This new rule is intended to help (i) create greater cash flow certainty which is critical for small business subcontractors and (ii) reduce a potential barrier to their participation in federal contracting.
The proposed regulation provides two new definitions:
Reduced payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.Presumably, under these definitions, if the Government hasn't paid the prime, this provision does not apply.
Untimely payment means a payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract, for supplies and services for which the Government has paid the prime contractor.
The FAPIIS reporting requirement kicks in when the contracting officer has determined that reduced and untiely payments are unjustified to small business subcontractors, based on an evaluation of a contractor's written explanation for a reduced or an untimely payment when determining whether the reduced or untimely payment is justified. A history of unjustified reduced or untimely payments occurs when it happens three or more times in a 12-month period.
The proposed regulation does not address the consequences for non-reporting.
You can read the full text of the proposed regulation here.