Financial Capability Analysis

Turning a Burden into an Opportunity: How a Financial Capability Analysis Can Work for You


Increasingly, small and mid-sized government contractors are receiving requests from government agencies to conduct a financial capability analysis.

A financial capability analysis is an evaluation of a contractor’s existing and future financial capabilities to continue operations in the near-term. It also analyzes the contractor’s financial condition and cash flow forecasts as an indicator of the contractor’s ability to perform in the future. Contractors can expect to receive requests for a variety of data, depending on which agency performs the analysis, which can include:

• Balance sheet and income statement
• Statement of all affiliations and related parties
• Statement of all forms of compensation to each officer, manager, partner, joint venture, or proprietor, as appropriate
• Business base and forecast
• Cash forecast for the duration of the contract
• Financing arrangement information
• Statement of all local, state, and federal tax accounts

Additionally, to determine whether a contractor is financially capable of performing requested work, the federal government will conduct a financial capability analysis as required by the FAR 9.104-1(a) before a contract is awarded and/or while work on a contract is being performed. The government may need an analysis if the contractor requests installment agreements on debts owed to the U.S. government or for purposes of monitoring contracts receiving financing payments, such as progress payments.

The overall goal of the financial capability analysis is to avoid disruption in contract performance schedules or monetary loss to the government on guaranteed loans and progress payments.

Can Your Company Benefit from a Financial Capability Analysis?

Once the financial information is provided to the government, it can actually serve as the catalyst for a broader program for contractors in addressing and mitigating financial risk. Adopting a proactive attitude designed to identify risk issues early-on is the first step. The financial capability analysis provides contractors with a clear view of their company’s future financial health, and should prompt them to better manage operations, including cash flow, a common issue for contractors and subcontractors.

As much as the government wants to avoid performance issues with contractors, those same contractors should welcome the opportunity to detect any signals of future financial distress. Government contractors should review their plan of action on excess facilities and fixed assets, evaluate whether they need to expand their lines of credit to support cash flow, and determine whether their equity should be increased. Additionally, they should review all of their current contracts with an eye on projecting profitability.

CohnReznick can help government contractors prepare for, and respond to, a financial capability analysis while adopting risk mitigation best practices. For more information, please contact Roza Omar, Senior Manager, CohnReznick at 703-286-1709 or

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