In August 2012 Defense Procurement and Acquisition Policy (DPAP) issued Class Deviation 2012-O0014 which implemented accelerated payments to prime contractors, who were in turn, to accelerate payments to their subcontractors. On February 21, 2013, Richard Ginman, Director, DPAP, issued a letter which rescinded Class Deviation 2012-O0014. This is only the beginning of the effects of sequestration.
The payment acceleration policy was implemented to assist with the cash flow of all small-business contractors, whether they are prime contractors or subcontractors to non-small-businesses. While the policy of accelerating payments has been rescinded the DoD will continue with the policy noted in DFARS232.903, entitled “Prompt Payment”, “to assist small disadvantaged business concerns by paying them as quickly as possible after invoices are received and before normal payment due dates established in the contract.” The effect of this change in policy will mean that non-small-business contractors will wait longer to be paid, even if they have small-business subcontractors.
It is as important now as it has ever been to ensure that your business is classified appropriately as a small-business or non-small-business. This classification can now have a significant cash flow impact.
Nicole Mitchell, CPA, is a Partner in Aronson LLC’s Government Contract Services Group, where she provides consulting and accounting services to government contractors, including financial regulatory compliance, contract pricing, and complex cost accounting structures.
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