Federal Support of Accelerated Payments to Small Business Subcontractors Extended

The Office of Management and Budget (OMB) issued a memorandum (M-14-10) on July 10, 2014 which extends the policy of providing accelerated payments to small business subcontractors through December 31, 2016.

OMB Memorandum M-11-32, issued September 14, 2011, established this policy aimed at providing payments to small businesses more quickly than the usual net-30 payment terms.  It directed Federal agencies to pay its contractors as soon as practicable, with the goal of making payments within 15 days.  OMB Memorandums M-12-16 and M-13-15 further extended this practice thru July 11, 2014, and added the requirement that prime contractors which receive accelerated payments from their Federal customers should, in turn, accelerate payments to their small business subcontractors.

The Federal Government’s accelerated payments initiative works in conjunction with the recently promulgated FAR clause 52.232-40, “Accelerated Payments to Small Business Subcontractors.” The clause, to be included in all prime contracts awarded after December 26, 2013, requires that prime contractors which receive accelerated payments, in turn, provide accelerated payments to their small business subcontractors.  One detail which we have not seen addressed is any change in payment terms to large business subcontractors, which may provide a cash flow advantage to primes with large business subcontractors because they are not required to accelerate payments to them as they must to small businesses.

While the newly-issued OMB M-14-10 keeps the accelerated payments to small business subcontractors policy in place for a more extended period than the prior directives, it is still a temporary policy.  That said, this memorandum does indicate that “The FAR Council is also considering strategies that might be used over the longer term to help maintain effective cash flow and prompt payment to small business subcontractors.”  There is no current indication what strategies are being considered or when announcements will be made, but be assured that Aprio will continue to monitor and report on this topic as additional pertinent guidance is provided.

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