[Federal Register: August 30, 2002 (Volume 67, Number 169)]
[Rules and Regulations]
[Page 56124-56126]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30au02-29]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 52
[FAC 2001-09; FAR Case 2001-012; Item V]
RIN 9000-AJ22
Federal Acquisition Regulation; Payments Under Fixed-Price
Construction Contracts
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
amending the Federal Acquisition Regulation (FAR) to clarify in the
certification language of the clause entitled Payments Under Fixed-
Price Construction Contracts that all payments due to subcontractors
and suppliers have been made by the prime contractor from previous
progress payments received from the Government.
DATES: Effective Date: September 30, 2002.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS
Building, Washington, DC, 20405, (202) 501-4755, for information
pertaining to status or publication schedules. For clarification of
content, contact Mr. Jeremy Olson at (202) 501-3221. Please cite FAC
2001-09, FAR case 2001-012.
SUPPLEMENTARY INFORMATION:
A. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 66 FR 53050, October 18, 2001, with request for comments.
Six respondents submitted public comments. The Councils considered all
comments and concluded that the proposed rule should be converted to a
final rule, with no changes made to the proposed rule.
The rule revises FAR 52.232-5, Payments Under Fixed-Price
Construction Contracts, to clarify the certification language. The
ambiguity surfaced as a result of a decision issued on April 2, 1999,
by the United States Court of Appeals for the Sixth Circuit in United
States v. Gatewood, 173 F.3d 983 (6th Cir. 1999). The Court concluded
that certifying that the prime contractor has made payments to
subcontractors and suppliers does not explicitly include all payments
due.
Of the six respondents who submitted public comments, two endorsed
the proposed rule as written. The remaining respondents provided
comments, which are discussed below:
1. One of the respondents asserted that some of its customers
``that do not pay their invoices on time use the rationale of this FAR
regulation to respond to us that it is not necessary to pay us until
they themselves are paid by the Federal Government.'' The respondent
requested that the Government close ``a loophole'' for billion dollar
companies to avoid paying their smaller vendors.
[[Page 56125]]
Response: It has always been the Government's intent that
subcontractors be paid all that they are due on a timely basis, in
accordance with the terms of their subcontract agreements with their
prime contractors. Because of the decision in United States v.
Gatewood, it is necessary to make that point with greater clarity by
inserting the word ``all,'' thus ensuring that the prime contractor has
made all payments due its subcontractors that have been included in its
progress payments billings. The FAR change is designed to better ensure
that subcontractors are paid on a timely basis, thus addressing the
respondent's request that a ``loophole'' be closed. The final rule
would prevent construction prime contractors from making only partial
payments to subcontractors, based on a very narrow reading of the
current language of FAR 52.232-5(c)(2).
2. A second respondent suggested a slight rewording of the proposed
change to FAR 52.232-5(c)(2), to better address not only the
requirement for the prime contractor to have made previous payments in
a timely manner, but that it make current payments in a timely manner
as well. The wording suggested is as follows:
``All payments due to subcontractors and suppliers from previous
payments received under the contract have been made in a timely manner;
and all payments due to subcontractors and suppliers from the proceeds
of the payment covered by this certification will be made timely, in
accordance with subcontract agreements and the requirements of chapter
39 of Title 31, United States Code * * *.''
Response: The Councils concluded that the rewording of the proposed
rule recommended by respondent 2 is not necessary. The
proposed rule states that ``timely payments will be made from the
proceeds of the payment covered by this certification, in accordance
with subcontract agreements and the requirements of chapter 39 of Title
31, United States Code.'' Consequently, if the prime contractor elects
to make only a part of the payments due to subcontractors from the
proceeds of the progress payment, the prime contractor would be making
some of its payments on an untimely basis, and as such, the prime
contractor will have made a false certification. Under the language of
the clause, payments due in accordance with the terms of subcontract
agreements and the law must be made on a timely basis if they are to be
included in the prime contractor's payment request.
3. A third respondent suggested alternative language to paragraph
(c)(2) of the FAR clause at FAR 52.232-5. The respondent's rationale
was that the clause should specifically indicate that the prime
contractor's certification covers payments due for both work completed
and supplies or services delivered by the subcontractors. Respondent
3 asserted that prime contractors do not have to pay their
subcontractors for supplies or services delivered unless and until
those supplies or services have been incorporated into the scope of
work. Consequently, the respondent wanted to specifically indicate that
the payments covered by the certified payment request include payments
to subcontractors for materials and services that may not have been
incorporated into the scope of the prime contract at the time the prime
contractor's payment request is made to the Government. The wording
suggested by the respondent is as follows:
``(2) All payments due to subcontractors and suppliers for work
completed or materials/equipment delivered have been made from previous
payments under this contract and timely payments will be made from
payments due for which this certification and the attached invoice is
submitted. This requirement supercedes any other payment terms that may
have been included in any subcontract terms and is required by chapter
39 of Title 31, United States Code.''
