FAR part 32 Deck 2 (Contract Financing)

Question 1

What is the purpose of a contractor applying for a loan under 32.304-1?

Answer 1

To obtain operating funds for a contract related to national defense

The contractor may apply to a financing institution for a loan, which may then seek a Government guarantee if needed.

Question 2

What does the Federal Reserve Bank do upon receiving a loan guarantee application?

Answer 2

Sends a copy of the application and a list of relevant defense contracts to the Federal Reserve Board

This is part of the process to determine the contractor’s eligibility.

Question 3

What is included in the certificate of eligibility prepared by the contracting officer?

Answer 3

Determinations regarding essential supplies for national defense, contractor’s capability, and availability of alternate sources

These factors assess whether a loan guarantee is in the Government’s interest.

Question 4

What are the conditions under which the agency may relax the asset formula for guaranteed loans?

Answer 4

If the contractor’s working capital and credit are inadequate

This allows for adjustments to the guarantee based on contract performance needs.

Question 5

What must a contractor generally execute when provided a guaranteed loan?

Answer 5

An assignment of claims under defense production contracts

This secures the Government’s interests but may be waived under certain conditions.

Question 6

True or False: Guaranteed loans can be provided for contracts that have been terminated for the convenience of the Government.

Answer 6

True

Loans may assist in financing pending termination settlements and continuing performance.

Question 7

What is a key requirement for advance payments under 32.401?

Answer 7

The contractor must give adequate security and advance payments must not exceed the unpaid contract price

These criteria ensure protection for the Government’s interests.

Question 8

Fill in the blank: The agency may authorize advance payments in negotiated and sealed bid contracts under _______.

Answer 8

[41 U.S.C. chapter 45, 10 U.S.C. chapter 277, Pub.L.85-804]

These statutes provide the statutory authority for advance payments.

Question 9

What factors must be considered by the agency when authorizing advance payments?

Answer 9

Contractor’s interim cash needs, necessity to supplement funds, contractor’s qualification, and benefits to the Government

These standards ensure that advance payments are justified and beneficial.

Question 10

What happens if a contractor enters into additional defense production contracts after applying for a loan guarantee?

Answer 10

The agency may adjust the loan guarantee amount or maturity date to accommodate the increased financing need

This flexibility allows for changes in the contractor’s financial requirements.

Question 11

What are some examples of other forms of collateral security for guaranteed loans?

Answer 11

• Mortgages on fixed assets
• Liens against inventories
• Endorsements
• Guarantees
• Subordinations or standbys of other indebtedness

These may be required to protect the Government’s interest in certain situations.

Question 12

What is the least preferred method of contract financing according to 32.402?

Answer 12

Advance payments

They should generally not be authorized if other financing options are reasonably available.

Question 13

What is the significance of the contractor’s past performance in the certificate of eligibility?

Answer 13

It supports the determinations made regarding the contractor’s capability and reliability

Relevant performance history is critical for evaluating loan guarantee applications.

Question 14

What must the contracting officer do if a certificate of eligibility is not justified?

Answer 14

Document the facts and reasons supporting that conclusion and provide them to the agency contract finance office

This ensures transparency and accountability in the decision-making process.

Question 15

What is the agency’s approach to loan guarantees for financially weak subcontractors?

Answer 15

Encouraging the contractor to make progress payments to the subcontractor

This can reduce the need for a loan guarantee and allocate risk to the contractor.

Question 16

What are advance payments?

Answer 16

Payments made to contractors before the completion of contract performance to assist with cash flow and project funding

Advance payments are intended to help contractors manage their financial needs during contract execution.

Question 17

What are the criteria for advance payments under 32.402?

Answer 17

Advance payments are necessary if:
* Employment of the contractor’s own working capital is limited
* Advance payments supplement other funds or credit
* The recipient is a responsible contractor
* The Government will benefit from performance prospects
* The case fits certain categories described in 32.403.

Question 18

In what scenarios are advance payments considered useful?

Answer 18

Advance payments may be useful for:
* Experimental, research, or development contracts with nonprofit institutions
* Management and operation of Government-owned plants
* Acquisition of property for Government ownership
* Highly classified contracts
* Financially weak contractors
* Contracts where private loans are impractical
* Small business concerns
* Exceptional circumstances.

Question 19

Which contracts are excluded from advance payments?

Answer 19

Advance payments do not apply to:
* Rent
* Tuition
* Insurance premiums
* Foreign investigation expenses
* Extensions of public utilities
* Subscriptions to publications
* Purchases under $15,000 in foreign countries
* Customs or narcotics enforcement
* Other transactions as per agency procedures.

