TABLE OF CONTENTS
SUBPART 232.1--GENERAL
232.102 Description of contract financing methods.
232.102-70 Provisional delivery payments.
232.108 Financial consultation.
232.111 Contract clauses.
232.111-70 Additional clause.
232.170 Responsibilities.
232.171 Contract Finance Committee.
232.172 Financial responsibility of contractors.
232.172-1 Required financial reviews.
232.172-2 Appropriate information.
232.172-3 Cash flow forecasts.
232.173 Reduction or suspension of contract payments upon finding of fraud.
232.173-1 General.
232.173-2 Definitions.
232.173-3 Responsibilities.
232.173-4 Procedures.
232.173-5 Reporting.
SUBPART 232.3--LOAN GUARANTEES FOR DEFENSE PRODUCTION
232.302 Authority.
SUBPART 232.4--ADVANCE PAYMENTS
232.404 Exclusions.
232.409 Contracting officer action.
232.409-1 Recommendation for approval.
232.410 Findings, determination, and authorization.
232.412 Contract clause.
232.412-70 Additional clauses.
232.470 Advance payment pool.
SUBPART 232.5--PROGRESS PAYMENTS BASED ON COSTS
232.501 General.
232.501-1 Customary progress payment rates.
232.501-2 Unusual progress payments.
232.501-3 Contract price.
232.502 Preaward matters.
232.502-1 Use of customary progress payments.
232.502-1-70 Customary foreign military sale progress payments.
232.502-1-71 Customary flexible progress payments.
232.502-4 Contract clauses.
232.502-4-70 Additional clauses.
232.503 Postaward matters.
232.503-6 Suspension or reduction of payments.
232.503-15 Application of Government title terms.
DAC 91-2
TABLE OF CONTENTS (Continued)
SUBPART 232.6--CONTRACT DEBTS
232.605 Responsibilities and cooperation among Government officials.
232.606 Debt determination and collection.
232.610 Demand for payment of contract debt.
232.616 Compromise actions.
232.617 Contract clause.
232.670 Transfer of responsibility for debt collection.
232.671 Bankruptcy reporting.
SUBPART 232.7--CONTRACT FUNDING
232.702 Policy.
232.703 Contract funding requirements.
232.703-1 General.
232.703-70 Military construction appropriations act restriction.
232.704 Limitation of cost or funds.
232.704-70 Incrementally funded fixed-price contracts.
232.705 Contract clause.
232.705-70 Clause for limitation of Government's obligation.
SUBPART 232.8--ASSIGNMENT OF CLAIMS
232.803 Policies.
232.805 Procedure.
232.806 Contract clause.
SUBPART 232.9--PROMPT PAYMENT
232.903 Policy.
232.905 Invoice payments.
232.906 Contract financing payments.
232.970 Payment of subcontractors.
232.970-1 Subcontractor assertions of nonpayment.
232.970-2 Subcontractor requests for information.
232.102 Description of contract financing methods.
(e) (2) Progress payments based on percentage or stage of completion are authorized only for contracts for construction (as defined in FAR 36.102), shipbuilding, and ship conversion, alteration, or repair.
232.102-70 Provisional delivery payments.
(a) The contracting officer may establish provisional delivery payments to pay contractors for the costs of supplies and services delivered to and accepted by the Government under the following contract actions, if undefinitized--
(1) Letter contracts contemplating a fixed-price contract;
(2) Orders under basic ordering agreements;
(3) Spares provisioning documents annexed to contracts;
(4) Unpriced equitable adjustments on fixed-price contracts; and
(5) Orders under indefinite delivery contracts.
(b) Provisional delivery payments shall be--
(1) Used sparingly;
(2) Priced conservatively; and
(3) Reduced by liquidating previous progress payments in accordance with the Progress Payments clause.
(c) Provisional delivery payments shall not--
(1) Include profit;
(2) Exceed funds obligated for the undefinitized contract action; or
(3) Influence the definitized contract price.
232.108 Financial consultation.
(1) Department/agency contract financing offices are--
(i) Army - Office, Assistant Secretary of the Army (Financial Management);
(ii) Navy - Executive Comptroller for Banking, Cash Management, Contract Financing and Compensation Systems, Assistant Comptroller of the Navy for Financial Management;
(iii) Air Force - Chief of Banking and Contract Financing, Directorate of Accounting, Air Force Accounting and Finance Center;
(iv) Defense agencies - Office the(SIC) the agency comptroller.
(2) The Under or Assistant Secretary, or other designated official, responsible for the comptroller function within the department or agency is the focal point for financing matters at the departmental/agency headquarters. Departments/agencies may establish contract financing offices at operational levels.
(3) Contract financing offices should participate in--
(i) Developing regulations for contract financing;
(ii) Developing contract provisions for contract financing; and
(iii) Resolving specific cases which involve unusual contract financing requirements.
232.111-70 Additional clause.
Use the clause at 252.232-7006, Reduction or Suspension of Contract Payments Upon Finding of Fraud, in all solicitations and contracts.
(a) The Director of Defense Procurement, Office of the Under Secretary of Defense (Acquisition & Technology), USD(A&T)DP, is responsible for ensuring uniform administration of DoD contract financing, including DoD contract financing policies and important related procedures.
(b) The departments and agencies are responsible for their day-to-day contract financing operations. Refer specific cases involving financing policy or important procedural issues to USD(A)DP for consideration (see also 201.24 for deviation request and approval procedures).
