(b) Generally, except for (1) contracts with nonprofit educational or research institutions for experimental, developmental, or research 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.

[29 FR 10356, July 24, 1964, as amended at 40 FR 43729, Sept. 23, 1975]

§ 1-30.405 Statutory requirements.

The statutes authorizing advance payments apply equally to negotiated contracts and contracts awarded or to be awarded by formal advertising. Accordingly, advance payments under either method of contracting may be made only upon the following conditions:

(a) The contractor shall give adequate security (see § 1-30.413);

(b) The advance payments shall not exceed the unpaid contract price;

(c) A determination shall be made by the agency head, or his authorized delegatee (see § 1-30.406), that the making of the advance payment is in the public interest when the action is pursuant to the authority of section 305 of the Property Act or 10 U.S.C. 2307, and such determination shall be based upon written findings (see § 1-30.410);

or

(d) A determination shall be made by the agency head, or his authorized delegatee (see §§ 1-30.406 and 1-17.301), that the making of the advance payment will facilitate the national defense when the action is pursuant to the Act of August 28, 1958, Public Law 85-804 (50 U.S.C. 1431-1435), hereinafter referred to in this Part 1-30 as "the Act," and Executive Order No. 10789 (see Part 1-17) and such determination shall be based upon written findings (see § 1-30.410). § 1-30.406 Responsibility delegation

of authority.

Each agency, utilizing section 305 of the Property Act or other authority for advance payments, should provide by agency procedure that:

(a) The responsibility and authority for making findings and determinations

with respect to advance payments, and in each case for approval of contract provisions for advance payments, or for approval of the terms and conditions thereof (see § 1-30.410), shall be exercised at an organizational level sufficiently high to assure uniform application of the policies set forth in this Part 1-30; and

(b) Prior to committing the Government to the making of an advance payment, the approving agency official shall obtain the advice and concurrence of the head (or an authorized alternate) of the activity which is required to provide contract finance advice and assistance to the procuring activity.

[31 F.R. 349, Jan. 12, 1966]

§ 1-30.407 The Act of August 28, 1958, Public Law 85-804-Formally advertised contracts.

(a) Pursuant to the Act of August 28, 1958, Public Law 85-804 (50 U.S.C. 14311435, hereinafter referred to in this

1-30.407 as "the Act," and Executive Order No. 10789 of November 14, 1958 (3 CFR, 1954-1958 Comp., pp. 426-428), as amended by Executive Order No. 11051 of October 2, 1962, hereinafter referred to in this 1-30.407 as "the Executive order," certain agencies (see 1-17.502) are authorized to make advance payments under contracts heretofore or hereafter made, without regard to other provisions of law relating to contracts including advance payments under contracts awarded on competitive bids after formal advertising, and to amend such contracts to provide for advance payments, whenever the national defense will be facilitated thereby.

(b) Pursuant to the Act and the Executive order (as well as section 305 of the Property Act and cther authority) and subject to these regulations, advance payments may be granted at or after awards of contracts made on competitive bids after formal advertising (as well as on negotiated contracts) notwithstanding the absence of provision for or with regard to advance payments in the invitations for bids. Bids shall be rejected if they are conditioned, qualified, or limited in such way that binding awards can be made only with provision for advance payments. Bids shall not be treated as nonresponsive because they contain, or are accompanied by or supplemented by a request for advance payments or other indication that advance

payments are desired or needed, so long as the advance payment aspect is not a condition, qualification, or limitation of the bid. In the cases mentioned in the previous sentence, or if the need for advance payments becomes apparent in the course of inquiry as to whether the necessary funds will be available for performance by the prospective contractor, (1) the award may be made with provision for advance payments, in conformity with this Part 1-30, or (2) the award may be made without provision for advance payments if the prospective contractor is determined to be a responsible contractor and advance payments are considered not necessary, or (3) the award may be denied because funds for performance are not otherwise available to the prospective contractor and the making of advance payments has been declined in accordance with this Part 1-30.

§ 1-30.407-1 Special contract provisions.

All contracts providing for advance payments under the authority of the Act and the Executive order shall:

(a) Make reference to the Act and the Executive order; and

(b) Include appropriate clauses required by the Act and the Executive order, or by other applicable regulations. § 1-30.407-2

Data.

