COs No Longer Required to Further Justify Decision to Provide Customary Contract Financing

April 12, 2017
by Shelley Hall

DoD has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) by providing that contracting officers are not required to further justify a decision to provide customary contract financing, other than loan guarantees and advance payments identified in FAR part 32, for certain fixed-price contracts.

In the past, CO’s had to provide justification for providing contract financing on any fixed price contract.  Now, contracts meeting the strict parameters of the final rule will not require any special justification.

DoD published a proposed rule in June 30, 2016, to revise the DFARS regarding the use of customary contract financing, other than loan guarantees and advance payments identified in FAR part 32, on fixed-price contracts with a period of performance in excess of one year that meet the dollar thresholds established in FAR 32.104(d). No comments were received on this proposed rule so there was no change to the wording in the final rule.

DoD determined that the use of such customary contract financing provides improved cash flow as an incentive for commercial companies to do business with DoD, is in the Department’s best interest, and requires no further justification of its use.

This final rule only provides DoD policy regarding providing contract financing for certain fixed-priced contracts. The rule does not add any new provisions or clauses or impact any existing provisions or clauses.

DFARS 232.104 was added and reads as follows:

232.104 – Providing contract financing.

For fixed-price contracts with a period of performance in excess of a year that meet the dollar thresholds established in FAR 32.104(d), and for solicitations expected to result in such contracts, in lieu of the requirement at FAR 32.104(d)(1)(ii) for the contractor to demonstrate actual financial need or the unavailability of private financing, DoD has determined that—

(1) The use of customary contract financing (see FAR 32.113), other than loan guarantees and advance payments, is in DoD’s best interest; and

(2) Further justification of its use in individual acquisitions is unnecessary.

Hopefully this new guidance on contract financing will create the incentives expected to lure more companies to do business with DOD.

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