[Federal Register: January 10, 2001 (Volume 66, Number 7)]
[Rules and Regulations]               
[Page 2137-2139]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]





48 CFR Parts 32 and 52

[FAC 97-22; FAR Case 1999-016; Item III]
RIN 9000-AI74

Federal Acquisition Regulation; Advance Payments for Non-
Commercial Items

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.


SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) to permit federally 
insured credit unions to participate in the maintenance of special 
accounts for advance payments.

DATE: Effective Date: March 12, 2001.

Building, Washington, DC, 20405, (202) 501-4755, for information 
pertaining to status or publication schedules. For clarification of 
content, contact Mr. Jeremy Olson, at (202) 501-4755. Please cite FAC 
97-22, FAR case 1999-016.


A. Background

    Prior to publication of this final FAR rule, FAR Subpart 32.4, 
Advance Payments for Non-Commercial Items, required, unless exempted by 
FAR 32.409-3(e) or (f), that contractors deposit advance payments in 
special accounts separate from their general or other funds. FAR 32.411 
and other FAR text excluded credit unions from participating in the 
maintenance of these special accounts by requiring that contractors 
establish these special accounts only at banks that are members of the 
Federal Reserve System (FRS) or insured by the Federal Deposit 
Insurance Corporation (FDIC). However, many credit unions are federally 
insured through the National Credit Union Administration (NCUA). 
Therefore, these credit unions also are able to provide the Government 
a measure of security for Federal funds advanced to contractors.
    This final rule amends FAR Subpart 32.4 and FAR 52.232-12 to change 
certain terminology (e.g., change the word ``bank'' to ``financial 
institution'') to provide contractors an additional option of 
depositing advance payments in special accounts maintained by credit 
unions that are federally insured by NCUA. This revision will foster 
competition among financial institutions that are in the business of 
providing special accounts for advance payment funds, without 
increasing the risk to the Government.
    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 65 FR 25614, May 2, 2000. Two respondents submitted public 
comments on the proposed rule. The Councils considered all comments 
before agreeing to convert the proposed rule to a final rule without 
    This is not a significant regulatory action, and therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., because the rule only applies 
to the very limited number of contractors that receive advance payments 
and deposit these payments in special accounts.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose information collection requirements that require 
the approval of the Office of Management and Budget under 44 U.S.C. 
3501, et seq.

List of Subjects in 48 CFR Parts 32 and 52

    Government procurement.

    Dated: December 22, 2000.
Al Matera,
Acting Director, Federal Acquisition Policy Division.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 32 and 52 as set 
forth below:
    1. The authority citation for 48 CFR parts 32 and 52 continues to 
read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

[[Page 2138]]


    2. Revise paragraph (a)(1) of section 32.407 to read as follows:

32.407  Interest.

    (a) * * *
    (1) The published prime rate of the financial institution 
(depository) in which the special account (see 32.409-3) is 
established; or
* * * * *

32.408  [Amended]

    3. Amend paragraph (b)(4) of section 32.408 by removing ``bank'' 
both times it appears and adding ``financial institution'' in its 

    4. Amend section 32.409-3 as follows:
    a. In paragraph (a) remove ``bank'' and add ``special'' in its 
    b. In paragraphs (b)(2), (c)(2), and (e) remove ``bank''.
    c. Revise paragraph (f)(1); and
    d. In paragraph (g) remove ``bank'' both times it appears.
    The revised text reads as follows:

32.409-3  Security, supervision, and covenants.

* * * * *
    (f) * * *
    (1) The use under a cost-reimbursement contract of Federal funds 
deposited in the contractor's account at a financial institution 
(without the contractor acquiring title to the funds); and
* * * * *

    5. In section 32.410, revise the second sentence in paragraph 
(a)(4) of the ``Findings, Determination, and Authorization for Advance 
Payments Findings'' to read as follows:

32.410  Findings, determination, and authorization.

* * * * *
    (a) * * *

    (4) * * * The clause requires that all payments will be 
deposited in a special account at the Contractor's financial 
institution and that the Government will have a paramount lien on 
(i) the credit balance in the special account, (ii) any supplies 
contracted for, and (iii) any material or other property acquired 
for performance of the contract. * * *
* * * * *

    6. Revise 32.411 to read as follows:

32.411  Agreement for special account at a financial institution.

    The contracting officer must use substantially the following form 
of agreement for a special account for advance payments:

Agreement for Special Account

    This agreement is entered into this ____ day of ____, 20____, 
between the United States of America (the Government), represented 
by the Contracting Officer executing this agreement, ________ 
[Insert the name of the Contractor], a ________ [Insert the name of 
the State of incorporation] corporation (the Contractor), and 
________, a financial institution operating under the laws of 
________, located at ________ (the financial institution).


    (a) Under date of ________, 20________, the Government and the 
Contractor entered into Contract No. ____, or a related supplemental 
agreement, providing for advance payments to the Contractor. A copy 
of the advance payment terms was furnished to the financial 
    (b) The contract or supplemental agreement requires that amounts 
advanced to the Contractor be deposited separate from the 
Contractor's general or other funds, in a Special Account at a 
member bank of the Federal Reserve System, any ``insured'' bank 
within the meaning of the Act creating the Federal Deposit Insurance 
Corporation (12 U.S.C. 1811), or a credit union insured by the 
National Credit Union Administration. The parties agree to deposit 
the amounts with the financial institution, which meets the 
    (c) This Special Account is designated ``________ [Insert the 
Contractor's name], ________ [Insert the name of the Government 
agency] Special Account.''