Question 20

What methods are required for advance payments?

Answer 20

Agencies must use:
* Letters of credit for ongoing relationships with advances over $120,000
* Direct Treasury checks in other circumstances.

Question 21

What interest is charged on advance payments?

Answer 21

Interest is charged at the higher of:
* The published prime rate of the depository
* The rate established by the Secretary of the Treasury.

Question 22

Under what conditions can advance payments be made without interest?

Answer 22

Advance payments may be interest-free for:
* Experimental work with nonprofit institutions
* Management of Government-owned plants
* Cost-reimbursement contracts with governments
* Other cases authorized by agency procedures.

Question 23

What must a contractor provide when applying for advance payments?

Answer 23

A contractor must submit:
* Reference to the contract or solicitation
* Cash flow forecast
* Proposed total amount of advance payments
* Financial institution details
* Description of financing efforts
* Other relevant financial information.

Question 24

What does the contracting officer do after analyzing the contractor’s application?

Answer 24

The contracting officer recommends approval or disapproval and transmits the request to the designated approving authority.

Question 25

What is required if advance payments are approved?

Answer 25

The contracting officer must: * Enter into an agreement covering special accounts * Ensure advance payments do not exceed contractor financial needs * Supervise contractor fund withdrawals.

Question 26

What security measures are included in advance payment agreements?

Answer 26

Security measures may include: * Paramount lien in favor of the Government * Personal or corporate guarantees * Pledges of collateral * Controls on financial distributions.

Question 27

What is the role of the Department of the Treasury in advance payments?

Answer 27

The Treasury prescribes regulations for using letters of credit and oversees the advance payment methods.

Question 28

True or False: Advance payments can be made for contracts without analyzing the contractor's financial condition.

Answer 28

False.

Question 29

Fill in the blank: The contracting officer shall charge interest on the daily unliquidated balance of all advance payments at the higher of the published ______.

Answer 29

prime rate of the financial institution.

Question 30

What must each determination concerning advance payments be supported by?

Answer 30

Written findings ## Footnote Refer to 32.410(a) for details on the required findings.

Question 31

What is the customary progress payment rate for contracts?

Answer 31

80 percent ## Footnote For small business concerns, the rate is 85 percent.

Question 32

What is required for advance payments to be made to a contractor?

Answer 32

Security for the protection of the Government ## Footnote This includes a paramount lien on the account and contracted supplies.

Question 33

Fill in the blank: The advance payments are necessary for _______ contract performance.

Answer 33

prompt, efficient

Question 34

What must the contracting officer do if the agency desires to waive the countersignature requirement?

Answer 34

Use the clause with its Alternate I ## Footnote This applies if the contractor has a strong financial record.

Question 35

What is the limit for progress payments on work accomplished under undefinitized contract actions?

Answer 35

80 percent ## Footnote This follows 10 U.S.C. 3804(b) and 41 U.S.C. 4504(b).

Question 36

What should a contracting officer consider any progress payment rate higher than 80 percent?

Answer 36

An unusual progress payment ## Footnote Approval must be obtained for higher rates.

Question 37

What is the purpose of the Special Account Agreement?

Answer 37

To secure the repayment of all advance payments made to the Contractor ## Footnote The Government has a lien on the credit balance in the account.

Question 38

True or False: The financial institution is responsible for the application of funds withdrawn from the Special Account.

Answer 38

False ## Footnote The financial institution acts on written directions from the Contracting Officer.

Question 39

What should the contracting officer do if advance payments and progress payments are authorized under the same contract?

Answer 39

Not authorize a progress payment rate higher than the customary rate

Question 40

What is required for a contractor to receive unusual progress payments?

Answer 40

Documented actual need for financing and approval from the contracting activity head ## Footnote This includes large predelivery expenditures.

Question 41

What is the significance of the lien established in the Special Account?

Answer 41

It is paramount to any lien or claim of the financial institution ## Footnote This protects the Government's interests in the account.

Question 42

What type of contracts does Subpart 32.5 concerning progress payments not apply to?

Answer 42

Cost-reimbursement contracts and contracts for construction or shipbuilding ## Footnote See 32.500(a) for more details.

Question 43

Fill in the blank: The contracting officer must ensure that the amount of advance payments does not exceed the _______.

Answer 43

unpaid contract price

Question 44

What must the financial institution provide each month regarding the Special Account?

Answer 44

The financial institution's published prime interest rate ## Footnote This requirement is excluded for interest-free advance payments.