232.171 Contract Finance Committee.
(a) The Contract Finance Committee consists of--
(1) A representative of the USD(A&T)DP, serving as chairman;
(2) A representative of the Comptroller of the Department of Defense; and
(3) Two representatives of each military department and the Defense Logistics Agency (one representing contracting and one representing the contract finance office).
(b) The Committee--
(1) Advises and assists the USD(A&T)DP in ensuring proper and uniform application of policies, procedures, and forms;
(2) Is responsible for formulating, revising, and promulgating uniform contract financing regulations;
(3) May recommend to the Secretary of Defense through the USD(A&T)DP further policy directives on financing; and
(4) Meets at the request of the Chair or a member.
232.172 Financial responsibility of contractors.
Use the policies and procedures in this section in determining the financial capability of current or prospective contractors.
232.172-1 Required financial reviews.
The contracting officer shall perform a financial review when the contracting officer does not otherwise have sufficient information to make a positive determination of financial responsibility. In addition, the contracting officer shall consider performing a financial review--
(a) Prior to award of a contract, when--
(1) The contractor is on a list requiring preaward clearance or other special clearance before award;
(2) The contractor is listed on the Consolidated List of Contractors Indebted to the Government (Hold-Up List), or is otherwise known to be indebted to the Government;
(3) The contractor may receive Government assets such as contract financing payments or Government property;
(4) The contractor is experiencing performance difficulties on other work; or
(5) The contractor is a new company or a new supplier of the item.
(b) At periodic intervals after award of a contract, when--
(1) Any of the conditions of paragraph (a)(2) through (5) of this subsection are applicable; or
(2) There is any other reason to question the contractor's ability to finance performance and completion of the contract.
232.172-2 Appropriate information.
(a) The contracting officer shall obtain whatever type and depth of financial and other information is required to establish a contractor's financial capability or disclose a contractor's financial condition. While the contracting officer should not request
information that is not necessary for the protection of the Government's interests, the contracting officer must insist upon obtaining that information which is necessary. The unwillingness or inability of a contractor to present reasonably requested information in a timely manner, especially information that a prudent business person would be expected to have and use in the professional management of a business, may be a material fact in the determination of the contractor's responsibility and prospects for contract completion.
(b) Obtain the following information to the extent required to protect the Government's interest. In addition, if the contracting officer concludes that information not listed below is required to comply with 232.172-1, that information should be requested. The information must be for the person(s) who are legally liable for contract performance. If the contractor is not a corporation, obtain the required information for each individual/joint venturer/partner--
(1) Balance sheet and income statement--
(i) For the current fiscal year (interim);
(ii) For the most recent fiscal year and preferably, for the two preceding fiscal years. These should be certified by an independent public accountant or by an appropriate officer of the firm; and
(iii) Forecasted for each fiscal year for the remainder of the period of contract performance;
(2) Summary history of the contractor and its principal managers, disclosing any previous insolvencies--corporate or personal, and describing its products or services;
(3) Statement of all affiliations disclosing--
(i) Material financial interests of the contractor;
(ii) Material financial interests in the contractor;
(iii) Material affiliations of owners, officers, directors, major stockholders; and
(iv) The major stockholders if the contractor is not a widely-traded, publicly-held corporation;
(4) Statement of all forms of compensation to each officer, manager, partner, joint venturer, or proprietor, as appropriate--
(i) Planned for the current year;
(ii) Paid during the past two years; and
(iii) Deferred to future periods.
(5) Business base and forecast which--
(i) Shows, by significant markets, existing contracts and outstanding offers, including those under negotiation; and
(ii) Is reconcilable to indirect cost rate projections.
(6) Cash forecast for the duration of the contract (see 232.172-3).
(7) Financing arrangement information which discloses--
(i) Availability of cash to finance contract performance;
(ii) Contractor's exposure to financial crisis from creditor's demands;
(iii) Degree to which credit security provisions could conflict with Government title terms under contract financing;
(iv) Clearly stated confirmations of credit with no unacceptable qualifications; and
(v) Unambiguous written agreement by a creditor if credit arrangements include deferred trade payments or creditor subordinations/repayment suspensions.
(8) Statement of all state, local, and Federal tax accounts, including special mandatory contributions, e.g., environmental superfund.
(9) Description and explanation of the financial effect of issues such as--
(i) Leases, deferred purchase arrangements, patent or royalty arrangements;
(ii) Insurance, when relevant to the contract;
(iii) Contemplated capital expenditures, changes in equity, or contractor debt load;
(iv) Pending claims either by or against the contractor;
(v) Contingent liabilities such as guarantees, litigation, environmental, or product liabilities;
(vi) Validity of accounts receivable and actual value of inventory, as assets; and
(vii) Status and aging of accounts payable.
(10) Significant ratios such as--
(i) Inventory to annual sales;
(ii) Inventory to current assets;
(iii) Liquid assets to current assets;
(iv) Liquid assets to current liabilities;
(v) Current assets to current liabilities; and
(vi) Net worth to net debt.
232.172-3 Cash flow forecasts.
(a) A contractor must be able to sustain a sufficient cash flow to perform the contract. Whenever there is a doubt about the sufficiency of a contractor's cash flow, the contracting officer should require the contractor to submit a cash flow forecast covering the duration of the contract.
(b) A contractor's inability or refusal to prepare and provide cash flow forecasts or to reconcile actual cash flow with previous forecasts is a strong indicator of serious managerial deficiencies or potential contract cost or performance problems.