Complete data shall be maintained by each executive agency as to all contracts and amendments to contracts relating to advance payments made pursuant to the Act and the Executive order. 81-30.408 Uses of advance payments.

Advance payments are last in the general order of preferences stated in § 130.209. Subject to the provisions of this Part 1-30, advance payments are considered useful and appropriate for (a) contracts with nonprofit educational or research institutions for experimental, developmental, or research work (see § 1-30.404), (b) contracts solely for the management and operation of Government-owned plants (see § 130.404), (c) contracts for acquisition of facilities at cost, for Government ownership, (d) contracts involving operations so remote from a financial institution that the financing institution could not be expected to provide suitable administration of a guaranteed loan, (e) con

tracts of such highly classified nature that the agency considers it undesirable for national security to permit assignment of claims under the contract, (f) rare but essential contracts of those contractors, unusually weak or overextended financially in those cases in which performance may be better fostered and risks of financial loss most effectively minimized by very close control of funds and supervision of performance by personnel of the agency concerned, (g) contracts for the financing of which a financing institution will not (1) assume a reasonable portion of the risks under a guaranteed loan, or (2) provide funds except at excessive interest rates or other exorbitant charges, and (h) exceptional cases in which the utilization of advance payments will be more beneficial to the interests of the Government than any other available method of filnancing. Circumstances will occur, especially on contracts with small business concerns, in which advance payments will be more beneficial to the interests of the Government and more suitable to the situation of the contractor than other methods of contract financing. If, incident to a bid or proposal, or after award of a contract, an otherwise qualified contractor is found to require advance payments, there should be no hesitation in recommending to approving authority that advance payments be established.

[29 FR 10356, July 24, 1964, as amended at 40 FR 43729, Sept. 23, 1975]

§ 1-30.408-1 Use of letter of credit method of financing.

(a) Unless a waiver has been obtained from the Department of the Treasury, the letter of credit method of financing advance payments must be used whenever the criteria set forth in Treasury Department Circular No. 1075 (31 CFR Part 205) and promulgated in regulations contained in Part VI, Treasury Fiscal Requirements Manual, Chapter 2000 are met. The letter of credit method of fnancing advance payments directly by Treasury check, or drawdowns through the Federal Reserve Bank or branch serving the recipient organization's commercial bank, shall be employed in accordance with agency procedures and Department of the Treasury regulations whenever the agency has, or expects to have, a continuing relationship with a recipient organization for at least 1 year,

involving annual advances aggregating at least $250,000. Agency procedures may be applicable to an entire agency, a major organizational unit of an agency (e.g. Bureau, Service or Administration), any component of a major unit or a lower tier element of such component. The single letter of credit procedures may apply to the financing of all contracts and/or grants, or classes of contracts and/or grants between a recipient organization and an agency or any of its components. Since the letter of credit method enables the recipient organization to withdraw cash from the Treasury concurrently with and as frequently as disbursements are made by the recipient organization, there need be no time lag between drawdowns from the Treasury and disbursements by the recipient organization. Therefore, there is no necessity for the recipient organization to maintain unliquidated balances of Federal cash other than small balances necessary to accommodate Treasury minimum limitations on individual drawdowns and to provide for an element of bank float.

(b) Contracts shall require such adequate security for funds advanced as may be considered appropriate for the protection of the Government under the circumstances of each case, but in any event, the financial management system of the recipient organization shall provide for effective control over and accountability for all Federal funds in accordance with governing regulations of the Treasury Department. See § 1-30.413 and 31 CFR Part 205 (also appearing as Department of the Treasury Circular No. 1075, 3rd Revision, 38 FR 5242, February 27, 1973).

(c) Contracts using the letter of credit method of financing should incorporate (among other provisions) paragraphs (a), (k), and (n) (3) of § 1-30.414-2 contract provisions in order to ensure that the financial management system of the contractor provides effective control

over and accountability for all Federal funds.

[40 FR 43729, Sept. 23, 1975]

§ 1-30.409 Standards for advance pay. ment determinations.

