identifying major creditors and interest rates and other charges, if any, and status of significant disputed items, (11) adequacy of reserves for depreciation, (12) analysis of surplus;

(m) Significant ratios such as (1) inventory to annual sales, (2) inventory to current assets, (3) liquid assets to current assets, (4) liquid assets to current liabilities, (5) current assets to current liabilities, and (6) net worth to debt;

(n) Comments and opinion of audit agency concerning contractor's accounting system and controls, and available audit agency analysis of important elements of financial statements or projections;

(0) Other facts that may be appropriate for the purposes stated at the beginning of this section. See §§ 163.24-1 to 163.26.

§ 163.28-1

Cash flow forecast, and estimated financial statements.

In doubtful cases, an estimated cash budget (Cash Flow Forecast) and related estimated Profit and Loss Statements and estimated Balance Sheets prepared by the contractor, will be very useful for the purpose of arriving at an informed judgment as to the cash requirements (both for the contract and for the contractor's other activities), cash receipts for the contract period, and cash or credit needed to supply any excess of projected expenditures over projected receipts. When considered useful or necessary, such estimates should be requested from the prospective contractor, analyzed by financial personnel, and discussed to the extent necessary or appropriate with the prospective contractor. Many contractors will have such projections readily available, perhaps not including estimated balance sheets. The failure of the contractor to have prepared such estimates, or resistance to their preparation, or difficulties and delays in preparation, or poor quality of the projections, or the use of unreasonable or unrealistic assumptions in their preparation, may well constitute warning signals that the company's planning has been insufficient and that significant financial troubles may be encountered during the contemplated period of contract performance.

§ 163.28-2 Realistic assumptions.

Cash forecasts can, of course, be no more reliable and representative of probable financial developments than the assumptions on which these forecasts are based. Each cash forecast and related projection should disclose the important underlying assumptions. Most important of these assumptions are the:

(a) Estimated amounts and timing of purchases of materials, parts, components, sub-assemblies, services, and payments therefor:

(b) Estimated amounts and timing of purchases of machinery and equipment, other production or test facilities, other fixed assets, and purchases or production of special tooling, and payments therefor; (c) Schedule of fixed cash charges, such as debt installments, interest,

rentals and taxes;

(d) Projected manufacturing and production schedules;

(e) Projected shipments, or delivery acceptances;

(f) Estimated amounts and timing of billings to customers (including progress payments), and customer payments;

(g) Estimated amounts and timing of cash receipts from lenders or other credit sources, and liquidation of loans; and

(h) Estimated amounts and timing of cash receipts from other sources.

The assumptions underlying cash forecasts should be checked for reasonableness and realism-with the contractor, Government personnel responsible in the areas of engineering, production scheduling, cost and price analysis, and with others (including prospective supply, subcontract, and loan or credit sources)—as may be prudent in the circumstances of the case.

§ 163.29 Termination financing.

It is recognized that adequate protection against the financial impact of termination of Government contracts and subcontracts should encourage suppliers to invest their own funds in performance under such contracts and that financing for termination purposes will be an important aid to ultimate reconversion of industry to peacetime activities. Accordingly, termination financing may be made available, with appropriate protection of the Government's interest, either in connection with or independently of performance financing.

§ 163.30 Report of adverse developments-prompt decisions.

When materially adverse developments concerning a borrower having a guaranteed loan, or concerning a contractor having advance payments or progress payments, become known to a procuring or contract administration activity, pertinent facts, including report of remedial or protective action taken or proposed, should be reported by the procuring or

58-112-76-20

contract administration activity to the contract financing office of the Department principally concerned with the contract financing, so that timely appropriate protective or remedial action may be taken by coordinated action of all concerned. However, the filing of such reports shall not relieve the personnel responsible for administration of the contract from taking such action as is deemed proper, prudent, and beneficial to the Government. When there are reasons to doubt the prudence of continuing progress payments or advance payments in cases involving performance difficulties or financial deterioration, decision must be made promptly and with proper regard to the harmful effects of delay on the continued operation of the contractors concerned.

[32 F.R. 11951, Aug. 18, 1967] § 163.31

Reports.

Each Department shall submit reports of financing activities at such times and in such form as may be prescribed by the Assistant Secretary of Defense (Installations and Logistics) and approved by or

for the Assistant Secretary of Defense (Comptroller).

[32 F.R. 11951, Aug. 18, 1967]

§ 163.32

Deviations-amendments.

Actions in the exercise of the judgment and discretion allowed by these regulations are not deviations. Actions contrary to or inconsistent with or varying from these regulations would be deviations. Deviations will be permitted only when necessary in exceptional circumstances, after (a) the proposed deviation has been presented to the Contract Finance Committee, (b) the recommendations of that Committee have been obtained, and (c) the approval of the Assistant Secretary of Defense (Installations and Logistics) or his designated representative has been given. The above procedure will be followed also for amendments to this part (see § 163.4.) The provisions of Subchapter A of this chapter pertaining to deviations (§§ 1.109-2 and 1.109-3 of this chapter) and to amendments (§ 1.105 of this chapter) do not apply to these contract financing regulations.

