DCMA Advance Payments Job Aid

DCMA Advance Payments Job Aid

DCMA Advance Payments Job AidAdvance Payments contract financing is rarely used, but is sometimes offered to contractors who are unable to start or maintain satisfactory progress on contracts without advance financing from the Government.

This module is a training aid and when the student has completed the course, they should print out the certificate of training completion and ask their supervisor to sign and submit to the training coordinator to be annotated in Training Application and the student’s IDP. Enter training into PLAS (Code 143) accordingly.

Topic ReferenceWhat are Advance Payments?

Advance Payments are a type of contract financing the Government provides to contractors to accomplish or to maintain progress on essential program or contract objectives. (DCMA Guidebook)

What are the purposes of Advance Payments?

Advance Payments may be useful and appropriate for the following (FAR 32.403):

Contracts for experimental, research, or development work with nonprofit educational or research institutions.

Contracts solely for the management and operation of Government owned plants.

Contracts for acquisition at cost of facilities for Government ownership.

Contracts of such a highly classified nature that the agency considers it undesirable for national security to permit assignment of claims under the contract.

Contracts entered into with financially weak contractors whose technical ability is considered essential to the agency. In these cases, the agency should closely monitor the contractor’s performance and financial controls to reduce the Government’s financial risk.

Contracts for which a loan by a private financial institution is not practicable, whether or not a loan guarantee under this part is issued; for example, if --

1) Financing institutions will not assume a reasonable portion of the risk under a guaranteed loan,

2) Loans with reasonable interest rates or finance charges are

April 2007 Page 1

http://www.arnet.gov/far/current/html/Subpart%2032_4.html#wp1030669


not available to the contractor, or

3) Contracts involve operations so remote from a financial institution that the institution could not be expected to suitably administer a guaranteed loan.

Contracts with small business concerns, under which circumstances that make advance payments appropriate often occur (but see FAR 32.104(b)).

Contracts under which exceptional circumstances make Advance Payments the most advantageous contract financing method for both the Government and the contractor.

Examples: educational and non-profit organizations, research institutions.

April 2007 Page 2

http://acquisition.gov/far/current/html/Subpart%2032_1.html#wp1024946


Topic ReferenceWhen should Advance Payments be used?

The Department of Defense (DoD) recognizes that there are contractors who, without advanced financial assistance from the Government, are unable to start, or maintain, satisfactory progress on contracts. Therefore, DoD authorizes Advance Payments when the buying activity determines that they are in the public interest or essential for national defense.

(DCMA Guidebook)

When should Advance Payments not be used?

The DoD stipulates that Advance Payments should not be used when other types of financing are reasonably available to the contractor in adequate amounts.

(FAR 32.402(b) and DCMA Guidebook)

Are Advance Payments preferred over other contract financing methods?

DoD policy considers Advance Payments as the least preferred method of contract financing; it specifies that Procurement Contracting Officers (PCOs) allow its use sparingly. (FAR 32.402(b) and DCMA Guidebook)

Advance Payments require extensive administration as well as presenting a higher risk to the Government.

What approval levels are necessary to use an Advance Payment?

The ACO may not authorize the use of Advance Payment financing. The ACO may be requested to assist the PCO with the determination of whether the contractor meets these requirements.

The agency head or designee determines, based on written findings, that the Advance Payment:

1) Is in the public interest (under 32.401(a) or (b)), or

2) Facilitates the national defense (under 32.401(c)).

(FAR 32.402)

April 2007 Page 3







Topic Reference

What does the Contractor need to provide to the Contracting Officer?

The contractor must provide a written request for Advance Payments including information that enables the ACO to fully comment on and make recommendations to the PCO on matters regarding the contractor's:

1) Current and long-term operating capital needs as stated in their cash flow projection and profit/loss statements, and

2) Proposed method and schedule of advance payment liquidation, and identification and installation of in-house financial and operating controls to assure liquidation of Advance Payments.

(DCMA Guidebook)

What steps must the ACO take once the contractor’s application for Advance Payment has been approved by the PCO?

Upon receipt of the approval for Advance Payment financing, the ACO should:

Discuss the liquidation requirements stated in the Advance Payment clause with the contractor;

Coordinate observable liquid milestones;

Establish a special bank account for Advance Payment withdrawals (FAR 32.411);

Note: Advance Payment may be used without a special bank account. (DFARS 232.410)

Set up a countersigning procedure in check withdrawals; and

Require the contractor to submit Cash Flow projections, Profit and Loss Statements, and Balance Sheets at stated intervals for periodic analysis.

