The Office of Management and Budget recently issued a memorandum outlining a new Executive Branch policy to federal agencies encouraging them to ensure prime contractors are promptly paying their small business subcontractors.  Specifically, the OMB indicated agencies should, to the full extent provided by law, temporarily accelerate payments to prime contractors “as soon as practicable” with a goal of issuing payment within fifteen days of receiving proper documentation (instead of the thirty days required by the Prompt Payment Act).  This, in turn, will allow prime contractors to pay their small business subcontractors more quickly.

To aid in the implementation of this policy, the OMB outlined a series of items each agency was to “encourage” its prime contractors to follow.  Prime contractors are to be “encouraged” to (a) accelerate payments to their small business subcontractors, (b) consider modifying their subcontracts with small businesses to allow payment “along an accelerated timetable” and (c) insert a similar provision in future subcontracts with small businesses.

OMB indicated this policy would only be in effect for one year (i.e. – until July 11, 2013).  In that year, however, agencies must report to OMB their progress in making accelerated payments to its prime contractors, the progress of the twenty-five largest prime contractors in incorporating the clauses outlined above and any other steps the agency has taken to ensure small business subcontractors are paid in a prompt manner.  At the end of the year, OMB will suggest steps to ensure small business subcontractors receive prompt payment.

On August 15, 2012, the Department of Defense issued a new contract clause (52.232-99(DEVIATION)) to implement the OMB policy.  This clause provides that prime contractors are to “make accelerated payments to small business subcontractors to the maximum extent practicable” and include this requirement in all subcontracts.  This new clause must be included in all new solicitations and resulting contracts.  In addition, it shall be included in existing solicitations to the extent it is feasible. Finally, contracting officers “may” modify existing contracts to insert this provision.

It remains to be seen how quickly other agencies issue similar directives or contract clauses similar to the Department of Defense’s clause.