§ 1-30.214-1

Cash flow forecast, and estimated financial statements.

In doubtful cases, an estimated cash budget (Cash Flow Forecast) and related estimated Profit and Loss Statements and estimated Balance Sheets prepared by the contractor, will be very useful for the purpose of arriving at an informed judgment as to the cash requirements (both for the contract and for the contractor's other activities), cash receipts for the contract period, and cash or credit needed to supply any excess of projected expenditures over projected receipts. When considered useful or necessary, such estimates should be requested from the prospective contractor, analyzed by financial personnel, and discussed to the extent necessary or appropriate with the prospective contractor. Many contractors will have such projections readily available, perhaps not including estimated balance sheets. The failure of the contractor to have prepared such estimates, or resistance to their preparation, or difficulties and delays in preparation, or poor quality of the projections, or the use of unreasonable or unrealistic assumptions in their preparation, may well constitute warning signals that the company's planning has been insufficient and that significant financial troubles may be encountered during the contemplated period of contract performance.

§ 1-30.214-2 Realistic assumptions.

Cash forecasts can, of course, be no more reliable and representative of probable financial developments than the assumptions on which these forecasts are based. Each cash forecast and related projection should disclose the important underlying assumptions. The more important of these assumptions

are:

(a) Estimated amounts and timing of purchases of materials, parts, components, subassemblies, services, and payments therefor;

(b) Estimated amounts and timing of purchases of machinery and equipment, other production or test facilities, other fixed assets, and purchases or production of special tooling, and payments therefor;

(c) Schedule of fixed cash charges, such as debt installments, interest, rentals, and taxes;

(d) Projected manufacturing and production schedules;

(e) Projected shipments, or delivery acceptances;

(f) Estimated amounts and timing of billings to customers (including progress payments), and customer payments;

(g) Estimated amounts and timing of cash receipts from lenders or other credit sources, and liquidation of loans; and

(h) Estimated amounts and timing of cash receipts from other sources. The assumptions underlying cash forecasts should be checked, as may be prudent in the circumstances of the case, for reasonableness and realism. This checking should be done with the contractor, with Government personnel responsible in the areas of engineering, production scheduling, cost and price analysis, and with others (including prospective supply, subcontract, and loan or credit sources).

§ 1-30.214-3 Estimated profit and loss statements and balance sheets.

The cash budget or cash forecast does not show anticipated profit or loss, and is limited to the forecast of movements within a company's cash account. The concurrent submission of an estimated profit and loss statement covering the same period serves to tie in the anticipated cash transactions with the estimated sales and expense activity, and culminates in the estimated balance sheet position. The estimated profit and loss statement also can serve as a guide for evaluating the company's projections with respect to sales volume, cost of goods sold, gross profit and net profit in relation to the known results of past performance. The interrelationship between the cash budget, estimated profit and loss statement and estimated balance sheet, covering a given period, is illustrated by the suggested formats appearing in § 1-30.218 for use in financial projections.

§ 1-30.215 Termination financing.

It is recognized that adequate protection against the financial impact of termination of Government contracts and subcontracts will tend to encourage contractors to invest their own funds in performance under such contracts. Accordingly, termination financing may be

made available, with appropriate protection of the Government's interest, either in connection with or independently of performance financing (see § 1-8.212-1 regarding partial payments upon termination).

§ 1-30.216 Report of adverse developments-prompt decisions.

When materially adverse developments concerning a borrower having a guaranteed loan, or concerning a contractor having advance payments or progress payments, become known to a procuring activity, pertinent facts, including information as to remedial or protective action taken or proposed, should be furnished by the procuring activity to the appropriate financing activity so that timely appropriate protective or remedial action may be taken by coordinated action of all concerned. However, the furnishing of such information does not relieve the personnel responsible for administration of the contract from taking such action as is deemed proper, prudent, and beneficial to the Government. When there are reasons to doubt the prudence of continuing progress payments or advance payments in cases involving performance difficulties or financial deterioration, decision must be made promptly and with proper regard to the harmful effects of delay on the continued operation of the contractors concerned.

§ 1-30.220 Foreign procurement.

This Part 1-30 applies equally to domestic and foreign procurement, with the exceptions and qualifications stated below. The enforceability of a contract provision in a foreign jurisdiction is dependent on local law and procedure. It may sometimes become necessary to take action in foreign countries to enforce collateral security or other contract financing protective provisions, or to recover property pursuant to a progress payment clause, and to collect contract financing indebtedness. In such cases, the nature and extent of remedies available for enforcement of contract provisions is necessarily determined by the laws, rules, and procedures of the country in which the relief is sought.