[32 F.R. 11951, Aug. 18, 1967]

It is important that this part and the clauses set forth herein be applied fairly and uniformly for all contractors. When a serious question of interpretation or application of this part arises within a procuring activity, and is regarded as being of general importance, if the circumstances reasonably permit the obtaining of an advance opinion on the question from Departmental headquarters, the question should be presented, through procurement channels, to the procurement policy office at headquarters of the Department primarily interested. If the circumstances do not reasonably permit request for advance opinion, report of an interpretation made (if regarded as important and of general interest for uniform application or interpretation of this part) should be made to the appropriate one of the Departmental headquarters procurement policy offices. Those offices are expected to take appropriate and timely action to obtain the views of interested offices of the other Departments, including the contract financing offices (§ 163.26) When questions submitted are considered to be of importance in the general interest of uniformity and of fair and effective admin

istration of this part, appropriate revision of this part will be considered in the manner outlined in § 163.4. In period between any amendments of this part, it is contemplated that information on important interpretations of general interest, reported to or made at Departmental headquarters, will be made available to procuring activities for dissemination to interested purchasing offices.

[32 FR 11951, Aug. 18, 1961]

§ 163.33a Foreign procurement.

The regulations in this part apply equally to domestic and foreign procurement, with the exceptions and qualifications stated in this section and in §§ 163.33a-1 to 163.33a-3. The enforceability of a contract provision in a foreign jurisdiction is dependent on local law and procedure. It may sometimes become necessary to take action in foreign countries to enforce collateral security or other contract financing protective provisions, or to recover property pursuant to a progress payment clause, and to collect contract financing indebtedness. In such cases, the nature and extent of remedies available for enforcement of contract provisions is necessarily determined by the laws, rules and procedures of the country in which the relief is sought.

§ 163.33a-1

Progress payments on contracts for foreign performance. When progress payments (Subpart E of this Part) are contemplated for contracts to be performed wholly or partly in a foreign country, appropriate legal advice should be obtained with respect to the validity, enforceability and effectiveness of the contemplated progress payment clause (§§ 163.79-2, 163.79-2

and 163.80) and of any proposed guarantees, pledges or other special protective arrangements, within the foreign country involved. Such legal advice should also cover the need, if any, for additional protective provisions (§ 163.80-5) or for deviations (§ 163.789) from the uniform clauses, that may be required to comply with the applicable foreign law and to provide for the most effective protection and enforcement of the interests of the United States. Section 163.86 requires that proposed deviations (§ 163.78-9) must have prior approval of the contract financing office (§ 163.26) after the coordination mentioned in § 163.87.

[37 FR 17029, Aug. 24, 1972]

§ 163.33a-2 Advance payments on contracts for foreign performance.

When advance payments are proposed (Subpart D of this part) for contracts to be performed wholly or partly in a foreign country, the recommendation (§ 163.62) for advance payments should include appropriate legal advice along the lines of that outlined in § 163.33a-1. When advance payments are proposed to be made on contracts with foreign governments, it is expected that the advance payment arrangement, if approved (§ 163.56), would not include provisions generally unsuitable for government-togovernment agreements, such as those for special bank accounts, unilateral withdrawal of funds, liens, insurance, additional security, or representations, warranties and covenants of the kinds set forth in § 163.64-2 (p) and (r). It is recognized that advance payments to foreign governments, when authorized, will need to be adapted to the special circumstances of each case to provide appropriate protection in the light of the relationship of the United States to each affected foreign government and with due recognition of the sovereign status of the contracting parties.

§ 163.33a-3 Guaranteed loans for foreign contract performance.

When contracts or subcontracts are to be performed in a foreign country, filnancing by means of loans guaranteed by the Departments seldom will be practicable because of difficulties of loan administration and enforcement. When loans are to be utilized for financing of such contracts or subcontracts, it is considered generally preferable that the loans be provided within the internal financial system of the foreign country concerned, without Department guarantee.

[32 FR. 11951, Aug. 18, 1967]

Subpart C-Guaranteed Loans SOURCE: The provisions of this Subpart C appear at 25 F.R. 14410, Dec. 81, 1960, unless otherwise noted.

§ 163.34 Scope of subpart.

This subpart covers the policies, organization, and procedure particularly applicable to guaranteed loans.

1950, as amended, each Federal Reserve Bank is designated and authorized to act, on behalf of each guaranteeing agency, as fiscal agent of the United States in the making of contracts of guarantee and in otherwise carrying out the purposes of section 301 of the Defense Production Act of 1950, as amended, in respect of private financing institutions. Pursuant to Regulation V of the Board of Governors of the Federal Reserve System, any private financing institution may submit to the Federal Reserve Bank of its district an application for guarantee of a loan or credit. This application is in substantially standard form, as approved by the Board of Governors of the Federal Reserve System, after consultation with the guaranteeing agencies. Forms of application, and information and guidance concerning applications, are available at all Federal Reserve Banks.

§ 163.36

Board of Governors of the Federal Reserve System.

Under section 302(c) of Executive Order No. 10480, all actions and operations of Federal Reserve Banks, as fiscal agents, are subject to the supervision of the Board of Governors of the Federal Reserve System (hereinafter referred to as "Federal Reserve Board"). The Federal Reserve Board is authorized, after consultation with the heads of the guaranteeing agencies, (a) to prescribe such regulations governing the actions and operations of fiscal agents as it may deem necessary, (b) to prescribe, either specifically or by maximum limits or otherwise, rates of interest, guarantee and commitment fees, and other charges which may be made in connection with loans, discounts, advances, or commitments guaranteed by the guaranteeing agencies through such fiscal agents, and (c) to prescribe regulations governing the forms and procedures (which shall be uniform to the extent practicable) to be utilized in connection with such guarantees.