(c) Single or one-time cash flow forecasts are of limited forecasting power. As such, they should be limited to preaward survey situations. Reliability of cash flow forecasts can be established only by comparing a series of previous actual cash flows with the corresponding forecasts and examining the causes of any differences.
(d) Cash flow forecasts must--
(1) Show the origin and use of all material amounts of cash within the entire business unit responsible for contract performance, period by period, for the length of the contract (or until the risk of a cash crisis ends); and
(2) Provide an audit trail to the data and assumptions used to prepare it.
(e) Cash flow forecasts can be no more reliable than the assumptions on which they are based. Most important of these assumptions are--
(1) Estimated amounts and timing of purchases and payments for materials, parts, components, subassemblies, and services;
(2) Estimated amounts and timing of payments for purchase or production of capital assets, test facilities, and tooling;
(3) Amounts and timing of fixed cash charges such as debt installments, interest, rentals, taxes, and indirect costs;
(4) Estimated amounts and timing of payments for projected labor, both direct and indirect;
(5) Reasonableness of projected manufacturing and production schedules;
(6) Estimated amounts and timing of billings to customers (including progress payments), and customer payments;
(7) Estimated amounts and timing of cash receipts from lenders or other credit sources, and liquidation of loans; and
(8) Estimated amounts and timing of cash receipts from other sources.
(f) The contracting officer should review the assumptions underlying the cash flow forecasts. In determining whether the assumptions are reasonable and realistic, the contracting officer should consult with--
(1) The contractor;
(2) Government personnel in the areas of finance, engineering, production, cost, and price analysis; or
(3) Prospective supply, subcontract, and loan or credit sources.
232.173 Reduction or suspension of contract payments upon finding of fraud.
(a) 10 U.S.C. 2307(e)(2) provides for a reduction or suspension of further payments to a contractor when the agency head determines there is substantial evidence that the contractor's request for advance, partial, or progress payments is based on fraud.
(b) The agency head may not delegate his or her responsibilities under 10 U.S.C. 2307(e) below level IV of the Executive Schedule. For purposes of this section, the Under Secretary of Defense (Acquisition & Technology) is the agency head for the defense agencies.
(c) Authority to reduce or suspend payments under 10 U.S.C. 2307(e) is in addition to other Government rights, remedies, and procedures.
(d) In accordance with 10 U.S.C. 2310(a), agency head determinations and decisions under this section may be made for an individual contract or group of contracts affected by the fraud.
232.173-2 Definitions.
As used in this section--
(a) "Remedy coordination official" means the person or entity in the agency who coordinates within that agency the administration of criminal, civil, administrative, and contractual remedies resulting from investigations of fraud or corruption related to procurement activities.
(b) "Substantial evidence" means information sufficient to support the reasonable belief that a particular act or omission has occurred.
(a) Agencies shall establish appropriate procedures to implement the policies and procedures of this section.
(b) Government personnel shall report suspected fraud related to advance, partial, or progress payments in accordance with agency regulations.
(a) In any case in which an agency's remedy coordination official finds substantial evidence that a contractor's request for advance, partial, or progress payment under a contract awarded by that agency is based on fraud, the remedy coordination official shall recommend that the agency head reduce or suspend further payments to the contractor. The remedy coordination official shall submit to the agency head a written report setting forth the remedy coordination official's findings that support each recommendation.
(b) Upon receiving a recommendation from the remedy coordination official under paragraph (a) of this subsection, the agency head shall determine whether substantial evidence exists that the request for payment under a contract is based on fraud.
(c) If the agency head determines that substantial evidence exists, the agency head may reduce or suspend further payments to the contractor under the affected contract(s). Such reduction or suspension shall be reasonably commensurate with the anticipated loss to the Government resulting from the fraud.
(d) In determining whether to reduce or suspend further payment(s), as a minimum, the agency head shall consider--
(1) A recommendation from investigating officers that disclosure of the allegations of fraud to the contractor may compromise an ongoing investigation;
(2) The anticipated loss to the Government as a result of the fraud;
(3) The contractor's overall financial condition and ability to continue performance if payments are reduced or suspended;
(4) The contractor's essentiality to the national defense;
(5) Assessment of all documentation concerning the alleged fraud, including documentation submitted by the contractor in its response to the notice required by paragraph (e) of this subsection.
(e) Before making a decision to reduce or suspend further payments, the agency head shall, in accordance with agency procedures--
(1) Notify the contractor in writing of the action proposed by the remedy coodination(SIC) official and the reasons therefore; and
(2) Provide the contractor an opportunity to submit information within a reasonable time, in response to the action proposed by the remedy coordination official.
(f) When more than one agency has contracts affected by the fraud, the agencies shall consider designating one agency as the lead agency for making the determination and decision.
(g) The agency shall retain in its files the written justification for each--
(1) Decision of the agency head whether to reduce or suspend further payments; and
(2) Recommendation received by an agency head in connection with such decision.
(h) Not later than 180 calendar days after the date of the reduction or suspension action, the remedy coordination official shall--
(1) Review the agency head's determination on which the reduction or suspension decision is based; and
(2) Transmit a recommendation to the agency head as to whether the reduction or suspension should continue.
232.173-5 Reporting.
