32.109
Termination financing
FAR 32.109 allows contractors to receive financing for costs incurred due to contract termination for convenience, encouraging investment in contract performance despite termination risks.
Overview
FAR 32.109 addresses the use of contract financing procedures to support contractors when a contract is terminated for the convenience of the Government. The regulation allows for the application of financing mechanisms—such as progress payments or advance payments—not only during contract performance but also specifically to cover costs associated with contract termination. This is intended to encourage contractors to commit their own resources to contract performance, even when there is a risk of termination. The section references FAR 49.112-1 for further details on termination settlement financing procedures.
Key Rules
- Termination Financing Permitted
- Contract financing procedures may be used to finance costs arising from contract termination for convenience, either alongside or separate from performance financing.
- Encouragement of Contractor Investment
- The rule is designed to reassure contractors that they can recover certain costs if the contract is terminated, encouraging them to invest their own funds during performance.
Responsibilities
- Contracting Officers: Must consider and may authorize termination financing as appropriate, referencing FAR 49.112-1 for procedures.
- Contractors: Should understand their eligibility for termination financing and maintain documentation of costs incurred due to termination.
- Agencies: Should ensure oversight of termination financing to prevent misuse and support contractor confidence.
Practical Implications
- This section exists to mitigate contractor reluctance to invest in government contracts that may be terminated for convenience.
- It impacts daily contracting by providing a financial safety net, making government contracts more attractive to contractors.
- Common pitfalls include misunderstanding eligibility or failing to follow proper procedures for requesting termination financing.