Following up on a prior blog about what was then a proposed rule, a final rule was issued on November 25th requiring accelerated payments to small business subcontractors. The rule mandates that if a contractor receives accelerated payments from the Government, the contractor shall make accelerated payments to its small business subcontractors. The new FAR clause incorporating this rule is Part 52.232-40, and goes into effect December 26th.
This new clause requires:
In subparagraph (a):
(a) Upon receipt of accelerated payments from the Government, the Contractor shall make accelerated payments to its small business subcontractors under this contract, to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract, after receipt of a proper invoice and all other required documentation from the small business contractor.
. . . and
In subparagraph (c):
(c) Include the substance of this clause, including this paragraph (c), in all subcontracts with small business concerns for the acquisition of commercial items.
This new clause specifically notes though:
In subparagraph (b):
(b) The acceleration of payments under this clause does not provide any new rights under the Prompt Payment Act.
So what does this new rule actually do? This is unclear since, among other things, there is no definition of “accelerated payments” or of “maximum extent practical.” And, since it specifically states it is not intended to affect the Prompt Payment Act, the remedy, if there is a violation, is unclear. Under Virginia law it’s likely a violation could be deemed a breach of contract, and thus the “first to breach” under appropriate circumstances if violation is not waived by the small business subcontractor. We’ll all collectively have to wait and see though how this new rule gets applied; both by the Government and by the Courts.