Overview
This section prescribes the policies for constructing and including solicitation provisions and contract clauses when commercial contract financing is involved. It ensures that payment terms, security requirements, and liquidation methods are clearly defined and legally compliant for commercial products and services.
Key Rules
- Mandatory Clauses: All commercial contracts must include the "Payment" paragraph of FAR 52.212-4. If financing is provided, the Contracting Officer (CO) must also include FAR 52.232-29 (Terms for Financing) or FAR 52.232-30 (Installment Payments).
- Clause Requirements: Every financing clause must specify the computation of payment amounts, conditions for entitlement, liquidation methods, security provided by the contractor, and the frequency/form of payment requests.
- Objectively Determinable Basis: Commercial advance or interim payments must be based on verifiable events, the passage of time, or specified dates. The CO must have access to necessary facilities or information to verify entitlement.
- Liquidation Consistency: Liquidation (the process of recovering financing amounts from delivery payments) must match the computation basis. If financing is calculated on a "whole contract" basis, it must be liquidated on a "whole contract" basis using a uniform percentage.
- Financial Condition as Security: If a contractor’s financial health is used as security, the contract must explicitly state that the CO reserves the right to require alternative security if the contractor's financial condition deteriorates.
- Prompt Payment Act Application: The rules of FAR Subpart 32.9 apply to commercial financing. COs must clearly differentiate between financing payments and invoice (delivery) payments to ensure correct interest penalties and payment timing.
Practical Implications
- Customization vs. Standardization: While COs have the flexibility to "construct" specific financing terms, they are generally required to use the unaltered text of FAR 52.232-29 unless agency-specific regulations allow for variations.
- Administrative Burden: Installment payments (FAR 52.232-30) are designed to reduce administrative costs through equal interim payments, but they may become inefficient in contracts with a high volume of individual deliveries.
- Accounting Precision: Because financing must be distributed across multiple appropriation accounts when applicable, contractors and government payment offices must ensure their accounting systems can track liquidation and payment distribution accurately to avoid funding discrepancies.