FAR 32.205—Procedures for offeror-proposed commercial contract financing.
Plain-English Summary
FAR 32.205 establishes the procedure for evaluating offeror-proposed commercial contract financing when a solicitation allows offerors to propose their own financing terms. It covers the contracting officer’s duty to decide the award based on the best interests of the United States, the requirement to include the Invitation to Propose Financing Terms provision at 52.232-31, and the need to tell offerors in the solicitation which delivery payment (invoice) dates and interest rate will be used for evaluation. It also explains how to evaluate competing proposals by adjusting proposed prices to reflect the Government’s cost of earlier payments, including how to compute the imputed cost of each financing payment and how to sum those costs into an evaluated price. Finally, it specifies that the interest rate used for this time-value calculation must come from Appendix C of OMB Circular A-94, using the rate appropriate to the financing period or the closest available period if there is no exact match. In practice, this section ensures that price comparisons are apples-to-apples when offerors propose different financing structures, so the Government can compare the true total cost of price plus financing rather than just the nominal contract price.
Key Rules
Offerors may propose financing
Under this procedure, each offeror is allowed to propose its own financing terms. The contracting officer then evaluates the offers and selects the one that is in the best interests of the United States, not simply the one with the lowest stated price.
Include the required provision
The solicitation must include FAR 52.232-31, Invitation to Propose Financing Terms. This puts offerors on notice that financing terms are part of the competition and that their proposals will be evaluated accordingly.
State evaluation payment dates
The contracting officer must specify the delivery payment or invoice dates that will be used in evaluating financing proposals. These dates are the benchmark for measuring how much earlier the Government would pay under the proposed financing arrangement.
State the evaluation interest rate
The solicitation must identify the interest rate to be used in the evaluation of financing proposals. That rate is tied to the OMB Circular A-94 discount rate methodology and is used to calculate the cost of early Government payments.
Adjust price for financing cost
When financing terms differ among offerors, the contracting officer must adjust each proposed price for evaluation purposes to reflect the cost of the proposed financing. The goal is to determine the total cost to the Government of each price-and-financing combination.
Compute imputed financing cost
The imputed cost of financing is added to the proposed price to produce the evaluated price. For each financing payment, the cost equals the payment amount multiplied by the annual interest rate and multiplied by the time between the financing payment date and the date the amount would otherwise have been paid as a delivery payment.
Use OMB A-94 rates
The time value of proposed financing must be calculated using the nominal discount rate in Appendix C of OMB Circular A-94 for the relevant financing period. If the proposed financing period does not exactly match an OMB period, the closest period’s rate is used, and Appendix C is updated annually.
Responsibilities
Contracting Officer
Include FAR 52.232-31 in the solicitation, identify the delivery payment or invoice dates for evaluation, specify the interest rate to be used, evaluate competing financing proposals, compute imputed financing costs, and determine which offer is in the best interests of the United States.
Offeror
May propose financing terms as part of its offer and should structure those terms with the understanding that the Government will evaluate the total cost of price plus financing, not just the nominal price.
Agency
Ensure contracting personnel use the proper OMB Circular A-94 Appendix C discount rates and apply the required evaluation method consistently so financing proposals are compared fairly.
Practical Implications
This section matters because a lower stated price can be offset by more expensive financing, so the evaluated price may be higher than it first appears.
A common pitfall is failing to state the exact invoice/delivery payment dates or using the wrong interest rate, which can distort the evaluation and create protest risk.
Contracting officers must compare financing structures on a consistent basis; otherwise, offerors with different payment timing would not be evaluated fairly.
Offerors should not assume that offering earlier payments automatically improves their competitive position unless the financing cost is favorable under the required discount-rate calculation.
Because Appendix C of OMB Circular A-94 is updated annually, users should verify they are using the current rate and the correct period closest to the proposed financing term.
Official Regulatory Text
(a) Under this procedure, each offeror may propose financing terms. The contracting officer must then determine which offer is in the best interests of the United States. (b) Solicitations. The contracting officer must include in the solicitation the provision at 52.232-31 , invitation to Propose Financing Terms. The contracting officer must also- (1) Specify the delivery payment (invoice) dates that will be used in the evaluation of financing proposals; and (2) Specify the interest rate to be used in the evaluation of financing proposals (see paragraph (c)(4) of this section). (c) Evaluation of proposals. (1) When contract financing terms vary among offerors, the contracting officer must adjust each proposed price for evaluation purposes to reflect the cost of providing the proposed financing in order to determine the total cost to the Government of that particular combination of price and financing. (2) Contract financing results in the Government making payments earlier than it otherwise would. In order to determine the cost to the Government of making payments earlier, the contracting officer must compute the imputed cost of those financing payments and add it to the proposed price to determine the evaluated price for each offeror. (3) The imputed cost of a single financing payment is the amount of the payment multiplied by the annual interest rate, multiplied by the number of years, or fraction thereof, between the date of the financing payment and the date the amount would have been paid as a delivery payment. The imputed cost of financing is the sum of the imputed costs of each of the financing payments. (4) The contracting officer must calculate the time value of proposal-specified contract financing arrangements using as the interest rate the nominal discount rate specified in AppendixC of the Office of Management and Budget (OMB) CircularA-94, "Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs," appropriate to the period of contract financing. Where the period of proposed financing does not match the periods in the OMB Circular, the interest rate for the period closest to the finance period shall be used. AppendixC is updated yearly, and is available from the Office of Economic Policy in the Office of Management and Budget (OMB).