Departments and agencies, in accordance with department/agency procedures, shall prepare and submit to the Under Secretary of Defense (Acquisition & Technology), through the Director of Defense Procurement, annual reports (Report control symbol DD-ACQ(A) 1891) containing--
(a) Each recommendation made by the remedy coordination official for payments reduction or suspension;
(b) The actions taken on the recommendation(s), with the reasons for such actions; and
(c) An assessment of the effects of each action on the Government.
SUBPART 232.3--LOAN GUARANTEES FOR DEFENSE PRODUCTION
(a) The use of guaranteed loans as a contract financing mechanism requires the availability of certain congressional authority. The DoD has not requested such authority in recent years, and none is now available.
SUBPART 232.4--ADVANCE PAYMENTS
(a)(9) The requirements of FAR Subpart 32.4 do not apply to advertisements in high school and college publications for military recruitment efforts under 10 U.S.C. 503 when the contract cost does not exceed $500.
232.409 Contracting officer action.
232.409-1 Recommendation for approval.
To ensure uniform application of this subpart (see FAR 32.402(e)(1)), the departmental/agency contract financing office shall prepare the documents required by FAR 32.409-1(e) and (f).
232.410 Findings, determination, and authorization.
(b) If an advance payment procedure is used without a special bank account, replace paragraph (a)(4) of the Findings, Determination, and Authorization for Advance Payments at FAR 32.410 with:
"(4) The proposed advance payment clause contains appropriate provisions as security for advance payments. These provisions include a requirement that the outstanding advance payments will be liquidated from cost reimbursements as they become due the contractor. This security is considered adequate to protect the interest of the Government."
232.412-70 Additional clauses.
(a) Use the clause at 252.232-7000, Advance Payment Pool, in any contract that will be subject to the terms of an advance payment pool agreement with a nonprofit organization or educational institution. Normally, use the clause in all cost reimbursement type contracts with the organization or institution.
(b) Use the clause at 252.232-7001, Disposition of Payments, in contracts when payments under the contract are to be made by a disbursing office not designated in the advance payment pool agreement.
(c) Use the clause at 252.232-7005, Reimbursement of Subcontractor Advance Payments-DoD Pilot Mentor-Protege Program, when advance payments will be provided by the contractor to a subcontractor pursuant to an approved mentor-protege agreement (See Subpart 219.71).
(a) An advance payment pool agreement--
(1) Is a means of financing the performance of more than one contract held by a single contractor;
(2) Is especially convenient for the financing of cost-type contracts with nonprofit educational or research institutions for experimental or research and development work when several contracts require financing by advance payments. When appropriate, pooled advance payments may also be used to finance other types of contracts held by a single contractor; and
(3) May be established--
(i) Without regard to the number of appropriations involved;
(ii) To finance contracts for one or more department(s) or contracting activity(ies); or
(iii) In addition to any other advance payment pool agreement at a single contractor location when it is more convenient or otherwise preferable to have more than one agreement.
SUBPART 232.5--PROGRESS PAYMENTS BASED ON COST
232.501 General.
In DoD, customary progress payments may be either uniform or flexible (FAR 32.501-1(a)). See also 232.501-1 and 232.502-1-71.
232.501-1 Customary progress payment rates.
(a) (i) The customary uniform progress payment rate for DoD contracts is 75 percent for large businesses, 90 percent for small businesses, and 95 percent for small disadvantaged businesses.
(ii) The progress payment rates applicable to foreign military sale requirements are the same rates applicable to DoD requirements.
(iii) For customary flexible progress payments, determine the appropriate rate using the appropriate CASH computer program (see 232.502-1-71).
232.501-2 Unusual progress payments.
(a) Unusual progress payment arrangements require the advance approval of the USD(A&T)DP. Contracting officers shall submit all unusual progress payment requests to the department or agency contract financing office for approval, coordination with the Contract Finance Committee (232.171), and submission to the USD(A&T)DP.
(b) The contracting officer may approve progress payments when the contract price exceeds the funds obligated under the contract; provided, the contract contains an appropriate Limitation of Funds clause. However, the contracting officer shall limit such payments to the lesser of--
(i) The applicable rate (i.e., the lower of the progress payment rate, the liquidation rate, or the loss-ratio adjusted rate); or
(ii) 100 percent of the funds obligated.
232.502-1 Use of customary progress payments.
(b) (1) If the contractor is a small disadvantaged business, progress payments may be provided when the contract will involve $50,000 or more.
232.502-1-70 Customary foreign military sale progress payments.
(a) Foreign military sale (FMS) progress payments apply to DoD acquisitions on behalf of foreign governments or international organizations (Section 22 of the Arms Export Control Act).
(b) FMS progress payments do not apply to acquisitions--
(1) For replenishing U.S. Government inventories or stocks; and
(2) Made under DoD cooperative logistic support arrangements.
232.502-1-71 Customary flexible progress payments.
(a) General.
(1) Progress payments reduce contractor investment in work in process inventory. In addition to progress payments, other factors influence a contractor's actual investment in work in process inventory, e.g., delivery schedules, cash management practices, and Government payment practices.
(2) Progress payment amounts that are determined by using customary uniform rates are insensitive to the other factors influencing contractor investment in work in process inventory. Consequently, contractor investments in work in process inventory vary among contractors and contracts.
(3) Flexible progress payment rates are designed to tailor the progress payment rate to more closely match the contractor's cash needs for financing contract performance. The flexible rate is expressed as a percentage which is applied to costs to determine the amount payable as a progress payment, in the same manner as customary uniform rates are applied.
