New FAR Clause: Accelerated Payments to Small Businesses Are Here to Stay!

Small business prime contractors and subcontractors are celebrating, as accelerated payments become the new norm and their cash flow gets a boost from the new FAR clause.

The new clause resulted from three OMB Memorandums. OMB Memorandum M-11-32 issued on September 14, 2011, required Executive Agencies to accelerate invoice payments to small business contractors. The new policy changed the payment terms for small business contractors from the standard net-30 to as soon as practical, with a goal of making payments within 15 days of receipt of the invoice.

OMB Memorandum M-12-16 was issued on July 11, 2012, to require prime contractors that receive accelerated payments to similarly accelerate payments to their small business subcontractors. This Memorandum also required the Federal Acquisition Regulatory Council (FAR Council), in conjunction with the Small Business Administration (SBA), to develop an accelerated payments clause to be incorporated into future contracts.

A year and a half later, the Accelerated Payments clause is finally here: 52.232-40, “Accelerated Payments to Small Business Subcontractors,” was added to the FAR by Federal Acquisition Circular (FAC) 2005-71, issued on November 25, 2013. The new clause will be effective December 26, 2013, and will be included in contracts awarded after that date. The clause requires that prime contractors who receive accelerated payments to accelerate any payments due to their small business subcontractors to the maximum extent practicable. The new clause does not modify the Prompt Payment Act so contractors will not earn interest in the event payments are not accelerated. Further, the clause does not impose any penalties on prime contractors who fail to make accelerated payments to their small business subcontractors. However, if the Contracting Officer determines the prime is not accelerating their subcontractor payments, the Government will cease accelerating payments to the prime.

Anyone interested in reviewing the comments and responses to the memoranda leading up to this new FAR clause can read them in Federal Register Vol. 78, No. 227.

It will be interesting to see exactly how much quicker small business subcontractors will be paid by their primes in view of this new clause. In the meantime, contact Aprio’s Government Contracting team with any questions or for more information.