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Nov
20

Helping Small Contractors Get Paid Faster to Boost the U.S. Economy

Editor’s Note:  Applying flexibility in implementing regulations affecting small business to assist those businesses is exemplary policy.  Agencies should take note of OMB’s action.

From: GovWin Network/Deltek

by Lourdes Martin-Rosa

Office of Management and Budget (OMB) announced in July that it is expanding the Quick Pay plan that the Obama administration announced in September 2011. Under this accelerated payment plan, agencies are urged to pay their prime contractors in 15 days, instead of 30 days, for a period of one year with the understanding that those companies will pass along those accelerated payments to their small business subcontractors. Officials are also setting clear expectations for prime contractors by making payment habits a future factor in the bid selection process.

The economic engine of the U.S. is small businesses; therefore the administration is aiming to not only encourage subcontracting and teaming opportunities for small businesses but also get money into the hands of more small contractors faster. Prime to small subcontracting has been a challenge for many small businesses. As a small business subcontractor, this is a huge effort towards decreasing the prime to subcontractor payment cycle. Usually once a prime contractor receives payment for services rendered on a contract, the payment flowing down to small business subcontractors ranges from 60 to 90 days.

The administration has temporarily waived some cash management requirements that delayed payments for goods and services. While these requirements were designed to ensure good stewardship of federal government funds, federal agencies have procedures to review documentation provided by contractors for accuracy and completeness. This means that invoices accompanied by proper documentation may be paid within 15 days. This will allow small business contractors and subcontractors to receive payments promptly to improve their cash flow, increase investment and growth, and encourage small business to participate in contracting with the federal government.

Nevertheless, OMB emphasizes that the policy is temporary, although officials may consider future changes afterward. When the policy ends in July 2013, OMB will then provide further guidance on steps agencies should consider ensuring that small-business subcontractors continue to be paid promptly by their prime contractors.

For instance, OMB may continue to provide accelerated payments to prime contractors with prompt subcontractor payment contract clauses. Officials may allow for flexibilities they are considering as part of implementing regulations of the Small Business Jobs Act that enables contracting officers to consider payment habits as an award factor.

More recently, defense procurement officials have added a clause to their contracts to get prime contractors to pay their small subcontractors faster. The clause requires contractors to make accelerated payments to small subcontractors after they have receipt of a proper invoice. The goal is to get money to small firms within 15 days of receiving the invoice. Given the Defense Department’s clout, this is good news for small contractors. More agencies may also follow suit.

The benefits under an accelerated payment plan are an important growth factor for small businesses wanting to explore federal contracting – and an opportunity for firms that are larger than small but still not as large as a Lockheed Martin to potentially capture more teaming opportunities with small contractors. Although the benefits may be huge, the participation factor of both prime contractors and federal agencies will be a determining factor on the execution of this policy’s success as intended.

Lourdes Martin-Rosa is the American Express OPEN Advisor on Government Contracting and has nearly 20 years of experience in the federal procurement arena. She helps small businesses get contract ready and achieve contract success.

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