CFCM Contract Financing & Payments 5 — Questions and Answers
Question 1: Under FAR 32.202-1, performance-based payments must be structured so that the total amount of these payments at any time does NOT exceed:
- The total costs incurred to date
- The value of the contract work completed (Correct answer)
- 90% of the contract price
- The amount authorized by the Head of Contracting Activity
Correct answer: The value of the contract work completed
Performance-based payments must not exceed the value of completed contract work, ensuring the government does not overpay relative to actual progress.
Question 2: What is the contractor's obligation regarding 'title' to property when progress payments are made under FAR 32.503-15?
- The contractor retains full title to all work-in-process
- Title to property allocable to the contract vests in the government upon progress payment (Correct answer)
- The government holds a lien but title remains with the contractor
- Title transfers only upon final acceptance of deliverables
Correct answer: Title to property allocable to the contract vests in the government upon progress payment
FAR 32.503-15 provides that the government acquires title to all property allocable or applicable to the contract upon making progress payments.
Question 3: A contractor requests an advance payment for a cost-type research contract. Under FAR 32.4, which condition would MOST likely justify approval?
- The contractor has strong credit and prefers advance payment over billing
- The contractor lacks sufficient working capital and other financing is not available at reasonable terms (Correct answer)
- The contract value exceeds $10 million and performance period is over 2 years
- The contractor is a foreign entity performing work outside the United States
Correct answer: The contractor lacks sufficient working capital and other financing is not available at reasonable terms
Advance payments are justified when contractors lack adequate working capital and cannot obtain private financing on reasonable terms, per FAR 32.402.
Question 4: Which clause is required in contracts that include customary progress payments to address the contractor's financial management responsibilities?
- FAR 52.232-12 (Advance Payments)
- FAR 52.232-16 (Progress Payments) (Correct answer)
- FAR 52.232-25 (Prompt Payment)
- FAR 52.232-32 (Performance-Based Payments)
Correct answer: FAR 52.232-16 (Progress Payments)
FAR 52.232-16 is the mandatory clause for contracts with customary progress payments, establishing the terms and conditions including financial management requirements.
Question 5: Under the Prompt Payment Act, if the government makes a late payment, the interest penalty begins accruing:
- On the day after the invoice is received
- On the day after the payment due date (Correct answer)
- 30 days after the contracting officer is notified of late payment
- After the contractor files a formal claim under the Contract Disputes Act
Correct answer: On the day after the payment due date
Interest penalties under the Prompt Payment Act begin accruing automatically on the day after the required payment due date, without requiring contractor notice.
Question 6: In a construction contract, what is the maximum retainage the government may withhold under FAR 52.232-5 once a contractor has satisfactorily completed 50% of the work?
- 10% of subsequent progress payments
- 5% of subsequent progress payments (Correct answer)
- Retainage must cease entirely after 50% completion
- The contracting officer has unlimited discretion to withhold retainage
Correct answer: 5% of subsequent progress payments
FAR 52.232-5 limits retainage to 5% of subsequent progress payments after satisfactory completion of 50% of the work, reducing the financial burden on performing contractors.
Question 7: When a government contract is assigned to a bank or financial institution under the Assignment of Claims Act, what document must the contractor provide to perfect the assignment?
- A novation agreement approved by the contracting officer
- A written notice of assignment delivered to the contracting officer, disbursing officer, and surety (Correct answer)
- A UCC-1 financing statement filed with the appropriate state authority
- A Letter of Credit backed by the Small Business Administration
Correct answer: A written notice of assignment delivered to the contracting officer, disbursing officer, and surety
The Assignment of Claims Act requires written notice to the contracting officer, the disbursing officer, and any surety to perfect an assignment of contract proceeds to a financial institution.
CFCM Contract Financing & Payments 5
Under FAR 32.202-1, performance-based payments must be structured so that the total amount of these payments at any time does NOT exceed: