Government Contracting - DFARS Part 232- Contract Financing - Win Federal Contracts

DFARS - 2021
Defense
Federal Acquisition Regulation
Supplement
Complimentary Webinar Series
JSchaus & Associates – Washington, DC – hello@JenniferSchaus.com

DFARS – 2021 - Defense Federal Acquisition Regulation Supplement
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About Our Speaker
Mike Gwinn
Arnold & Porter Kaye Scholer LLP
michael.gwinn@arnoldporter.com
202-942-6260

DFARS Part #232
Contract Financing
Wednesday, July 28, 2021

DFARS Part #232
• To provide working capital for contractors
• Small projects on short time frames do not usually need financing
• Large projects that will take months or years to perform will require working capital to perform the
project
• DFARS Part 232 supplements FAR Part 32 for DoD Contracts
• Fiscal Law Issues (Anti-Assignment Act, Anti-Deficiency Act) are always factors
• FAR consists of rules that give enforceable rights to contractors and administrative guidance to Contracting
Officers that do not provide rights to contractors.
DFARS Part 232: The Big Picture

DFARS Part #232
• Solicitation
• Award
• Performance
• Assessment of Contract Debts
• Contract Completion
Steps in a Typical Procurement

DFARS Part #232
FAR 32.106 provides for five methods of contract financing, in order of preference:
1. Private Financing
2. “Customary Contract Financing” (FAR 32.113)
3. Loan Guarantees (FAR Subpart 32.3)
4. “Unusual Contract Financing” (FAR 32.114)
5. Advance Payments (FAR Subpart 32.4 for noncommercial items, FAR 32.202-2 for commercial items)
Types of Contract Financing Under the FAR

DFARS Part #232
How DFARS Part 232 Supplements FAR Part 32

DFARS Part #232
• The Director of Defense Procurement and Acquisition Policy, Office of the Under Secretary of Defense
(Acquisition, Technology, and Logistics) is responsible for ensuring uniform administration of DoD
contract financing. DFARS 232.070.
• DoD policy is to make financing payments as quickly as possible. DFARS 232.007.
• Seven days for progress payments, 14 days for performance-based payments and interim payments
on cost-type contracts.
• Accelerated payments to small business subcontractors. DFARS 232.009.
• Goal is to get payments to small businesses within 15 days.
• Implemented through 252.232-7017.
• Provides guidelines for evaluating the financial responsibility of contractors. DFARS 232.072 et seq.
Subpart 232.0: General

DFARS Part #232
• 232.102: (e)(2) Progress payments based on percentage or stage of completion are only authorized for
construction or shipbuilding/maintenance contracts. This doesn't preclude FAR 32.10 performance-
based payments.
• 232.102-70 allows provisional delivery payments for undefinitized contracts under narrow circumstances;
these payments should not include profit.
• 232.104: Contracting Officer does not have to provide further justification for FAR 32.113 customary
contract financing for fixed-price contracts with a PoP in excess of one year that meet FAR 32.104(d)
dollar thresholds.
Subpart 232.1: NonCommercial Item Purchase Financing

DFARS Part #232
• 232.202-4: See 232.072-2 and 232.072-3 for guidance on whether offeror's financial condition is
adequate security for commercial contract financing. Financially “responsible” ≠ adequate security.
• 232.206: Additional contract language for commercial item prompt payment; no installment payment
financing w/o market research and ceiling percentage cannot exceed FAR 52.232-30 rate.
Subpart 232.2: Commercial Item Purchase Financing

DFARS Part #232
• Loan guarantees are not currently available because DoD has not requested the authority “in recent
years.”
Subpart 232.3: Loan Guarantees for Defense Production

DFARS Part #232
• 232.501
• 232.501-1
• Customary progress payment rates to large-business concerns are 80 percent.
• Customary progress payment rates for small-business concerns are 90 percent.
• This includes Foreign Military Sales.
• 232.501-3: Contracting Officer may authorize progress payments if the contract price exceeds the
funds obligated under the contract to either the applicable rate or 100 percent of the funds
obligated.
• Small-Business Concern Clause; replace FAR 52.232-16 with DFARS 252.232-7004 DoD Progress Payment
Rates.
• Allows for the suspension or reduction of payments.
Subpart 232.5: Progress Payments Based on Costs

DFARS Part #232
• DFARS 232.412-70
• Identifies clause (252.232-7000) to establish advance payment pools for nonprofits and educational
institutions.
• Identifies clause (252.232-7005) for advance payments to subcontractors pursuant to an approved
mentor-protégé agreement.
• DFARS 232.470 defines advance payment pools.
Subpart 232.4: Advance Payments for Noncommercial Items

