General
Advance payments are a last-resort financing method for non-commercial contracts and require strict justification, security, and agency oversight before approval.
Overview
FAR 32.402 outlines the general rules and limitations for providing advance payments to contractors under government contracts, excluding commercial acquisitions. Advance payments are allowed on any contract type but are considered the least preferred method of contract financing and should only be authorized when other forms of financing are not reasonably available. The section details statutory requirements and standards that must be met before advance payments can be approved, including adequate security, limits on payment amounts, and a determination that such payments are in the public interest or facilitate national defense. Agencies must ensure proper oversight, establish internal procedures, and coordinate with financing support activities before authorizing advance payments. Special rules apply for contracts under Pub.L.85-804, and agencies must ensure compliance with related FAR sections.
Key Rules
- Limitation on Authority
- Advance payments under Pub.L.85-804 are subject to specific limitations and referenced requirements.
- Preference for Other Financing
- Advance payments are the least preferred financing method and should only be used when other reasonable financing is unavailable.
- Statutory Requirements
- Contractors must provide adequate security, payments cannot exceed the unpaid contract price, and a written determination must show public interest or national defense facilitation.
- Standards for Determination
- Payments must not exceed interim cash needs, supplement other available funds, be given to responsible contractors, benefit the government, and fit specific categories.
- Combination with Other Payments
- Advance payments may be combined with progress or partial payments if necessary.
- Agency Oversight
- Agencies must assign approval authority at a high level and coordinate with financing support before authorizing advance payments.
- Special Compliance for Pub.L.85-804
- Contracts under Pub.L.85-804 must comply with additional requirements in FAR 50.103-7.
Responsibilities
- Contracting Officers: Ensure statutory and regulatory requirements are met, recommend advance payments only when justified, and coordinate with agency financing support.
- Contractors: Provide adequate security, demonstrate need, and comply with all requirements for advance payments.
- Agencies: Maintain oversight, establish procedures, and ensure uniform application and coordination for advance payments.
Practical Implications
- This section exists to ensure advance payments are used only when necessary and with proper safeguards, minimizing government risk.
- Contractors must be prepared to justify the need for advance payments and provide security.
- Common pitfalls include insufficient justification, lack of coordination, or failure to meet statutory requirements, which can delay or prevent approval.