FAR 28.106-8—Payment to subcontractors or suppliers.
Plain-English Summary
FAR 28.106-8 addresses when a contracting officer may authorize payment to a subcontractor or supplier from an irrevocable letter of credit (ILC) or other cash equivalent security. The section is narrow but important: it protects the government’s interests when a contractor has provided financial security in lieu of other payment protections, and it prevents the contracting officer from releasing those funds based on disputed or unverified claims. In practice, the rule applies only after the contractor’s payment obligation to a subcontractor or supplier is established through one of three specified forms of proof: a judicial determination of the parties’ rights, a signed notarized statement by the contractor admitting the amount is due and owed, or a signed agreement between the parties fixing the amount due and owed. The section is designed to reduce the risk of improper disbursement, double payment, or payment of contested amounts. For contractors and subcontractors, it means that access to ILC-backed funds is not automatic; for contracting officers, it means they must verify the required documentation before authorizing payment.
Key Rules
Payment only with proof
The contracting officer may authorize payment to a subcontractor or supplier from an ILC or other cash equivalent security only when the amount due and owed has been established by one of the methods listed in the rule. Without that proof, the contracting officer should not release the funds.
Judicial determination accepted
A court decision resolving the rights of the parties is sufficient authority for payment. This provides the strongest form of proof because it conclusively establishes entitlement or the amount owed.
Notarized contractor admission
A signed, notarized statement from the contractor that the payment is due and owed is also sufficient. The notarization adds formality and helps confirm the authenticity of the contractor’s acknowledgment.
Signed agreement between parties
The contracting officer may rely on a signed agreement between the contractor and the subcontractor or supplier that states the amount due and owed. The agreement must clearly resolve the payment amount; informal discussions or partial acknowledgments are not enough.
Applies to cash equivalent security
The rule covers ILCs and any other cash equivalent security used to support payment. The key point is that the same documentation standard applies before the government authorizes release of those secured funds.
Responsibilities
Contracting Officer
Verify that one of the three required forms of proof exists before authorizing payment from the ILC or other cash equivalent security. The contracting officer must not rely on unsupported claims or disputed invoices.
Contractor
Provide a judicial determination, a signed notarized statement, or a signed agreement establishing that the subcontractor’s or supplier’s claim is due and owed if it wants payment authorized from the security.
Subcontractor or Supplier
Obtain and present the required proof of entitlement or amount due, typically through a court ruling, a contractor acknowledgment, or a written agreement with the contractor.
Agency
Ensure internal procedures for release of secured funds align with the rule and that contracting personnel understand the limited circumstances under which payment may be authorized.
Practical Implications
This section is a gatekeeping rule: it prevents the government from paying subcontractor or supplier claims from secured funds unless the debt is clearly established.
A common pitfall is assuming that an invoice, email exchange, or verbal concession is enough; it is not. The rule requires a judicial determination, notarized contractor statement, or signed agreement.
Contractors should be careful before signing a notarized statement or settlement agreement, because those documents can trigger payment from the security and may affect later disputes.
Contracting officers should confirm that the documentation specifically identifies the amount due and owed and is properly executed; vague or incomplete documents can create payment risk.
Because the rule is limited to ILCs and similar cash equivalent security, users should check the underlying contract and security instrument to confirm that this provision applies before taking action.
Official Regulatory Text
The contracting officer will only authorize payment to subcontractors or suppliers from an ILC (or any other cash equivalent security) upon a judicial determination of the rights of the parties, a signed notarized statement by the contractor that the payment is due and owed, or a signed agreement between the parties as to amount due and owed.