Can we modify the contract to pay the vendor in advance (quarterly) for this annual software update and maintenance?
Based upon the question, a Firm Fixed Price (FFP) Commercial contract above SAT is assumed.
At FAR 32.202-1(b): “Authorization. Commercial interim payments and commercial advance payments may be made under the following circumstances --
(1) The contract item financed is a commercial supply or service;
(2) The contract price exceeds the simplified acquisition threshold;
(3) The contracting officer determines that it is appropriate or customary in the commercial marketplace to make financing payments for the item;
(4) Authorizing this form of contract financing is in the best interest of the Government (see paragraph (e) of this subsection);
(5) Adequate security is obtained (see 32.202-4);
(6) Prior to any performance of work under the contract, the aggregate of commercial advance payments shall not exceed 15 percent of the contract price; [emph. added]
(7) The contract is awarded on the basis of competitive procedures or, if only one offer is solicited, adequate consideration is obtained (based on the time value of the additional financing to be provided) if the financing is expected to be substantially more advantageous to the offeror than the offeror’s normal method of customer financing; and
(8) The contracting officer obtains concurrence from the payment office concerning liquidation provisions when required by 32.206(e).”
Your contractor has requested 4 quarterly payments on the 1 CLIN contract for the 1 year period of performance. The vendor also claims that it is industry standard to require payment in advance for this software update and maintenance.
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You may modify your contract to authorize advance payments as long as you comply with the circumstances outlined above at FAR 32.202-1(b). All of those circumstances should be easily verifiable with the exception of subparagraph (6). Your contractor is requesting quarterly (25%) payments from the start. This exceeds the 15% threshold cited in subparagraph (6) bolded above. A possible workaround for this, if the contractor is amenable, is to make the first “quarterly” payment amount 15% and the second 35%. At the halfway point of the year, they are caught up with their payments. Also, anytime you add financing to a contract after award, the Government is due consideration. In this case, the consideration could be the payment arrangement described above.
You will also need to make sure you satisfy the requirements at DFARS Subpart 232.206:
“232.206 Solicitation provisions and contract clauses.
(f) Prompt payment for commercial purchase payments. The contracting officer shall incorporate the following standard prompt payment terms for commercial item contract financing:
(i) Commercial advance payments: The contractor entitlement date specified in the contract, or 30 days after receipt by the designated billing office of a proper request for payment, whichever is later.
(ii) Commercial interim payments: The contractor entitlement date specified in the contract, or 14 days after receipt by the designated billing office of a proper request for payment, whichever is later. The prompt payment standards for commercial delivery payments shall be the same as specified in FAR Subpart 32.9 for invoice payments for the item delivered.”