(DCMA Guidebook)

Why must you have a special bank account?

To control the loan to the contractor and to ensure that there is no commingling of Government money with contractor's money.

(FARS 52.232-12(b))

How does money get into the bank account?

The contractor makes a request through the ACO to DFAS for Advance Payments. If approved by the ACO, DFAS will send a check to the bank at which a special account has been established.

April 2007 Page 4

http://www.arnet.gov/far/current/html/52_232.html#wp1152621

http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/dfars/dfars232.htm#P386_18465



Topic ReferenceWhat is an Advance Payment Pool? An Advance Payment pool agreement:

Is a means of financing the performance of more than one contract held by a single contractor;

Is especially convenient for the financing of cost-type contracts with nonprofit educational or research institutions for experimental or research and development work when several contracts require financing by Advance Payments. When appropriate, pooled Advance Payments may also be used to finance other types of contracts held by a single contractor; and

May be established:

1) Without regard to the number of appropriations involved,

2) To finance contracts for one or more department(s) or contracting activity(ies), or

3) In addition to any other Advance Payment pool agreement at a single contractor location when it is more convenient or otherwise preferable to have more than one agreement.

(DFARS 232.470)

How does liquidation work? When an invoice for material is received, the ACO liquidates Advance

Payments and interest, if applicable, from these invoices.

(FARS 32.102(a), 52.232-12(d))

How does the ACO ensure that liquidations are planned for and monitored?

The ACO must assure that a proper liquidation rate is used. FAR 32.503-8 through FAR 32.503-10 outlines the conditions for using ordinary and alternate liquidation rates and explains how to compute them.

What do you need to do in MOCAS? To find indicators that Advance Payments are authorized and/or the

amounts, look at these three MOCAS screens:

CT5811 through CT5814: Accounting Data Inquiry CT5803: Provisions Data. UNMD040D: Contract Abstract - Inquiry Requested. This is a

hard copy report available through REVEAL. Etools Contract ViewDFAS Desk Procedure DP401, Processing Manual Payments, Advance Payments is provided for your information.

April 2007 Page 5







Processing Manual PaymentsAdvance PaymentsDP 401, June 1996

FOREWORD

FAR 32.4

FAR 52.232-12

DFARS 232.4

DoD Fin Mgmt Reg 7000.14, Vol 10, Ch 7

Advance payments are made only to prime contractors under contract which contain the advance payments clause. Advance payments by the prime contractor to subcontractors or suppliers may also be made in conformance with the clause. Unlike progress or partial payments, advance payments are made prior to, in anticipation of, and for the purpose of complete performance under a contract or several contracts under a Pool Agreement. Therefore, the risk borne by the Government would be commensurably increased by an inadequate contractor progress, management, or deterioration of financial condition. For these reasons, advance payments are generally the least preferred method of contract financing and they should not be authorized if adequate financing is available to the contractor from other sources. Advance payments are limited by statute to amounts which at no time exceed the unpaid contract price and should not exceed the actual reasonable requirements for the contract or the interim cash needs arising during the reimbursement cycle. Also note, advance payments are not subject to the Prompt Payment Act.

The Advance Payment clause may be considered useful and appropriate for the following:

Contracts for experimental, research or development work with nonprofit educational or research institutions.

Contracts solely for the management and operation of Government-owned plants.

Contracts for acquisition of cost of facilities for Government ownership.

Contracts of such a highly classified nature that the agency considers it undesirable for national security to permit assignment of claims under the contract.

Contracts entered into with financially weak contractors whose technical ability is considered essential to the agency.

Application for Advance Payments: Contractual provisions for advance payments and the amounts of advance payments to be paid to a contractor are negotiated by the PCO for incorporation either as a part of the basic contract or by supplement agreement.

Administration of Contractual Provisions: Special Bank Accounts. The advance payment agreement and suitable covenants to protect the Government’s interest from a part of the contract or supplemental agreement executed by the PCO. The agreement should provide for deposit of all payments into special bank accounts in accordance with the contract clause and FAR 32.411.

April 2007 Page 6

http://www.defenselink.mil/comptroller/fmr/10/10_07.pdf








FOREWORD(Cont)

FAR 52.232-12 (d)

Repayment to the Government: At any time, the Contractor may repay all or any part of the funds advanced by the Government. Whenever requested in writing to do so by the administering office, the Contractor shall repay to the Government any part of unliquidated advance payment considered by the administering office to exceed the Contractor’s current requirements or when the sum of all unliquidated advance payments, unpaid interest charges, and other payments exceed percent of the contract price, the Government shall withhold further payments to the Contractor. On completion or termination of the contract, the Government shall deduct from the amount due to the Contractor all unliquidated advance payments and all interest charges payable. If previous payments to the Contractor exceed the amount due, the excess amount shall be paid to the Government on demand.

