US Proposes “Accelerated Payments” for Small Businesses in Government Contracts

December 19, 2012 by Leave a comment

Did you know that under current law, a prime contractor might get an accelerated payment from the government, but be under no obligation to similarly accelerate payments to its small business subcontractors?

On July 11, 2012, the White House Office of Management and Budget issued Policy Memorandum M-12-16.  The memorandum directed agencies to temporarily accelerate payments to all prime contractors, in order to allow them to provide prompt payments to their small business subcontractors.  This is a temporary one-year policy.

While the policy memo is in effect, agencies are required to encourage prime contractors to pay small business subcontractors on an accelerated timetable to the maximum extent practicable.  The government has developed a three-pronged approach to implement the policy:

  1. For existing contracts, contracting officers are asked to communicate the policy to contractors and encourage their voluntary cooperation and participation.  All prime contractors will receive accelerated payment from the Government and are encouraged to, in turn, pay their small business subcontractors on an accelerated basis.  But there is no obligation to do so under this prong.
  2. For current solicitations and future contracts, the FAR Council developed a contract clause that would require prime contractors to pay small business subcontractors on an accelerated timetable to the maximum extent practicable.  Such a clause would make the payment of subcontractors on an accelerated basis a contractual obligation.
  3. A government team was assigned to analyze and make recommendations for Federal Acquisition Regulation changes aimed at improving payments by primes to small business subcontractors.

The result of this last prong, the recommendations for Federal Acquisition Regulation changes, is now apparent.  The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) have jointly published a proposed rule that would require federal contracts to include a clause that expressly requires prime contractors to accelerate payment to their small business subcontractors when the payment to the prime contractor is accelerated.

The proposed language for federal contracts looks like this:

Providing Accelerated Payments to Small Business Subcontractors

(a) Upon receipt of accelerated payments from the Government, the Contractor shall make accelerated payments to a small business subcontractor, to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract, after receipt of a proper invoice and all other required documentation from the small business subcontractor.

(b) The acceleration of payments under this clause does not provide any new rights under the Prompt Payment Act.

(c) Include the substance of this clause, including this paragraph (c), in all subcontracts with small business concerns, including subcontracts with small business concerns for the acquisition of commercial items.

This seems like a positive measure for industry; however, one concern would be that the terms used in this clause are not well defined, and therefore a prime contractor who does not change their internal system to accelerate payments may claim that it is not practicable to accelerate payments.  In such a case, the prime would get the benefit of accelerated payment but might not pass-along the full value of the acceleration to the small business subcontractors.  With this in mind, it might make sense to improve this language to provide firmer metrics for compliance.

ASA members with comments or concerns should contact the Association to register their comments, so we can know your concerns, and should also file comments with the government in accordance with the directions found at 77 Federal Register 75089 (December 19, 2012).  Please let us know whether you feel this clause may be important enough to your business to warrant ASA comments to the docket.

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Government Contractors Face New Conflict of Interest Rules

May 11, 2011 by Leave a comment

If your company supports government contracts, or if you are considering entering that sector, then it is important that you consider the new rules being developed concerning organizational conflicts of interest.

In recent years, a number of trends in acquisition and industry have led to the increased potential for organizational conflicts of interest, including—

  • • Industry consolidation;
  • • Agencies’ growing reliance on contractors for services, especially where the contractor is tasked with providing advice to the Government; and
  • • The use of multiple-award task- and delivery-order contracts, which permit large amounts of work to be awarded among a limited pool of contractors.

In its 2007 report, the Acquisition Advisory Panel concluded that the Federal Acquisition Regulations do not adequately address “the range of possible conflicts that can arise in modern Government contracting.”  The Panel observed that the Federal Acquisition Regulations provides no detailed guidance to contracting officers regarding how they should detect and mitigate actual and potential organizational conflicts of interest and called for improved guidance, to possibly include a standard organizational conflicts of interest clause or set of clauses in government contracts.

The proposed rule establishes a clearer definition for the term “organizational conflict of interest.”  The proposed definition would be placed in 48 C.F.R. § 2.101 and it would state:

Organizational conflict of interest means a situation in which—

(1) A Government contract requires a contractor to exercise judgment to assist the Government in a matter (such as in drafting specifications or assessing another contractor’s proposal or performance) and the contractor or its affiliates have financial or other interests at stake in the matter, so that a reasonable person might have concern that when performing work under the contract, the contractor may be improperly influenced by its own interests rather than the best interests of the Government; or

(2) A contractor could have an unfair competitive advantage in an acquisition as a result of having performed work on a Government contract, under circumstances such as those described in paragraph (1) of this definition, that put the contractor in a position to influence the acquisition.

The proposed rule also includes substantial procedural standards and contract clauses designed to implement protections against organizational conflicts of interest, as well as standard procedures for obtaining waivers of organizational conflicts of interest.  The proposed rule can be found online at http://edocket.access.gpo.gov/2011/pdf/2011-9415.pdf.  Written comments are due to the government on or before June 27, 2011.

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