(4) For flexible progress payments, cash needs are measured and projected based on the investment required for the work in process inventory over the life of the contract. Total investment is measured by a weighted average of total costs paid by the contractor. The contractor's investment is the weighted average of the amount not paid by the Government.
(5) DoD, as a matter of policy, requires contractors to retain a minimum investment level in work in process inventory over the life of the contract (see Table 32-1, Customary Uniform Progress Payment Rates). This minimum investment level is based on the customary uniform progress payment rate and its related investment percentage. Accordingly, the DoD will make progress payments at a rate (expressed as a whole number) that is the highest rate which yields a corresponding investment by the contractor in work in process inventory of not less than the minimum investment percentage.
(6) The customary flexible progress payment rate will be determined by using the DoD Cash Flow Computer Model. The rate computed shall not--
(i) Exceed 100 percent; or
(ii) Be less than the customary uniform progress payment rate that would have been applied to the contract in the absence of customary flexible progress payments.
(7) Table 32-1, Customary Uniform Progress Payment Rates, shows the customary uniform progress payment rates for other than small or small disadvantaged businesses (see also 232.501-1), minimum contractor investment (except for contracts funded with FY87 appropriations), and the applicable DoD Cash Flow Computer Model. For contracts or line items that are funded with FY87 appropriations, a contractor must retain at least a 25 percent investment in work in process inventory over the life of the contract or over the contract performance period applicable to the contract line item.
TABLE 32-1, CUSTOMARY UNIFORM PROGRESS PAYMENT RATES
Uniform Rate Investment Cash Flow
Contract Award Date Percentage Percentage Model
Prior to May 1, 1985 90% 5% CASH-II
May 1, 1985 through 80% 15% CASH-III
October 17, 1986
October 18, 1986 through 75% 25% CASH-IV
September 30, 1988
October 1, 1988 through
June 30, 1991 80% 20% CASH-V
After June 30, 1991* 85% 20% CASH-VI**
* Flexible progress payments shall not be used for contracts awarded as a result of solicitations issued on or after November 11, 1993.
**See paragraph (b)(5)(ii) for implementation instructions.
(b) Using customary flexible progress payments.
(1) Use a flexible progress payment rate at the time of award or definitization instead of the customary uniform rate if--
(i) The contractor requests flexible progress payments;
(ii) The contractor agrees to the requirements of this section;
(iii) The contract contains the clause at FAR 52.232-16, Progress Payments. However, small business contractors may get flexible progress payments if they agree to use the clause at FAR 52.232-16 without its Alternate I; and
(iv) The criteria in paragraphs (b)(2) and (3) of this subsection are met.
(2) Do not use flexible progress payments for--
(i) Sealed bid contracts;
(ii) Undefinitized contract actions; or
(iii) Contracts awarded and performed entirely outside of the United States, its possessions or territories.
[per DFARS Case 95-D708 and D.L. 97-015, dated 29 July 97]
(3) Contractors who submit [ ] cost or pricing data, as defined in FAR 15.80[1], for negotiated
fixed-price contracts in excess of $1 million may request flexible progress payments.
(4) Subcontractors who request flexible progress payments, meet the criteria in paragraph (b)(3) of this subsection, and agree to the requirements of this subsection are to receive flexible progress payments. The prime contractor determines the flexible progress payment rate without regard to the rate in the prime contract. In determining the appropriate customary flexible rate, the prime contractor will use the DoD Cash Flow Computer Model and review the cash flow data provided by the subcontractor.
(5) Prior to contract award, the contracting officer shall determine the customary flexible progress payment rate by applying the appropriate version of the DoD Cash Flow Computer Model.
(i) The model takes into account key cash flow factors including contract cost profile, delivery schedules, subcontractor progress payments, liquidation rates, and payment/reimbursement cycles. For contracts funded with FY87 appropriations, use the CASH-IV model.
(ii) From time to time the Department of Defense may change the uniform progress payment rate and/or the minimum contractor investment rate, which may have an effect upon the variables within the DoD Cash Flow Computer Program. In order to avoid frequent revision and redistribution of the computer program, the program is designed to permit use of either a particular model (CASH-II, CASH-V, etc.) or a program option to input the equivalent uniform progress payment rate and minimum contractor investment rate (90%/5%, 80%/20%, etc.), as shown in the table at (a)(7). Either method will result in the same flexible progress payment rate calculation. When the Cash Flow Computer Program does not contain the model needed for a particular situation, the contracting officer shall use the program option.
(6) If the contractor requests flexible progress payments after contract award or definitization, the contracting officer may, if warranted, grant their use. However, the contractor must provide adequate new consideration (see FAR 32.501-4.
(c) Contractor cash flow and cost information.
(1) Contractors shall furnish to the contracting officer cash flow data in the form and context specified for use in the DoD Cash Flow Computer Model. Contractors should furnish cash flow data prior to the start of negotiations. This data includes--
(i) Actual and projected incurred cost, broken down by element of cost and by month, for the duration of the contract;
Defense Federal Acquisition Regulation supplement
Part 232--Contract Financing
(ii) Float times for each element of cost;
(iii) Dates and lag times of actual and projected progress payment and delivery payment receipts; and
(iv) Associated contract price and profit percentage.
(2) Contracting officers shall verify the cash flow data using the procedures normally used to verify contractor cost and pricing data, and establish the customary flexible progress payment rate during the negotiation of the contract price.
