Advance Payments (FAR 32.403) are a type of contract financing the Government provides to contractors to accomplish or to maintain progress on essential program or contract objectives. It’s rarely used, but is sometimes offered to contractors who are unable to start or maintain satisfactory progress on contracts without advance financing from the Government. [1]

Document: DCMA Advance Payments Job Aid

Advance Payments MAYBE useful and appropriate for the following: [1]

  • Contracts for experimental, research, or development work with nonprofit educational or research institutions.
  • Contracts solely for the management and operation of Government owned plants.
  • Contracts for acquisition at cost of facilities for Government ownership.
  • Contracts of such a highly classified nature that the agency considers it undesirable for national security to permit assignment of claims under the contract.
  • Contracts entered into with financially weak contractors whose technical ability is considered essential to the agency. In these cases, the agency should closely monitor the contractor’s performance and financial controls to reduce the Government’s financial risk.
  • Contracts for which a loan by a private financial institution is not practicable, whether or not a loan guarantee under this part is issued
  • Contracts with small business concerns, under which circumstances that make advance payments appropriate often occur (but see FAR 32.104(b)).
  • Contracts under which exceptional circumstances make Advance Payments the most advantageous contract financing method for both the Government and the contractor.

Advance Payments MAY NOT be used for the following: [2]

  • Rent;
  • Tuition;
  • Insurance premiums;
  • Expenses of investigations in foreign countries;
  • Extension or connection of public utilities for Government buildings or installations;
  • Subscriptions to publications;
  • Purchases of supplies or services in foreign countries, if—
    • The purchase price does not exceed $10,000 (or equivalent amount of the applicable foreign currency); and
    • The advance payment is required by the laws or government regulations of the foreign country concerned;
  • Enforcement of the customs or narcotics laws; or
  • Other types of transactions excluded by agency procedures under statutory authority.

Application for Advance Payments (FAR 32.408) [2]

  • (a) A contractor may apply for advance payments before or after the award of a contract.
  • (b) The contractor shall submit any advance payment request in writing to the contracting officer and provide the following information:
    • A reference to the contract if the request concerns an existing contract, or a reference to the solicitation if the request concerns a proposed contract.
    • A cash flow forecast showing estimated disbursements and receipts for the period of contract performance. If the application pertains to a type of contract described in 32.403(a) or (b), the contractor shall limit the forecast to the contract to be financed by advance payments.
    • The proposed total amount of advance payments.
    • The name and address of the financial institution at which the contractor expects to establish a special account as depository for the advance payments. If advance payments in the form of a letter of credit are anticipated, the contractor shall identify the specific account at the financial institution to be used. This paragraph is not applicable if an alternate method is used under agency procedures.
    • A description of the contractor’s efforts to obtain unguaranteed private financing or a V-loan (see 32.301) under eligible contracts. This requirement is not applicable to the contract types described in 32.403(a) or (b).
    • Other information appropriate to an understanding of the contractor’s financial condition and need, the contractor’s ability to perform the contract without loss to the Government, and financial safeguards needed to protect the Government’s interest. Ordinarily, if the contract is a type described in 32.403(a) or (b), the contractor may limit the response to this paragraph to information on the contractor’s reliability, technical ability, and accounting system and controls.

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Updated: 7/19/2017

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