Question 45

What does the contracting officer insert in solicitations and contracts for advance payments?

Answer 45

Clause at 52.232-12, Advance Payments

Question 46

What is the definition of 'customary progress payments'?

Answer 46

Payments made under general guidance using established rates and methods ## Footnote Refer to 32.501.

Question 47

What must the contracting officer do if they consider it necessary to protect the Government's interest?

Answer 47

Use protective terms such as personal guarantees or special bank accounts

Question 48

What is the purpose of the findings in the advance payments authorization?

Answer 48

To support the determination that advance payments are in the public interest ## Footnote This is outlined in 32.410(b).

Question 49

True or False: Advance payments can be made without interest to the contractor.

Answer 49

True ## Footnote This is possible under certain conditions outlined in the advance payment clause.

Question 50

What is the primary purpose of a Progress Payments clause in contracts?

Answer 50

To facilitate progress payments in accordance with the specified terms and conditions ## Footnote The clause allows contracting officers to manage cash flow for contractors based on work accomplished.

Question 51

What must a contracting officer do if a bid is conditioned on progress payments but the solicitation did not provide for them?

Answer 51

Reject the bid as nonresponsive.

Question 52

What actions require approval from the contract finance office?

Answer 52

* Providing a progress payment rate higher than the customary rate * Deviating from the prescribed progress payments terms * Providing progress payments to a contractor in doubt financially or on the Hold-up List.

Question 53

What provision must be inserted in invitations for bids that include a Progress Payments clause?

Answer 53

52.232-13, Notice of Progress Payments.

Question 54

When should the provision at 52.232-14 be inserted in invitations for bids?

Answer 54

When both small business concerns and others may submit bids, and only small business bidders would need progress payments.

Question 55

What clause should be inserted in solicitations that may result in contracts providing for progress payments based on costs?

Answer 55

52.232-16, Progress Payments.

Question 56

In what scenario should the AlternateI of the Progress Payments clause be used?

Answer 56

If the contractor is a small business concern.

Question 57

What is the objective of supervision of progress payments?

Answer 57

To provide timely knowledge of the need for actions to protect Government interests.

Question 58

What factors influence the extent of progress payments supervision?

Answer 58

* Contractor's experience * Performance record * Reliability * Quality of management * Financial strength * Adequacy of accounting system.

Question 59

What conditions must be met for progress payments to be approved for contractors with established reliability?

Answer 59

* Reliable and competent * Adequate accounting system * Sound financial condition.

Question 60

What should be done if there is reason to doubt the amount of a progress payment request?

Answer 60

Only withhold the doubtful amount; pay any clearly proper amounts.

Question 61

What is the purpose of postpayment reviews or audits?

Answer 61

To determine the validity of progress payments already made and expected to be made.

Question 62

What may trigger the suspension or reduction of progress payments?

Answer 62

* Contractor noncompliance * Unsatisfactory financial condition * Excessive inventory.

Question 63

What should a contracting officer do if the contractor's financial condition endangers contract performance?

Answer 63

Require the contractor to make additional operating or financial arrangements.

Question 64

What is the loss ratio factor used for?

Answer 64

To adjust future progress payments when total costs exceed the contract price.

Question 65

True or False: The contracting officer can take unilateral action to suspend payments only if warranted by circumstances.

Answer 65

True.

Question 66

Fill in the blank: The contracting officer must act ______ and reasonably in decisions regarding progress payments.

Answer 66

fairly.

Question 67

What must be adjusted to ensure progress payments equal or exceed the fair value of undelivered work?

Answer 67

Progress payments must be adjusted.

Question 68

What happens if a contractor disputes amounts claimed by subcontractors?

Answer 68

Payments are not considered delinquent until amounts are established.

Question 69

What should be included in the contract file regarding findings made under the Progress Payments clause?

Answer 69

Written documentation of findings.

Question 70

What may the contracting officer use to evaluate progress payment requests?

Answer 70

Audit assistance, technical services, management reports, and other sources of pertinent data

Question 71

What should the contracting officer do if they conclude that the contractor's figures are incorrect?

Answer 71

Prepare a supplementary analysis, advise the contractor in writing of the differences, and adjust further progress payments

Question 72

What is the revised contract price if the initial contract price is $2,850,000 and change orders amount to $150,000?

Answer 72

$3,000,000

Question 73

What is the total costs eligible for progress payments if total costs incurred to date are $2,700,000?

