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sonnel should utilize vigorously all proper means available to them for ascertainment and payment of amounts payable to contractors as rapidly as possible.

(b) Whenever it appears that it will be necessary to provide additional funds on contracts, it is of great importance that there be appropriate early action to assure the availability of funds for payment of amounts earned by contractors. Significant examples of situations in which it is of particular importance that there be timely and effective action, and no unnecessary Government delay, include: (1) Negotiation and agreement on amounts earned by contractors (i) pursuant to change orders or unilateral contract modifications, (ii) for other equitable adjustments pursuant to contracts, (iii) under contract provisions for price revision or fee adjustment, (iv) under contract provisions for payment for special tooling, and (v) for final payments on contract terminations; (2) finalization of actual overhead rates under contracts providing for provisional overhead billing rates; (3) contract provision to support billing and payment for (i) cost overruns properly incurred by contractors after appropriate notice in conformity to contract provisions, and (ii) spare parts deliveries effected before issuance of appropriate contract supplement; (4) definitization of letter contracts; and (5) appropriate release of any withholdings deemed unnecessary on contracts where deliveries and services have been completed and amounts are being withheld pending final settlements. 129 FR 10356, July 24, 1964, as amended at 40 FR 43729, Sept. 23, 1975)

1-30.203 Supplemental agreement.

After negotiations involving agreement on an amount to be paid to a contractor, an appropriate supplemental agreement should be prepared expeditiously and executed without delay. To the greatest extent practicable, all such supplemental agreements should be limIted to appropriate coverage of the matters directly related and leading to the contemplated payment by the Government; and their preparation and issuance should not be held up pending the consummation of agreements on other separate matters on which contract amendments are desired or contemplated.

§ 1-30.204 Small business.

Immediate and continuing attention must be given to insure that constructive measures will be taken to facilitate and accelerate necessary contract financing assistance to small business concerns. Every reasonable effort must be made to assist small business concerns in the resolution of their problems relative to the financing of contract performance, including any cases in which it may be reasonably necessary to increase the rate for progress payments and to assist them in understanding and complying with the requirements of performance as to payment forms, inspection and cost accounting. However, the issuance of a certificate of competency by the Small Business Administration shall not be considered as a requirement that contract financing must be provided by the procuring activity. § 1-30.205 Purpose of contract financ.

ing. Contract financing is to be regarded as a useful working tool that may be used to the benefit of the Government in aiding procurement by expediting production and delivery under Government contracts. Prudent contract financing supports procurement and production and fosters the small business policy by providing necessary funds to supplement other funds available to contractors for contract performance. § 1-30.206 Support of procurement

minimizing monetary loss. Financing must support procurement and should be designed to aid, not impede, essential procurement, but should be so administered as to avoid the risk of monetary loss to the Government to the extent compatible with aiding essential procurement. $ 1-30.207 Reasonable need.

Government financing for production or services should be provided only 11, and to the extent, reasonably required for prompt and efficient performance of Government contracts and subcontracts. $ 1–30.208 Working capital purposes.

Guaranteed loans under section 301 of the Defense Production Act of 1950, as amended, are used primarily for working capital purposes and are not ordinarily used for loans for facilities expansion. However, it is not the intent of these

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tion to a

viding rekstrable contract financing! ments imperative for continuance of
not be regarded as any less response stances. In order to reduce these hazards may res
by reason of the need for reasonable at 50 far as possible, contracts should be en-
tract financing provided or guaranteed tered into only with those potential con-
by & procuring agency. Responsible a tractors who meet the requirements of plant se
sonnel must eades vor to assure that I fl-1.1204 or § 1-2,407, and who have the
proper, and prudent use is made of the financial capacity or credit (giving due
tract financing in such ways that in regard to the availability of progress
cial difficulties will not bring about ét payments, guaranteed loans, and advance large b=
lay or failure in performance or red payments), technical skill, management
in monetary losses to the Government competence, and plant capacity and fa- of the
for provision of funds, contractors 1 ty) reasonably to assure their ability to plies, a
In selection of an appropriate method cilities (including subcontracting capac- availab
not be expected to seek or obtain ken perform their contracts in accordance $1-30.
or credit (1 st excessive interest rate with their terms. Care should be taken
or other exorbitent charges, or (2) frou also to the extent practicable to avoid

agencies of the Government other than the placement of additional contracts or optimis institution; or progress payments based payments or advance payments will with timely performance of contracts on

