(a) Except as provided in paragraph (d) of this section, the contracting officer shall charge interest on the daily unliquidated balance of all advance payments at the higher of -
(1) The published prime rate of the financial institution (depository) in which the special bank account (see 32.409-3) is established; or
(2) The rate established by the Secretary of the Treasury under 50 U.S.C. App. 1215(b)(2).
(b) The interest rate for advance payments shall be adjusted for changes in the prime rate of the depository and the semiannual determination by the Secretary of the Treasury under 50 U.S.C. App. 1215(b)(2). The contracting officer shall obtain data from the depository on changes in the interest rate during the month. Interest shall be computed at the end of each month on the daily unliquidated balance of advance payments at the applicable daily interest rate.
(c) Interest shall be required on contracts that are for acquisition, at cost, of property for Government ownership, if the contracts are awarded in combination with, or in contemplation of, supply contracts or subcontracts.
(d) The agency head or designee may authorize advance payments without interest under the following types of contracts, if in the Government’s interest:
(1) Contracts for experimental, research, or development work (including studies, surveys, and demonstrations in socio-economic areas) with nonprofit education or research institutions.
(2) Contracts solely for the management and operation of Government-owned plants.
(3) Cost-reimbursement contracts with governments, including State or local governments, or their instrumentalities.
(4) Other classes of contracts, or unusual cases, for which the exclusion of interest on advances is specifically authorized by agency procedures.
(e) If a contract provides for interest-free advance payments, the contracting officer may require the contractor to charge interest on advances or down payments to subcontractors and credit the Government for the proceeds from the interest charges. Interest rates shall be determined as described in paragraphs (a) and (b) of this section. The contracting officer need not require the contractor to charge interest on an advance to a subcontractor that is an institution of the kind described in subparagraph (d)(1) of this section.
(f) The contracting officer shall not allow interest charges, required by this 32.407, as reimbursable costs under cost-reimbursement contracts, whether the interest charge was incurred by the prime contractor or a subcontractor.
