Prompt payments may become contract selection factor

The Obama administration has 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-business subcontractors, officials said July 11.

The administration is aiming to get money into the hands of more small businesses, although it’s a short-term relief. Indeed, officials are setting clear expectations for prime contractors by making payment habits a future factor in the bid selection process.

Officials said they are expanding the Quick Pay plan that President Barack Obama announced in September 2011. The administration has agencies working to pay their small-business prime contractors in 15 days, instead of 30 days. Now agencies are to urge prime contractors to pass along that sped-up payment cycle.

The accelerated payments policy is for one year. It’s a temporary, transitional policy, according to a new OMB memo released July 11. The aim is to aid businesses in the tough economic climate.

According to the memo, agencies are to encourage their prime contractors to:

  • Include contract provisions to accelerate payments to small-business subcontractors.
  • Consider modifying their existing contracts with small subcontractors to add the provision.
  • Insert a similar clause in future contracts.

In addition, OMB wants the Federal Acquisition Regulatory Council to develop standard wording for a contract clause on a prompt payment policy that agencies should add to their contracts with prime vendors.

“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.

“So we have full expectations that this will be passed along and this will be part of the system going forward,” he said.

Nevertheless, OMB's memo emphasizes that the policy is temporary, although officials may consider future changes afterward. When the policy has ended in a year, OMB will then provide further guidance on steps agencies should consider to ensure that small-business subcontractors continue to be paid promptly by their prime contractors.

For instance, OMB may continue to provide accelerated payments to prime contractors with prompt subcontractor payment contract clauses. Officials may allow for flexibilities they are considering as part of implementing regulations of the Small Business Jobs Act that enables contracting officers to consider payment habits as an award factor.

During the conference call with Zients, Karen Mills, administrator of the Small Business Administration, said the Quick Pay plan for prime contractors has helped small businesses already. She said companies have had better cash flow, a stronger financial base, and the resources needed to start new projects.

The policy could have a strong effect on where most small businesses work—as subcontractors. However, the administration has to keep prime contractors in check, said Guy Timberlake, co-founder and chief visionary officer of the American Small Business Coalition.

The benefits “depend on the wiggle room allowed for primes to deny or delay payments and what actions the government will take to ensure the program is executed as intended,” he said.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

The Fed 100

Save the date for 28th annual Federal 100 Awards Gala.

Featured

  • computer network

    How Einstein changes the way government does business

    The Department of Commerce is revising its confidentiality agreement for statistical data survey respondents to reflect the fact that the Department of Homeland Security could see some of that data if it is captured by the Einstein system.

  • Defense Secretary Jim Mattis. Army photo by Monica King. Jan. 26, 2017.

    Mattis mulls consolidation in IT, cyber

    In a Feb. 17 memo, Defense Secretary Jim Mattis told senior leadership to establish teams to look for duplication across the armed services in business operations, including in IT and cybersecurity.

  • Image from Shutterstock.com

    DHS vague on rules for election aid, say states

    State election officials had more questions than answers after a Department of Homeland Security presentation on the designation of election systems as critical U.S. infrastructure.

  • Org Chart Stock Art - Shutterstock

    How the hiring freeze targets millennials

    The government desperately needs younger talent to replace an aging workforce, and experts say that a freeze on hiring doesn't help.

  • Shutterstock image: healthcare digital interface.

    VA moves ahead with homegrown scheduling IT

    The Department of Veterans Affairs will test an internally developed scheduling module at primary care sites nationwide to see if it's ready to service the entire agency.

  • Shutterstock images (honglouwawa & 0beron): Bitcoin image overlay replaced with a dollar sign on a hardware circuit.

    MGT Act poised for a comeback

    After missing in the last Congress, drafters of a bill to encourage cloud adoption are looking for a new plan.

Reader comments

Thu, Jul 12, 2012 SPMayor Summit Point, WV

Another evaluation factor not immediately substantative to the performance of contract or execution of the mission or program. I understand the importance of prompt payment particularly during these very stressing economic times, but this is noncritical to selecting the best solution/offer relative to the price/cost. I would prefer to see a reconsideration of what constitutes a 'responsible' contractor rather than burden the technical evaluation with social and economic considerations having an importance of a different nature and magnitude than 'can you do the job - can you perform as offered - when you're finished did we get what we asked for'.

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

More from 1105 Public Sector Media Group