Other protective terms
Contracting officers may impose additional protective terms—such as guarantees or special bank accounts—on contracts with progress payments to better safeguard the Government’s interests.
Overview
FAR 32.501-5 allows contracting officers to include additional protective terms in contracts with progress payments if they believe it is necessary to safeguard the Government’s interests. These terms are used in addition to the standard Progress Payments clause and may include personal or corporate guarantees, subordinations or standbys of indebtedness, special bank accounts, protective covenants (as referenced in FAR 52.232-12), and specific provisions limiting progress payments on first article work when such testing is required. The intent is to provide the Government with extra security or control over contract funds, especially in situations where there may be increased risk or uncertainty regarding contractor performance or financial stability.
Key Rules
- Use of Additional Protective Terms
- Contracting officers may require extra protective measures beyond the standard Progress Payments clause to protect the Government’s interests.
- Types of Protective Terms
- Acceptable terms include guarantees, subordinations, special bank accounts, protective covenants, and limits on progress payments for first article work.
Responsibilities
- Contracting Officers: Assess risk and determine if additional protective terms are needed; include such terms in solicitations and contracts as appropriate.
- Contractors: Comply with any additional protective terms imposed, such as providing guarantees or establishing special bank accounts.
- Agencies: Ensure oversight and enforcement of these protective terms to mitigate financial risk.
Practical Implications
- This section exists to give the Government flexibility to protect its financial interests in contracts with progress payments, especially in higher-risk scenarios.
- Contractors may face additional administrative or financial requirements if these terms are imposed.
- Common issues include delays or complications in contract execution if contractors are unprepared to meet these extra requirements.