(Editor’s Note. Few companies either can or want to finance longer term projects from their own resources when they must deliver supplies and services and wait months or years for payment. Recognizing this, the government offers an array of financing options designed to minimize cash flow drain. FAR Part 32 identifies a variety of financing techniques and describes the policies and procedures appropriate for each. John Chierrichella and David Gallacher of Sheppard, Mullin, Richter & Hampton LLC have written a comprehensive two part article on financing government contracts – noncommercial and commercial items - where the first is presented in the April 2004 issue of Briefing Papers. We have based our article on their insights as well as a close reading of the FAR.)

Contract financing methods are designed to be "self-liquidating through contract performance." It is available to supplement working capital as opposed to acquiring fixed assets. Generally speaking, the FAR identifies two "customary" contract financing methods – progress payments and performance based payments - and allows for two others – advance payments and loan guarantees. Though we will not discuss these, the government is also authorized to make partial payments which are not technically financing since payment depends on delivery.