§ 1-30.220-1 Progress payments

on

contracts for foreign performance. When progress payments are contemplated for contracts to be performed wholly or partly in a foreign country, appropriate legal advice should be obtained with respect to the validity, enforceability, and effectiveness of the contemplated progress payment clause (see §§ 1-30.510-1, 1-30.510-2, and 130.511) and of any proposed guarantees, pledges, or other special protective arrangements, within the foreign country involved. Such legal advice should also cover the need, if any, for additional protective provisions (§ 1-30.511-6) for deviations (§ 1-30.509-9) from the uniform clauses, that may be required to comply with the applicable foreign law and to provide for the most effective protection and enforcement of the interests of the United States.

or

§ 1-30.220-2 Advance payments on contracts for foreign performance.

When advance payments are proposed for contracts to be performed wholly or partly in a foreign country, the recommendation for advance payments (see § 1-30.412) should include appropriate legal advice as referred to in § 1-30.220-1. When advance payments are proposed to be made on contracts with foreign governments, it is expected that the advance payment arrangement, if approved, would not include provisions generally unsuitable for government-togovernment agreements, such as those for special bank accounts, unilateral withdrawal of funds, liens, insurance, additional security, or representations, warranties and covenants of the kinds set forth in §§ 1-30.414-2(p)) and 1-30.414-2(r). It is recognized that advance payments to foreign governments, when authorized, will need to be adapted to the special circumstances of each case to provide appropriate protection in the light of the relationship of the United States to each affected foreign government and with due recognition of the sovereign status of the contracting parties.

§ 1-30.220-3 Guaranteed loans for foreign contract performance.

When contracts or subcontracts are to be performed in a foreign country, financing by means of guaranteed loans

§ 1-30.221-2 Format 221-2, Interrelationship of projection of financial statements.

Liabilities;

Subpart 1-30.3 [Reserved] Subpart 1-30.4-Advance Payments § 1-30.400 Scope of subpart.

(a) This subpart covers policies and procedures for advance payments on prime contracts, including advance payments on subcontracts under all types of prime contracts. It applies to all advance payments hereafter authorized pursuant to any legislation or other authority, except as provided in § 1-30.419. It is to be applied in conformity to the policies stated in Subpart 1-30.2.

(b) The policies, standards and procedures of this subpart 1-30.4 are applicable to advance payments to subcontractors under all prime contracts, including fixed-price types and cost-reimbursement types of prime contracts. For the prime contractor to receive advances to, in turn, advance to subcontractors, or in order for the prime contractor to be reimbursed for advances to the subcontractor, it is required that the prime contract make provision for advance payments conforming to the regulations in this part, with appropriate provision for advance payments by the prime contractor to subcontractors or suppliers (see § 1-30.414-2(q)).

§ 1-30.401 Types of contracts that may have advance payments.

Advance payments may be made on any approved type of contract. § 1-30.402 Advance payments in addition to progress or partial payments. Where necessary and in accordance with this Part 1-30, advance payments may be authorized in addition to progress or partial payments on the same contract (see § 1-30.508).

(a) Interest will be charged on the unliquidated balance of all advance payments at a rate to be fixed by the head of the agency for advance payments to be made by procuring activities under his cognizance, except that advance payments may be approved without interest when in connection with nonprofit contracts with nonprofit educational or research institutions for experimental, research and development work, or on contracts solely for the management and operation of Government-owned plants, or, in other classes of cases when specifically authorized by agency procedure. In fixing the rate consideration should be given to commercial and governmental

rates of interest then prevailing on obligations of comparable maturity and the cost of borrowed money to the U.S. Treasury. In this connection, contracts for acquisition of facilities at cost, for Government ownership, in combination with or in contemplation of supply contracts or subcontracts, will be treated as ordinary profit contracts requiring interest on advance payments.

(b) Contracts with interest-free advance payments, should provide that the contractor will charge interest (at the rate fixed by the agency head for advance payments) on subadvances or down payments to subcontractors, and that interest charged on such subadvances or down payments will be credited to the account of the Government. However, interest need not be charged on subadvances on nonprofit subcontracts with nonprofit educational or research institutions for experimental, research, or development work.

(c) Interest on advance payments will not be allowed as a cost under any costreimbursement type contract nor costreimbursement subcontract thereunder, and no such contract or subcontract may provide or be amended to provide for allowance of such interest as an item of cost.

§ 1-30.404

Standards-amounts-need.

(a) Advance payments should be used sparingly and care should be taken to see that advances outstanding are sufficient for but do not exceed the actual reasonable requirements for the contract. The amount of the advance payment in any case should be based upon an analysis of the cash flow required under the contract, and as a general rule should not exceed the interim cash needs arising during the reimbursement cycle.

(b) Generally, except for (1) nonprofit contracts with nonprofit educational or research institutions for experimental, research and development work, and (2) contracts solely for the management and operation of Government-owned plants, advance payments should not be authorized unless no other means of adequate financing is available to the contractor (not including loans or credit (i) at excessive interest rates or other exorbitant charges, or (ii) from other agencies of the Government), and the amount of the authorization is predicated upon use of the contractor's own working capital to the extent possible.