It is not required for the granting of advance payments that the contractor be the sole or only source or prospective source for the required supplies or services. Important practical factors include comparative prices, urgency of supply schedules, and the time and expense

Involved in arranging other sources or in reletting contracts. The governing principles and standards for decision as to whether to make or approve the necessary determinations for advance payments are those set forth in this § 1-30.409 and §§ 1-30.202 through 1-30.212, and 1-30.404 through 1-30.408. Affirmative recommendations should be made in favor of granting advance payments when (a) advance payments are necessary to supplement other funds or credit available to a contractor or prospective contractor, (b) the contractor or prospective contractor is otherwise quallfled as a responsible contractor (see §§ 1-1.310 and 1-30.211), (c) there will be a benefit to the Government from performance prospects or other practical advantages, and (d) the case is within one or more of the categories described in § 1-30.408. These recommendations should be approved unless the responsible contract financing office (see § 1-30.212), or other authorized official concerned (see 1-30.406), considers that under all the relevant circumstances the making of advance payments would be unreasonable or imprudent or would involve undue risks of monetary loss to the Government, or would otherwise fail to conform to this Part 1-30.

§ 1-30.410 Findings, determinations. and authorization.

Each determination required by 1-30.405 shall be based on written findlrigs made by the official making such determination, which findings shall be final and shall be available for a period of at least 6 years following the date of the determination. A copy of the findings shall be filed with the General Accounting Office copy of the contract to which it applies. The following is a suggested form and text of findings, determinations, and authorization for use in establishing advance payments.

FINDINGS, DETERMINATIONS, AND AUTHORIZATION FOR ADVANCE PAYMENTS FINDINGS

b. Advance payments (in an amount not to exceed ..... at any time outstanding) (in aggregate amount not exceeding 8.-----. less the sqxregate amounts repaid, or with drawn by the Government) are required by the contractor in order to perform under the contract. Such amount does not exceed the unpaid contract price, nor the estimated interim cash needs arising during the reimbursement cycle.

e. The advance payments are necessary for prompt and efficient performance of the contract, which will be of benefit to the Government.

d. The proposed advance payment clause contains appropriate provisions for the protection of the Government, as security for the advance payments. (These include provision that all payments will be deposited in a special bank account, and that the United States will have a paramount lien upon (1) the credit balance in the special bank account, (2) any supplies contracted for, and (3) any material or other property acquired for performance of the contract.) (The financial management system of the contractor provides for effective control over and accountability for all Federal funds in accordance with governing regulations of the Treasury Department) (Advance payment bond is required.) Buch security is deemed to be adequate.

⚫. Within the meaning of applicable regulations, no means of adequate financing other than by advance payments are available to the contractor, and the amount designated above is predicated upon the use of the contractor's own working capital to the extent possible in performing the contract.

f. The Contractor is a nonprofit (educational) (and) (research) institution, and the contract is for (experimental) (,) (developmental) () (and) (research) work,

g. The contract is solely for the management and operation of a Government-owned plant.

h. The following unusual facts and circumstances favor the making of advance payments to the contractor without interest:

[Recitation of pertinent facts and
circumstances]

Federal Property and Administrative Serv ices Act of 1949, as amended (or 10 USC. 2007) (or the Act of August 28, 1958, Public Law 85-804, 72 Stat. 972, and Executive Order No. 10789) (or if other, cite appropriate authority) upon (terms and conditions substantially as contained in the proposed advance payment clause of which copy (or outline) is annexed hereto) (the following terms and conditions:)

(All prior advance payment authorizations with respect to Contract No. are hereby superseded.)

1. Words and expressions in parentheses and blank spaces in the above paragraphs indicate choices of language, depending upon the facts pertinent to a particular request. Only those paragraphs and those words (including the appropriate statutory reference) which are pertinent to the particular request should be included.

2. Each "Findings, Determinations, and Authorization" must include paragraphs la, 1b, lc, ld, 2, and 3. Paragraph le should not be included in the case of contracts with a nonprofit educational or research institution for experimental, developmental, or research work, or in the case of contracts solely for the management and operation of Government-owned plants. Paragraph 1f, 1g, or 1h, as appropriate, should be included if the advance payments are to be made without interest to the Contractor. The last sentence of paragraph 3 should be included if any advance payments have previously been authorized for the contract. The numbering and lettering of the paragraphs in the completed "Findings and Determinations" will then run consecutively, based on the paragraphs actually used.

