Last week, the FAR Council released a proposed rule that could potentially speed up payments to prime contractors and subcontractors of small businesses across the federal government. The proposed rule, found at 86 Fed. Reg. 53,923, seeks to encourage agencies to pay prime contractors who are small businesses within 15 days instead of 30 days after receiving an appropriate invoice if no payment date is specified in the contract. This would also apply to prime contractors who subcontract with small businesses, applying a similar 15-day requirement to pay small subcontractors when expedited payments are received. Under the proposed rule, the FAR Council will apply this to most federal contracts when considering whether this new rule will apply to commercial contracts as well as those falling under the simplified acquisition threshold.
The proposed rule aims to implement section 873 of NDAA 2020, which was adopted on December 20, 2019. It specifically asks agency heads to set a goal of paying prime contractors of small businesses within 15 days after receipt of an invoice instead of 30 days. It also provides a similar approach for prime contractors with subcontractors of small businesses, recommending a payment deadline of 15 days if no deadline is set in the contract and the prime contractor agrees to complete the payment. payment to the subcontractor without imposing any consideration or additional costs. A similar provision for defense contracts is contained in 10 USC § 2307 (a) (2).
The FAR Council intends to implement this provision as part of a standard contractual clause and its prescriptive provision. FAR 32.009-1 already directs agencies to take action to ensure prime contractors pay small business subcontractors on an accelerated schedule whenever expedited payments are received from the government. The proposed changes to FAR 32.009-1 would closely follow the wording of the law and set a 15-day payment target for small business prime contractors and prime contractors with small business subcontractors. The associated standard contractual provision, FAR 52.232-40, would also be amended to provide that a contractor “shall make expedited payments to its small business subcontractors under this contract, to the extent possible and prior to the time a such payment is otherwise required under the applicable contract or subcontract, after receipt of an appropriate invoice and all other required documents from the small business subcontractor, if a specific payment date is not established by contract. Article (2) of the clause would further prohibit prime contractors from requesting consideration or additional fees from the subcontractor for the expedited payment.
Those interested in providing comments on this proposed rule have until November 29, 2021 to submit their comments. Specific instructions for submitting comments are contained in the proposed rule and are done through the government’s Federal eRulemaking portal.