Overview
FAR 32.403 identifies the specific scenarios and contract types where advance payments are considered an appropriate and useful method of contract financing. This section serves as a whitelist of circumstances that justify the use of the government’s least preferred financing method.
Key Rules
- Institutional Research: Appropriate for R&D or experimental work conducted by nonprofit educational or research institutions.
- Government Facilities: Applicable to contracts for the management and operation of Government-owned plants (GOCOs).
- National Security: Used for highly classified contracts where the government must prohibit the assignment of claims to protect sensitive information.
- Technically Essential but Financially Weak: Permitted for contractors with limited financial resources whose technical expertise is critical to the agency, provided the agency implements strict financial monitoring.
- Market Failure of Private Financing: Applicable when private loans are unavailable, interest rates are unreasonable, or the work is too geographically remote for a bank to administer a loan.
- Preference for Small Businesses: Explicitly recognizes that circumstances requiring advance payments frequently occur when contracting with small business concerns.
- General Exception: Includes a "catch-all" provision for any exceptional circumstances where advance payments provide the most benefit to both the Government and the contractor.
Practical Implications
- Contractors falling under these categories have a regulatory basis to request advance payments, but they should expect significant government oversight and rigorous financial controls, especially if the request is based on financial weakness.
- Government Contracting Officers use this section to justify the high risk of providing funds before work is performed, ensuring that the decision aligns with specific policy objectives like supporting small businesses or maintaining critical technical capabilities.