Overview
FAR 32.402 establishes the general policy and criteria for providing advance payments to contractors, positioning them as the least preferred method of contract financing. It outlines the specific statutory requirements, administrative standards, and agency-level responsibilities necessary to authorize such payments.
Key Rules
- Preference and Availability: Advance payments are the least preferred financing method and should be authorized sparingly. They are generally only permitted if other financing is not reasonably available at non-exorbitant rates.
- Statutory Requirements: Authorization requires the contractor to provide adequate security, ensuring payments do not exceed the unpaid contract price, and a written determination by the agency head that the payment is in the public interest or facilitates national defense.
- Standards for Determination: The agency must verify that the contractor is "responsible" and that payments are limited to interim cash needs based on a rigorous analysis of cash flow and the contractor's own working capital.
- Administrative Oversight: Findings and determinations must be made at a high organizational level to ensure uniform application and must be coordinated with the agency’s contract financing support activity.
- Concurrent Financing: If necessary, an agency may authorize advance payments in addition to progress or partial payments on the same contract.
Practical Implications
- Contractors face a high burden of proof to demonstrate that private financing is unavailable or available only at "exorbitant" rates before the Government will consider upfront funding.
- Because the approval process requires high-level agency findings and a written "public interest" determination, obtaining advance payments is a complex, time-consuming administrative hurdle compared to standard progress payments.