In the last few posts I’ve been digging down into the details of the SBA’s final rule from July 16, 2013, issued to implement provisions from the Small Business Jobs Act of 2010. First, we discussed the rule that prime contractors must give small business subcontractors every possible opportunity to fulfill the work on their projects.
Then, we looked at the problem where prime contractors say in a bid that they’ll set aside project revenue to a small and/or specially-certified business, but then neglect to award that work in the same scope, amount and quality that was used to submit the quote or bid.
The next problem that subcontractors deal with on a regular basis is with the payment process. We’ve talked before about some of the financing challenges for government contractors. Now as a sub, your customer is the prime, not the government, and so that’s who pays you. If the prime hasn’t addressed their own financing challenges, or is trying to avoid their own financing charges, that might result in late or even reduced payments.
Section 125.3(c)(5) of the proposed rule deals with Section 1334 of the Jobs Act, and requires that a prime contractor notify the contracting officer in writing whenever a payment to a subcontractor is reduced or is 90 days or past due, when the Federal agency has paid the contractor, including the reason.
Similar to the other rules we’ve discussed, the SBA final rule now gives the small business the right to address the contracting officer directly and raise an objection when prime contractors pay slowly or reduced amounts. And the CO can report those late payments, which means the prime contractor will be deemed to be out of compliance in the Contractor Performance Assessment Reporting System (CPARS). The contracting officer can really take the prime to task properly on this issue.
We’re still faced with the reality that none of this will have any effect if the contracting officer doesn’t take action. But if they do use their newfound right to talk to the prime about late or reduced payments, or reduce their CPARS ratings, then this rule will begin to have a real and strenuous effect.