Response: The Councils concluded that the language suggested by
respondent 3 is not needed and may lead to confusion with
regard to the requirements of the entire payment clause at FAR 52.232-
5. FAR 52.232-5(b)(1) requires that the prime contractor's progress
payment request include a listing of the amount included for work
performed by each subcontractor under the contract; a listing of the
total amount of each subcontract under the contract; and a listing of
amounts previously paid to each subcontractor. The clause also clearly
indicates in 52.232-5(c)(1) that the contractor's certified payment
request is for amounts ``only for performance in accordance with the
specifications, terms, and conditions of the contract.''
It is not the intent of this clause to enable the billing of
progress payments for materials and services that may not have been
incorporated into the scope of work of the contract. It is conceivable
that a construction prime contractor may have purchased building
materials from a single vendor sufficient to support not only the
construction project under the Government's contract, but also on other
jobs as well. However, the prime contractor can only bill for the
materials used on the subject Government contract, once it has been
determined what portion of those materials will be used to perform the
Government contract. The fact that the prime contractor may not have
paid the subcontractor for materials as yet unidentifiable to the
Government contract may be a matter of general concern to the
contracting officer, but it does not have a bearing on progress payment
billings under a specific Government contract until after the material
has been identified as part of the scope of work of that contract.
4. The fourth respondent asserted that, because the payments made
under construction prime contracts are almost always covered by payment
bonds or alternate payment procedures, the Government should not be
involved in payment disputes between prime contractors and
subcontractors. Consequently, respondent 4 concluded that the
prime contractor's certification that payments have been made to its
subcontractors was redundant and unnecessary, and that the
certification should be eliminated. Respondent 4 also
indicated that contracting officer inquiries as to whether a
subcontractor has been paid on time were usually a reflection of a
situation where the subcontractor has not been paid because of a
dispute over subcontractor performance. Consequently, respondent
4 believed the following language was sufficient:
``(2) All past and future payments due to subcontractors and
suppliers will be or have been made as required by chapter 39 of Title
31, United States Code.''
Response: The Councils concluded that adopting respondent
4's proposed alternative language could be seen as a
significant weakening of the payment protections afforded to
construction subcontractors by Government contracts. The certification
requirement questioned by respondent 4 is provided for in
chapter 39 of Title 31 of the U.S.C. The certification is needed in the
event the prime contractor has fraudulently billed the Government for
progress payments that the prime contractor has represented will be
used to pay its subcontractors; as such, this certification supports
the possibility that the Government may need to prosecute the prime
contractor under laws relating to defrauding the Government. Absent a
certification, and employing only the words proposed by respondent
4, the Government could assert that the prime contractor had
breached its contract if it failed to pay its subcontractors with the
proceeds
[[Page 56126]]
from progress payments paid to the prime contractor for that purpose.
But that is well short of the enforcement action potentially available
under the fraud statute.
This is not a significant regulatory action and, therefore, was not
subject to review under Section 6(b) of Executive Order 12866,
Regulatory Planning and Review, dated September 30, 1993. This rule is
not a major rule under 5 U.S.C. 804.
B. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule will not have a significant economic impact on a substantial
number of small entities within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq., because most contracts awarded
to small entities have a dollar value less than the simplified
acquisition threshold and, therefore, do not have the progress payment
type of financing. In addition, this change is a clarification of
existing policy, rather than the addition of new policy.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the changes to
the FAR do not impose information collection requirements that require
the approval of the Office of Management and Budget under 44 U.S.C.
3501, et seq.
List of Subjects in 48 CFR Part 52
Government procurement.
Dated: August 21, 2002
Al Matera,
Director, Acquisition Policy Division.
Therefore, DoD, GSA, and NASA amend 48 CFR part 52 as set forth
below:
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
1. The authority citation for 48 CFR part 52 continues to read as
follows:
Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
2. Amend section 52.232-5 by revising the date of the clause and
paragraph (c)(2) to read as follows:
52.232-5 Payments Under FixeduPrice Construction Contracts.
* * * * *
Payments Under Fixed--Price Construction Contracts (Sept. 2002)
* * * * *
(c) * * *
(2) All payments due to subcontractors and suppliers from
previous payments received under the contract have been made, and
timely payments will be made from the proceeds of the payment
covered by this certification, in accordance with subcontract
agreements and the requirements of chapter 39 of Title 31, United
States Code;
* * * * *
[FR Doc. 02-21871 Filed 8-29-02; 8:45 am]
BILLING CODE 6820-EP-U