3. Modifications to adapt to special facts and circumstances are permissible.

[29 FR 10356, July 24, 1964, as amended at 40 FR 43729, Sept. 23, 1975] § 1-30.411 Application

payment.

for advance

The contractor's application for advance payment, whether incident to the making of a contract or by way of amendment or supplemental agreement for advance payments under an existing contract, may be in the form of a letter request or other writing. The application should refer to the contract or proposed contract under which advance payments are requested, and should include or be accompanied or supported by:

(a) Cash flow forecast (see §§ 1-30.214 (f), 1-30.214-1 and 1-30.214-2) (limited to estimated cash flow for the contract or contracts to be financed by advance

or

payments when the contracts are of the kinds mentioned in §§ 1-30.408(a) 1-30.408(b));

(b) Proposed amount of advance payments;

(c) As appropriate, name and address of bank suggested as depository for the advance payment special account, or if the letter of credit financing method is proposed, the specific account with the Contractor's Commercial Bank that will be used;

(d) Except for contracts mentioned in §§ 1-30.408(a) and 1-30.408(b), description of efforts made to obtain private financing, including guaranteed loan if the contracts are for the national defense; and

(e) Such other information and data as may be appropriate under the circumstances of the case for the purposes outlined in § 1-30.214 (of which, ordinarily, information concerning reliability, technical capability, and adequacy of accounting system and controls should be sufficient for contracts mentioned in §§ 1-30.408 (a) and 1-30.408(b). [29 FR 10356, July 24, 1964, as amended at 40 FR 43730, Sept. 23, 1975]

After such investigation as may be appropriate, and analysis of the application and information submitted by the contractor with his request, the contracting officer should transmit the request to the appropriate approving authority for his procuring activity (see § 1-30.406), with supporting data and recommendations which shall include:

(a) Date and identification of the approval of the award, citation of the appropriation available, type of contract, dollar amount of contract, the items to be supplied, and schedules of deliveries or performance, status of performance and deliveries, if any, contemplated profit or fee, and a copy of the contract. if available;

(b) The request and information furnished by the contractor;

(c) Report of investigation, including past dealings with the contractor, and comment on the character and responsibility of the contractor, technical ability, and plant capacity:

(d) Comment on (1) the need for the advance payments for performance of the contract, and (2) the benefits to the

Government from the contemplated contract performance:

(e) Proposed advance payment contract provisions or supplemental agreement (contract modification, see § 1-1.219), including proposed security provisions (unless those are to be provided by the contract financing organization);

(f) The appropriate findings, determination and authorization (see § 1-30.410) for signature by the approving authority (unless those are to be provided by the contract financing organization):

(g) Recommendation for approval or disapproval of the advance payment request; and

(h) Justification of the proposal, if any, for waiver of interest charge (see § 1-30.403).

§ 1-30.413 Security supervision

Covenants.

(a) Except as provided in paragraph (b) of this § 1-30.413, the advance payment agreement, under any applicable statute, shall provide for deposit of all payments into special bank accounts (see § 1-30.414-1) and shall include suitable covenants (see § 1-30.414-2) to protect the Government's interest. Advance payments under such authorizations should be limited to the Contractor's financial needs, and withdrawals from the special bank accounts provided therefor should be closely supervised. The terms governing advance payments should include as security, in addition to or in lieu of the requirements for an advance payment bond or other security, provision for a lien in favor of the Government, paramount to all other liens, upon the supplies contracted for, upon the credit balance in any special account in which such payments may be deposited, and upon the material and other property acquired for performance of the contract, except to the extent that the Government has valid title thereto. Because of the variations in circumstances of individual cases, no fixed rule can be prescribed for determining adequacy of security in a particular case. The minimum security will be that required by the provisions of approved contract forms, supplemented by such further provisions and arrangements, if any, as may be considered appropriate for the protection of the Government under the circumstances of each case.