Accelerating Payments to Small Business Subcontractors - Final Rule

Here's some good news for small business subcontractors. The FAR committees have issued their final rule regarding the acceleration of payments from prime contractors to small business subcontractors. Its been almost a year since the proposed rule was published - about time, no? This new rule applies to all contracts, even those for commercial items.

The new clause requires that prime contractors, upon receipt of accelerated payments from the Government, to make accelerated payments to small business subcontractors, to the maximum extent practicable, after receipt of a proper invoice and all proper documentation from small business subcontractors. This new provision does not provide any new rights under the Prompt Payment Act (still 30 days).

If you parse this clause, you can see that there is a lot of "wiggle room" for prime contractors. They might receive their expedited payments but forget to pass that along to their subs. Consider these:

1. Maximum extent practicable - what does this really mean? What if the prime contractor doesn't have sufficient resources to process expedited subcontractor payments? What if the accounts payable system requires extensive modification?
2. After receipt of "all proper documentation" - Any business, if that is their bent, can find ways to prolong the period in which they make payments.

With this in mind, the question arises as who will enforce the new rule. There is nothing in it that provides a Government party to address the prime's failure to accelerate payments to small business subcontractors. There is no penalty, there is not "audit" to ensure compliance, nor are there any performance standards to which prime contractors will be held.

There is some remedy available under FAR 32.112, Subcontractor assertions of nonpayment. That clause provides two remedies: i) the contracting officer will "encourage" the prime to pay its bills and ii) the Government may withhold payments from the prime. Well, that's weak and ineffectual and never happens. Or, the Government could discontinue accelerated payments to the prime contractor. That remedy doesn't help anyone.

So, suffice to say that small business subcontractors suffer at the mercy of their primes.