later arises, USUSIJE from changed alle may be impossible to establish on a pru

cumstances differing from those pNdent basis. In all cases, whether involving institutions participating to an extentjected at the time of the award. The fact formal advertising or negotiation, it prices i

that a contractor did not indicate befort must be determined that the contractor dasaribed herein ( 1-30.505), not includ- financing, or that he stated that he would form the contract. In addition, consid

award that he would require contract s financially and otherwise able to per-
not require such financing, does not distration must be given to the judgment. petent

perience, including prior work of a simi. may m
Honal institutions (Part IV, Attachment should be dealt with and decided on its
A to Wederal Miurement Circular 73-7, merits, without giving weight to the code placing subcontracts, at all levels of sub-
Administration of college and university tractor's earlier error with regard to the contracting, should be encouraged to ap-

[29 FR 20536, Jals 34, 2954, as amended tracks. Some practical examples of im- be fou

$ 1–30.211 Financial responsibility of mind are regulations to preclude guarantee of $1-50210 Financing not abanin

1-30.211. loans for facilities expansion in appro

03. The need for advance payment priate circumstances. Also, guarantees

for progress payments or for a gas

Procuring activities in placing con (36 F.R. 1 may be extended in case in which & teed loan with reasonable percentat tracts shall give due regard to the finan

§ 1-30.2 relatively small part of the loan might be

cial capabilities of the supplier. Finan

guersie) shall not be tresizi ni used for facilities expansion of : minor

Undul cial difficulties encountered by contrachuntheep in awarding contracts to be

tors and subcontractors may (a) disrupt or incidental nature: Provided, That the qualitad contractors who are de

result in borrower's financial condition is such competent and capable of satisur production schedules, (b) cause wastage

terfere, that the facilities expansion will not de perioimance (see $5 1–1.1204 1-24174 of manpower and materials, and (c) if lay or impair repayment of a guaranteed 30.211, and 1-30.212). The ability dt connected with guaranteed loans, ad contract loan which would be granted on a com

vance payments, or progress payments, and reas contractar to perform the contract result in monetary loss to the Govern

ficient t mercial banking basis. Since advance

cluding the availability of money
ment. Also, if financial crises occur in

at least payments and progress payments should

credit necessary for performance,

the course of a contractor's production, of the he well-liquidating from contract per

be reasesbiy assured in all
the need for continued production may

nancing formance, they also will not ordinarily

Awards which are otherwise propers he used to finance fixed asset acquisitions for contractor ownership.

such production, even though monetary

Undull à 1-10.209 Order of preference.

Contractor deemed reliable, compete

losses may be likely under the circum- perform

capable, saj otherwise responsible, In determining what form of financing shall be recommended or made available

credit to to suppliers, the following order or prei

or colla prance generally should be observed, recognieing that there may be valid ex

gineerin peptions in specific cases or classes of

unavail asea:

compon (a) Private Nnancing on reasonable terma (without governmental guaran

terrent tel.---supplemented when reasonably necessary by Government financing to the extent reasonably required;

b) Customary progress payments, as described in $1.-30.503, including progress payments incident to "Small Busi

Incor ness Restricted Advertising" or incident to procurement by formal advertising, as authorised herein (see $ 1-30.504) except

the procurement sgency, that guaranteed loans may be preferable

or "knc to oustomary progress payments when so

a contractor and on peroontage or stage of completion, confined to contracts for construction, alteration, or repair;

Qurrunteed loans (with appropriate to the risk involved);

All ing contracts involving advance pay

fal Advance payments (8 1–30.408). However, noe "Policy on Use of Advance Payments with respect to research contracta with

jection paratis

import need for contract financing.

(b) Before contract awards, contre tors sometimes indicate that contract financing by guaranteed loan, progress be . some cases the need for such contract financing

subcontracts with contractors in situa- permit

for wor tions where additional contracts will overload the contractor's production ca

has not pacity, overextend his financial resources

work m and credit, and thus tend to interfere

Govern hand, and create need for additional con

unders tract financing arrangements, which

or pros seen di anticip

the pr

whethe ance a

lar kin istic fo:

skill

, and integrity of the potential contractor, and to his reputation and exlar nature done by him, and the other factors set forth in 881–1.1203, 1-2,407, and 1-3.102, as appropriate. Persons

tion o

propos in placing t

research wounta, December 19, 1973).
199 FR 10800, 84, 1004, as amended st
40 FR 48790, thep 08, 10701

Dortant points which should be kept in or on t

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$ 1-30.211 Financial responsibility of mind are set out in $$ 1-30.211-1 through contractors.

