The Federal Acquisition Regulatory Council (“FAR Council”) is expected to finalize as many as nine regulations in the upcoming year. One of the most interesting of the proposed rules would require prime contractors to accelerate payments to small business contractors.
FAR council issued notice of this proposed rule on December 19, 2012. The proposed rule is the latest step toward implementing policies put in motion by the July 2012 “M-12-16” memo, issued by Jeff Zients, the acting director of the Office of Management and Budget (“OMB”). In that memo, OMB asked agency heads to accelerate payments to small business contractors, by, inter alia, encouraging prime contractors to promptly pay their small-business subcontractors. Following issuance of the M-12-16 memo, several agencies issued directives instructing their Contracting Officers to begin inserting a new clause into all contracts – a clause which requires prime contractors, upon receipt of accelerated payments from the government, to pay small business subcontractors on an accelerated timetable to the maximum extent practicable.
The proposed rule would compel ALL agencies to include this new prompt-payment language into any new solicitations and resultant contracts. In its current form, the proposed clause (as set forth in the notice) provides no specific guidance concerning the definition of “accelerated.”
The sad fact of the matter is that the proposed rule does not provide subcontractors any new rights under the Prompt Payment Act, nor does it affect the application of the interest provisions of the Prompt Payment Act. Under current Prompt Payment Act provisions, interest begins to run when an agency does not pay a contractor an amount due “by the required payment date.” This new accelerated payment policy will not change the “required payment date” for purposes of calculating the interest penalty. Nonetheless, if it goes into effect, the proposed rule would at least provide small businesses with the ability to demand accelerated payment if the appropriate circumstances present themselves.
Comments on the proposed rule were required by February 19, 2013. Stay tuned for updates.
Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.
Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.