52.232-12
Advance Payments
FAR 52.232-12 establishes strict controls and security requirements for contractors receiving advance payments, ensuring government funds are protected and used only for allowable contract costs.
Overview
FAR 52.232-12 governs the use of advance payments in government contracts, outlining strict requirements and procedures to protect government interests while providing contractors with necessary working capital. The clause details how advance payments are requested, managed, secured, and repaid, including the establishment of special accounts, use of funds, interest charges, liens, insurance, and reporting obligations. It also provides for several alternates to tailor the clause to specific contract types or agency needs.
Key Rules
- Advance Payment Requests and Limits
- Contractors must submit certified invoices or vouchers for advance payments, which are subject to approval and capped at specified amounts.
- Special Account Requirement
- Advance payments must be deposited in a segregated special account at an approved financial institution, with strict withdrawal and countersignature controls unless waived.
- Use and Control of Funds
- Withdrawals are limited to allowable, allocable, and reasonable contract costs; other uses require written approval.
- Repayment and Liquidation
- Contractors must repay excess or unneeded advance payments on request, and the government may withhold further payments or recover funds if necessary.
- Interest on Advance Payments
- Interest is generally charged on unliquidated advance payments at a rate based on the higher of the depository’s prime rate or the Treasury rate, with exceptions for certain nonprofit subcontractors or if waived.
- Security and Liens
- The government holds paramount liens on the special account and contract-related property to secure repayment.
- Insurance and Financial Controls
- Contractors must maintain adequate insurance and provide regular financial reports and access to records.
- Default and Remedies
- The government may withhold payments, demand repayment, or seize assets if the contractor defaults or fails to comply with terms.
Responsibilities
- Contracting Officers: Ensure proper clause inclusion, approve payments, monitor compliance, and enforce security and reporting requirements.
- Contractors: Establish and manage special accounts, use funds only for allowable costs, maintain insurance, provide required reports, and comply with all covenants and representations.
- Agencies: Oversee administration, approve exceptions or waivers, and ensure government interests are protected.
Practical Implications
- This clause exists to mitigate the government’s financial risk when providing advance payments, ensuring funds are used appropriately and recoverable if necessary.
- Contractors must implement robust financial controls and reporting, and be prepared for government oversight.
- Common pitfalls include improper use of funds, inadequate segregation of accounts, failure to maintain required insurance, or missing reporting deadlines, all of which can trigger default remedies.