PURPOSE The purpose of this module is to provide step-by-step instructions for the Voucher Examiner, Contractor Entitlement Branch, to follow when processing an advanced payment.

April 2007 Page 7





Step Action

1Receive invoice with an ADVANCE PAYMENT MAAPR message.

2Request the contract file.

3 Is the contractor requesting an advance payment??

No Yes

YesNo

Does the invoicerequire AdvancePayment Recoupment? Go to Step 4.

• Ignore the MAAPR message.

• Continue to process additional MAAPR messages.

Go to Step 8.

April 2007 Page 8

This type of invoice is rare and used when other contract financing is not available (i.e., progress payments).



Step Action

4 Examine the invoice for required agency approval that should be attached to the invoice package.

If Agency approval is... Then...

Attached Go to Step 5.

Not attached Prepare a DFAS-CO Form 38 and DFAS-CO Form 40 to recode the invoice “E”.

Return the invoice to Invoice Control for recoding and to return to the contractor.

5 Continue to review the invoice.

If the invoice is... Then...

The first payment Note the following in the “Contract Provisions” block on all DFAS-CO Forms 457, regardless of service:

Required Advance Payment Approval Attached

Office Symbol of Approval Letter

Any other special requirements

A subsequent payment and

The contractor is not a non-profit organization

Contact Accounts Receivable point of contact for possibility of recouping interest, in accordance with FAR 32.407.

April 2007 Page 9



Step Action

6“Suspense” the ADVANCE PAYMENT for future recoupment

If ACRN Service is... Then...

Army/DLA Prepare separate DFAS-CO Form(s) 457 citing the Budget Project 0049000 and Object Class as 004, in lieu of Budget Project and Object Class cited in the contract, for “suspense” and recording payments and recoupments of advances.

Air Force Prepare separate DFAS Form(s) 457 citing the Budget Project 09910, in lieu of the original Budget Project cited in the contract, for “suspense” and recording payments and recoupments of advances.

Navy No “suspense” DFAS-CO Form 457 is required.

7 Review the CLR for a balance in the ADVANCE PAYMENT line.

May 2007 Page 10

The sub-transaction code cited on the DFAS-CO Form 457 must be “A” (<space>A). Also, this transaction requires force-thru, therefore Division Chief approval must be obtained.



Step Action

8 Locate the previously prepared “suspense’ DFAS-CO Form 457 for annotation.

9 Prorate the recoupment of previous ADVANCE PAYMENTS at 100 percent of the

invoice value on the “suspense” DFAS-CO Form 457 against all ACRNs with an ADVANCE PAYMENT balance.

10 Continue to process any other additional MAAPR messages.

There is additional information in this procedure that is for internal DFAS use only

DCMA Policy

DoD policy considers Advance Payments as the least preferred method of contract financing; it specifies that PCOs allow its use sparingly. DCMA recognizes the risk inherent in using this type of contract financing, which is secured by the contractor’s duty and promise to perform on the awarded contract, as well as the adequate security which has been agreed to by the contractor and PCO.

Reviews and recommendations by the ACO, when combined with risk assessments performed at appropriate points in the process, enable the CMO team to either expand or reduce the amount of monitoring required to assure liquidation of Advance Payments through timely delivery of conforming contract products.

May 2007 Page 11

The DFAS-CO Forms 457 previously prepared for the payment of the ADVANCE PAYMENT should be used for the recoupment, or a new DFAS-CO Forms 457 should be prepared in the same way.

Disbursements will be posted as debit transactions in green ink, and recoupments will be posted as credit transactions in red ink.


Advance Payments Process and FlowDCMA Guidebook ___________________________________________________________

May 2007 Page 12


Advance Payment Administration

May 2007 Page 13


May 2007 Page 14

Start

Review PaymentTerms

Advise Recipienton Submission of

Payment Requests

EstablishSurveillance Plan

Recipient SubmitsPayment Request

DCMA ReviewsPayment Request

Is TechnicalCertificationRequired?

Obtain Technicalcertification

Is FinancialReview

Required?

Obtain or PerformFinancial

certification

Does PaymentRequest ComplyWith Agreement?

Is This a Requestfor Final Payment?

Approve forPayment

Forward toDisbursing Office

Business FunctionComplete

Resolve withRecipient

Is CloseoutComplete?

