Who doesn’t like getting paid, for work they’ve done, as quickly as possible? Strangely, this is an emerging concept to certain parts of the federal government.
A July 11, 2012 Office of Management and Budget (OMB) Policy Memorandum, Memorandum M–12–16, Providing Prompt Payment to Small Business Subcontractors, expressed the current administration’s commitment to “supporting small business growth and prosperity, as an engine to drive economic activity and job creation throughout the country” by re-expressing a policy stated in the previous, September 14, 2011, OMB Memorandum M-11-32, Accelerating Payments to Small Businesses for Goods and Services, requiring “to the full extent permitted by law, [that] agencies shall make their payments to small business contractors as soon as practicable, with the goal of making payments within 15 days.”
Though the reasons and benefits for this policy should be obvious, these memos state explicitly both the underpinnings for the policy and the anticipated benefits. Specifically, under the Prompt Payment Act (PPA), 31 U.S.C. 39, implemented at 5 C.F.R. 1315, agencies are required to make payments within 30 days of receipt of documentation. In the OMB’s words, however, “In accordance with prudent cash management practices, agencies generally pay contractors no earlier than seven days in advance of this 30-day deadline.” The OMB recognized numerous benefits to paying small businesses earlier, including:
- advancing small business participation in federal contracting;
- improving cash flow and liquidity for small businesses and providing them a “more predictable stream of resources”; and
- promoting investment and growth.
M-12-16 took this policy a step further, directing agencies to encourage prime contractors to accelerate payments to small business subcontractors and to not only include accelerated timetables for payment of small business subcontractors in future contracts, but also to consider modifying existing contracts “without consideration or fees” to require payment of small business subcontractors on an accelerated timetable.
These OMB efforts appear to now be bearing fruit: 77 Fed. Reg. 75089, December 19, 2012 includes a proposed rule by the Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) (see also here) seeking to create a new clause in the Federal Acquisition Regulation (FAR) at 52.232–XX implementing this payment acceleration policy. By its own terms this policy will require prime contractors, “upon receipt of accelerated payments from the Government, to make accelerated payments to small business subcontractors, to the maximum extent practicable, after receipt of a proper invoice and all proper documentation from small business subcontractors.” This requirement would appear in all new solicitations and resultant contracts issued after the effective date of the final rule.
While larger contractors and prime contractors may be concerned that this rule would place additional burdens on them, given the administration’s policy statement it may be inevitable, and either way it seems any such effect would likely be minimal. First, the language “to the maximum extent practicable” should excuse all but the most egregious or least excusable delays. Furthermore, the requirement of “receipt of a proper invoice and all proper documentation” will likely provide an out, where necessary, and the primes will have at least as much time, and the same paperwork, as the government to process payments. Moreover, with the government paying faster to get subcontractors paid quickly, primes will likely be paid more quickly as well. Since agencies will most likely at least attempt to use this rule as an excuse to increase their efficiency in processing payments, everyone should win in the end, from the smallest sub to the largest prime and the agencies themselves.
Comments on the proposed rule are sought by Internet submission, fax, or mail on or before February 19, 2013. Federal contractors should do themselves and their fellow federal contractors a favor by taking a moment to comment.