32.202-1 - Policy (COTS item question)

Is the customer a Federal contractor or a Federal agency?

Don Mansfield said:

Is the customer a Federal contractor or a Federal agency?

Customer is a Federal Contractor selling to an agency.

There is nothing inconsistent here with the contractor financing the contract. Your contractor is trying to blow smoke up…

”32.202-1 Policy.

(a)  Use of financing in contracts. It is the responsibility of the contractor to provide all resources needed for performance of the contract. Thus, for purchases of commercial products or commercial services, financing of the contract is normally the contractor’s responsibility.”

Reading further, government financing MIGHT be allowed - but for purchases above the SAT.  See (b)(2)…

Signal said:

Customer is a Federal Contractor selling to an agency.

FAR 32.202-1 doesn't apply to your customer. It applies to agency purchases. See FAR 1.104.

It simply confirms that financing is the prime contractors responsibility , in particular for simplified acquisitions. If the prime is trying to push that off on the sub, that’s not what the cited reference means.

“I have a customer [prime] who came back this morning and told me that they couldn't pay in advance, as it would be a FAR violation for them, citing the FAR seen here. https://www.acquisition.gov/far/32.202-1 “

That is nonsense. The reference doesn’t prohibit a prime paying a sub in advance. In fact, it is consistent with the description of the prime financing the contract purchases (“paying in advance”, where necessary ).

The prime or prospective prime might not WANT to pay you in advance but there is no violation of the cited reference. 

@Signal, do our responses answer your  question?

If you are negotiating with this firm and want the sale, perhaps you could offer a slight discount for the product(s) for up front payment.

It could make up for the other firm’s carrying cost plus you’d get paid sooner than if you have to wait (cash flow). Win Win

One thing for you, Signal, to consider is the primes position.  You want payment in advance from the prime but they cannot obtain payment from the government in the same manner except for what’s covered by FAR 32.

formerfed said:

One thing for you, Signal, to consider is the primes position.  You want payment in advance from the prime but they cannot obtain payment from the government in the same manner except for what’s covered by FAR 32.

Right. I was typing my edited response about an alternative solution above that could be a win-win while you posted…

joel hoffman said:

Right

Don Mansfield said:

FAR 32.202-1 doesn't apply to your customer. It applies to agency purchases. See FAR 1.104.

A few have strayed from the original post so I am going to join in.  First and foremost Don's post is on target.  

Signal said:

I work for a company

If your company is a small business another alternative is to be aware of the primes (customer in your post) contract with the Federal government.  If the customer's contract has included in it FAR clause 52.232-40 and your relationship is strong enough maybe you could convince the customer to take advantage of the accelerated payment.  Contract too old for the clause?   Maybe have them consider asking the government to amend the contract to include?  

PS - FAR 52.232-40 is included in FAR 52.212-5 that goes in commercial item contracts.

joel hoffman said:

It simply confirms that financing is the prime contractors responsibility , in particular for simplified acquisitions. If the prime is trying to push that off on the sub, that’s not what the cited reference means.

“I have a customer [prime] who came back this morning and told me that they couldn't pay in advance, as it would be a FAR violation for them, citing the FAR seen here. https://www.acquisition.gov/far/32.202-1 “

That is nonsense. The reference doesn’t prohibit a prime paying a sub in advance. In fact, it is consistent with the description of the prime financing the contract purchases (“paying in advance”, where necessary ).

The prime or prospective prime might not WANT to pay you in advance but there is no violation of the cited reference. 

@Signal, do our responses answer your  question?

Morning everyone! 

Thank you for the fantastic explanations! I had a feeling the prime might be trying to obtain terms after being told we couldn't extend them. 

This answers my question! I appreciate the robust discussion as well. 

Thanks everyone!!

joel hoffman said:

If you are negotiating with this firm and want the sale, perhaps you could offer a slight discount for the product(s) for up front payment.

It could make up for the other firm’s carrying cost plus you’d get paid sooner than if you have to wait (cash flow). Win Win

This is my next course of action. They're a newer prime to us, and I like to try to keep our pool large, especially since they're on a few contracts that we don't have access to yet through other customers.

formerfed said:

One thing for you, Signal, to consider is the primes position.  You want payment in advance from the prime but they cannot obtain payment from the government in the same manner except for what’s covered by FAR 32.

joel hoffman said:

Right. I was typing my edited response about an alternative solution above that could be a win-win while you posted…

Totally understandable. We've ask payment in advance for most sale and do run into this occasionally. Floating cash isn't ideal/possible for some companies so I try to come up with an equitable solution if at all possible, especially if it pushes a sale through.

