DoD Proposes Updating DFARS With 15-Day “Prompt Payment” Rules

The Department of Defense awarded contracts to an average 30,806 small businesses each year in fiscal year 2016, 2017, and 2018. A proposed rule to update the DFARS may lead to these same businesses receiving payments from the government, or prime contractors, within 15 days of invoicing.

The proposed rule is found at 84 FR 25225. It was published on May 31, 2019 and comments close on July 30, 2019 if you’d like to put in your two cents.

The proposed rule acknowledges that “[c]urrent DoD policy, as stated in DFARS 232.903, is to pay small business contractors as quickly as possible after receipt of invoices and proper documentation.” Section 852 of the National Defense Authorization Act for Fiscal Year 2019 (“NDAA for FY 2019”) provides two types of accelerated payments. First, accelerated payments to small business prime contractors. Second, accelerated payments to small business subcontractors through DoD “accelerating payments to their prime contractors.”

NDAA for FY 2019 Section 852 requires DoD “to establish an accelerated payment date, with a goal of 15 days after receipt of a proper invoice, if: (1) A specific payment date is not established by contract, and (2) the contractor agrees to make accelerated payments to the subcontractor without any further consideration from, or fees charged to, the subcontractor.”

Note that this language does not guarantee payment in 15 days. This establishes “a goal of 15 days” if a few other conditions exist. That being said, “a goal of 15 days” is better than the existing prompt payment provisions.

Accelerated payment provisions can be found at FAR 52.232-40 and DFARS 232.903. Neither of these clauses contain the “15 days” benchmark. Neither of these clauses prohibits requiring “further consideration from, or fees charged to, the subcontractor” in exchange for the 15-day benchmark. So not only will the proposed rule likely lead to faster payments, it will also lead to fewer costs associated with obtaining these faster payments.

I’ll focus for a minute on the “further consideration from, or fees charged to” a subcontractor issue. In this regard, DoD admits that “[i]t is not possible . . . to estimate the number of small business contractors” who have had to provide further consideration or pay fees for accelerated payment. “[N]or is it possible to estimate the dollar value of the consideration provided or fees paid.” Due to this lack of data, DoD is specifically looking for comments addressing these costs. Not only will this data help shape the current rule, but it could impact future rules and policies as well.

The proposed rule draws special attention to two categories of contracts: those below the simplified acquisition threshold (“SAT”) and commercially available off-the-shelf (“COTS”) items.

These two types of contracts were highlighted given how common they are in DoD procurements. DoD estimates that “approximately 96 percent of DoD contracts are valued at or below the SAT[.]” Because almost all procurement contracts fall under the SAT, “DoD intends to determine that it is in the best interest of the Federal Government to apply the rule” to these below-the-threshold contracts.

DoD also estimates that “more than half of DoD’s contractors are small businesses providing commercial items, including COTS items[.]” For this reason “DoD intends to determine that it is in the best interest of the Federal Government to apply the rule” to COTS contracts.

Whatever your opinion of this proposed rule is, comments are due by July 30, 2019. We encourage you to reach out to DoD on this matter and make your voice heard.