DFARS Part #232
• Mainly amounts to instructions on how to report and process.
• Director of Defense Procurement and Acquisition Policy, Office of the Under Secretary of Defense
(Acquisition, Technology, and Logistics) may exempt FAR 32.611(a)(2) through (5) from certain admin
interest charges.
Subpart 232.6: Contract Debts

DFARS Part #232
• Fixed-price contracts can only be incrementally funded under narrow circumstances and must become
fully funded as soon as funds are available. The exceptions are:
• The contract is for severable services, does not exceed one year in length, and is incrementally
funded with available funds at the time of obligation;
• The contract is funded with research and development appropriations from two or more fiscal years;
or
• Congress has otherwise authorized incremental funding.
• Contracting Officer must terminate contract if incrementally funded and no further funds are allocated.
Subpart 232.7: Contract Funding

DFARS Part #232
• Contracts for personal services will normally have a “no-assignments” clause. If the clause is present,
then government permission is required before assigning any rights under the contract.
• Pursuant to FAR 32.803(d), the Contracting Officer may insert the “no set-offs” clause into contracts for
national defense.
Subpart 232.8: Assignment of Claims

DFARS Part #232
• Prompt payment will often times not apply during natural disasters or other emergencies.
• Prompt Payment Act is not applicable to financing payments; does apply to invoices and similar
payments.
Subpart 232.9: Prompt Payment

DFARS Part #232
• All contractors are eligible for performance-based payments consistent with best commercial practices.
Must be based on achievement of performance outcomes.
• Contractor's financial statements must be GAAP-compliant to receive performance-based payments.
• Contractor should provide a proposed performance-based payments schedule, which is evaluated for
practicality and reasonableness.
Subpart 232.10: Performance-Based Payments

DFARS Part #232
• Contracting Officers are required to include DFARS 252.232-7009 for FAR Part 12 contacts where orders
below the micro-purchase threshold are anticipated and the contract requires payment by government-
wide purchase card for orders/calls valued at or below the micro-purchase threshold under the contract
or agreement.
Subpart 232.11: Electronic Funds Transfer

DFARS Part #232
• The DFARS requires electronic submission and processing for all payment requests (i.e. invoices). There
are five exceptions:
• (1) Classified contracts or purchases that could reveal classified information;
• (2) Cases in which contractor submission of electronic payment requests and receiving reports is not
feasible;
• (3) Cases in which DoD is unable to receive payment requests or provide acceptance in electronic
form;
• (4) Cases in which the contractor has requested permission in writing to submit payment requests
and receiving reports by nonelectronic means, and the contracting officer has granted it; and
• (5) When the government-wide commercial purchase card is used as the method of payment, in
which case only submission of the receiving report in electronic form is required.
Subpart 232.70: Electronic Submission & Processing of Payment Requests & Receiving Reports

DFARS Part #232
• Wide Area WorkFlow is the default electronic payment method.
• Separate systems for commercial transportation services and health care services (e.g., PowerTrack,
Transportation Financial Management System, Cargo and Billing System, and TRICARE Encounter
Data System) are permitted for those services.
• 232.7002(b)(2): “Facsimile, email, and scanned documents are not acceptable electronic forms of
payment requests or receiving reports.” (emphasis added)
Subpart 232.70: Electronic Submission & Processing of Payment Requests & Receiving Reports

DFARS Part #232
• The IRS is allowed to “levy up to 100% of all payments made under a DoD contact, up to the amount of
the tax debt.”
• The Director, Defense Procurement and Acquisition Policy (DPAP) can negotiate with the IRS on behalf of
the contractor if the levy could impact contract performance or adversely affect national security. The
contractor must first bring the issue to the Contracting Officer’s attention in writing.
Subpart 232.71: Levies on Contract Payments

DFARS Part #232
• Contracts between the DoD and Afghan contractors must be paid in Afghani via electronic funds transfer
into a bank account with an Afghan financial institution.
Subpart 232.72: Payment in Local Currency (Afghanistan)

DFARS Part #232
Key Takeaways

DFARS Part #232
• Government does not want to pay for the contract before the contract is performed.
• Government financing is subject to fiscal law considerations.
• DFARS supplements FAR: always start with FAR on these issues and then work down to DFARS.
Key Takeaways

THANK YOU To Our Speaker
Mike Gwinn
Arnold & Porter Kaye Scholer LLP
michael.gwinn@arnoldporter.com
202-942-6260

Thank You For Attending!
DFARS - 2021
Defense Federal Acquisition Regulation Supplement
Complimentary Webinar Series

Government Contracting - DFARS Part 232- Contract Financing - Win Federal Contracts

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