Final FAR Rule Requires Accelerated Payments To Small Businesses And Their Prime Contractors
On February 14, 2023, the Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA), published a Final Rule requiring federal agencies to make accelerated payments to small businesses and prime contractors that subcontract to small businesses. As we wrote about in a prior GovCon Bulletin article, the rule change accelerating government contractor payments was first proposed in September 2021. The Final Rule now becomes effective on March 16, 2023, and government contractors should prepare themselves to take advantage of the accelerated payment requirement.
Fast Payments
Under the Final Rule, as long as a specific payment date is not established under a government contract, civilian agencies (agencies other than DoD), must provide accelerated payments with a goal of 15 days after receipt of a proper invoice and all other required documents to the following contractors:
- Small business contractors; and
- Prime contractors that subcontract with a small business if the prime contractor agrees to make payments to the small business subcontractor within 15 days of receiving the accelerated payment from the government without any further consideration from, or fees charged to, the subcontractor.
As for DoD, the Final Rule imposes the same accelerated payment requirement as it imposes on civilian agencies, except DoD agencies are bound by the requirement regardless of whether a payment date is specified under the contract.
Things Contractors Should Do
Any rule changes that result in faster payments from federal agencies to contractors should be welcomed. But small businesses and prime contractors should keep a few points in mind.
The Final Rule only sets a 15-day payment turnaround from federal agencies as a "goal" and does not impose a hard deadline that agencies have to meet. The Final Rule does not even make any changes to existing FAR or DFARS clauses that govern agency payments, such as the Prompt Payment clause at FAR 52.232-25, in order to reflect the soft 15-day deadline.
In fact, the only FAR clause that is changed to reflect an accelerated payment deadline is the subcontractor flow-down clause at FAR 52.232-40, Providing Accelerated Payments to Small Business Subcontractors. As amended by the Final Rule, that FAR clause now requires a prime contractor, to the maximum extent practicable, to make payments to its small business subcontractors within 15-days after receipt of “accelerated payments” from the government.
Contractors that use FAR and DFARS clauses to frame their negotiations with federal agencies or to set up payment schedules should, therefore, familiarize themselves with the Final Rule and take note of the accelerated payment obligations imposed on federal agencies as of March 16, 2023, since the soft 15-day accelerated payment goal will not be specified in any FAR or DFARS clause.
Small business contractors and their prime contractors should also make it a point to address accelerated payments during contract negotiations, particularly negotiations with civilian agencies since under the Final Rule civilian agencies are not required to meet the accelerated payment goal if the contract specifies payment dates.
Small businesses and prime contractors that subcontract with small businesses that are already under contract also may wish to circle back with their agencies to request modifications to contract payment terms that might be required for them to become eligible for accelerated payments under the Final Rule.
Lastly, prime contractors - including small businesses that are, themselves, prime contractors - should examine their subcontractor payment systems to determine if they are capable of making accelerated payments to their small business subcontractors so that they are both eligible to receive accelerated payments from the government and able to fulfill subcontractor payment requirements under the revised FAR clause 52.232-40.
