Legislation to Help Small Business Subcontractors Get Paid On Time

Subcontractors to Government contractors are often vulnerable to the whims and idiosyncrasies of those prime contractors. We know of cases and have heard many anecdotes where primes do not pay their subcontractors for work performed on a timely basis. Sometimes prime contractors, contrary to procurement regulations, do not pay their subcontractors until they themselves have been reimbursed by the Government. For small business subcontractors, delayed payments can put severe strains on their finances, cash flow, and profitability.

Help may be on the way.

Each Federal agency has an Office of Small and Disadvantaged Business Utilization (OSDBU) whose purpose is to provide "maximum practicable opportunities" to small business concerns when acquiring goods and services. Most agencies use the OSDBU name so they're easy to find when searching a particular agency. In the Defense Department, the organization is referred to as the "Office of Small Business Programs".

Earlier this year, legislation was introduced in the House (and has already passed the House vote) that would lend assistance to small business subcontractors who are not being paid by their Government prime contractors in a timely manner. This bill utilizes the services of OSDBUs to assist small businesses in receiving timely payments from their prime contractors.

Here is how it will work.

1. If a subcontractor has not received payment for performance within 30 days of the completion of such performance, it has 15 days to notify (i) the Office of Small and Disadvantaged Business Utilization (OSDBU) of the Federal agency and (ii) the prime contractor of such lack of payment.

2. After receiving the notification, the OSDBU must investigate. The OSDBU will verify the subcontractor's contention that payment has not occurred and importantly, determine whether non-payment is the result of a restriction placed on the prime contractor by the Federal agency.

3. During the investigatory period, the prime contractor may respond to both the subcontractor and the OSDBU with relevant verifying documentation to either (i) prove payment or (ii) allowable status of nonpayment (i.e. the Government imposed a restriction on the Prime contract/contractor).

4. If the OSDBU verifies the lack of payment and determines that it was not due to an action of the Federal agency, the OSDBU will notify the prime contract and give them 15 days to make payment.

5. If the prime contractor does not make full payment in 15 days, the OSDBU shall ensure that such failure to pay is reflected in the CPARS (Contractor Performance Assessment Reporting System).

Will this work? Perhaps. No Government contractor wants to have negative comments attributed to them in the CPAR system.