Monday, February 25, 2013

And Just Like That - It's Over

Last week, DoD announced that it was discontinuing its recently implemented practice of accelerating payments to non-small business prime contractors. That policy lasted only about five months. (See Accelerated Payments to Small Business Subcontractors for a previous discussion on this topic). This practice was implemented in order to help small businesses. By accelerating payments to prime contractors, the Government believed that the prime contractors would, in turn, accelerate payments to their small business subcontractors.

The decision to discontinue the practice of accelerating payments to all prime contractors does not affect DoD's policy to assist small business prime contractors by paying them as quickly as possible after receipt of an invoice and all proper documentation. Small business prime contractors will still benefit from DoD's accelerated payment policy. It is the non-small-business contractors that must now wait the full 30 days for payment (or, whatever contract terms specify).

We do not know what precipitated this change although if we were to guess, the Government realized that expediting payments to contractors had little if any impact on expediting payments to their small business subcontractors. And it was costly from a cash management standpoint. Small business subcontracts represent only a fraction of prime contractor billings. By expediting billings, contractors received expedited treatment on total billed costs, even though the expectation was for them to, in turn, expedite payment to only their small business subcontractors. Also, there was certainly an expectation that prime contractors would expedite payments to their small business subcontractors, there was no firm requirement or incentive that they do so. Finally, some contractors found that the cost of modifying their accounting/billing systems to accommodate accelerated payments was too costly.

If you are a small business prime contractor, there is still a program to expedite payments. If you're unsure whether your small business status is classified correctly in the bowels of the Government billing system, contact your Contracting Officer Representative (COR).

2/26/13 Update:

One internet source stated that the Department of Defense dropped the accelerated payment plan in order to save up cash for a possible sequestration. We don't know how that would save any money - its a pay-me-now, pay-me-later kind of thing. In order to save money, the Government would need to issue a stop work notice or a termination for convenience, or defer task orders under an ID/IQ contract.

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