CompleteCloseout

No

Yes

No

Yes

No

Yes

Yes

No

No

Input:1. Agreement2. Recipient Request

Yes


Risk Management Mechanisms Reference

Evaluate application for Advance Payment FAR 32.408; DFARS 232.410; DCMA Guidebook

Establish a surveillance plan and conduct periodic reviews

DCMA Guidebook

Coordinate liquidation milestones DCMA Guidebook

Establish a special bank account FAR 32.411; DFARS 232.410; DCMA Guidebook

Countersign all payments FAR 52.232-12; DCMA Guidebook

The contractor may apply for Advance Payment via a written request before or after the award of a contract. The application must provide a financial analysis and a proposed schedule of payments. The PCO ultimately determines whether to award an Advance Payment but the ACO may be called upon to assist with this decision.

Once the application is approved, the ACO and the contractor must discuss coordinating observable liquidation of milestones, as well as establishing a special bank account and a countersigning procedure for all withdrawals. Withdrawals from the special account may be made only by a check from the Contractor countersigned by the Contracting Officer or a Government countersigning agent designated in writing by the Contracting Officer.

These procedures have been established to protect DCMA and the U.S. Government from granting Advance Payments to contractors who are unable to fulfill their financial or contractual obligations.

May 2007 Page 15







Process Controls ResourceStatutory Requirement

Sec. 255. - Contract financing (excerpts)(a) Payment authority

Any executive agency may -

Make advance, partial, progress or other payments under contracts for property or services made by the agency, and

Insert in solicitations for procurement of property or services a provision limiting to small business concerns advance or progress payments.

(d) Security for advance payments Advance payments under subsection (a) of this section may be made only upon adequate security and a determination by the agency head that to do so would be in the public interest. Such security may be in the form of a lien in favor of the Government on the property contracted for, on the balance in an account in which such payments are deposited, and on such of the property acquired for performance of the contract as the parties may agree. This lien shall be paramount to all other liens and is effective immediately upon the first advancement of funds without filing, notice, or any other action by the United States.

(f) Conditions for payments for commercial items

Advance payments made under subsection (a) of this section for commercial items may include payments, in a total amount of not more than 15 percent of the contract price, in advance of any performance of work under the contract.

41 U.S.C. 255

May 2007 Page 16

http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t41t42+147+0++()%20%20AND%20((41)%20ADJ%20USC)%3ACITE%20AND%20(USC%20w%2F10%20(255))%3ACITE%20%20%20%20%20%20%20%20%20


Process Controls ResourceStatutory Requirement

Sec. 1431. - Authorization; official approval; Congressional action: notification of committees of certain proposed obligations, resolution of disapproval, continuity of session, computation of period The President may authorize any department or agency of the Government which exercises functions in connection with the national defense, acting in accordance with regulations prescribed by the President for the protection of the Government, to enter into contracts or into amendments or modifications of contracts heretofore or hereafter made and to make advance payments thereon, without regard to other provisions of law relating to the making, performance, amendment, or modification of contracts, whenever he deems that such action would facilitate the national defense.

50 U.S.C. 1431 (Public Law 85-804)

Contract Financing FAR 32

Non-Commercial Item Purchase Financing FAR 32.1

Statutory Authority FAR 32.401

General FAR 32.402

Applicability FAR 32.403

Exclusions FAR 32.404

Applying Pub. L. 85-804 to Advance Payments Under Sealed Bid Contracts

FAR 32.405

Letter of Credit FAR 32.406

Interest FAR 32.407

Application for Advance Payments FAR 32.408

Contracting Officer Action FAR 32.409

May 2007 Page 17











http://www.arnet.gov/far/current/html/FARTOCP32.html#wp223483

http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t49t50+1801+0++()%20%20AND%20((50)%20ADJ%20USC)%3ACITE%20AND%20(USC%20w%2F10%20(1431))%3ACITE%20%20%20%20%20%20%20%20%20


Process Controls Resource

Agreement for Special Account at a Financial Institution

FAR 32.411, DFARS 232.410

Contract Clause FAR 32.412

Selecting Contracts for Post-award Orientation FAR 42.502

Advance Payments FAR 52.232-12; DFARS 232.4

Recommendation for Approval DFARS 232.409-1

Findings, Determination, and Authorization

DFARS 232.410

(b) If an advance payment procedure is used without a special bank account, replace paragraph (a)(4) of the Findings, Determination, and Authorization for Advance Payments at FAR 32.410 with:

"(4) The proposed advance payment clause contains appropriate provisions as security for advance payments. These provisions include a requirement that the outstanding advance payments will be liquidated from cost reimbursements as they become due the contractor. This security is considered adequate to protect the interest of the Government."

