Jul 23, 2012

Thomas Marcinko

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Small Business Prime & Subcontractors to be Paid Faster Under New Rules

Last September, the Office of Management and Budget (OMB)  issued Memorandum 11-32 “Accelerating Payments to Small Business … “   Pursuant to this memorandum, all executive agencies were instructed, to the extent practicable, to make payments to small business prime contractors within 15 days of receipt of the invoice.  The administration is now taking a similar approach to accelerating payments to small business subcontractors. 

Per OMB Memorandum No. M-12-16 dated July 11, 2012, all executive agencies must temporarily accelerate payments to prime contractors so the prime contractors can in turn accelerate payments to their small business subcontractors.  Of course accelerating payments to large business prime contractors will just be a boost to their cash flow if they do not similarly accelerate payments to their small business subcontractors.  Toward that end, Agencies shall “encourage” their large business prime contractors to accelerate their payments to their small business.  As part of this encouragement, OMB has asked the FAR council to draft a FAR clause that requires the prompt payment of small business subcontractor invoices by prime contractors.  Contractors will also be encouraged / required to add a prompt payment clause to their subcontracts with small businesses. 

Based on the above, small businesses that are not being paid on a net 15 day basis by the Government or on an “accelerated” basis by prime contractors, should ask their customer, why not.