Proposed FAR Rule Requires Payments Within 15 Days to Small Business Contractors and Subcontractors

Earlier today, September 29, 2021, the Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) issued a proposed rule likely to be welcomed by small business federal contractors.  The proposed rule is intended to accelerate payments to small business contractors and subcontractors and seeks comments on whether payments to large business subcontractors should also be accelerated.

The proposed rule amends the Federal Acquisition Regulation (FAR) at 32.009-1, which currently instructs agencies to ensure, to the maximum extent possible, that prime contractors pay small business subcontractors on an accelerated timetable upon receipt of accelerated payments from the Government.  Specifically, as amended by the proposed rule, that regulation now sets a goal of payment by the Government to small business contractors within fifteen (15) days after receipt of an invoice and payment within the same time frame to prime contractors that subcontract with small businesses as long as the prime contractors agree to pay their small business subcontractors within fifteen (15) days of receipt of the accelerated payment by the Government.  The regulation also prohibits prime contractors from seeking additional consideration from their small business subcontractors in exchange for the accelerated payments.

Under the proposed rule, the accelerated payments will apply to acquisitions at or below the simplified acquisition threshold and to acquisitions of commercial items, including commercially available off-the-shelf items (COTS).

Lastly, the preamble to the proposed rule states that DoD, GSA and NASA are considering additional regulatory action to accelerate payments to small business subcontractors and invites public comment on how this might be best accomplished. The preamble recognizes that the proposed rule flows down accelerated payments from prime contractors to small business subcontractors but does not flow down accelerated payments to large business subcontractors and asks whether the rule should be expanded to apply the accelerated payment requirement to large business subcontractors in order to reach lower tier small business subcontractors.

Comments to the proposed rule are due November 29, 2021.  To read the proposed FAR Rule go here. 

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