1-30.211-6. Procuring activities in placing con

(36 F.R. 17422, Aug. 31, 1971) tracts shall give due regard to the finan § 1-30.211-1 Small volume of work. cial capabilities of the supplier. Financial difficulties encountered by contrac

Unduly small volume of work, in relators and subcontractors may (a) disrupt

tion to amount of overhead expense, may

result in losses to such extent as to inproduction schedules, (b) cause wastage of manpower and materials, and (c) if

terfere with or prevent performance of connected with guaranteed loans, ad

contracts. The order backlog on hand vance payments, or progress payments,

and reasonably foreseeable should be sufresult in monetary loss to the Govern

ficient to enable operations to continue ment. Also, if financial crises occur in

at least through the contemplated term the course of a contractor's production,

of the contracts for which contract fithe need for continued production may

nancing is being considered. make guaranteed loans or advance pay. $ 1–30.211–2 Large volume of work. ments imperative for continuance of such production, even though monetary

Unduly large volume of work to be losses may be likely under the circum

performed concurrently with a contract stances. In order to reduce these hazards

may result in insufficiency of cash or so far as possible, contracts should be en

credit to support the work, or in delays tered into only with those potential con

or collapse on account of inadequacy of tractors who meet the requirements of

plant space, production equipment, en$ 1-1.1204 or § 1-2.407, and who have the

gineering or production personnel, or financial capacity or credit (giving due

unavailability of materials, parts, or regard to the availability of progress

components. An apparently unduly payments, guaranteed loans, and advance

large backlog may or may not be a depayments), technical skill, management

terrent, depending upon the relationship competence, and plant capacity and fa

of the scheduling of all the work to the cilities (including subcontracting capac

available credit, facilities, personnel, supity) reasonably to assure their ability to

plies, and subcontractors. perform their contracts in accordance § 1-30.211-3 Unrealistic cost estimates. with their terms. Care should be taken also to the extent practicable to avoid

Incompetence, carelessness, or over the placement of additional contracts or

optimism of management may cause or subcontracts with contractors in situa

permit the making of bids or proposals tions where additional contracts will

for work involving techniques, processes overload the contractor's production ca

or "know-how" on which the contractor pacity, overextend his financial resources

has not had sufficient experience. Such ind credit, and thus tend to interfere

work may be for the end items under a with timely performance of contracts on

Government contract or for end items iand, and create need for additional con

under other contracts (whether existing ract financing arrangements, which

or prospective). In either case, unforenay be impossible to establish on a pru

seen difficulties of performance and unient basis. In all cases, whether involving

anticipated excess of costs over contract ormal advertising or negotiation, it

prices may prove ruinous. In such cases, nust be determined that the contractor

the proposed price, or cost estimates, s financially and otherwise able to per

whether or not based on past performorm the contract. In addition, consid

ance and experience of qualified comration must be given to the judgment,

petent contractors for the same or simikill, and integrity of the potential con

lar kinds of end items, may be unrealractor, and to his reputation and ex

istic for the inexperienced contractor and erience, including prior work of a simi

may make the company's financial proar nature done by him, and the other

jections completely unrealistic. Comactors set forth in $$ 1-1.1203, 1-2.407,

parative bids or proposals by others are nd 1-3.102, as appropriate. Persons

important and useful factors in evaluelacing subcontracts, at all levels of sub

tion of the adequacy or inadequacy of ontracting, should be encouraged to ap

proposed prices. However, a proposed 'y these standards in placing subcon price that seems unduly low may in fact racts. Some practical examples of im- be founded solidly on superior efficiency ortant points which should be kept in or on the discovery of new and improved

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formance vienen mainst the probable prior to placement of the contract, con-
completition saisiactory preproduc the interests of the Government, whether
ing aids that me* de zequired for pro $1-30.213 Financial information and
lack of soundness of the 573/ations d'from experience to be so strong and so
financial capability and at the risks of competently managed as to be fairly
monetary losses thei would be involved relled upon to perform their contracts that may b

mwolved are regularly produced by the sonable net
wntractor and the contract amounts for exalua:
of the contractor. In such cases, the the Govern

