Overview
This section prescribes the mandatory use of FAR clause 52.232-12, Advance Payments, and specifies five distinct Alternates that must be applied based on the contract type, interest terms, and the contractor's financial stability.
Key Rules
- Basic Clause (52.232-12): Must be included in any solicitation or contract where the government will provide advance payments.
- Alternate I (Financial Strength): Used to waive the government countersignature requirement if the contractor demonstrates strong financial health and a reliable performance history.
- Alternate II (Cost-Reimbursement): Required specifically for cost-reimbursement type contracts.
- Alternate III (Rapid Liquidation): Applied when the agency determines that the advance payment should be recovered (liquidated) more quickly than standard rates.
- Alternate IV (No-Interest): Used when the government provides advance payments to a prime contractor without charging interest.
- Alternate V (Special Account Waiver): Replaces the basic clause when the requirement for a dedicated special bank account is eliminated.
Practical Implications
- Contracting Officers must perform a tailored risk assessment of the contractor's financial systems to determine if Alternates I or V are appropriate to reduce administrative oversight.
- Misapplication of these Alternates can lead to significant compliance issues regarding how funds are tracked, interest is calculated, or how the government's debt is recovered during contract performance.