(3) If any customary flexible progress payment rate is later determined to be overstated because factual data submitted in support of the rate computation was not current, accurate, or complete at the time the rate was established, the flexible progress payment clause at 252.232-7003 provides for--
(i) Reduction of the flexible progress payment rate; and
(ii) Contractor payment of interest.
(4) The contracting officer will assess the interest charge on the amount of the overpayment resulting from facts that were not current, accurate, or complete, whether or not the overpayment has been liquidated. Calculate the interest from the date of the overpayment to the date of liquidation of the overpayment. In determining the amount of interest, the contracting officer may determine an average overpayment amount and duration as the basis for the interest computation. Interest rates change periodically; therefore, calculate average amounts and durations separately for each interest period that has a different interest rate.
(5) Administrative contracting officers are encouraged to establish advance agreements at contractor locations for payment float and lag times which are common to several contracts. Float and lag times may vary significantly from one contract to another due to variances in efficiency at different payment offices or due to differing procedures for high dollar versus low dollar value contracts. It may, therefore, be appropriate to establish advance agreements on several different float and lag profiles to suit different contract situations.
(d) Rate review.
(1) The flexible progress payment clause at 252.232-7003 provides for redetermination of the customary flexible progress payment rate whenever the computed investment percentage is more than two points above or below the specific minimum investment in work in process inventory (see Table at 232.502-1-71(a)(7)). When such a redetermination is made--
(i) Apply the new customary flexible progress payment rate to the next contractor progress payment request; and
(ii) Adjust the unliquidated progress payment balance.
(2) Either the Government or the contractor may request a rate review at any time to determine if the computed investment percentage in work in process inventory is outside of the investment tolerance in paragraph (d)(1) of this subsection. For contracts funded with FY87 appropriations, the investment range is 23 to 27 percent with a target of 25 percent.
(3) The administrative contracting officer shall assess changes in the following factors during each periodic review required by FAR 32.503-5 and shall review the customary flexible progress payment rate whenever there has been--
(i) A significant change in the float or lag factors;
(ii) A significant change in the delivery schedule; or
(iii) Substantial work added to or deleted from the contract.
(e) Letter contracts and undefinitized orders.
When flexible progress payments are contemplated for use on a definitized contract superseding a letter contract or an unpriced BOA order, the applicable uniform customary progress payment rate shall be used until definitization. The flexible progress payment rate shall be determined by the contracting officer before definitizing the contract or order.
(f) Availability of CASH program and user's guide.
The flexible progress payment program CASH and the user's guide are available to offerors and contractors from the contracting officer.
232.502-4-70 Additional clauses.
(a) Use the clause at 252.232-7002, Progress Payments for Foreign Military Sales Acquisitions, in any contract that provides for progress payments and contains foreign military sale requirements.
(b) Use the clause at 252.232-7003, Flexible Progress Payments,and 252.232-7004, DoD Progress Payment Rates, in contracts using a customary flexible progress payment rate.
(c) Use the clause at 252.232-7004, DoD Progress Payment Rates, in addition to the clauses prescribed at FAR 32.502-4.
232.503-6 Suspension or reduction of payments.
(b) Contractor Noncompliance.
See also 242.7503.
(g) Loss contracts.
Use the following loss ratio adjustment procedures for making adjustments required by FAR 32.503-6(f) and (g)--
(i) Except as provided in paragraph (g)(ii) of this subsection, the contracting officer shall prepare a supplementary analysis of the contractor's request for progress payments and calculate the loss ratio adjustment using the procedures in FAR 32.503-6(g).
(ii) The contracting officer may request the contractor to prepare the supplementary analysis as an attachment to the progress payment request when the contracting officer determines that the contractor's methods of estimating the "Costs to Complete" are reliable, accurate, and not susceptible to improper influences.
(iii) To maintain an audit trail and permit verification of calculations, do not make the loss ratio adjustments by altering or replacing data on the contractor's original request for progress payment (SF 1443, Contractor's Request for Progress Payment, or computer generated equivalent).
232.503-15 Application of Government title terms.
(d) An administrative contracting officer (ACO) determination that the contractor's material management and accounting system conforms to the standard at 252.242-7004(f)(7) constitutes the contracting officer approval requirement of FAR 32.503-15(d). Prior to granting blanket approval of cost transfers between contracts, the ACO should determine that--
(i) The contractor retains records of the transfer activity that took place in the prior month;
(ii) The contractor prepares, at least monthly, a summary of the transfer activity that took place in the prior month; and
(iii) The summary report includes as a minimum, the total number and dollar value of transfers.
Defense federal Acquisition Regulation Supplement
Part 232--Contract Financing
232.605 Responsibilities and cooperation among Government officials.
(b) Disbursing officers are those officials designated to make payments under a contract or to receive payments of amounts due under a contract. At installations where integrated accounting is in effect, the finance and accounting officer is a disbursing officer. The disbursing officer is responsible for determining the amount and collecting contract debts whenever overpayments or erroneous payments have been made. The disbursing officer also has primary responsibility when the amounts due and dates for payment are contained in the contract, and a copy of the contract has been furnished to the disbursing officer with notice to collect as amounts become due.
232.606 Debt determination and collection.
(c)(9)(vii) Upon transfer of a case to the contract financing office, the contracting officer shall close the debt record by reference to the date of transfer.
232.610 Demand for payment of contract debt.
(a) (i) For contract debts resulting from other than a termination for default, the office which first determines an amount due, whether it be the contract administration office, the contracting office, the disbursing office, or the selling office/agency, shall--
(A) Make a demand for payment; and
(B) Provide a copy of the demand to the payment office cited in the contract.