Anandal evaluation might well consist ment with regard de date and difficulties of persons would be io erringe prior to Itallable published balance sheets and be appropi performan M** Delt relation to PTO- contract awards, and so far as practs operating statements. In doniotful tection of

cable, prior to subcontract arrangt beves, the Ainancial analysis would have lined belos

techniques or processes that will enable $130.211-5 Engineering, production the sontractor to perform at costs sub ani murreise plans. blantiaily less than those of other Compare Dans may contemplate Contractors,

gineering 385. direct labor costs, ar $ 1-39,211-4 Technical and engineer prices o metais, parts or componenta ing evaluation

that an unmiy low. Financial farra While management and technical

628ts sammu. E made intelligently o competence must be evaluated largely on

Usefulty withint the benefit of carefu the basis of past performance of manage

anci cometer anniysis of all significant ment and technical personnel, in doubt

elemente te mgineering, production tul cases financial forecasts cannot be

and purchase aspects—by qualified analyzed adeguately without the benefit

technical esanne. Such analysis of technical and engineering judgments

would meet saitiate the compani based upon detalled scrutiny of the corr

estimated ELSE ir ach significant per tractor's production plans and contentplated processes in relation to the quart

costs to Stenimiered for all elements uity and quality of available facilities and

necessary in mi performance

. I personnel. However, while inexperience

may, for exame de foreseeable upu of the contractor in production of a con

analysis tha e campany has matetemplated end item or similar kinds of

rally underestimated the amount of # end items is a danger signal requiring

gineering and dating necessary for close collaboration of all personnel cortcerned with the various elements of con

tion model, a te Finnity and quality tract awards and contract financing.

af special toime rediter manufactur: close analysis of the facts mey provide sound reasons for beliei that the pros

duction of the ent tens, or the amount pective contractor, with proper and pru

of direct labu his will be required, ar dent contract financing assistance, will

the purchase prix necessary mate be able to perform on terms and condi

rials. parts conuenents. The comtons, including price, beneficial to the

Dany may also has been in error as 6 Government

the probadi Lechaina shility of col61-80.211-5 Importance of type of

templated SUICONTESTS to provide as coniract development

ceptable DETTE Lemponents. The

company mey ever— sme cases The type of contrast may constitute

expecting to have gonfiesas portions of the divising Ane for decision as to ability

the work done sentity or finarof bully to perform and the related

cally irresponsibi sunetectors, some Allison of the prudence or imprudence

of whom may be affiliazd with the colla of providing entract financing. If the

tractor or related finance to the cd • contempluted end items are essentially

TASTOT'S Ownership snagement development Ims-Whether or not the

All these elements. In agropriate casei CORA ACA, 1 lmkled a development con

Terutte analysis and Futustion by com XHAM # $xen uree type of contract.

petent engineering and technical per whuldex A xed price, fir-price with

sonnel and beat upon the soundness of ERAH #144, 9X xed urice subject to price sa vuoden with # veling, may prove inprestle of Haterms ce within the conwat tabh #ummy result in nondelivery

In consect financing. of H2Han ons and in disaster

$130.272 Cardinating before et the hell Except for those con Mats whiny #14 exceptionally strons DAMI, 1 1 1mperative in these cases

For effective application of the prin Uutiysis and evaluation be

cintas stated in 1-30-211, each procura buced ******* dhe besoest possible scrutiny

ing activity should be started with or by, and monents of qualified er

have evellable and use the services of eineer to #14 meal personnel with

persuas qualified and competent to eval

at credit and financial problem. Among other things, the duties of such

ments, that financing for performance to be as broa
of contemplated contracts and subcon- painstakingly
tracts is reasonably assured prior to or fit the circun
contemporaneously with the making of obtaining of

financial cap
contracts. In those exceptional cases

and proper et
where there is substantial doubt that &
prospective contractor has the financial of particular

1) The cor
capacity or credit resources essential to
the performance of the contemplated the procuring

(1) The cc
contract, the interested contracting of
ficer, after having determined that no the item or
satisfactory alternative sources of supply to the procur
are readily available on terms equally ceding 12 mos
as favorable to the Government, should (iii) The c

nized concert

(iv) The
sult with the appropriate contract financ-
Ing office of the procuring activity to quiring pre-a
determine whether financing can pru. clearance pric
dently be arranged. In such consulta (V) The co
tion It should be resolved, if placement list indicating
of the contract is deemed beneficial to defaults or de

(vi) The
and by what means financing should be involved in
provided.

a supplier of
customers

commercial
analysis.

