Can Contractors Expect Big Changes from the Forthcoming DOD Rule Providing Prompt Payment for Small Businesses?

On Friday May 31, 2019, the Department of Defense (DOD) published a proposed new rule in the Federal Register to add a provision to the Defense Federal Acquisition Regulation Supplement (DFARS).  You can read the complete rule in the Federal Register here:  https://www.govinfo.gov/content/pkg/FR-2019-05-31/pdf/2019-11309.pdf.  Many of our small business clients have hoped for stronger regulations to reduce the often painfully long wait between submitting an invoice to the government and getting paid.  Unfortunately, this new rule is unlikely to be the solution that small business needs.

The proposed rule is intended to implement section 852 of the National Defense Authorization Act of Fiscal Year 2019.  Section 852 requires the DOD to accelerate payments to small business prime and subcontractors, with the goal of making payment within 15 days of receipt of a proper invoice, unless a different payment date is stated in the contract.  Section 852 also requires that prime contractors agree to make accelerated payments within 15 days to their small business subcontractors without requiring additional consideration or fees.

This sounds like it could be helpful, but by the DOD’s own reckoning, it really won’t change much.  DFARS § 232.903 already states that “DoD policy is to assist small business concerns by paying them as quickly as possible after invoices and all proper documentation, including acceptance, are received and before normal payment due dates established in the contract.”  And the DOD already includes FAR § 52.232-40 Providing Accelerated Payments to Small Business Subcontractors in its contracts, which requires prime contractors to make accelerated payments to their small business subcontractors “to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract.”

The DOD plans to continue using FAR § 52.232-40, and to add language to the DFARS establishing 15 days as the goal for accelerated payment to small business contractors, but the proposed rule does not create any penalties for failure to meet that goal.   The DOD estimates that approximately 99% of its contractors will receive accelerated payments under the new rule.  However, without an interest penalty for failure to meet the 15 day goal, it seems unlikely that will actually happen on a consistent basis.

The new rule will cause one substantive change—the DOD will create a new DFARS clause prohibiting prime contractors from charging fees or consideration to their small business subcontractors to receive accelerated payments.  While this is a relatively rare occurrence, it will be a boon to those small business subcontractors paying processing fees or making contractual concessions to receive accelerated payments on federal contracts.

At least one of the public comments to the proposed rule has already called for an interest penalty for failure to make payment within the 15 day payment period.  If you would like to leave a comment, you can do so here:  https://www.federalregister.gov/documents/2019/05/31/2019-11309/defense-federal-acquisition-regulation-supplement-prompt-payments-of-small-business-contractors.  And if you need help with payment issues, or any other issues related to federal government contracting, give us a call.

About the Authors

Maria L. Panichelli

Partner

Maria is a partner and the Chair of the Government Contracting department.   She focuses her practice exclusively on federal government contracting and procurement, guiding her clients throughout the entire lifecycle of their...

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Michael A. Richard

Associate

Michael is an attorney in Obermayer’s Government Contracting Department, where he excels at getting clients to the settlement table. Michael’s tenacity is truly a force to be reckoned with. Over the past...

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