2019 NDAA - Accelerated Payments to Small Businesses

The President signed the 2019 NDAA (National Defense Authorization Act) named for Senator John McCain on Monday this week. We've covered a couple of the provisions in the legislation that are of interest to Government contractors, especially small businesses. Monday we discussed the prohibition against contracting officers arbitrarily withholding consent to subcontract just because they didn't like the price or the estimated cost and yesterday we took a look at a provision designed to enhance the effectiveness of PTACs (Procurement Technical Assistance Centers). Today we want to look at another provision that should benefit small businesses - prompt payments.

When submitting requests for progress payments (fixed price contracts) and claims for reimbursements (cost-type contracts), the Government is required by statute to pay within 30 days of receiving an adequate invoice or, if it does not pay within 30 days, it must add interest to the unpaid balance. The system works pretty good. We know of a few cases where the Government's payment office added interest to invoices that were paid beyond the 30 day deadline. Usually however, payments are made well before 30 days.

The 2019 NDAA shortens the payment cycle for Defense contracts (and subcontracts) to 15 days for small businesses. Specifically, the Defense Department shall, to the fullest extent permitted by law, establish an accelerated payment date with a goal of 15 days after receipt of a proper invoice for the amount due if a specific payment date is not established by contract. Additionally, non-small business prime contractors with small business subcontractors can benefit from the 15 day accelerated payment schedule it it agrees to make payments to the subcontractor in accordance with the accelerated payment date.

This new provision applies only to the Defense Department and specifically excludes non-Defense agencies. Also, there is no change to the interest on late payment rules, interest begins accruing after 30 days, not 15 days.