DFARS 232.410, FAR 32.410

See applicable PGI that is linked to DFARS 232.410.

Advance Payment Pool DFARS 232.470

Reduction or Suspension of Contract Payments DFARS 232.503-6

DFAS Processing Manual Payments - Advance Payments

Desk Procedure (DP) 401

May 2007 Page 18

http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/dfars/Dfars232.htm#P473_22483

http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/dfars/Dfars232.htm#P412_19956


http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/dfars/PGI%20232_4.htm#P13_110












Advance Payments Example

An ACO who has some experience with Advance Payments offered the following example. At the time the ACO inherited the contractor, Empire Tooling and Manufacturing, the advance payment had been made three years prior, therefore his experience is with the payback cycle of the contract.

Background: In early 19XX, the Empire Tooling & Manufacturing, Inc. applied for an Advance Payment Pool in the amount of $3,800,000. The request went up to the Deputy Assistant Secretary of the Army (Procurement) who issued the “Findings, Determination, and authorization for Advance Payments” which is included here in its entirety.

Attachment #1: The letter from the Department of the Army, Office of the Assistant Secretary to the Commander of the US Army forwarding the Finding, Determination, and Authorization that authorized Empire Tooling and Manufacturing (ETM) to receive an Advance Payment in the amount of $3,800,000.

Attachment #2: An agreement for a Special Bank Account, signed by the president of ETM and the president of the bank. This document lists the four contracts that are part of the Advance Payment Pool. This agreement was notarized.

Attachment #3: The SF 1034 (Public Voucher) #1 is the contractor’s request for Advance Payments. The amount requested was $3,800,000, which was the full amount approved for the Advance Payment Pool. A check for $3,800,000 was sent to the contractor care of the bank where the special bank account was established and was marked “for deposit only.”

Background: The payback agreement was established as a three-tier mode as follows.

1. The contractor was to pay back 10% of each invoice when processed by the paying activity (DFAS). This was against the initial designated advance pay contract.

Attachment #4: Copy of a DD250 Invoice showing the 10% reduction/liquidation.

2. 3% of all future ARMY contract payments were withheld for payback.3. 25% of annual net profit

End result: As it happened, there was no profit to collect.

The contractor did pay back 10% on the balance of the Advance Payment contract and 3% of follow-up Army contracts, until going out of business after three years into the payment cycle of the payback agreement.

May 2007 Page 19


The biggest problem experienced was that, after shipment, an invoice on an Army contract went in to DFAS for payment showing the 3% deduction for payback (See Tier 2 above). DFAS would invariably pay the full amount including the 3% that was supposed to be deducted. The ACO would then write letters and make phone calls to DFAS to place this contract on manual pay and hold out moneys due for payback. The very next invoice on an Army contract that went in, the same problem would occur. This continued until the contractor went out of business. This all happened before the use of Special Payment Instructions.

Out of the $3.8 million, the Government was able to recoup about $300,000.

Attachment #1

May 2007 Page 20


FINDINGS, DETERMINATION, AND AUTORIZATION FOR ADVANCE PAYMENTS

(a) The undersigned hereby finds that:

(1) The U. S. Army and Empire Tooling and Manufacturing, Inc. (ETM) have entered into the negotiated contracts. ETM is a small disadvantaged business which has participated in the Army’s Breakout Program since the implementation of the Competition in Contracting Act, 1984. ETM has submitted and become an approved source on more than 100 source approval packages. They are among the top three breakout companies at the Army. To a lesser degree, ETM has also introduced competition for formally sole source items at other government agencies.Contract number DAAJ09-91-C-XX85 for Widget, P/N XXX-XXX-XXX was a split award to ETM and another small disadvantaged business. ETM’s delivery schedule was subsequent to its competitor. Due to the competitor’s inability to perform in accordance with contract delivery schedule, ETM agreed to accelerate their delivery at no additional cost to the Government. Consequently, 1500 quality parts were delivered in 4 months time frame above the accelerated delivery in the contract. Three hundred of these parts were urgently needed to satisfy an aircraft on the ground situation. ETM has consistently responded to the Army’s urgent mission essential requirements by expediting quality parts without taking into consideration the impact these urgent requirements had on their production control. The vast majority of contracts that have been awarded to ETM were on an emergency basis. In some instances competition was restricted to the prime contractor, BIG Co., and ETM. The government received substantial savings and improved delivery was derived from these competitive situations. ETM has grown from a machine shop operation to a world-class multi-million dollar manufacturing facility in a relatively short time frame without a concurrent increase in financial resources.

