Friday, July 12, 2013

Accelerating Payments to Small Business Subcontractors - Policy Extended

About a year ago, we reported on OMB's initiative to accelerate payments to small business subcontractors. The initial program was set to expire this month (July 11th). OMB just announced at extension of the policy for another year. Essentially, this directive encouraged expedited payments to prime contractors so that those contractors, in turn, could expedite payments to its subcontractors, especially its small business subcontractors.

According to the OMB (Office of Management and Budget) "... this initiative is part of the Administration's ongoing commitment to supporting small business growth and prosperity, as an engine to drive economic activity and job creation". Under the policy all Executive Branch agencies (including the Department of Defense) should, to the full extent permitted by law, temporarily accelerate payments to all prime contractors - with a goal of paying them within 15 days of receipt of "proper invoices" in order to allow them to provide prompt payments to small business subcontractors.

Some agencies have incorporated clauses in their prime contracts that require contractors to accelerate payments to their small business subcontractors when they receive accelerated payments from the government. However, small business subcontractors we've talked to have not yet seen any accelerated payments as a result of this policy. For them, its business as usual.

From a Government oversight perspective, this is one of those provisions that would be nearly impossible to monitor. Contract administrators are not staffed to go out looking for compliance. DCMA is not going to send someone out to ensure a contractor, who has benefited from accelerated payments, is, in turn, accelerating payments to its subcontractors.

From a contractor's perspective, this policy would require significant changes to its business systems. It would need to set up some kind of exception system to identify contracts subject to accelerated payments and then, if it received an accelerated payment from the Government, it could, it turn, accelerate payments to small business subcontractors. The transient nature of this policy (one year but now extended for one more year) makes it unlikely that contractors could justify the cost required to modify existing systems.

As part of this policy, OMB is asking agencies to provide bi-annual reports on their progress in making accelerated payments "...including steps the agency has undertaken to ensure that small business subcontractors are paid in a prompt manner. Good luck getting meaningful data on that.

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