Overview
FAR 32.113 defines the specific types of contract financing that are considered "customary" and requires solicitations to explicitly state which of these methods offerors are permitted to propose. It establishes a framework for standard financing across various procurement methods, including shipbuilding, construction, sealed bidding, and negotiated acquisitions.
Key Rules
- Solicitation Requirement: The government must specify in the solicitation which customary financing methods are available for the specific procurement.
- Specific Industry Standards: Financing for shipbuilding (percentage of completion) and construction/architect-engineer services (under FAR Part 36) are automatically classified as customary.
- Sealed Bidding: For contracts awarded via FAR Part 14, customary financing is limited to progress payments based on costs.
- Negotiated & Sole-Source: For FAR Part 15 acquisitions, customary financing includes either cost-based progress payments or performance-based payments (PBPs), but the two cannot be used together on the same contract.
- Alternative Methods: Advance payments and guaranteed loans are categorized as customary when provided in accordance with their specific FAR subparts.
- Combination Restrictions: While advance payments and guaranteed loans can be combined with other methods, a contractor cannot receive both progress payments and performance-based payments simultaneously.
Practical Implications
- Proposal Strategy: Offerors must ensure their financial proposals align strictly with the financing methods authorized in the solicitation, as proposing an unauthorized method may be deemed non-compliant.
- Operational Conflict: The "not both" rule regarding progress payments and performance-based payments requires contractors to choose the method that best suits their cash flow needs and accounting capabilities before contract award.