Accelerated Payments to Small Business Contractors

Late last year the Federal Government changed the Federal Acquisition Regulations (FAR) to make mandatory accelerated payments to small business, especially from certain agencies.  This began with policy directives by the Office of Management and Budget (OMB) Memoranda M-12-16, dated July 11, 2012, and M-13-15, dated July 11, 2013.  These policies were incorporated into the FAR on November 25th, 2013.  The new rule requires prime contractors to make accelerated payments to subcontractors and is found in the following FAR clauses:
 

32.009-2  Contract clause.

Insert clause 52.232-40, Providing Accelerated Payments to Small Business Subcontractors, in all solicitations and contracts.

52.232-40  Providing Accelerated Payments to Small Business Subcontractors.

Providing Accelerated Payments to Small Business Subcontractors (Dec 2013)

(a) Upon receipt of accelerated payments from the Government, the Contractor shall make accelerated payments to its small business subcontractors under this contract, to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract, after receipt of a proper invoice and all other required documentation from the small business subcontractor.

(b) The acceleration of payments under this clause does not provide any new rights under the Prompt Payment Act.

(c) Include the substance of this clause, including this paragraph (c), in all subcontracts with small business concerns, including subcontracts with small business concerns for the acquisition of commercial items.

12.301  Solicitation provisions and contract clauses for the acquisition of commercial items.

(d) Other required provisions and clauses.

(4) Insert the clause at 52.232-40, Providing Accelerated Payments to Small Business Subcontractors, as prescribed in 32.009-2.

Now some of the controversy surrounding this involves the enforcement of this rule.  For instance, the regulations do not specify what might happen to a prime if they do not pay the small business concern as fast as practical.  There are some remedies that if it is proved the prime was paid on an accelerated basis but failed to pay the subcontractor on an accelerated basis that the government could suspend accelerated payments to the prime in the future similar to FAR 32.112. 

It is clear that the government is trying to help small business with their cash flow.  The recent SBIR reauthorization act provided guidelines for speeding not only the approval process of the SBIR but also the payment to the awardee. The Defense Department released a memo from Richard Ginman on Feb. 6, 2014 providing for accelerated payments through many of the electronic payment systems used by the DoD.  All of this is to help speed the flow of money to the small business contractor which helps the small business cash flow and ultimately will help the small business succeed.  After all, small business is where the job growth and the innovation growth have come from in this country recently.