DOD requires faster payments to subcontractors

Defense procurement officials have added a clause to their contracts to get prime contractors to pay their small subcontractors faster, an effort the Obama administration is pushing.

The clause requires contractors to make accelerated payments to small subcontractors after they have receipt of a proper invoice. The goal is to put money into the small firms’ hands within 15 days of receiving the invoice.

“This can lead to a stronger supplier base that supports federal prime contractors in meeting the needs of their federal customers in a timely and cost-effective manner,” Defense Department officials wrote in the Federal Register notice.

OMB released a memo in July that lays out a one-year temporary policy for speeding up payments. The policy is an expansion of the Quick Pay plan that President Barack Obama announced in September 2011.

Resources:

Read the Federal Register notice

Read the OMB Memo

Related article: Prompt payments may become contract selection factor

Whether the effort succeeds depends on the agencies. OMB directed agencies to make contract payments faster to all their prime contractors for the next year with the understanding that those companies will pass along those accelerated payments to their small subcontractors.

In addition, OMB told departments to develop the clause language, as DOD has done, and modify some contracts, if necessary.

Beyond DOD, the Federal Acquisition Regulatory Council has recommended that agencies issue deviations to the Federal Acquisition Regulation, the governmentwide purchasing policy book. OMB wants the FAR Council to develop standard wording for a contract clause on a prompt payment policy that agencies should add to their contracts with prime vendors.

Now “DOD strongly encourages all prime contractors to accelerate payments to small business subcontractors under existing contracts to the maximum extent practicable,” officials wrote in the notice.

OMB has warned that the government will be watching whether contractors speed up their payments.

“How they pay their subcontractors will be factored into who the future prime contractors are in that contract selection process,” Jeffrey Zients, acting OMB director, said July 11 during a conference call about the new policy.