(vii) The (a) The necessity for financial Infor

consolidated
mation and analysis, and the scope, to the United
depth, and detail of analysis of the fi.

(vii) The
nancial capability of contractors, for circumstance
contract financing purposes, must vary doubts as to
reasonably with the circumstances of
particular cases. The extent of accu-

capability of
mulation of data, and the evaluation

(b) When

tion is reaso
thereof, must necessarily be determined
by the informed judgment of competent statement a

current bal
responsible personnel. Essentially, this
process must be neither over-done nor

ments for the
under-done. For example, financial

these may analysis would serve no useful purpose

ments, au
In connection with provision of progress from any co

statements,
payments:
() Por contractors who are known $ 1-30.214

purpose
The kind

satisfactorily, or

cumstances
? Por contractors who are known to ! 1–39213)
be In satisfactory financial condition and contractor!
operating profitably, where the items understand

eft well within the normal sales volume to perform

al no more than scrutiny of readily tions and

Jected en work

ments, that financing for performance to be as broad, and as meticulously and of contemplated contracts and subcon painstakingly detailed, as is necessary to tracts is reasonably assured prior to or fit the circumstances of the case. The contemporaneously with the making of obtaining of information relevant to contracts. In those exceptional cases financial capability, and the analysis where there is substantial doubt that a and proper evaluation of that data, are prospective contractor has the financial of particular importance where: capacity or credit resources essential to (1) The contractor is a new supplier to the performance of the contemplated the procuring activity; contract, the interested contracting of (11) The contractor has not supplied ficer, after having determined that no the item or a substantially similar item satisfactory alternative sources of supply to the procuring activity within the preare readily available on terms equally ceding 12 months; as favorable to the Government, should (ii) The contractor is a newly orgaprior to placement of the contract, con. nized concern; sult with the appropriate contract financ (iv) The contractor is on a list reing office of the procuring activity to quiring pre-award clearances or special determine whether financing can pru clearance prior to awards; dently be arranged. In such consulta (v) The contractor is on any current tion it should be resolved, if placement list indicating current or past contract of the contract is deemed beneficial to defaults or delinquencies; the interests of the Government, whether (vi) The contractor is known to be and by what means financing should be Involved in performance difficulties as provided.

a supplier or subcontractor for private $ 1-30.213 Financial information and

customers on either Government or

commercial work; analysis.

(vil) The contractor is listed on the (a) The necessity for financial Infor:

consolidated list of contractors indebted mation and analysis, and the scope, to the United States (Hold-up List); depth, and detail of analysis of the f.

(viii) There are any known facts or nanclal capability of contractors, for

circumstances which support reasonable contract financing purposes, must vary doubts as to the contractor's financial reasonably with the circumstances of

capability of performance. particular cases. The extent of accu

(b) When only minimum Informamulation of data, and the evaluation

tion is reasonably necessary, such as a thereof, must necessarily be determined

current balance sheet and operating by the informed judgment of competent,

statement and similar financial stateresponsible personnel. Essentially, this

ments for the next preceding fiscal year, process must be neither over-done nor

these may be either published stateunder-done. For example, financial

ments, audited statements, certified analysis would serve no useful purpose In connection with provision of progress

statements, or any combination of those,

from any convenient source. payments:

(1) For contractors who are known $1–30.214 Appropriate informationfrom experience to be so strong and so purposes. competently managed as to be fairly The kinds of information and data relied upon to perform their contracts that may be appropriate under the cirsatisfactorily, or

cumstances of particular cases (see (2) For contractors who are known to § 1-30.213) for adequate disclosure of the be in satisfactory financial condition and contractor's financial condition, for full operating profitably, where the items understanding of the propriety and reaInvolved are regularly produced by the sonable necessity for contract financing. contractor and the contract amounts for evaluation of the contractor's ability are well within the normal sales volume to perform his contracts without loss to of the contractor. In such cases, the the Government, and for informed judgfinancial evaluation might well consist ment with regard to the terms, condiof no more than scrutiny of readily tions and protective provisions that may available published balance sheets and be appropriate and prudent for the prooperating statements. In doubtful tection of the Government, are outcases, the financial analysis would have lined below. It is emphasized that only

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