32.202-1
Policy
Government financing for commercial contracts is only permitted when it aligns with commercial practice, meets strict conditions, and serves the Government’s best interest.
Overview
FAR 32.202-1 outlines the policy for providing contract financing for commercial products and services. Generally, contractors are expected to finance their own performance, but the Government may provide financing when it aligns with commercial practices and is in the Government's best interest. The section details the conditions under which commercial interim and advance payments may be authorized, including contract type, value, market practices, security, and competitive considerations. It also distinguishes commercial contract financing from non-commercial financing, requires special approval for unusual arrangements, and emphasizes that financing must serve the Government's best interest.
Key Rules
- Contractor Responsibility
- Contractors are typically responsible for financing contract performance, especially for commercial items.
- Authorization of Financing
- Government financing (interim or advance payments) is allowed only if specific conditions are met, such as contract type, value, market custom, security, and competitive procedures.
- Limits on Advance Payments
- Advance payments before performance cannot exceed 15% of the contract price.
- Unusual Contract Financing
- Any financing arrangement outside standard regulations requires advance approval from agency leadership.
- Best Interest of the Government
- Financing must be justified as being in the Government’s best interest, with agencies allowed to set additional standards.
Responsibilities
- Contracting Officers: Ensure all conditions for financing are met, obtain necessary approvals, and protect Government interests.
- Contractors: Provide necessary security, comply with advance payment limits, and understand competitive and market requirements.
- Agencies: May set additional standards and must approve unusual financing arrangements.
Practical Implications
- This section ensures that Government financing for commercial contracts is used judiciously and only when justified by market practice and Government interest. Contractors should be prepared to self-finance unless clear justification exists. Common pitfalls include exceeding advance payment limits, failing to secure adequate security, or not obtaining required approvals for unusual arrangements.