32.205 Procedures for offeror-proposed commercial contract financing
Source: FAR 32.205 on acquisition.gov
Offerors may propose their own commercial contract financing terms, but the government will evaluate these proposals by calculating the total cost—including the time value of money—using a specified interest rate from OMB Circular A-94.
Overview
FAR 32.205 outlines the procedures for offerors to propose their own commercial contract financing terms and details how contracting officers must evaluate these proposals. The regulation ensures that the government fairly assesses the total cost of each offer, including the financial impact of early payments, to determine the best value for the United States.
Key Rules
- Offeror-Proposed Financing
- Offerors may propose their own contract financing terms, which the contracting officer must evaluate for the government's best interest.
- Solicitation Requirements
- Solicitations must include FAR provision 52.232-31 and specify both the delivery payment dates and the interest rate for evaluation.
- Evaluation of Financing Proposals
- Contracting officers must adjust proposed prices to reflect the cost of financing, using a specified interest rate to calculate the imputed cost of early payments.
- The imputed cost is calculated by multiplying the payment amount by the annual interest rate and the time between financing and delivery payment dates.
- The interest rate used must be from Appendix C of OMB Circular A-94, matching the period of financing as closely as possible.
Responsibilities
- Contracting Officers: Must include required provisions in solicitations, specify evaluation parameters, and accurately calculate the total evaluated price using the prescribed interest rate.
- Contractors/Offerors: May propose financing terms and must understand how their proposals will be evaluated for total cost.
- Agencies: Must ensure compliance with OMB Circular A-94 and maintain up-to-date evaluation practices.
Practical Implications
- This section allows flexibility for offerors but ensures the government accounts for the true cost of early payments.
- Contractors should carefully structure financing proposals, as the imputed cost can affect competitiveness.
- Common pitfalls include failing to use the correct interest rate or not specifying required solicitation details.
(a) Under this procedure, each offeror may propose financing terms. The contracting officer must then determine which offer is in the best interests of the United States.
(b) Solicitations. The contracting officer must include in the solicitation the provision at 52.232-31, invitation to Propose Financing Terms. The contracting officer must also-
(1) Specify the delivery payment (invoice) dates that will be used in the evaluation of financing proposals; and
(2) Specify the interest rate to be used in the evaluation of financing proposals (see paragraph (c)(4) of this section).
(c) Evaluation of proposals.
(1) When contract financing terms vary among offerors, the contracting officer must adjust each proposed price for evaluation purposes to reflect the cost of providing the proposed financing in order to determine the total cost to the Government of that particular combination of price and financing.
(2) Contract financing results in the Government making payments earlier than it otherwise would. In order to determine the cost to the Government of making payments earlier, the contracting officer must compute the imputed cost of those financing payments and add it to the proposed price to determine the evaluated price for each offeror.
(3) The imputed cost of a single financing payment is the amount of the payment multiplied by the annual interest rate, multiplied by the number of years, or fraction thereof, between the date of the financing payment and the date the amount would have been paid as a delivery payment. The imputed cost of financing is the sum of the imputed costs of each of the financing payments.
(4) The contracting officer must calculate the time value of proposal-specified contract financing arrangements using as the interest rate the nominal discount rate specified in AppendixC of the Office of Management and Budget (OMB) CircularA-94, "Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs," appropriate to the period of contract financing. Where the period of proposed financing does not match the periods in the OMB Circular, the interest rate for the period closest to the finance period shall be used. AppendixC is updated yearly, and is available from the Office of Economic Policy in the Office of Management and Budget (OMB).