Answer 73

$2,700,000

Question 74

Fill in the blank: The liquidation rate is typically the same as the _______ payment rate at the beginning of a contract.

Answer 74

progress

Question 75

What is the objective of the alternate liquidation rate method?

Answer 75

To permit the contractor to retain the earned profit element of the contract prices for completed items

Question 76

Under what conditions may the contracting officer reduce the liquidation rate?

Answer 76

If the contractor requests a reduction, the rate hasn't been reduced in 12 months, and other specified conditions are met

Question 77

True or False: The contractor bears the risk of loss for Government property under the Progress Payments clause.

Answer 77

True

Question 78

What must the contracting officer ensure about the liquidation rate?

Answer 78

It is high enough to result in Government recoupment of applicable progress payments on each billing

Question 79

What actions can the contracting officer take if there is an excess of unliquidated progress payments?

Answer 79

*Increasing the liquidation rate* *Reducing the progress payment rate* *Suspending progress payments*

Question 80

What is required if a retroactive downward price reduction occurs under a redeterminable contract?

Answer 80

Determine the refund due and obtain repayment from the contractor

Question 81

What happens if the contractor fails to disclose an existing encumbrance in the progress payments certification?

Answer 81

The ACO may consult with legal counsel regarding possible violation of the False Claims Act

Question 82

Fill in the blank: The contractor must eliminate the costs allocable to transferred property from the costs of _______ performance.

Answer 82

contract

Question 83

What is the minimum liquidation rate based on?

Answer 83

Expected progress payments divided by the contract price

Question 84

What must the subcontract include if financing payments are in the form of progress payments?

Answer 84

The substance of the Progress Payments clause in the prime contract

Question 85

True or False: The contractor can sell current production scrap without restrictions.

Answer 85

True

Question 86

What is the maximum unliquidated amount to be ensured by the contracting officer?

Answer 86

Any excess of the unliquidated progress payments over the contractual limitation

Question 87

What must happen if the contractor experiences a lower profit rate than anticipated?

Answer 87

The liquidation rate shall be increased for both previous and subsequent transactions

Question 88

What is the Performance-Based Payments clause at 52.232-32?

Answer 88

A clause requiring subcontract terms to include the substance of performance-based payments, indicating that the contractor, not the Government, awards the subcontract and administers payments. ## Footnote This clause is modified to reflect the contractor's role in managing payments.

Question 89

What must a subcontract include when financing payments are in the form of commercial product or service purchase financing?

Answer 89

A contract financing clause structured in accordance with 32.206. ## Footnote This ensures compliance with financing requirements for commercial products and services.

Question 90

What is the scope of Subpart 32.6?

Answer 90

It prescribes policies and procedures for identifying, collecting, and deferring collection of contract debts, excluding claims against common carriers. ## Footnote This includes debts related to transportation overcharges and freight losses.

Question 91

Define contract debts.

Answer 91

Amounts paid to a contractor that they are not entitled to, or are otherwise due from the contractor under the contract terms. ## Footnote Contract debts can arise from various situations, including overpayments and breaches.

Question 92

List three examples of contract debts.

Answer 92

* Billing and price reductions from contract terms * Price reductions for defective certified cost data * Overpayments disclosed by quarterly statements ## Footnote These examples illustrate the types of financial discrepancies that can lead to contract debts.

Question 93

What responsibilities does the contracting officer have regarding contract debts?

Answer 93

Identifying and demanding payment of contract debts, excluding those from payment office errors. ## Footnote The contracting officer cannot collect debts or offset them against unpaid bills.

Question 94

What is the primary responsibility of the payment office?

Answer 94

* Collecting contract debts identified by contracting officers * Identifying and collecting duplicate and erroneous payments * Authorizing liquidation of contract debts ## Footnote The payment office plays a crucial role in managing financial discrepancies.

Question 95

Fill in the blank: Contract debts include price adjustments resulting from _______.

Answer 95

[Cost Accounting Standards (CAS) noncompliances or changes in accounting practice].

Question 96

True or False: The contracting officer can agree to liquidate contract debts.

Answer 96

False. ## Footnote The contracting officer is prohibited from liquidating contract debts.

Question 97

What type of payments are included in contract debts due to financing?

Answer 97

* Financing payments in excess of contract limitations * Increases to financing payment liquidation rates * Breach of contract obligations regarding financing ## Footnote These payments can lead to significant financial liabilities for contractors.

Question 98

What are duplicate or erroneous payments?

Answer 98

Payments that have been made more than once or incorrectly calculated under the contract terms. ## Footnote These can result in contract debts that must be collected.