Paid in Full: The Ongoing Effort to Accelerate Contractor Pay Day

By NEIL GORDON

Every once in a while, POGO will hear from a federal contractor--usually a very small company--complaining about not getting paid on time or for the full amount owed by an agency or another contractor. But now, a proposed rule could help address this problem, and bring more robust data to the federal government's contractor responsibility database. 

The Prompt Payment Act (PPA) requires federal agencies to pay their contractors on time, or else face late payment penalties. The PPA generally requires the government to pay contractors within 30 days of receipt of proper documentation. A memorandum issued by the Office of Management and Budget (OMB) in September shortens the payment window with regard to small business contractors to 15 days.

Subcontractors, however, still have to wait until the prime contractor gets paid before they do. So, accelerating the payment of prime contractors should also speed up payments to subcontractors, right? Not necessarily.

A law passed in 2010 could help some smaller federal subcontractors in this regard. Section 1334 of the Small Business Jobs Act of 2010 requires prime contractors to notify the contracting officer whenever a payment to a subcontractor is reduced or is more than 90 days past due. Contracting officers, in turn, can consider a prime contractor’s unjustified failure to make full or timely payments to subcontractors in evaluating the prime’s performance. In addition, if the contracting officer determines that a prime contractor has a history^* of unjustified, untimely subcontractor payments, the contracting officer must report that in the Federal Awardee Performance and Integrity Information System (FAPIIS). (^*In this context, “history” means at least three incidents within a 12 month period.) Implementation of these provisions is currently pending under a proposed rule issued in October by the Small Business Administration (SBA).

For the approximately 350,000 entities listed as small businesses in the Dynamic Small Business Search (DSBS) database, we hope this new method of public shaming—combined with the federal agencies’ PPA-mandated quick payment responsibility—will cause those taxpayer dollars to smoothly trickle down the contracting chain. Unfortunately, the Small Business Jobs Act requirements only apply to “immediate next-tier subcontractors,” so this trickle-down might not reach companies at the sub-subcontractor level and lower. In addition, the law also generally excludes subcontracts involving performance outside the U.S.

If any federal contractors are reading this, we invite you to post a comment about your experiences in getting paid for the job, either as a prime or a sub. What’s good about the current system? What needs improvement? What do you think about the Prompt Payment Act and the Small Business Jobs Act? At a time when contractor relationships with the government are reportedly deteriorating, POGO would love to hear your input.

And speaking of input, for those keeping an eye on FAPIIS, here is a running list of the things you can now, or will soon, find in the database:

1. Instances of contract- and grant-related misconduct;


2. Contracts and grants terminated for default, cause, or material failure to comply;


3. Suspensions and debarments;


4. Administrative agreements resolving a suspension or debarment;


5. Findings of non-responsibility;


6. Defective pricing determinations;


7. Comments posted by contractors and grantees;


8. Findings by the Secretary of Defense that a contractor not subject to U.S. court jurisdiction caused serious bodily injury or death to U.S. government civilian or military personnel;


9. Contracting officer determinations that a prime contractor has a history of failing to make full or timely payments to subcontractors.

We’re extremely encouraged by this steadily growing list, which fulfills the FAR Councils’ promise to “further enhance the utility of FAPIIS by…expanding the current scope of reporting.”

Neil Gordon is a POGO investigator.

Follow @NEGordon

Comments

[Gratuitous]

Neil,
This may not have occurred to you, but woe is the contractor, of any size, that is a sub to a small business. Small businesses, who frequently prime large contracts with teams of subs, including large and small companies, are famous for paying late. Most subs have no recourse other than going to the Federal client, or the sub's board of directors, or just stop work. The point is, primes of all sizes, and almost certainly far more commonly, small-biz primes slow-pay or no-pay their subs.
I love these rules, a whole new field for legal and administrative practitioners and a new kind of agoniste that will populate the swell (swill?) world of gov contracting, eh?