DFARS Part 232: Contract Financing

In plain English

DFARS Part 232 implements and supplements the FAR rules on contract financing, covering how and when DoD pays contractors, including progress payments, performance-based payments, accelerated payments to small businesses, and electronic invoicing. It matters to contractors because it sets payment rates, due dates, and financial responsibility requirements that affect cash flow and contract performance.

Key rules

• DoD policy is to make contract financing payments as quickly as possible, generally using standard due dates of 7 days for progress payments and 14 days for performance-based payments and interim cost-type payments. (232.007)
• DoD must provide accelerated payments to small business contractors and subcontractors to the fullest extent permitted by law, with a goal of 15 days. (232.009-1)
• The customary progress payment rates for DoD contracts are 80 percent for large businesses and 90 percent for small businesses. (232.501-1)
• The contracting officer must perform a financial review when there is not enough information to determine a contractor's financial responsibility, and may require a cash flow forecast if there is doubt about sufficient cash flow. (232.072-1, 232.072-3)
• Fixed-price contracts must be fully funded except under limited conditions for incremental funding, such as severable services not exceeding one year. (232.702, 232.703-1)
• Payment requests and receiving reports must be submitted electronically, except for classified contracts or when electronic submission could compromise security. (232.7002)
• The contracting officer must not authorize the Governmentwide commercial purchase card as a payment method if the contract includes the clause on Tax on Certain Foreign Procurements, unless an exception applies. (232.1108-70)
• The contracting officer must require the contractor to promptly notify the contracting officer when an IRS levy may affect the contractor's ability to perform the contract. (232.7101)

Who does what

In practice

• Small businesses can expect accelerated payments with a goal of 15 days, which can improve cash flow.
• Progress payments are typically 80% for large businesses and 90% for small businesses, so contractors should plan financing accordingly.
• Electronic submission of payment requests is mandatory in most cases, so contractors need to use systems like WAWF.
• Incrementally funded fixed-price contracts are limited to specific situations, such as severable services not exceeding one year.

Common pitfalls

• Assuming all fixed-price contracts can be incrementally funded; DFARS limits incremental funding to specific conditions like severable services not exceeding one year.
• Failing to submit payment requests electronically when required, which could delay payment.
• Not notifying the contracting officer of an IRS levy that may affect contract performance, which could lead to contract problems.
• Overlooking that the Governmentwide commercial purchase card cannot be used as a payment method when the Tax on Certain Foreign Procurements clause applies.

Written by AI from this part's codified text (2026-10-04); cited sections are checked against the part. A guide, not legal advice: the regulation text, the solicitation and your contract rule.