New Self-Reporting Requirement for Late Payments Made to Subcontractors

The FAR Councils issued a final rule amending the FAR (Federal Acquisition Regulation) that will require contractors to notify the contracting officer, in writing, if the contractor pays a reduced price to a small business subcontractor or if the contractor's payment to a small business subcontractor is more than 90 days past due. The rule also requires contracting officers to record the identity of contractors with a history of late or reduce payments to small business subcontractors in FAPIIS.

This new rule "furthers the Administration's goal of supporting small business and advance the interests of small business subcontractors by discouraging reduced or untimely payments to small business subcontractors". It applies to all contracts including COTS (Commercial Items) and becomes effective on January 19, 2017.

The new rule provides several examples of payment and nonpayment situations not considered to be unjustified. These include

• contract dispute on performance
• partial payment is made for amounts not in dispute
• a payment is reduced due to past overpayments
• administrative mistake
• late performance by the subcontractor leads to later payment by the prime contractor.

The new rule also contains new definitions of reduced and untimely payments:

Reduced Payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.

Untimely Payment means a payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract for supplies and services for which the Government has paid the prime contractor.

Elsewhere, the new rule discusses what constitutes a history of reduced or untimely payments. A history of unjustified reduced or untimely payments has occurred when a contractor has reported three or more occasions of unjustified reduced or untimely payments under a single contract within a 12-month period.

It seems unlikely, for a variety of reasons,that any reporting will ever be made under this new regulation. If you want to read more, click here.