Feds Prompt Payment Policy Expiring

December 6, 2017

The federal government’s policy encouraging prompt payment to small business subcontractors is set to expire on Dec. 31, 2017.

The Office of Management and Budget’s (OMB’s) accelerated payment policy was originally implemented by OMB Memorandum M-11-32, “Accelerating Payments to Small Businesses for Goods and Services,” which was issued on Sept. 14, 2011. Memorandum M-11-32 specified that, to the greatest extent permitted by law, agencies should accelerate payments to small business prime contractors with the goal of making payments within 15 days of receipt of relevant documents (i.e., an invoice and confirmation that the goods and services have been received and accepted). Memorandum M-11-32 did not specify an expiration date.

On July 11, 2012, OMB took the next step under Memorandum M-12-16, “Providing Prompt Payment to Small Business Subcontractors.” Memorandum M-12-16 provided that, “agencies should, to the full extent permitted by law, temporarily accelerate payments to all prime contractors, in order to allow them to provide prompt payment to small business subcontractors.” The Memorandum established a goal of “paying all prime contractors within 15 days of receiving proper documentation.” Unlike Memorandum M-11-32, however, the policy established by Memorandum M-12-16 was intended as a “temporary, transitional policy,” and was to expire after one year. In subsequent memorandums, the temporary policy was extended to Dec. 31, 2016.

The OMB later adopted requirements that agencies provide six-month reports on their progress in meeting the accelerated payment goals; OMB subsequently increased the reporting frequency to every three months. Then a Jan. 11, 2017 Memorandum, numbered Memorandum M-17-13, extended the temporary policy under Memorandum M-12-16 to Dec. 31, 2017. The Memorandum also updated the reporting requirements, calling for agencies to make three-month reports on their progress in making accelerated payments to small business prime contractors and to all contractors, as well as “the progress of any other steps that the agency has undertaken to ensure that small business contractors and small business subcontractors are paid in a prompt manner.”

With the expiration of OMB’s guidance for prompt payment to small business subcontractors approaching, NSBA recently signed onto a letter to OMB Director Mick Mulvaney urging the Administration to permanently extend the objectives contained in OMB Memorandum M-17-13 prior to the Dec. 31, 2017 expiration. The letter states that ending this government-wide policy would present a significant cash flow challenge for small business which represent a fundamental part of the government contracting supply chain.

Since the inception of the OMB program in 2011, the results have been positive with payment times for many small business subcontractors being cut from 30 to less than 15 days. Paying small business suppliers faster facilitates their access working capital at lower costs and allows for increased opportunity for growth.

Furthermore, failure to renew this policy would have an immediate negative economic impact on small businesses supporting government contracts across all agencies. Most immediately, reduced cash flow stemming from the policy’s termination would result in increased debt for many small businesses. While profit margins do not generally draw companies into the federal marketplace, prompt cash flow does. Arguably, ending the accelerated payment policy could discourage commercial companies from choosing to do business with the government.