(ii) For contract debts resulting from a termination for default, the contracting officer shall make the demand and direct the debtor to make such payment to the designated office.
(b) (3) The contracting office shall forward deferment requests to the contract financing office of the contracting department or agency for a decision on granting the deferment.
232.616 Compromise actions.
Only the department/agency contract financing offices (232.108(1)) are authorized to compromise debts covered by this subpart.
(a) The DoD Contract Finance Committee, with the approval of the USD(A&T)DP, may exempt the contracts in FAR 32.617(a)(2) through (5) and other contracts, in exceptional circumstances, from the administrative interest charges required by this subpart.
(a) (7) Other exceptions--
(A) Contracts for instructions of military or ROTC personnel at civilian schools, colleges, and universities;
(B) Basic agreements with telephone companies for communications services and facilities, and purchases under such agreements; and
(C) Transportation contracts with common carriers for common carrier services.
232.670 Transfer of responsibility for debt collection.
Disbursing officers will transfer responsibility for debt collection to departmental/agency contract financing offices in accordance with comptroller regulations. Notwithstanding the transfer of the debt collection responsibility, contracting officers shall continue to provide assistance as requested by the debt collection office.
(a) For those debts covered by this subpart, the department or agency which awarded the contract shall furnish the Department of Justice any claims in bankruptcy, insolvency, or in proceedings for reorganization or arrangement. Furnish claims which--
(1) Have been transferred to a contract financing office;
(2) Are on the way to a contract financing office at the inception of bankruptcy or insolvency proceedings;
(3) Are pending and not forwarded to a contract financing office at the inception of bankruptcy or insolvency proceedings; and
(4) Are the result of bankruptcy or insolvency proceedings.
(b) The contract financing office or other office designated within a department or agency will furnish proof of claims to the Department of Justice.
(c) The office of origin of a debt will provide, as soon as possible, information on a bankruptcy, insolvency, reorganization, or rearrangement to the office designated within a department/agency to receive this information.
(d) The information and proof of claim requirements in paragraphs (b) and (c) of this section do not apply to debts of less than $600.
SUBPART 232.7--CONTRACT FUNDING
232.702 Policy.
Fixed-price contracts shall be fully funded except as permitted by 232.703-1.
232.703 Contract funding requirements.
(1) A fixed-price contract may be incrementally funded only if--
(i) The contract is funded with research and development appropriations;
(ii) Congress has otherwise incrementally appropriated program funds; or
(iii) The head of the contracting activity approves the use of incremental funding for either base services contracts or hazardous/toxic waste remediation contracts.
(2) Incrementally funded fixed-price contracts shall be fully funded as soon as practicable after full funding is available.
232.703-70 Military construction appropriations act restriction.
Annual military construction appropriations acts restrict the use of funds appropriated by the acts for payments under cost-plus-fixed-fee contracts (see 216.306(c)).
232.704 Limitation of cost or funds.
232.704-70 Incrementally funded fixed-price contracts.
(a) Upon receipt of the contractor's notice under paragraph (c) of the clause at 252.232-7007, Limitation of Government's Obligation, the contracting officer shall promptly provide written notice to the contractor that the Government is--
(1) Allotting additional funds for continued performance and increasing the Government's limitation of obligation in a specified amount;
(2) Terminating the contract; or
(3) Considering whether to allot additional funds; and
(i) The contractor is entitled by the contract terms to stop work when the Government's limitation of obligation is reached; and
(ii) Any costs expended beyond the Government's limitation of obligation are at the contractor's risk.
(b) Upon learning that the contract will receive no further funds, the contracting officer shall promptly give the contractor written notice of the Government's decision and terminate for the convenience of the Government.
(c) The contracting officer shall ensure that, in accordance with paragraph (b) of the clause at 252.232-7007, LImitation of Government's Obligation, sufficient funds are allotted to the contract to cover the total amount payable to the contractor in the event of termination for the convenience of the Government.
232.705-70 Clause for limitation of Government's obligation.
Use the clause at 252.232-7007, Limitation of Government's Obligation, in solicitations and resultant incrementally funded fixed-price contracts. The contracting officer may revise the contractor's notification period, in paragraph (c) of the clause, from "ninety" to "thirty" or "sixty" days, as appropriate.
SUBPART 232.8--ASSIGNMENT OF CLAIMS
(b) Only contracts for personal services may prohibit the assignment of claims.
(d) Pursuant to Section 3737(e) of the Revised Statutes (41 U.S.C. 15), and in accordance with Presidential delegation dated October 3, 1995, Secretary of Defense delegation dated February 5, 1996, and Under Secretary of Defense for Acquisition and Technology delegation dated February 23, 1996, the Director of Defense Procurement determined on May 10, 1996, that a need exists for DoD to agree not to reduce or set off any money due or to become due under the contract when the proceeds under the contract have been assigned in accordance with the Assignment of Claims provision of the contract. This determination was published in the Federal Register on June 11, 1996, as required by law. Nevertheless, if departments/agencies decide it is in the Government's interests, or if the contracting officer makes a determination in accordance with FAR 32.803(d) concerning a significantly indebted offeror, they may exclude the no-setoff commitment.
