32.303 General
Source: FAR 32.303 on acquisition.gov
FAR 32.303 establishes the framework and requirements for loan guarantees to support national defense contracts, detailing agency, lender, and Federal Reserve roles and compliance obligations.
Overview
FAR 32.303 outlines the general rules and procedures for loan guarantees under Section 301 of the Defense Production Act, specifically for contracts or operations related to national defense. The regulation establishes the authority, limitations, and responsibilities for guaranteeing agencies, private financial institutions, and the Federal Reserve Banks in the administration of these loan guarantees. It clarifies that guarantees are typically less than 100% unless exceptional circumstances exist, and that such guarantees are not available to other government agencies. The section also details the roles of the Federal Reserve Board and Banks in regulating, supervising, and executing loan guarantee agreements, including setting interest rates, fees, and standardizing forms and procedures. The guaranteeing agency is responsible for certifying contractor eligibility and determining the terms of the guaranteed loan to support contract performance.
Key Rules
- Authority and Limitations
- Loan guarantees are authorized for national defense contracts, subject to Congressional limits and statutory exceptions.
- Guarantee Percentage
- Guarantees are generally less than 100% unless the contractor is vital to national defense and no other financing is available.
- Exclusion of Government Agencies
- Loan guarantees cannot be issued to other government agencies.
- Role of Private Financial Institutions
- Private lenders administer the loans, with the guaranteeing agency sharing losses up to the guaranteed percentage.
- Federal Reserve Involvement
- Federal Reserve Banks execute guarantee agreements and are supervised by the Federal Reserve Board, which sets regulations, rates, and procedures.
- Agency Responsibilities
- The guaranteeing agency certifies eligibility and sets loan terms to meet contract financing needs.
Responsibilities
- Contracting Officers: Ensure contractors are aware of loan guarantee options and eligibility requirements.
- Contractors: Apply for loan guarantees through private financial institutions and provide necessary documentation.
- Agencies: Certify eligibility, set loan terms, and coordinate with the Federal Reserve and the Federal Reserve Board for compliance.
Practical Implications
- This section enables contractors to secure financing for defense contracts when conventional funding is unavailable, supporting national defense priorities.
- Contractors must demonstrate exceptional need and lack of alternative financing for 100% guarantees.
- Agencies must carefully certify eligibility and loan terms to ensure compliance and proper use of federal guarantees.
(a) Section 301 of the Defense Production Act authorizes loan guarantees for contract performance or other operations related to national defense, subject to amounts annually authorized by Congress on the maximum obligation of any guaranteeing agency under any loan, discount, advance, or commitment in connection therewith, entered into under section 301. (See 50 U.S.C. App.2091 for statutory limitations and exceptions concerning the authorization of loan guarantee amounts and the use of loan guarantees for the prevention of insolvency or bankruptcy.)
(b) The guarantee shall be for less than 100 percent of the loan unless the agency determines that-
(1) The circumstances are exceptional;
(2) The operations of the contractor are vital to the national defense; and
(3) No other suitable means of financing are available.
(c) Loan guarantees are not issued to other agencies of the Government.
(d) Guaranteed loans are essentially the same as conventional loans made by private financial institutions, except that the guaranteeing agency is obligated, on demand of the lender, to purchase a stated percentage of the loan and to share any losses in the amount of guaranteed percentage. It is the responsibility of the private financial institution to disburse and collect funds and to administer the loan. Under Regulation V of the Federal Reserve Board (12 CFR245), any private financing institution may submit an application to the Federal Reserve Bank of its district for guarantee of a loan or credit.
(e) Federal Reserve Banks will make the loan guarantee agreements on behalf of the guaranteeing agencies.
(f) Under Section 302(c) of Executive Order 10480, August 14,1953 (3 CFR1949-53), as amended, all actions and operations of Federal Reserve Banks, as fiscal agents, are subject to the supervision of the Federal Reserve Board. The Federal Reserve Board is authorized to prescribe the following, after consultation with the heads of guaranteeing agencies:
(1) Regulations governing the actions and operations of fiscal agents.
(2) Rates of interest, guarantee and commitment fees, and other charges that may be made for loans, discounts, advances, or commitments guaranteed by the guaranteeing agencies through the Federal Reserve Banks. These prescriptions may be in the form of specific rates or limits, or in other forms.
(3) Uniform forms and procedures to be used in connection with the guarantees.
(g) The guaranteeing agency is responsible for certifying eligibility for the guarantee and fixing the maximum dollar amount and maturity date of the guaranteed loan to meet the contractor’s requirement for financing performance of the defense production contract on hand at the time the guarantee application is submitted.