Friday, September 21, 2018

Proposed Changes to Progress Payment Rate - Public Meeting Scheduled

About a month ago, we brought you news about the Defense Department's proposed changes to progress billings (see Proposed Changes to Progress Payment Rate). Essentially, the proposed rule drops the standard progress payment rate from 80 percent to 50 percent, however, contractors have the opportunity to score a higher rate when they achieve certain goals, like having acceptable business systems with no deficiencies, meeting contract delivery dates, closing out corrective action requests, meeting small business subcontracting goals, etc.

The goal here is to incentivize contractors to "fix" things that would otherwise have no adverse consequences. The downside is that the proposed rule will require a significant amount of effort to implement and track. It goes without saying that if contractors cannot achieve the full 80 percent rate, there will be a significant impact on their cash flow and in some cases, their ability to continue as a Government contractor. Think about it. If you have a $5 million contract stretching over two years, you will be floating the Government an interest free loan of a few million. Do you have that kind of financial resources available?

This has been a highly controversial move by DoD and so the Department has decided to schedule a public meeting next month in the DC area to obtain the views of experts and interested parties in the private sector (that includes current and prospective Government contractors) regarding the proposed changes. To attend, one needs to be pre-registered. Instructions for registering are found here. If you have a vested interest in the outcome, attending might be worthwhile. We can't imagine that there will be too many in attendance that will have come in support of the proposed rule.

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