(b) The assignee shall forward--
(i) To the administrative contracting officer (ACO), a true copy of the instrument of assignment and an original and three copies of the notice of assignment. The ACO shall acknowledge receipt by signing and dating all copies of the notice of assignment and shall--
(A) File the true copy of the instrument of assignment and the original of the notice in the contract file;
(B) Forward two copies of the notice to the disbursing officer of the payment office cited in the contract;
(C) Return a copy of the notice to the assignee; and
(D) Advise the contracting officer of the assignment.
(ii) To the surety or sureties, if any, a true copy of the instrument of assignment and an original and three copies of the notice of assignment. The surety shall return three acknowledged copies of the notice to the assignee, who shall forward two copies to the disbursing officer designated in the contract.
(iii) To the disbursing officer of the payment office cited in the contract, a true copy of the instrument of assignment and an original and one copy of the notice of assignment. The disbursing officer shall acknowledge and return to the assignee the copy of the notice and shall file the true copy of the instrument and original notice.
(a)(1) Use the clause at 252.232-7008, Assignment of Claims (Overseas), instead of the clause at FAR 52.232-23, Assignment of Claims, in solicitations and contracts when contract performance will be in a foreign country.
(2) Use Alternate I with the clause at FAR 52.232-23, Assignment of Claims, unless otherwise authorized under 232.803(d).
232.903 Policy.
DoD policy is to assist small disadvantaged business concerns by paying them as quickly as possible after invoices are received and before normal payment due dates established in the contract (see 232.905(2)).
(1) In most cases, Government acceptance or approval can occur within the seven day constructive acceptance period specified in the FAR Prompt Payment clauses. Government payment of construction progress payments can, in most cases, be made within the 14 day period allowed by the Prompt Payment for Construction Contracts clause. While the contracting officer may specify a longer period because the period specified in the contract is not reasonable or practical, such change should be coordinated with the Government offices responsible for acceptance or approval and for payment. Reasons for specifying a longer period include but are not limited to: the nature of the work or supplies or services, inspection or testing requirements, shipping and acceptance terms, and resources available at the acceptance activity. A constructive acceptance period of less than the cited 7 or 14 days is not authorized.
(2) Designated payment offices are encouraged to pay small disadvantaged business (SDB) concerns as quickly as possible after invoices are received and before normal payment due dates established in the contract. The restrictions of FAR 32.903 prohibiting early payment do not apply to invoice payments made to SDBs. Contractors shall not, however, be entitled to interest penalties if invoice payments are not made before the normal payment due dates established in the contract.
(f) (6) DoD Manual 4000.25-5-M, Military Standard Contract Administration Procedures (MILSCAP), authorizes electronic signature of receiving reports.
232.906 Contract financing payments.
(a) (i) DoD policy is to make contract financing payments as quickly as possible. Generally, the contracting officer shall insert the standard due dates of 7 days for progress payments and 14 days for interim payments on cost type contracts in subparagraphs (b)(2) of the Prompt Payment clauses at FAR 52.232-25, 52.232-26, and 52.232-27.
(ii) The contracting officer should coordinate payment terms with offices that will be involved in the payment process to ensure that terms specified can be met. Where justified, the contracting officer may insert a due date greater than but not less than the standard. In determining payment terms, consider--
(A) Geographical separation;
(B) Workload;
(C) Contractor ability to submit a proper request; and
(D) Other factors that could affect timing of payment.
232.970 Payment of subcontractors.
232.970-1 Subcontractor assertions of nonpayment.
(a) In accordance with Public Law 102-190, title VIII, section 806(a) (4), upon the assertion by a subcontractor or supplier of a DoD contractor that the Subcontractor or supplier has not been paid in accordance with the payment terms of the subcontract, purchase order, or other agreement with the prime contractor, the contracting officer may determine--
(1) For a construction contract, whether the contractor has made--
(i) Progress payments to the subcontractor or supplier in compliance with chapter 39 of title 31, United States Code (Prompt Payment Act);
(ii) Final payment to the subcontractor or supplier in compliance with the terms of the subcontract, purchase order, or other agreement with the prime contractor;
(2) For a contract other than construction, whether the contractor has made progress payments, final payments, or other payments to the subcontractor or supplier in compliance with the terms of the subcontract, purchase order, or other agreement with the prime contractor;
(3) For any contract, whether the contractor's certification of payment of a subcontractor or supplier accompanying its payment request to the Government is accurate.
(b) If, in making the determination in paragraphs (a) (1) and (2) of this subsection, the contracting officer finds the prime contractor is not in compliance, the contracting officer may--
(1) Encourage the contractor to make timely payment to the subcontractor or supplier; or
(2) If authorized by the applicable payment clauses, reduce or suspend progress payments to the contractor.
(c) If the contracting officer determines that a certification referred to in (a) (3) of this subsection is inaccurate in any material respect, the contracting officer shall initiate administrative or other remedial action.
232.970-2 Subcontractor requests for information.
(a) In accordance with Public Law 102-190, title VIII, section 806(a) (1), upon the request of a subcontractor or supplier under a DoD contract, the contracting officer shall promptly advise the subcontractor or supplier as to--
(1) Whether the prime contractor has submitted requests for progress payments or other payments under the contract to DoD; and
(2) Whether final payment has been made by the DoD to the prime contractor.
(b) This subsection does not apply to matters that are--
(1) Specifically authorized under criteria established by an Executive Order to be kept secret in the interest of national defense or foreign policy; and
(2) Properly classified pursuant to such Executive Order (see 5 U.S.C 552(b)(1)).