apply if the contract specifically involves the acquisition of facilities for Government ownership.
Practical Implications
- Financial Compliance: Contractors must ensure that financing proceeds are applied to the immediate costs of performance rather than long-term infrastructure investments.
- Audit Risk: Contracting Officers and auditors will monitor the application of funds to ensure they are not being diverted to capitalize the contractor’s private business footprint.