Federal Contruction Payment Requirements: A Thumbnail Overview

09/30/2014

There are multiple layers and issues associated with payments for federal construction projects; both by agencies to contractors and by contractors to lower tiers. A thumbnail overview of the basic requirements are:

The underlying basic federal construction payment mandates are in the Federal Prompt Payment Act (31 U.S.C. §§ 3901, et seq.) and FAR Subpart 32.9, et seq. While having many aspects, the basic mandates are that payments should be promptly made by both agencies to contractors and contractors (and their lower tiers) to those of lower tier below them.

While there are more involved aspects, the short overview is that payments are due by federal agencies: 1) on the date specified in the contract; 2) in accordance with discount terms; 3) in accordance with Accelerated Payment Methods; or – most typically – 4) 30 days after proper invoice.

When received, contractors then have 7 days to make payment to their lower tiers (subcontractors and suppliers), and those lower tiers then 7 days to make payment to their lower tiers, and so forth. Those requirements must be incorporated into all construction contracts.

However, the prompt payment requirements do still allow certain withholdings, if: they are provided for in the contract; and relate to retainage or relate to a withholding about which the contractor has given notice to both the lower tier and the agency.

If contractors discover after their payment application but before they make payment to their lower tiers that there is cause to withhold payment from a lower tier, then they can withhold payments; but only if notice has been furnished to the lower tier of the withholding cause, with copy to the agency.

Payment must then be made to the lower tier as soon as practicable after the withholding cause has been corrected (and within 7 days of corrective action if agency has already made payment to the contractor or alternatively within 7 days after payment to the contractor).

Of note, contractors may not request payment from agencies for any amounts withheld or retained in accordance with contract rights until such time as the contractor had determined, and certified to the agency, that the subcontractor is entitled to payment. Of further note, false certifications respecting payments by contractors are subject to other federal laws, including the False Claims Act (31 U.S.C. §§ 3729, et seq.).

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