CFCM Contract Financing & Payments 1 — Questions and Answers
Question 1: Under FAR 32.5, which type of contract financing allows the government to make payments to a contractor based on costs incurred prior to delivery of the end item?
- Performance-based payments
- Progress payments based on costs (Correct answer)
- Advance payments
- Partial payments
Correct answer: Progress payments based on costs
Progress payments based on costs (FAR 32.5) are the most common form of financing where the government pays a percentage of allowable costs incurred before delivery.
Question 2: The standard progress payment rate for large businesses under FAR 32.501-1 is:
- 75%
- 80% (Correct answer)
- 85%
- 90%
Correct answer: 80%
FAR 32.501-1 establishes 80% as the customary progress payment rate for large businesses based on total costs incurred.
Question 3: Under the Prompt Payment Act, what is the standard payment due date for supplies and services if no other date is specified in the contract?
- 7 days after receipt of a proper invoice
- 14 days after receipt of a proper invoice
- 30 days after receipt of a proper invoice (Correct answer)
- 45 days after receipt of a proper invoice
Correct answer: 30 days after receipt of a proper invoice
The Prompt Payment Act establishes 30 days as the standard payment due date for most federal contracts when no other date is specified.
Question 4: Performance-based payments (PBPs) differ from progress payments primarily because PBPs are:
- Based on costs incurred by the contractor
- Tied to the achievement of defined performance events or criteria (Correct answer)
- Limited to cost-type contracts only
- Calculated as a percentage of the contract price
Correct answer: Tied to the achievement of defined performance events or criteria
Performance-based payments are financing payments tied to the accomplishment of specific performance events or criteria, not costs incurred.
Question 5: Under FAR 32.4, advance payments are considered the least preferred method of contract financing because they:
- Require congressional approval for each payment
- Represent the greatest risk of loss to the government (Correct answer)
- Are only available for research and development contracts
- Must be secured by a performance bond
Correct answer: Represent the greatest risk of loss to the government
Advance payments carry the greatest risk to the government because funds are disbursed before any work is performed or costs incurred.
Question 6: A contractor's request for a progress payment must be supported by a certification that costs included are:
- Allowable, allocable, and reasonable (Correct answer)
- Fixed, estimable, and documented
- Authorized, expended, and recoverable
- Incurred, supported, and audited
Correct answer: Allowable, allocable, and reasonable
Progress payment requests require certification that all costs are allowable, allocable, and reasonable per FAR cost principles.
Question 7: When a contractor receives a progress payment, the government obtains a security interest in the contractor's property under FAR 32.503. This is known as:
- A performance lien
- The government's title to work in process (Correct answer)
- A liquidated damages clause
- A cost-sharing arrangement
Correct answer: The government's title to work in process
FAR 32.503 provides that the government obtains title to all work in process and materials allocable to the contract upon making progress payments.
CFCM Contract Financing & Payments 1
Under FAR 32.5, which type of contract financing allows the government to make payments to a contractor based on costs incurred prior to delivery of the end item?