Financial Capability Reviews

Contractor financial difficulties may disrupt production schedules, cause inefficient use of resources, and result in contract nonperformance. These conditions may also result in monetary loss to the Government on progress payments.

Prior to the award of any contract, the Government will assess whether a potential contractor has the financial resources needed to perform the contract. These are called Financial Capability Reviews and are usually conducted by DCMA's (Defense Contract Management Agency) Financial Analysis Center at the request of a contracting officer. The authority to conduct these reviews is found in FAR 9.104-1.

The review begins when DCMA sends a request for documentation. This request is no small matter. Contractors will be required to respond to 20 or more items and furnish the Government a significant amount of proprietary financial information. Click here to see a sample of the request letter. Among the items requested are

• Certified financial statements with footnotes
• Interim financial statements not over 90 days old
• Accounts payable and accounts receivable aging reports
• Cash flow forecasts signed by a financial officer
• Names, addresses, phone and fax for banks and other lending institutions
• Number of customers comprising your overall business base
• Gross profit margins
• Sales backlog
• Sales forecast
• Inventory methods
• Outstanding lawsuits, liens, and judgments including current status
• And many others

The Financial Analysis Center performs these reviews in their own office. Rarely will they visit a contractor's office as an auditor might and it is also unusual for the analysts to call and ask questions or request clarification. Their assessments will be based entirely on the data submitted. Therefore it is essential that contractors' exercise due diligence when providing the requested information - ensuring completeness and clarity.