ETM is currently under contract with the U. S. Army for the manufacture and delivery of numerous helicopter spare parts that have the highest priority. Of the 40 open contracts with ETM, 19 contracts are for spare parts critical to multiple aircraft. Without these spare parts helicopters dependent on them would be

May 2007 Page 21


grounded when the need for them is most critical. ETM appears to have the production capability to deliver the critical items in a relatively short period of time. The Procurement Lead Time for these items range from 7.2 months to 10.7 months. All subject part numbers have quantities due out which range from 6 pieces to 1,774 pieces and all items had a negative initial supply position as of December 19XX. ETM has a large machining area and adequate machinery. A cash flow analysis was performed and the finding is ETM is in an unfavorable financial condition. ETM has tried without success to obtain financing through the guaranteed loan program and financial lending institutions in Texas. Consequently, a cash infusion is essential for the performance of the Government contracts. In short term, obtaining these critical parts from other sources is not feasible. The lead time on critical components and materials are simply too long to permit obtaining the parts from other sources.

(2) Advance payments in an amount not to exceed $3,800,000. at any time outstanding are required by the Contractor to perform under the contracts. The amount does not exceed the unpaid contract prices.

(3) The advance payments are necessary for prompt, efficient contractperformance that will directly benefit the government, ETM isotherwise qualified as a responsible contractor.

(4) The proposed advance payment clause provides for adequatesecurity for the protection of the Government. The clause requires that all payments will be deposited in a special bank account and that the Government will have a paramount lien on (i) the credit balance in the special bank account, (ii) any supplies contracted for, and (iii) any material or other property acquired from performance of the contract. The Contractor’s financial management system provides effective control over and accountability for all Federal funds under governing Treasury Department regulation. This security is considered adequate.

(5) Advance payments are the only adequate means of financing available to the contractor, and the amount designated in (2) above is based, to the extent possible, on the use of the Contractor’s own working capital in performing the contracts. The government will benefit from performance of ETM if advance payments are authorized, and the case fits one or more of the categories described in FAR 32.403.

(6)The following facts and circumstances favor making advance payments to the contractor without interest.

DETERMINATION

(b) Based on the findings in (a) above, the undersigned hereby determine that the making of the proposed advance payments, without interest, is in the public

May 2007 Page 22


interest

AUTHORIZATION

(c) The advance payments, of which the amount at any time outstanding, shall not exceed $3,800,000 are hereby authorized under Armed Services Procurement Act (10 U.S.C. 2307) on terms substantially as contained in the proposed advance payment clause, a copy of which is annexed to this authorization.

APPROVED: ________________________

_JOHN DOE______________

_DEPUTY ASSISTANT SECRETARY of the ARMY

_February 1, 1991_________

Attachment #2

DEPARTMENT OF THE ARMYOFFICE OF THE ASSISTANT SECRETARY

WASHINGTON, D.C. 202102 February 1991

May 2007 Page 23


MEMORANDUM THRU DEPUTY ASSISTANT SECRETARY OF THE ARMY FOR PROCUREMENT

FOR COMMANDER, U.S. ARMY

SUBJECT: Advance Payment Request for Empire Tooling and Manufacturing, Inc. (ETM)

Forwarded herewith is the approved original copy of the Findings, Determination, and Authorization for making advance payments to Empire Tooling & Manufacturing, Inc. , in an amount not to exceed $3,800,000. at any time outstanding. Payments will be administered in accordance with an advance payment pool arrangement pursuant to Defense Federal Acquisition Regulation supplement 232-471 and 232-471-1.

Points of Contact for this action are Messrs. William B. Paid and Owen A. Dollar of the Defense Finance and Accounting Service – Columbus Center, Attn: DFAS-CO-PB, Columbus, Ohio . They may be reached at (XXX) XXX-XXXX.

John Q. PublicPrincipal Deputy Assistant Secretary of the Army

(Financial Management)AGREEMENT FOR SPECIAL BANK ACCOUNT

This agreement is entered into this 15th day of January, 19XX, between the United States of America, (the Government) represented by the Contracting Officer executing this agreement, Empire Tooling & Manufacturing, Inc. , a Texas corporation, and Hometown Bank of Anywhere, a banking corporation under the laws of Texas, located

May 2007 Page 24


at Anywhere, Texas.

RECITALS

(a) Under date of January 15, 19XX, the Government and the Contractor entered into Contract Nos. DAAJ09-91-c-XXXX, DAAJ09-91-C-XXXY, & DAAJ09-91-C-XXXZ, or a related supplemental agreement, providing for advance payments to the Contractor. A copy of the advance payments terms was furnished to the Bank.

