Overview
This section outlines the application of guaranteed loans to provide bridge financing for contractors whose defense production contracts have been, or are about to be, terminated for the convenience of the Government. It ensures contractors maintain liquidity by financing their recoverable investment while awaiting final termination settlements and payments.
Key Rules
- Purpose: Loans are intended to provide necessary financing during the interim period between contract termination and the receipt of settlement payments.
- Timing: Guarantees can be issued after a termination notice or before an official termination if the action is known to be imminent; however, they cannot be provided until the termination is "certain."
- Eligibility Requirements: The standard requirement for a "certificate of eligibility" is waived for contracts that have been totally terminated or for the terminated portions of partially terminated contracts.
- Financial Safeguards: The guaranteeing agency must take precautions to prevent Government losses and ensure the loans are self-liquidating from the proceeds of the contract settlements.
- Dual-Use Financing: These loans can simultaneously finance the settlement of terminated contracts and the continued performance of remaining eligible defense production contracts.
Practical Implications
- Cash Flow Protection: This provision serves as a vital financial safety net for defense contractors, preventing insolvency or operational disruption caused by the often lengthy administrative process of settling termination claims.
- Streamlined Access: By waiving the certificate of eligibility for terminated work, the FAR reduces regulatory hurdles, allowing for faster capital deployment during a contractor's period of high financial vulnerability.