    In consideration of the foregoing, and for other good and 
valuable considerations, the parties agree to the following 
    (a) The Government shall have a lien on the credit balance in 
the account to secure the repayment of all advance payments made to 
the Contractor. The lien is paramount to any lien or claim of the 
financial institution regarding the account.
    (b) The financial institution is bound by the terms of the 
contract relating to the deposit and withdrawal of funds in the 
Special Account, but is not responsible for the application of funds 
withdrawn from the account. The financial institution shall act on 
written directions from the Contracting Officer, the administering 
office, or a duly authorized representative of either. The financial 
institution is not liable to any party to this agreement for any 
action that complies with the written directions. Any written 
directions received by the financial institution through the 
Contracting Officer on ________ [Insert the name of the agency] 
stationery and purporting to be signed by, or by the direction of 
________ or duly authorized representative, shall be, as far as the 
rights, duties, and liabilities of the financial institution are 
concerned, considered as being properly issued and filed with the 
financial institution by the ________ [Insert the name of the 
    (c) The Government, or its authorized representatives, shall 
have access to the books and records maintained by the financial 
institution regarding the Special Account at all reasonable times 
and for all reasonable purposes, including (but not limited to), the 
inspection or copying of the books and records and any and all 
pertinent memoranda, checks, correspondence, or documents. The 
financial institution shall preserve the books and records for a 
period of 6 years after the closing of this Special Account.
    (d) In the event of the service of any writ of attachment, levy 
of execution, or commencement of garnishment proceedings regarding 
the Special Account, the financial institution will promptly notify 
________ [Insert the name of the administering office].
    (e) While this Special Account exists, the financial institution 
shall inform the Government each month of the financial 
institution's published prime interest rate and changes to the rate 
during the month. The financial institution shall give this 
information to the Contracting Officer on the last business day of 
the month. [This covenant will not be included in the Special 
Account Agreements covering interest-free advance payments.]
    Each of the parties to this agreement has executed the agreement 
on ________, 20____.

[Signatures and Official Titles]

32.412  [Amended]

    7. Amend paragraph (f) of section 32.412 by removing ``bank''.


    8. Amend section 52.232-12 as follows:
    a. Revise the date of the clause;
    b. Revise paragraph (b);
    c. Remove ``bank'' from paragraphs (c) and (d);
    d. Revise paragraph (f)(3);
    e. Revise paragraph (g);
    f. Remove ``bank'' from paragraphs (h), (k)(1) introductory text, 
(k)(1)(iv), (k)(2)(i), and (m)(1) each time it appears;
    g. Revise paragraph (p)(11);
    h. Amend Alternate II by revising the date to read ``(Mar 2001) ''; 
and removing ``bank'' from paragraph (c); and
    i. Amend Alternate V by revising the date to read ``(Mar 2001)''; 
removing from the introductory paragraph ``bank''; and revising the 
heading of the clause and paragraph (m)(11) of Alternate V to read as 

52.232-12  Advance Payments.

* * * * *

Advance Payments (Mar 2001)

* * * * *
    (b) Special account. Until (1) the Contractor has liquidated all 
advance payments made under the contract and related interest 
charges and (2) the administering office has approved in writing the 
release of any funds due and payable to the Contractor, all advance 
payments and other payments under this contract shall be made by 
check payable to the Contractor marked for deposit only in the 

[[Page 2139]]

special account with the ________ [insert the name of the financial 
institution]. None of the funds in the special account shall be 
mingled with other funds of the Contractor. Withdrawals from the 
special account may be made only by check of the Contractor 
countersigned by the Contracting Officer or a Government 
countersigning agent designated in writing by the Contracting 
* * * * *
    (f) * * *
    (3) If interest is required under the contract, the Contracting 
Officer shall determine a daily interest rate based on the higher of 
(i) the published prime rate of the financial institution 
(depository) in which the special account is established or (ii) the 
rate established by the Secretary of the Treasury under Pub. L. 92-
41 (50 U.S.C. App. 1215(b)(2)). The Contracting Officer shall revise 
the daily interest rate during the contract period in keeping with 
any changes in the cited interest rates.
* * * * *
    (g) Financial institution agreement. Before an advance payment 
is made under this contract, the Contractor shall transmit to the 
administering office, in the form prescribed by the administering 
office, an agreement in triplicate from the financial institution in 
which the special account is established, clearly setting forth the 
special character of the account and the responsibilities of the 
financial institution under the account. The Contractor shall select 
a financial institution that is a member bank of the Federal Reserve 
System, an ``insured'' bank within the meaning of the Federal 
Deposit Insurance Corporation Act (12 U.S.C. 1811), or a credit 
union insured by the National Credit Union Administration.
* * * * *
    (p) * * *
    (11) Deposit any of its funds except in a bank or trust company 
insured by the Federal Deposit Insurance Corporation or a credit 
union insured by the National Credit Union Administration;
* * * * *

Advance Payments Without Special Account (Mar 2001)

* * * * *
    (m) * * *
    (11) Deposit any of its funds except in a bank or trust company 
insured by the Federal Deposit Insurance Corporation or a credit 
union insured by the National Credit Union Administration;
* * * * *
[FR Doc. 01-13 Filed 1-9-01; 8:45 am]