12.2.1 The Financial Administration Act. Sections 32, 33 and 34 of the Financial Administration Act prescribes various financial controls in contract expenditures. Usually the financial aspects of contract administration are the responsibility of financial managers, but contract administrators should have a basic knowledge of the law and the financial management policies of the government. Much of this information is set out in the Comptrollership volume of the Treasury Board Manual issued by the Treasury Board Secretariat.
12.2.2 Advance Payments. Section 8 of the Government Contracts Regulations permits advance payments. If advance payment clauses are to be included in contracts, they must adhere to the principles of parliamentary control, the requirements of the Financial Administration Act(paragraph 33(3)(a)), and the provisions of the appropriation Acts themselves. Where contract approval is within departmental authority, advance payments can be approved by the department. However, as required by the Regulations, where contract approval is beyond departmental authority, advance payments require Treasury Board approval.
12.2.3 Preconditions For Using Advance Payments. Advance payments should be considered only in extraordinary circumstances, that is, when they are considered essential to program objectives. Contractors are expected to finance their work from their reserves or through commercial financing based on the anticipated payments from the contracting authority for full or partial completion of the work. Contracting authorities should consider the financing and interest costs to the Crown, as well as the method of recovery, when negotiating advance payments and should evaluate these costs when comparing other alternatives.
12.2.4 Further to the preceding, contracting authorities should consider including advance or progress payments in a contract only if:
1. adequate security for the payment is ensured;
2. the Crown receives value commensurate with the amount of the payment;
3. the contracting authority has adequate funds to provide the financing; and
4. one or more of the following criteria are met; economic advantage to the Crown;
1. contractor could suffer hardship or provide financing only with difficulty or at rates considered to be uneconomic in relation to prevailing chartered bank prime lending rates;
2. the value of the contract is considered to be beyond the assessed financial capabilities of the contractor;
3. long duration for the contract performance;
4. an entrenched tradition or practice or receiving advance or progress payments for the purchaser exists in a particular industry or segment of industry. (Supply Policy Manual Article 4202)
Advance payments are not necessarily warranted even if the preceding preconditions are met. While progress payments may be more common, advance payments are normally very much the exception.
12.2.5 Timing and Amount of Advance Payments. Except in extraordinary circumstances, in accordance with the principles of annual appropriations and the basis on which funds are appropriated by Parliament,
1. advance payments cannot be made in one fiscal year in respect of a contract that does not start until the next fiscal year;
2. where an advance payment is in respect of extraordinary start-up costs, the payment is to relate to, and cannot exceed, the actual start-up costs expected to be incurred by the contractor in the fiscal year in which the payment is made;
3. multi-year maintenance contracts are to, as a minimum, provide for annual payments for each year of the contract, and multi-year licensing agreements should, to the extent possible, do the same;
4. departments cannot carry funds over from one fiscal year to the next by transferring them to revolving funds or specified purpose accounts, or by pre-paying for goods and services from revolving funds; and
5. advance payments in any given fiscal year must relate to, and should not exceed, the value of the work to be performed or the goods or services reasonably expected to be provided during that year.
12.2.6 Payments. As required by article 4.2, Related requirements, work performed or goods received under a contract are to be paid for in accordance with the government's payment on due date policy on the payment of accounts (see the Comptrollership policies) as follows:
1. the standard payment period is 30 days;
2. departments and agencies are to ensure that their systems and procedures are designed to attain this standard;
3. the payment period is measured from the date that the goods or services were received in acceptable condition at the location(s) specified in the contract or the date that an invoice in proper form was received, whichever is later;
4. interest shall be paid on payments made later than the due date where expressly authorized by contract or statute. For that reason, clauses authorizing the payment of interest are included in government contracts.
Payments are scheduled so that they are made as close as possible to, but no later than, the due date. Except where statutes, contracts or fee schedules approved by federal regulatory agencies provide otherwise:
• interest is paid automatically on accounts that are not paid on the due date, 30 days from receipt of an invoice or 30 days from acceptance of goods or service, whichever is later, if the government is responsible for the delay (i.e., accounts outstanding for 50 days or more when the standard payment period of 30 days applies);
• the period for which interest is paid automatically is measured from the due date to the date that the payment is issued.
12.2.7 The terms of the contract, where applicable, should state the dates when interim and progress payments are due. Progress payments should normally be made within the due date except where other terms are agreed to in the contract.
12.2.8 Interest is computed by multiplying the amount due by the applicable rate (see article 12.2.9 below) and the time period expressed as a fraction of a year in days, i.e., the number of days in the period for which interest is payable over a denominator of 365.
12.2.9 The rate of interest payable is the average daily Bank of Canada rate for the month preceding the current month plus 3%.
12.2.10 Exceptions. When it is more advantageous to the government, because of factors such as discounts, to pay accounts earlier, or when the terms and conditions for payment and interest under a contract are different from the 30-day standard, the standard payment period may be set aside.
12.2.11 Interest is not paid on an interim basis, on interest charges, or on advance payments that are late.
12.2.12 When goods or services are not considered to be in accordance with the contract, certification under Section 34 of the Financial Administration Act cannot be given. As required by the payment on due date policy, departments must notify suppliers within 15 days if the contract performance is disputed. The30 day payment period begins upon receipt of the replacement goods or services or the revised invoice or additional information.