6-600 Financing Agreements - Advance Payment

6-610 Policy

As a matter of sound financial management, the University seeks to minimize the use of its operating funds as working capital for extramurally sponsored projects. Because the University receives a large part of its total budget support from extramural sponsors, when monies from certain sponsors are not received simultaneously with cash expenditures, the University is forced into an unacceptable cash deficit management problem. With the objective to minimize the University's cash deficit problem, the University policy and procedures for operation of the cash advance program promulgated in the Accounting Manual, C-557-21, "Contracts and Grants:Cash Advance Program" states:

… campuses must secure advance payment for all sponsored projects, unless an advance payment arrangement is not feasible.

6-620 Negotiation Responsibility of Contracts and Grants Officers

The Contracts and Grants Officer is responsible for negotiating a cash advance payment method with the sponsor whenever feasible. Advance payments are specifically required for contracts with commercial sponsors since the University does not subsidize work for a for-profit company with State funding.

The responsibilities of Accounting Officers and other University personnel for other aspects of the University's cash management program are set forth in Accounting Manual, C-557-21, Section VII., "Responsibilities."

6-630 Federal Sponsors‌

The University policy regarding securing cash advances for federal awards operates within the federal guidelines established by the United States Department of the Treasury and 2 CFR 215 (OMB Circular A-110) 215.22, "Payment."(See 6-F07).

This University policy of securing advance payment is set forth in the Accounting Manual, Chapter C-557-21, Contracts and Grants: Cash Advance Programs. While federal agencies have their responsibilities of monitoring cash advances, additional or excessive requirements outside of standard practices should be resisted. Extra reporting requirements should not be accepted unless the campus Accounting Officer agrees that the campus accounting office is able to comply with them.

6-640 State Sponsors

Accounting Manual Chapter C-557-21, Section III. B., provides the following guidance on negotiating cash advance payments with State sponsors:

The State of California does not have a cash advance program comparable to the Federal program. The State, as a matter of policy, discourages cash advances or progress payment. Letters of credit are not available, but negotiations should always include a request for some form of cash advance. Even though the State agency may refuse to consider advances over the full term of the agreement, it may be possible to negotiate advances for the estimated costs of starting a program.

Use of the Interagency Agreement rather than Standard Agreement allows for negotiation of cash advances . . . .

State agencies generally will not consider advance payments, even though they are allowed in State interagency agreements. However, for State standard agreements, the State Contract Manual specifies:

7.32 Advance Payments

Advance payments by the state are permitted only when specifically authorized by statute and should be made only when necessary. Contracts or agreements containing provisions for advance payments by the state should preferably provide for small periodic payments rather than the total contract price or lump-sum advances (GC §§ 11256 - 11263 and 11019).

Contract and Grants Officers are encouraged to request advance payments whenever possible, particularly under interagency agreements, and when the University is advancing significant start-up funding for the State under a State agreement. State policies are described in 6-S01and 6-S02 below.

6-650 Private Sponsors

Accounting Manual, Chapter C-557-21, Section III. C, "Private Sponsors," states:

Each contract and grant issued by a private sponsor should be negotiated to include some method of cash advance payment. Sponsors are generally receptive to negotiating cash advances; however, because of individual policies and needs, flexibility is necessary. The preferred advance would be to receive the full amount at the time of execution of the contract or acceptance of the award. If negotiation results in an agreement to pay periodic advances based on estimated reimbursable costs, the understanding should be clearly spelled out in the contract. The sample advance payment clause attached as Appendix I should be tailored to meet the campus' needs and its ability to comply.

During negotiations, the Contracts and Grants Officer should coordinate with the campus Extramural Funds Office if an invoice or financial report is required to secure periodic cash advance. A clause which may be used as a model in negotiations for a cash advance provision when the sponsor requires that the advance request be based on estimated expenditures appears in the Accounting Manual, Chapter C-557-21, Appendix I.

Advance payments are required from for-profit sponsors. The campus Contracts and Grants Officer and the Extramural Funds Accounting Officer should work out a mechanism so that the Contracts and Grants Office is notified in the event of persistent failure or material breach of contract advance payment terms by the sponsor.