Federal agencies have been directed to accelerate payments to prime contractors to ensure that subcontractors are paid in a prompt manner.
Jeffrey Zients, Acting Director of the Office of Management and Budget (OMB), told agency heads to “temporarily accelerate payments to all prime contractors, in order to allow them to provide prompt payments to small business contractors.” Zients said paying subcontractors more promptly would “preserve and increase small business participation in all levels of Federal contracting by improving cash flow.”
This action follows up on OMB memorandum 11-32 (issued in September 2011) that set a policy goal of making payments to small business contractors, when practicable, within 15 days of receiving proper documentation. The latest OMB memo directs agencies to “encourage” their prime contractors to 1) accelerate payments to small business contractors; 2) consider modifying, without cost, existing contracts with small business contractors to include a timetable for accelerated payments; and 3) include such a timetable in future contracts with small business subcontractors.
Along with this, OMB is asking the Federal Acquisition Regulatory Council (FAR Council) to develop a standard clause for use in agency contracts with prime contractors that would provide for prompt payment to small business contractors.
OMB describes this policy of accelerating payments to prime contractors as a “one year, temporary, transitional policy that provides for immediate assistance to small business.” After the policy expires in a year, OMB will issue guidance on how agencies should proceed to ensure that small business subcontractors are paid promptly. This guidance may include continued accelerated payments to prime contractors, or flexibility under the Small Business Act that would allow agencies to consider a prime contractor’s commitment to promptly paying small business subcontractors in awarding a contract.
OMB requires agencies to report to OMB within six months and within one year on their progress on making accelerated payments to prime contractors. The reports will also describe progress by each agency’s twenty-five largest prime contractors are making to include prompt payment clauses in their small business contracts.