Can someone tell me what clause governs payment provisions to small companies? We are a small disadvantage 8(a) company; the prime states that we can't receive payment until the government reimburses them (prime) first. If there is a clause please site. If the clause is not in the subcontract agreement outside of negotiating this provision into the contract what other choices do I have. And finally, if there is a clause, is this clause considered mandatory flow-down.

thanks

By C Mercy on Thursday, March 22, 2001 - 03:31 pm:

There are several clauses-it wopuld help to know3 what kind of contract the prime holds--is it FP,CR and is it for supplies,services,R&D ? But at first glance I can preety much tell you that it is not what it says in the primes contract that governs but rather what it says in your contract with him that governs.

By C Mercy on Thursday, March 22, 2001 - 03:32 pm:

Sorry for the typos-pushed the wrong button

By anon02 on Thursday, March 22, 2001 - 03:53 pm:

The clauses that are applicable to the prime contract should also be applicable to your subcontract, unless other provisions are cited in your subcontract. If you are providing non-commercial items, and are not receiving payment, FAR 32.112-1 and 32.112-2 provide some direction.

By AnonX on Thursday, March 22, 2001 - 04:13 pm:

Mary:

There is no government (FAR) clause that says the prime can't pay the sub until the government pays the prime. You cut a deal with the prime. What does it say about payment? Maybe you agreed to a horrible clause of your prime's own invention. Or maybe your prime doesn't have the money to pay you and doesn't want to borrow it, or is just a slow-payer.

Anon2:

The clauses that apply to a prime contract do not necessarily apply to a subcontract. The key is this: What does the subcontract actually say?

By Ron Vogt on Thursday, March 22, 2001 - 05:36 pm:

Mary -
I can't tell from your post whether you are negotiating a contract or whether you are having payment problems under an existing contract. Nevertheless, some general rules apply:
First, it is what is in your contract that counts. If you are negotiating, then get in a payment clause that calls for you to be paid within X days after invoice, usually 30 days. If under an existing contract, look for your payment clause and demand that the prime comply. In either case, whether a clause is a mandatory flowdown or not, only your subcontract matters. There is no Christian Doctrine for subcontracts.
Second, your prime's claim that it can't pay you until the government pays it is questionable. There is no such FAR requirement. If your prime means that it doesn't have the funds to pay you until it gets paid, then you're going to have an ongoing problem with this prime.
Bottom line: look to your contract and use whatever means you have in the contract to enforce payment.
You should also consider informing the contracting officer. FAR 32.112 details actions the CO can take if the prime is delinquent to the sub. However, this only applies to contracts for non-commercial items in which the prime is receiving some sort of contract financing, such as progress payments. Even for other contracts, it may not hurt to notify the CO, but you have to evaluate the risk to your relationship with the prime.

By Kennedy How on Friday, March 23, 2001 - 12:51 pm:

I don't really know where the sub contacting the PCO will do much good, since the Government does not normally have privity of contract with the subcontractors. Other than what is included in FAR 32.112, there isn't much more guidance.

In my experience, this was mainly one of those cash flow problems inherent in a lot of contracts that don't have progress payments, but have a long period of performance (from the standpoint of the delivery of hardware). The subcontractor that had to be paid early on tended to be on shaky ground if the prime didn't have the cash flow available to pay him. Here, cash flow is defined as what the prime internally has in his bank account or other sources, not from progress payments. I know one time a prime requested progress payments, but the PCO declined, saying the prime could get a short-term loan (the prime told me, not at those rates and not at the risk of mortgaging my business).

Kennedy

By joel hoffman on Friday, March 23, 2001 - 04:55 pm:

Ron is correct.

If this is a construction contract, you have certain rights under the Miller Act, but you have to take actions within certain timeframes. If the prime is not paying within the terms of your subcontract, you can take action with respect to the prime's payment bond. The Contracting Office is supposed to know enough about this to advise you of your rights. However, the Government can't advise you how to take action under the Miller Act. My server is getting ready to shut down, so can't provide you a link at the moment. If this is a construction contract, please advise and I will get back to you. Happy Sails! Joel

By joel hoffman on Saturday, March 24, 2001 - 04:14 pm:

If this is a Federal, fixed-price construction contract, the following link may be of interest to subcontractors. It is advice for Resident offices to furnish primes, in the event of a subcontractor complaint of non-payment, and a "Miller Act Information Statement" to furnish subs and suppliers having trouble getting paid by their prime contractor. It is a pdf file from one of our contract admin SOP's.

Note that there is no contract provision which restricts a prime from paying its subs or suppliers before receiving payment from the Government. The Prompt Payment provisions in the contract DO REQUIRE a prime to pay subs and suppliers NO LATER THAN seven days after receiving progress payments, which include progress due subs or suppliers. This provision does not restrict the prime from earlier payment, if that is what the subcontract terms include. Some people confuse the Prompt Pay provisions, with "pay before paid" subcontract terms. See pages 5-11 at this link:
http://www.hnd.usace.army.mil/chemde/cap/Chapter%208/c8ex9-12.pdf Happy Sails! Joel Hoffman

By Mary Thompson on Thursday, March 29, 2001 - 05:49 pm:

Thanks to all!!!!

By Eric Ottinger on Tuesday, April 10, 2001 - 07:45 pm:

Mary,

This recent memo regarding the "Paid Cost Rule" should be of interest. DoD expects our large business prime contractors to pay subcontractors in a timely manner.

http://www.acq.osd.mil/dp/paidcost.pdf

Eric

By joel hoffman on Wednesday, April 11, 2001 - 06:13 pm:

Eric, I'll also emphasize, in addition to the other points of discussion in the attachment to memo which you cited, the Prompt Payment Act (at least for construction contracts) mandates that primes will pay their subs and suppliers within the number of days enumerated in the contract clause (7 days) after payment by the Government.

In addition, primes are not entitled to hold funds due subs or suppliers, after being paid by the Government. The Government must hold any funds the prime requests to be withheld from subs or suppliers, for work accomplished or costs incurred, not the prime.