32.411 Agreement for special account at a financial institution
Source: FAR 32.411 on acquisition.gov
FAR 32.411 mandates a standardized agreement to safeguard government advance payments by requiring their deposit in a special, controlled account with strict oversight and reporting requirements.
Overview
FAR 32.411 prescribes the required form and content for an agreement establishing a special account at a financial institution when advance payments are made to a contractor. This agreement ensures that government-advanced funds are segregated from the contractor’s general funds and are subject to specific controls and oversight. The regulation outlines the roles and responsibilities of the government, contractor, and financial institution, including the government’s lien on the account, procedures for deposit and withdrawal, access to records, and notification requirements in the event of legal actions affecting the account.
Key Rules
- Use of Standard Agreement Form
- Contracting officers must use the prescribed agreement format when establishing a special account for advance payments.
- Account Segregation and Designation
- Advanced funds must be deposited in a separate, designated special account at an eligible financial institution.
- Government Lien and Oversight
- The government holds a paramount lien on the account and has access to related records for six years after account closure.
- Financial Institution Responsibilities
- The financial institution must follow written directions from the government and notify the administering office of any legal actions affecting the account.
- Interest Rate Reporting
- The financial institution must report its prime interest rate monthly, unless the advance payments are interest-free.
Responsibilities
- Contracting Officers: Ensure the agreement is executed in the prescribed form and monitor compliance.
- Contractors: Deposit advance payments only in the designated special account and comply with all agreement terms.
- Agencies: Oversee the administration of the account and ensure access to records.
Practical Implications
- This section protects government funds by requiring segregation and oversight of advance payments.
- It clarifies the roles of all parties and ensures transparency and accountability in handling government-advanced funds.
- Common pitfalls include failure to use the correct agreement form, improper account setup, or inadequate record-keeping.
The contracting officer must use substantially the following form of agreement for a special account for advance payments:
Agreement for Special Account
This agreement is entered into this _____ day of _____, 20___, between the United States of America (the Government), represented by the Contracting Officer executing this agreement, _____ [Insert the name of the Contractor], a _____ [Insert the name of the State of incorporation] corporation (the Contractor), and _____, a financial institution operating under the laws of _____, located at ____________ (the financial institution).
Recitals
(a) Under date of _____, 20__, the Government and the Contractor entered into Contract No. _____, or a related supplemental agreement, providing for advance payments to the Contractor. A copy of the advance payment terms was furnished to the financial institution.
(b) The contract or supplemental agreement requires that amounts advanced to the Contractor be deposited separate from the Contractor’s general or other funds, in a Special Account at a member bank of the Federal Reserve System, any "insured" bank within the meaning of the Act creating the Federal Deposit Insurance Corporation (http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1811&num=0&edition=prelim" target="_blank">12 U.S.C. 1811), or a credit union insured by the National Credit Union Administration. The parties agree to deposit the amounts with the financial institution, which meets the requirement.
(c) This Special Account is designated "________ [Insert the Contractor’s name], _____________ [Insert the name of the Government agency] Special Account."
Covenants
In consideration of the foregoing, and for other good and valuable considerations, the parties agree to the following conditions:
(a) The Government shall have a lien on the credit balance in the account to secure the repayment of all advance payments made to the Contractor. The lien is paramount to any lien or claim of the financial institution regarding the account.
(b) The financial institution is bound by the terms of the contract relating to the deposit and withdrawal of funds in the Special Account, but is not responsible for the application of funds withdrawn from the account. The financial institution shall act on written directions from the Contracting Officer, the administering office, or a duly authorized representative of either. The financial institution is not liable to any party to this agreement for any action that complies with the written directions. Any written directions received by the financial institution through the Contracting Officer on _____ [Insert the name of the agency] stationery and purporting to be signed by, or by the direction of _____ or duly authorized representative, shall be, as far as the rights, duties, and liabilities of the financial institution are concerned, considered as being properly issued and filed with the financial institution by the _____ [Insert the name of the agency].
(c) The Government, or its authorized representatives, shall have access to the books and records maintained by the financial institution regarding the Special Account at all reasonable times and for all reasonable purposes, including (but not limited to), the inspection or copying of the books and records and any and all pertinent memoranda, checks, correspondence, or documents. The financial institution shall preserve the books and records for a period of 6 years after the closing of this Special Account.
(d) In the event of the service of any writ of attachment, levy of execution, or commencement of garnishment proceedings regarding the Special Account, the financial institution will promptly notify ______ [Insert the name of the administering office].
(e) While this Special Account exists, the financial institution shall inform the Government each month of the financial institution’s published prime interest rate and changes to the rate during the month. The financial institution shall give this information to the Contracting Officer on the last business day of the month. [This covenant will not be included in the Special Account Agreements covering interest-free advance payments.]
Each of the parties to this agreement has executed the agreement on _________________, 20____.
__________________________________________________ __________________________________________________
[Signatures and Official Titles]