(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 Bank Account at a member bank of the Federal Reserve System or any “insured” bank within the meaning of the Act creating the Federal Deposit Insurance Corporation (12 U.S.C. 1811). The parties agree to deposit the amounts with the Bank, which meets the requirement.

(c) This Special Bank Account is designated “Empire Tooling and Manufacturing, Inc., Department of Army Special Bank Account”.

COVENANTS

In consideration of the foregoing, and for other good and valuable considerations, the parties agree to the following conditions:

(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 Bank regarding the account.

(b) The Bank is bound by the terms of the contract relating to the deposit and withdrawal of finds in the Special Bank Account, but is not responsible for the application of funds withdrawn from the account. The Bank shall act on written directions from the Contracting Officer, the administrating office, or a duly authorized representative of either. The Bank is not liable to any party to this agreement for any action that complies with the written directions. Any written directions received by the Bank through the Contracting Officer on Department of Army stationary and purporting to be signed by, or by the direction of Department of Army or duly authorized representative, shall be, as far as the rights, duties, and liabilities of the Bank are concerned, considered as being properly issued and filed with the Bank by the Department of the Army.

(c) The Government, or its authorized representatives, shall have access to the books and records maintained by the Bank for all reasonable purposes, including (but not limited to), the pertinent memoranda, checks, correspondence, or documents. The Bank shall preserve the books and records for a period of 6 years after the closing of this Special Bank Account.

(d) In the event of the service of any writ of attachment, levy of

May 2007 Page 25


execution, or commencement of garnishment proceedings regarding the Special Bank Account, the Bank will promptly notify DCMA Anywhere.

(e) While this special Bank Account exists, the Bank shall inform the Government each month of the Bank’s published prime interest rate and changes to the rate during the month. The Bank shall give this information to the Contracting Officer on the last business day of the month.

Each of the parties to this agreement has executed the agreement on January 15, 19XX.

John P. Empire Thomas B. Hometown President & CEO President & CEO Empire Tooling & Manufacturing, Inc. Hometown Bank of Anywhere

STATE OF TEXASCOUNTY OF ANYWHERE

BEFORE ME ON THIS THE 15TH DAY OF JANUARY, 19XX, JOHN P. EMPIRE, PRESIDENT OF EMPIRE TOOLING & MANUFACTURING, INC. AND THOMAS B. HOMETOWN, PRESIDENT/CEO OF HOMETOWN BANK OF ANYWHERE DID APPEAR.

NOTARY PUBLIC, STATE OF TEXAS COMMISSION EXPIRES

Advance Payment Example

Attachment #3

May 2007 Page 26



Contractor’s claim for Advance Payments under the contract. The $3,800,000 was the full amount of the contract. A check for $3,800,000 was sent to the contractor in care of the bank where the special bank account was established and was marked “for deposit only.”

Attachment #4

May 2007 Page 27



This DD250 Invoice shows 10% liquidation of the Advance Payment.

May 2007 Page 28


MOCAS Accounting Data Inquiry Screen

May 2007 Page 29

Shows ADV-PAY Data Element. ADV-Pay explains what should be reflected here.


May 2007 Page 30


May 2007 Page 31


May 2007 Page 32


May 2007 Page 33


MOCAS Contract Abstract Screen

May 2007 Page 34

ADV PAY is indicated under Contract Provisions on Contract Abstract. See Data Elements for a description of this field.


May 2007 Page 35


MOCAS Provisions Data Inquiry Screen

May 2007 Page 36

ADV-PAY-AUT Data Element describes that this field shows that Advance Payments are authorized.


May 2007 Page 37


May 2007 Page 38


Actual Screens from a Contract with Advanced PaymentsCT5801 ADMINISTRATIVE DATA CBUD: PIIN: DAAJ09 91 CXXXX SPIIN: ORG: XX FSCM: 30333 CONTRR-FACL: ISSD-BY: W58RGZ ADMIN-BY: SXXXXA CAR-PARTNO: A CAR-SEC-NO: 3 DEPT-CD: A BUY-ACTY-CD: BS KIND-CON-CD: 1 TY-CONTR-CD: J CON-ASGM-CD: P T-CONTRR-CD: B NOUN: GRIP AY ACO-CD: XXX IS/CMA-CD: AJJ PROP-AD-CD: DMS-RTG: DOA1 CMDTY-CD: A1 PROD-SUV-CD: 1 INS-ACPT-CD: 6 SCTY-CLS-CD: U UNLTRL-IND: VAL-ENG-IND: V FUNC-LMTN: EFF-DT: 91 01 02 CON-RCVD-DT: 91 01 24 FNL-DVY-DT: 99 12 31 E ACO-ABS-PREPD: 2 WPNS-CD/ACAT-CD: ZZZZ KR-FNL-DVY-DT: 99 12 31

