32.105 Uses of contract financing
Source: FAR 32.105 on acquisition.gov
Contract financing is strictly for contractor working capital during contract performance, with only narrow exceptions for facility expansion under loan guarantees or for government-owned facilities.
Overview
FAR 32.105 outlines the permissible uses of contract financing, emphasizing that such financing is intended to support contractor working capital needs during contract performance, not to fund the expansion of contractor-owned facilities or the acquisition of fixed assets. The regulation allows for limited exceptions under loan guarantees, such as minor or incidental facilities expansion or other agency-approved circumstances. Importantly, these restrictions do not apply to contracts where facilities are being acquired for Government ownership.
Key Rules
- Purpose of Contract Financing
- Contract financing should be self-liquidating and used only for contractor working capital during contract performance.
- Prohibition on Facility Expansion and Fixed Asset Acquisition
- Agencies must not use contract financing for expanding contractor-owned facilities or acquiring fixed assets, except in limited cases under loan guarantees.
- Exceptions for Loan Guarantees
- Minor or incidental facility expansion is allowed if it does not significantly delay or impair repayment, or if agency procedures specifically permit it.
- Government-Owned Facilities Exception
- The limitations do not apply when the contract involves acquiring facilities for Government ownership.
Responsibilities
- Contracting Officers: Ensure contract financing is used only for working capital, verify any exceptions are justified and documented, and confirm compliance with agency procedures.
- Contractors: Use contract financing strictly for working capital unless an approved exception applies; avoid using funds for facility expansion or fixed asset acquisition unless permitted.
- Agencies: Oversee and enforce compliance, and establish procedures for exceptions under loan guarantees.
Practical Implications
- This section exists to prevent misuse of government funds by restricting contract financing to working capital needs, reducing financial risk to the government.
- Contractors must be careful not to use contract financing for unauthorized purposes, as violations can result in noncompliance or penalties.
- Contracting officers must scrutinize financing requests and exceptions, ensuring all uses align with FAR and agency policy.
(a) Contract financing methods covered in this part are intended to be self-liquidating through contract performance. Consequently, agencies shall only use the methods for financing of contractor working capital, not for the expansion of contractor-owned facilities or the acquisition of fixed assets. However, under loan guarantees, exceptions may be made for-
(1) Facilities expansion of a minor or incidental nature, if a relatively small part of the guaranteed loan is used for the expansion and the contractor’s repayment would not be delayed or impaired; or
(2) Other instances of facilities expansion for which contract financing is appropriate under agency procedures.
(b) The limitations in this section do not apply to contracts under which facilities are being acquired for Government ownership.