C Culham said:

A few have strayed from the original post so I am going to join in.  First and foremost Don's post is on target.  

If your company is a small business another alternative is to be aware of the primes (customer in your post) contract with the Federal government.  If the customer's contract has included in it FAR clause 52.232-40 and your relationship is strong enough maybe you could convince the customer to take advantage of the accelerated payment.  Contract too old for the clause?   Maybe have them consider asking the government to amend the contract to include?  

PS - FAR 52.232-40 is included in FAR 52.212-5 that goes in commercial item contracts.

This is a good point. We're both small companies (the prime and ourselves), so maybe there's something to do be done in that aspect. I'll give the referenced FAR clauses a look! Thank you!

Don Mansfield said:

FAR 32.202-1 doesn't apply to your customer. It applies to agency purchases. See FAR 1.104.

Thank you Don, I appreciate it!

C Culham said:

A few have strayed from the original post so I am going to join in.  First and foremost Don's post is on target.  

If your company is a small business another alternative is to be aware of the primes (customer in your post) contract with the Federal government.  If the customer's contract has included in it FAR clause 52.232-40 and your relationship is strong enough maybe you could convince the customer to take advantage of the accelerated payment.  Contract too old for the clause?   Maybe have them consider asking the government to amend the contract to include?  

PS - FAR 52.232-40 is included in FAR 52.212-5 that goes in commercial item contracts.

This clause history hasn’t really helped much.  Few subcontractors realized any benefit.  Plus if it needs added, the government will likely take time to do it.

formerfed said:

This clause history hasn’t really helped much.

How so?  Experience, experience or?

The history is short so I am very intrigued about your fist comment.

formerfed said:

Plus if it needs added, the government will likely take time to do it.

Again the same questions!

https://www.federalregister.gov/documents/2023/02/14/2023-02425/federal-acquisition-regulation-accelerated-payments-applicable-to-contracts-with-certain-small

C Culham said:

How so?  Experience, experience or?

The history is short so I am very intrigued about your fist comment.

Again the same questions!

Lots of complaints by small businesses from online discussions, agency small business offices, and contracting officers.  While this clause is relatively new, the basis came from the the NDA from three years ago.  The basic concept has been around for more than ten years starting with an old OMB memorandum.  Three different issues arise - primes first have to receive payment themselves, agencies only pay after inspection and inspection and receipt of a proper invoice which usually takes some time, and FAR 32.009 only establishes 15 days as a goal.

As far as getting the clause added to an existing contract, it just doesn’t happen that quickly in practice.  Contracting people are overworked and understaffed.  This time of year is also critical.  A contract specialist regardless won’t see this as a critical “to do” action

If it is an immediate issue, I think that our suggested solution to apply a discount to your sale can benefit both you and the prime.  It would cover your policy concern for upfront payment with new customers. It  would improve your cash flow.  It could offset the carrying (finance) costs for the prime. 🤠👍

formerfed said:

Lots of complaints by small businesses from online discussions, agency small business offices, and contracting officers.

I would like to read.  References please.

formerfed said:

old OMB memorandum.

Yes but 52.232-40 is based in statute and while new, 2023, one would think the statutory emphasis would carry some weight.

Too bad you are already justifying an agency's noncompliance.  By my read of the clause prescription it is an imperative to include and follow.

Oh well!

C Culham said:

I would like to read.  References please.

Yes but 52.232-40 is based in statute and while new, 2023, one would think the statutory emphasis would carry some weight.

Too bad you are already justifying an agency's noncompliance.  By my read of the clause prescription it is an imperative to include and follow.

Oh well!

I’m not going to share conversations I’ve had with government employees and contractor representatives.  I have relationships from over 20 years working with both.

As far as the clause and prescription, it provides some benefits to small businesses but nothing really significant.  Under a perfect situation regular time is reduced from 30 days to 15.  Again there’s nothing that strictly enforces the 15 days.  The prescription says

“agencies…. shall provide accelerated payments, to the fullest extent permitted by law, with a goal of 15 days after receipt of a proper invoice and all other required documentation, if a specific payment date is not established by contract, to— “

The clause says

”within 15 days after receipt of accelerated payments from the Government, the Contractor _shall_make accelerated payments to its small business subcontractors under this contract, to the maximum extent practicable “

The accelerated payment FAR clause is nothing new.  Essentially the same clause without the 15 day period was effective in 2013.  I don’t have high expectations this will help all that much. 

