SBA Proposed Rule Makes Changes To Encourage Prompt Payment To Subcontractors
On December 19, 2024, the U.S. Small Business Administration (SBA) issued a Proposed Rule that amends several provisions of Section 125.3 of its small business regulations under Title 13, and a few of the changes are intended to encourage prompt payment to small business subcontractors by their prime contractors.
Section 125.3 lays out the SBA’s subcontractor assistance program and includes rules that prime contractors are required to follow when they subcontract to small businesses, including rules on subcontracting goals and plans, market research for small business subcontractors, subcontractor performance ratings, and payments to subcontractors.
Among the changes to Section 125.3 under the Proposed Rule related to subcontractor payments is a requirement that prime contractors notify contracting officers in writing when a payment under a subcontract is more than 30 days past due under the terms of the subcontract. Currently, Section 125.3 requires a written notification when a prime contractor is more than 90 days past due.
As amended by the Proposed Rule, Section 125.3 also now gives contracting officers authority to modify a prime contractor’s past performance if there is an unjustified failure to make a full or timely payment to a subcontractor before or after contract close-out. In addition, if a contracting officer makes a determination that there was an unjustified failure by a prime contractor to make a full or timely payment to a subcontractor, then the prime contractor must cooperate with the contracting officer in order to correct or mitigate the unjustified failure. The prime contractor must cooperate with the contracting officer until payment is made in full to the subcontractor.
Besides payments to subcontractors, the Proposed Rule covers a number of other provisions of the SBA’s small business subcontracting program. Prime contractors should review the Proposed Rule and submit any comments to the SBA by February 18, 2025.
