32.304-6
Other collateral security
The government may require additional forms of collateral security for guaranteed loans to protect its interests, so contractors should be prepared to provide such security if requested.
Overview
FAR 32.304-6 outlines additional forms of collateral security that may be required by the government when issuing guaranteed loans to contractors. While these forms of security are not commonly used, they can be invoked if deemed necessary to protect the government's interests. The section provides examples such as mortgages on fixed assets, liens against inventories, endorsements, guarantees, and subordinations or standbys of other indebtedness. These measures serve as supplementary protections beyond the primary collateral typically required for guaranteed loans.
Key Rules
- Additional Security May Be Required
- The government can require other forms of collateral security if it determines that extra protection is needed for its interests in a guaranteed loan.
- Examples of Acceptable Collateral
- Acceptable forms include mortgages, liens, endorsements, guarantees, and subordinations or standbys of other debts.
Responsibilities
- Contracting Officers: Must assess the need for additional collateral security and ensure appropriate measures are in place to protect government interests.
- Contractors: Must be prepared to provide additional forms of security if requested as a condition of a guaranteed loan.
- Agencies: Should oversee and review the sufficiency of collateral arrangements to safeguard government funds.
Practical Implications
- This section exists to give the government flexibility to demand extra security when standard collateral is insufficient or risk is elevated.
- Contractors should anticipate possible requests for additional security and be ready to comply to avoid delays or denial of loan guarantees.
- Common issues include delays in loan processing if collateral requirements are not met or misunderstandings about what constitutes acceptable security.