So far I think Joel’s suggestion is the most helpful

formerfed said:

Lots of complaints by small businesses from online discussions

To be direct you keep fanning the flame of your agreement to avoid a statue, prescribed clause with less than precise comments.  You said "online" now you defer to "conversations".  What is it?

Joel is correct that a payment discount offered to the "contractor" may help but in truth the best answer and solution is that which Don offered.   Now if Joel's reference is with regard to offering the discount to the Government keep in mind some agencies have stupid rules regarding.  My reference is the following plus my contacts established over 40 years.

"i once worked for an agency that discouraged taking advantage of a Ktrs discounts because the agency financial software would make you do a "modification" and it was more painful to do the "adjustment" than to pay the 1%. I don't know if you work for such an agency but bottom line is yes you can accept a discount whether there is a clause or not that says you can or can't accept."

I'm done I just hope folks don't practice what you preach.

Carl, what did Don offer? He just said “FAR 32.202-1 doesn't apply to your customer. It applies to agency purchases” 

I’m not preaching anything.  Where do you see I’m advocating to practice anything different?  I’m just saying this clause isn’t a panacea.  Contractors and subcontractors need to stay on top of invoices to ensure timely payments.  The clause, without the 15 day period, has been in existence for a decade and it hasn’t done much to help.  From what I’ve heard, nothing has changed so far with timely payments

C Culham said:

Now if Joel's reference is with regard to offering the discount to the Government keep in mind some agencies have stupid rules regarding.

Carl, the situation expressed here is one between the sub and the prime. My suggested solution is between those parties to satisfy both of their needs.

i think that Signal agrees.

Edit: Accelerated government payment to the prime here is not the issue or relevant. That’s a rabbit hole. Carefully read the description of the problem. The prime apparently doesn’t want to finance upfront payment and the sub’s customary policy for new customers is to seek upfront payment.

formerfed said:

Carl, what did Don offer?

He actually provided a FAR reference to support his statement.  Something didnot quote and you clearly have difficulty doing yourself.

formerfed said:

The prescription says

One more example of the error in your ways.  Here is what the clause prescription actually says!

Insert clause 52.232-40, Providing Accelerated Payments to Small Business Subcontractors, in all solicitations and contracts.

(FAR 32.009-2)

Seriously you have taken a Beginners discussion into an abyss of confusion based on less than precise statements and overstatements.

joel hoffman said:

Edit

Joel - It is an alternative to consider, just as your "discount" posts are.  Nothing more. I am pretty sure it is not, yet the OP did not state either way, but what if the primes contract is recent enough to carry 52.232-40 is it a rabbit hole?

Embrace your discount idea as you want but there other alternatives.  The OP will decide what is best.

C Culham said:

Joel - It is an alternative to consider, just as your "discount" posts are.  Nothing more. I am pretty sure it is not, yet the OP did not state either way, but what if the primes contract is recent enough to carry 52.232-40 is it a rabbit hole?

Embrace your discount idea as you want but there other alternatives.  The OP will decide what is best.

There may be some other alternative. However, I don’t think that clause will satisfy Signal’s objective or usual company policy.

And I have little confidence in the knowledge, desire or skill of many government contract administrators to actively enforce or proactively comply with that clause.

Id recommend the two parties try to negotiate something that will satisfy them.

Carl, I’m really unclear on what your objective is.  And I’m lost on why you are resorting to insulting responses.  The OP seeks a way to receive advance payment.  You keep pushing a process that just reduces the normal invoice period from 30 days to 15 days.  Plus you keep referring to Dons offer.  Are saying saying his offer is a FAR citation?  Your exact statement, in part, is “…but in truth the best answer and solution is that which Don offered. ”  What is that? 

I quoted  FAR 32.009.

You seem to be stuck on something that isn’t a major solution for the OP.  That’s fine if you that as the only viable approach.  But there’s no need for talking down to another member here.

Carl, 

Don't bother to respond.  We can just say we don’t agree with each other.  This distracts from the OP working out something for his company’s benefit

After some discussion with my Controller, we decided to let the customer know that I did not believe the policy was applicable to our transaction and that we could move forward, but with payment in advance. @joel hoffman I appreciate all of the suggestions! In the end, we decided not to offer customer discount for payment in advance for a few reasons, but main one being that this is not a practice that has been employed before, and product sells well without any discounts. 

I'm still waiting for a response from the customer to see if they have any additional comments. This also gave me the opportunity to look at our payment terms as a whole, as we seem to be an outlier in asking for payment in advance as more and more companies shift to NET terms. I'll be sitting down with my Controller later on this topic. 

Thanks everyone!! I really appreciate the insight, this was extremely helpful!