Order of preference
Contracting officers must follow a specific order of preference for contract financing, prioritizing private and customary options before considering riskier Government-backed methods, unless an exception is justified.
Overview
FAR 32.106 establishes the required order of preference that contracting officers must follow when considering contractor requests for contract financing. The regulation aims to ensure that the Government uses the least risky and most cost-effective financing methods first, only moving to more exceptional or riskier options if necessary. The order is: (a) private financing without Government guarantee, (b) customary contract financing (excluding loan guarantees and certain advance payments), (c) loan guarantees, (d) unusual contract financing, and (e) advance payments. Contracting officers are not to require contractors to seek private financing at unreasonable terms or from other agencies. Exceptions to this order may be made if it is in the Government’s best interest for a specific case. This section helps manage financial risk and ensures prudent use of Government resources in non-commercial contract financing situations.
Key Rules
- Order of Preference for Financing
- Contracting officers must follow a specific order when considering contract financing requests, starting with private financing and ending with advance payments.
- Reasonableness of Private Financing
- Contractors should not be forced to obtain private financing at unreasonable terms or from other agencies.
- Exceptions Allowed
- The order can be bypassed if it is in the Government’s best interest for a particular case.
Responsibilities
- Contracting Officers: Must apply the order of preference, assess the reasonableness of private financing, and document exceptions.
- Contractors: Should request financing as needed and provide information to support their requests.
- Agencies: Oversee compliance and ensure prudent financial management.
Practical Implications
- Ensures the Government minimizes risk and cost in contract financing.
- Requires careful documentation and justification for exceptions.
- Contractors should be prepared to demonstrate why certain financing options are not feasible.