A Final Rule published on February 14, 2023 and effective March 16, 2023, orders changes to federal contract payment schedules for both small business prime contractors and their small business subcontractors. Generally, the Final Rule requires payment by the government to small business prime contractors within 15 days of submission of a proper receipt, though there are some differences we discuss below between DoD and civilian agency procedures, and to small business subcontractors with 15 days. Importantly, accelerated payments are applicable for contracts below the Simplified Acquisition Threshold (SAT) and for Commercial Off The Shelf (COTS) items.
The Final Rule amends the FAR to provide for accelerated payments to contractors that are small businesses, and to small business subcontractors by accelerating payments to their prime contractors. Specifically, the section 873 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2020 (Pub. L. 116-92) requires agencies, to the fullest extent permitted by law, to establish an accelerated payment date for small business contractors, with a goal of 15 days after receipt of a proper invoice, if a specific payment date is not established by contract. For contractors that subcontract with small businesses, the statute requires agencies, to the fullest extent permitted by law, to establish an accelerated payment date, with a goal of 15 days after receipt of a proper invoice, if—
(a) A specific payment date is not established by contract; and(b) The contractor agrees to make accelerated payments to the subcontractor without any further consideration from, or fees charged to, the subcontractor.For DoD, however, the Final Rule implements section 815 of the William M. (Mac) Thornberry NDAA for FY 2021, which amended 10 U.S.C. 2307(a)(2)(A) (now found at 10 U.S.C. 3801) by striking the language “if a specific payment date is not established by contract.” Accordingly, the final rule excludes from DoD contracts the condition reflected in the language “a specific payment date is not established by contract.”
Federal contractors should expect to see the accelerated payments authorized in all solicitations released after March 16, 2023. Depending on the solicitation, GovContractPros recommends reviewing the included FAR clauses to determine if the clause FAR 52.232-40, Providing Accelerated Payments to Small Business Subcontractors, is included, or, where applicable, that clause FAR 52.212-5 and 52.213-4 both reflect March 2023 as this is the most current version of the clause.
Whether or not the Government is required to modify existing contracts to include these accelerated payment terms without consideration offered from federal contractors is unclear. Unlike the Final Rule which implemented Section 889, which ordered modification of existing contracts for implementation, no such language is included in the February 14, 2023 Final Rule for accelerated payments. Nevertheless, recognizing that Congress has articulated its policy and required accelerated payments to small businesses, GovContractPros believes no such consideration for accelerated payments should be required by contracting officers to modify existing contracts because of Congress’ stated policy.
If you have questions about accelerated payment schedules, please contact us to discuss.