FAR 52.232-28—Invitation to Propose Performance-Based Payments.
Plain-English Summary
FAR 52.232-28 is the solicitation provision that invites an offeror to propose performance-based payment financing and tells both sides how those proposed financing terms will be evaluated and incorporated into the resulting contract. It covers the Government’s invitation to submit performance-based payment terms, the requirement that the Contracting Officer consider those terms in source selection, the incorporation of the successful offeror’s financing terms into the contract together with FAR 52.232-32, and the rule that FAR 52.232-32 controls if there is any conflict. It also sets limits on what financing terms may be accepted, including the requirement that payments be tied to delivery and acceptance, that the terms comply with FAR 32.1004, that they be reasonable and consistent with the proposal, and that total performance-based financing not exceed 90 percent of the contract price or delivery item price. The provision requires the offeror to submit specific supporting information: proposed contractual language, projected payment events and amounts, projected delivery dates and amounts, and information about the contractor’s investment in the contract. Finally, Alternate I adds a pricing adjustment rule requiring the Government to adjust proposed prices to reflect the cost of providing the proposed performance-based payments, using the FAR 32.205(c) method. In practice, this provision matters because it shapes how contractors structure financing proposals, how contracting officers evaluate risk and value, and how the Government protects itself from over-financing or inconsistent payment terms.
Key Rules
Offeror may propose financing
The provision invites the offeror to propose performance-based payment financing terms for use during contract performance. Those terms are part of the proposal and will be considered in the evaluation of the offeror’s submission.
Successful terms become contract terms
If the offeror wins, the Contracting Officer incorporates the successful offeror’s financing terms into the resulting contract along with FAR 52.232-32, Performance-Based Payments. This means the proposed financing structure can become binding contract language.
FAR 52.232-32 controls conflicts
If there is any conflict between the offeror’s proposed financing terms and FAR 52.232-32, the clause at FAR 52.232-32 governs. Offerors cannot override mandatory clause requirements through their proposal language.
Acceptance is limited by strict conditions
The Contracting Officer may not accept proposed financing unless it conforms to FAR 32.1004, is reasonable and consistent with the technical and cost proposal, and is in the Government’s best interests. The Government also will not accept terms that exceed the stated financing ceiling.
Financing ceiling is 90 percent
Total performance-based payments may not exceed 90 percent of the contract price on a whole-contract basis, or 90 percent of the delivery item price on a delivery-item basis. This cap limits the Government’s exposure and preserves contractor risk.
Proposal must include supporting detail
The offeror must submit proposed contractual language, projected performance-based payment dates and amounts, projected delivery dates and amounts, and information showing the contractor’s investment in the contract. These details allow the Government to assess feasibility and risk.
Evaluation includes reasonableness
The Government evaluates whether the proposed performance-based payment events and amounts are reasonable and consistent with the rest of the proposal. Financing terms are therefore part of the source selection and not just a post-award administrative issue.
Alternate I adjusts price
Under Alternate I, the Government adjusts each proposed price to reflect the cost of providing the proposed performance-based payments when determining total cost to the Government. The adjustment is made using the method in FAR 32.205(c).
Responsibilities
Offeror
May propose performance-based payment financing terms, but must ensure the proposal complies with FAR 32.1004, stays within the 90 percent limit, and is consistent with the technical and cost proposal. The offeror must also provide the required supporting information, including proposed contract language, payment schedules, delivery schedules, and evidence of investment in the contract.
Contracting Officer
Must consider proposed performance-based payment financing terms in evaluating the proposal, reject terms that do not meet the regulatory limits, and incorporate the successful offeror’s financing terms into the contract together with FAR 52.232-32. The Contracting Officer must also apply the Alternate I price adjustment when included and use the FAR 32.205(c) method.
Government
Must evaluate proposed financing terms for reasonableness, consistency, and best interest, and must not accept financing that exceeds the regulatory ceiling or conflicts with mandatory clause requirements. The Government also must ensure that payments are tied to accepted deliveries or services and that the overall financing arrangement protects the Government’s interests.
Source Selection/Evaluation Team
Must assess whether the proposed performance-based payment events and amounts are reasonable and consistent with the offeror’s other proposal elements. Financing terms are part of the evaluated proposal and can affect the total evaluated cost or price.
Practical Implications
Contractors should treat performance-based payment terms as a competitive proposal element, not an afterthought, because they can affect evaluation and award decisions.
A common pitfall is proposing payment events or amounts that do not align with the technical approach, schedule, or cost build-up; that inconsistency can make the financing terms unacceptable.
Another frequent mistake is exceeding the 90 percent cap or proposing terms that effectively shift too much risk to the Government.
Offerors should be careful not to draft financing language that conflicts with FAR 52.232-32, because the clause will control even if the proposal says otherwise.
When Alternate I applies, pricing strategy matters: the Government will adjust prices to account for financing cost, so contractors should understand how financing affects evaluated cost and competitiveness.
Official Regulatory Text
As prescribed in 32.1005 (b)(1) , insert the following provision: Invitation to Propose Performance-Based Payments (Mar 2000) (a) The Government invites the offeror to propose terms under which the Government will make performance-based contract financing payments during contract performance. The Government will consider performance-based payment financing terms proposed by the offeror in the evaluation of the offeror’s proposal. The Contracting Officer will incorporate the financing terms of the successful offeror and the FARclause, Performance-Based Payments, at FAR 52.232-32 , in any resulting contract. (b) In the event of any conflict between the terms proposed by the offeror and the terms in the clause at FAR 52.232-32 , Performance-Based Payments, the terms of the clause at FAR 52.232-32 shall govern. (c) The Contracting Officer will not accept the offeror’s proposed performance-based payment financing if the financing does not conform to the following limitations: (1) The Government will make delivery payments only for supplies delivered and accepted, or services rendered and accepted in accordance with the payment terms of this contract. (2) The terms and conditions of the performance-based payments must- (i) Comply with FAR 32.1004 ; (ii) Be reasonable and consistent with all other technical and cost information included in the offeror’s proposal; and (iii) Their total shall not exceed 90 percent of the contract price if on a whole contract basis, or 90 percent of the delivery item price if on a delivery item basis. (3) The terms and conditions of the performance-based financing must be in the best interests of the Government. (d) The offeror’s proposal of performance-based payment financing shall include the following: (1) The proposed contractual language describing the performance-based payments (see FAR 32.1004 for appropriate criteria for establishing performance bases and performance-based finance payment amounts). (2) A listing of- (i) The projected performance-based payment dates and the projected payment amounts; and (ii) The projected delivery date and the projected payment amount. (3) Information addressing the Contractor’s investment in the contract. (e) Evaluation of the offeror’s proposed prices and financing terms will include whether the offeror’s proposed performance-based payment events and payment amounts are reasonable and consistent with all other terms and conditions of the offeror’s proposal. (End of Provision) Alternate I (Mar 2000) . As prescribed in FAR 32.1005 (b)(2), add the following paragraph (f) to the basic provision: (f) The Government will adjust each proposed price to reflect the cost of providing the proposed performance-based payments to determine the total cost to the Government of that particular combination of price and performance-based financing. The Government will make the adjustment using the procedure described in FAR 32.205 (c).