IRS1099-IND: N EDI-MILSCAP-IND: CT5804 REMARKS DATA CBUD: PIIN: DAAJ09 91 CXXXX SPIIN: ORG: XX ACO-NTBK-IND: Y R1-P-CONTR-PIN: P-CONTR-SPN: UT-NAME: UT-ADRS: R2-FNL-ACPT-DT: OVRG-DT: EST-CLSG-DT: R2-RSN-CDS: R3-FST-SHOW-R3: 02 05 17 R3-RMKS: TERM-C R4-FST-SHOW-R4: DSFM-RMK: R5-RMK: SENT TO LEGAL FOR APPROVAL 5-16-02 R6-RMK: R7-RMK: FIN PAY NLA ISSUED 20 MAY 02 R8-RMK: FREE: STD-ACO-CDD-RMK 8375

May 2007 Page 39


Actual Screens from a Contract with Advanced PaymentsCT5930 ACO NOTEBOOK REMARKS INQUIRY CBUD: PIIN: DAAJ09 91 CXXXX SPIIN: CAO-ORG-CD: XX RGS-CD: ACO-NTBK-RMKS: 4-18-02CONTRACTOR OUT OF BUSINESS AND FINAL PROPERTY SETTLEMENT HAS BEEN CREDITED BACK TO THE CONTRACT. ACO MOD A00001 ISSUED TO DEOBLIGATE THE ULO OF $4,034,948.94 AND THE ADVANCED PAYMENT LINE OF -$3,638,299.62 NEEDS TO BE OFFSET BY DFAS AND THE CONTRACT MOVED TO SEC 2 AND CLOSED.

ACO JANE DOE, XXX-XXX-XXXX X XXX. CT5803 PROVISIONS DATA CBUD: PIIN: DAAJ09 91 CXXXX SPIIN: ORG: XX TOTAMT-CONT: 5408900.00 OBLAMT-CONT: 5408900.00 UNL-DV-CONT: 4034948.94 OBLAMT-OTH: .00 UNLQ-DV-PP: .00 WITHHOLD: .00 RSVRD-FNDS: .00 CANCLD-FNDS: .00 CST-CONTR: .00 FEE-CONTR: .00 SPC-CON-PVN: CBD DISCNT-TRMS: 0050 10 DISC-DY-NET: DISC-IN-OTH: CEIL-PCT: 850 PMT-PCT: 850 US-RCP-PCT: 850 FMS-PMT-PCT: FMS-RCP-PCT: AUDTR-APRVL: RVU-CONTRS: PMT-CURNCY: ADV-PMT-AUT: B SPCL-TOOLNG: TEC-DATA-RQ: LQD-DMG-IND: PKG-CRG-AUT: DSTN-SHP-RQ: T WHLD-DATA: WHLD-NSP: SHPG-WT-DIM: FRT-CRG-AUT: MIN-SIZ-SHP: CRIT-DES-CD: A FIN-ACTN-CD: 3 PAYG-OFC: HQ0339 IBOP-IND: IBOP-CTY-CD: IBOP-PCT: IBOP-CGY-CD: PRE-PROD-SP: A NCLEL-PY-PV: BVN-INST-RQD: N PROGPAY-INST-RQD: N SPCL-PAY-RQD: N

May 2007 Page 40


Actual Screens from a Contract with Advanced PaymentsCT5811 ACCOUNTING DATA INQUIRY (ARMY) CBUD: PIIN: DAAJ09 91 CXXXX SPIIN: ORG: XX ACRN: AA FD-CD: A3 LMT-SUBH: AC6C PGM-YR: AGCY-CD: 6C ALOTM-SER: BDGT-PROJ: 0942 OBJ-CLS-CD: 4140 CNTRY-CD: PRON: ACCTG-STA: S23204 DEPT-CD: 1 CNCLD-FND-IND: PAYG-OFC: CPN-RECIP: W58RG0 NONCELI-PAY: FMS-CTRY-CD: POSTL-IND: DT-LST-ACT: 020123 OBLIG: 5408900.00 ULO: 4034948.94 WIP: DISCOUNT: 4613.48- QTY-VAR: TRANS: ADV-PAY: 3638299.62- LIQ-DMG: WITHHOLD:

May 2007 Page 41

Documents

DCMA Advance Payments Job Aid