Early Holiday Gift to Small Business Subcontractors: Final Rule Issued Regarding Accelerated Payments

Yesterday the DoD, GSA, and NASA issued a final rule amending the FAR “by incorporating a new clause to provide accelerated payments to small business subcontractors.”   This final rule implements the prior guidance found in OMB Memoranda M-12-16 and M-13-15.  The new FAR 52.232-40(a) provides that “[u]pon receipt of accelerated payments from the Government, the Contractor shall make accelerated payments to its small business subcontractors under this contract . . . after receipt of a proper invoice and all other required documentation from the small business subcontractor.”  This clause must be inserted “in all solicitations and contracts.”  FAR 32.009-2.    FAR 52.232-40(c) also provides that the “substance of this clause, including this paragraph (c), [must be included] in all subcontracts with small business concerns” – in other words subcontractors must flow it down.

There are two important takeaways from this final rule.  First, this new accelerated payment framework will help alleviate potential cash flow concerns for small business subcontractors.  Second, prime contractors must ensure that they are ready to implement this new rule and have internal controls in place, as a failure to comply has its consequences.  According to the official response published on the Federal Register: “Subcontractors would utilize existing remedies for non-payment similar, but not limited, to FAR 32.112.  If, upon receipt of accelerated payment from the Government, the prime fails to accelerate payments to the maximum extent practicable, the Government may discontinue accelerated payments to the prime contractor. The Government may review prime contractor payments and procedures to ensure the required accelerated payments to small business subcontractors are made to the maximum extent practicable.”

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