Overview
This section prescribes the process by which contracting officers allow offerors to propose their own commercial contract financing terms and establishes a standardized mathematical methodology for evaluating the "time value of money" cost to the government.
Key Rules
- Solicitation Requirements: The contracting officer (CO) must include FAR provision 52.232-31 and specify both the delivery payment (invoice) dates and the interest rate that will be used for evaluation.
- Price Adjustment for Evaluation: To ensure a fair comparison, the CO must adjust each offeror's proposed price by adding the "imputed cost" of the proposed financing to determine the total cost to the government.
- Imputed Cost Calculation: The cost is calculated by multiplying the amount of each financing payment by the specified interest rate and the length of time (in years or fractions thereof) between the financing payment and the expected delivery payment.
- Interest Rate Source: The CO must use the nominal discount rate from Appendix C of OMB Circular A-94, selecting the rate appropriate to the period of contract financing.
- Best Interest Determination: The CO is responsible for determining which combination of price and financing terms serves the best interests of the United States.
Practical Implications
- Competitive Impact: Contractors proposing front-loaded financing (larger payments earlier in the performance period) will see their "evaluated price" increase more significantly, potentially making them less competitive against firms requiring less financing.
- Standardization: The rule creates a "level playing field" by using a standardized NPV (Net Present Value) style calculation, preventing offerors from hiding the true cost of their proposal within complex financing schedules.