This contract deals with contract financing of Government contracts. The Zenith Corporation was a relatively new electronics company, which had started in a garage and was struggling to get ahead. The company bid on a contract with the Air Force to provide guidance systems for the F-27 aircraft. It won a fixed price contract at the price of $53,000,000. It had previously been relying on commercial financing for its operations. Being unfamiliar with the U.S. Government procurement process, it signed a contract that did not include the Progress Payments clause. As work started, the need for long lead material increased and Zenith found that commercial financing available from normal sources was not sufficient. Joe, the President of Zenith contacted the Contracting Officer for help in financing the program. The C.O. told Joe that he should try to get a Guaranteed Loan for the financing. After several weeks Joe came back to the C.O. and said he could not get such a loan. In the meantime, Joe had found in the FAR there was the possibility of getting financing in the form of progress payments on fixed price contracts. Joe asked the C.O. if that would be possible. The C.O. said Progress Payments would be possible, but that a Supplemental Agreement to the contract would have to be negotiated. Joe was pleased with that answer, and they set a date to negotiate the first Supplement Agreement to the $53,000,000 contract.

Questions: Please discuss in this order: 1. In Government contracting, what is a guaranteed loan that Zenith could not get? 2. What would be the possible result to the $53,000,000 contract when the Supplemental Agreement for adding the customary progress payments clause to the guidance system contract was negotiated? 3. From the Governments standpoint, what is the order of preference for financing contractors between progress payments, and guaranteed loans?