Federal Acquisition Regulation; Accelerated Payments to Small Business Subcontractors, 70477-70479 [2013-28053]

Agencies

• DEPARTMENT OF DEFENSE
• General Services Administration
• National Aeronautics and Space Administration

[Federal Register Volume 78, Number 227 (Monday, November 25, 2013)]
[Rules and Regulations]
[Pages 70477-70479]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28053]



Federal Register / Vol. 78 , No. 227 / Monday, November 25, 2013 / 
Rules and Regulations

[[Page 70477]]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 12, 32, and 52

[FAC 2005-71; FAR Case 2012-031; Item I; Docket No. 2012-0031, Sequence 
No. 1]
RIN 9000-AM37


Federal Acquisition Regulation; Accelerated Payments to Small 
Business Subcontractors

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to implement the policy provided 
by Office of Management and Budget (OMB) Memoranda M-12-16, dated July 
11, 2012, and M-13-15, dated July 11, 2013, by incorporating a new 
clause to provide accelerated payments to small business 
subcontractors.

DATES: Effective: December 26, 2013.

FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement 
Analyst, at 202-501-3221, for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-71, FAR Case 2012-
031.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 77 FR 75089 on December 19, 2012, to implement OMB 
Memorandum M-12-16 that will provide for the acceleration of payments 
to small business subcontractors. OMB released Memorandum M-12-16, 
Providing Prompt Payment to Small Business Subcontractors, on July 11, 
2012. This policy memorandum outlined the steps agencies shall take to 
ensure that prime contractors pay their small business subcontractors 
as promptly as possible. OMB released Memorandum M-13-15, Extension of 
Policy to Provide Accelerated Payment to Small Business Subcontractors, 
on July 11, 2013. This policy memorandum extended the OMB Memorandum M-
12-16's expiration date by one year to July 11, 2014.
    Seven respondents submitted comments on the proposed rule.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the comments in the 
development of the final rule. A discussion of the comments and the 
changes made to the rule as a result of those comments are provided as 
follows:

A. Summary of Significant Changes

    As part of the implementation of OMB Memoranda M-12-16 and M-13-15, 
the FAR is amended to add a new FAR clause, Providing Accelerated 
Payments to Small Business Subcontractors. This new clause requires the 
prime contractor, upon receipt of accelerated payment from the 
Government, to make accelerated payments to small business 
subcontractors, to the maximum extent practicable, after receipt of a 
proper invoice and all proper documentation from small business 
subcontractors. This clause will be inserted into all new solicitations 
issued after the effective date of this rule and resultant contracts, 
including solicitations and contracts for the acquisition of commercial 
items. This rule does not provide any new rights under the Prompt 
Payment Act and does not affect the application of the Prompt Payment 
Act late payment interest provisions.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: Two respondents expressed support for the rule.
    Response: The Councils note the public support for this rule.
2. Clause Prescription
    Comment: One respondent recommended adding a paragraph to FAR 
52.212-4 to incorporate the new clause in lieu of prescribing the 
clause in FAR 12.301(d)(4).
    Response: The unique nature of the temporary guidance issued in the 
OMB Memorandum M-12-16, Providing Prompt Payment to Small Business 
Subcontractors, (and as extended by OMB Memorandum M-13-15) required a 
new independent clause 52.232-40; thus, a distinct prescription in FAR 
12.301(d)(4) is intentionally created.
3. Privity of Contract
    Comment: One respondent recommended that the Government should 
refrain from creating a privity of contract between the Government and 
the subcontractors. Respondent asserts that this may lead to a cause of 
action for the subcontractor against the Government if the prime 
contractor defaults on these requirements.
    Response: Directing the prime contractor, upon receipt of 
accelerated payment from the Government, to accelerate payments to 
subcontractors does not create privity of contract between the 
Government and the subcontractors.
4. Compliance With the Rule
    Comment: One respondent expressed concern that the rule did not 
identify a responsible Government party for addressing the prime's 
failure to accelerate payments to subcontractors. The respondent also 
stated that the rule does not provide penalties for the prime's failure 
to accelerate payments. Another respondent stated that the proposed 
rule lacks clarity as to how the Government will audit contractors to 
ensure compliance, and to what performance standards prime contractors 
will be held.
    Response: The rule does not create any new remedies for 
subcontractor payment issues. Subcontractors would utilize existing 
remedies for non-payment similar, but not limited, to FAR 32.112. If, 
upon receipt of accelerated payment from the Government, the prime 
fails to accelerate payments to the maximum extent practicable, the 
Government may discontinue accelerated payments to the prime 
contractor. The Government may review prime contractor payments and 
procedures to ensure the required accelerated payments to small 
business subcontractors are made to the maximum extent practicable. 
This flexibility is intended to accommodate varying prime contractor 
capabilities to make accelerated payments.
5. Definition
    Comment: A number of respondents stated that the rule is not 
specific as to what constitutes ``accelerated payments to the maximum 
extent practicable''. Two respondents took issue with the lack of 
specificity, while another supported the flexibility offered by the 
language. Two respondents questioned what is the definition of 
accelerated payments. One respondent recommended adding to the 
definition of accelerated payments that the prime contractor would not 
be required to accelerate payments equal to or less than the 
accelerated payment cycle received from the Government.
    Response: The flexibility in the clause language is intended to 
accommodate varying contractor capabilities to make accelerated 
payments.

[[Page 70478]]

6. Pre-Existing Regulatory Coverage
    Comment: One respondent stated that the additional language in this 
FAR rule is unnecessary. The respondent finds FAR 52.232-1 sufficient 
to accelerate payments to small business subcontractors.
    Response: FAR 52.232-1 does not address accelerated payments to 
prime contractors or subcontractors; it addresses general conditions 
for payments to prime contractors on certain fixed-price contracts.
7. Administrative Burden
    Comment: One respondent stated the rule will result in increased 
administrative costs, and an evaluation of the existing payment 
environment should have preceded this rule making. Another respondent 
recommended adding the following language to the rule, ``The proposed 
rule is not intended to impose any additional reporting, recordkeeping, 
or other information collection requirements.''
    Response: The respondent did not specify what administrative costs 
would be increased. However, this rule is established to ensure that, 
upon receipt of accelerated payment from the Government, the prime 
contractors shall accelerate payments to small business subcontractors 
to the maximum extent practicable. The Government gave consideration to 
relevant payment environment factors prior to issuance of this rule. 
The addition of the recommended language is unnecessary because this 
rule does not contain any information collection requirements that 
require the approval of the Office of Management and Budget under the 
Paperwork Reduction Act.
8. Commercial Practices
    Comment: One respondent opined that Government prime contractors 
have subcontractor payment terms and payment timelines that are much 
more subcontractor friendly than those found in the commercial 
marketplace.
    Response: The Councils appreciate those prime contractors who pay 
their subcontractors on a timely basis, and is issuing this rule to 
require prime contractors, upon receipt of accelerated payment from the 
Government, to pay their small business subcontractors in an 
accelerated manner to the maximum extent practicable.
9. Rule Applicability
    Comment: One respondent stated that the rule forces prime 
contractors to accelerate payments to subcontractors on non-government 
programs and therefore equitable price adjustments should be expected.
    Response: The rule applies to those prime contractors for which the 
Government provides accelerated payment. It requires prime contractors, 
upon receipt of accelerated payment from the Government, to accelerate 
payments to their small business subcontractors under Government prime 
contracts that include the clause; it does not require prime 
contractors to accelerate payments to other than their small business 
subcontractors on Government prime contracts.
    Comment: Another respondent recommended applying this requirement 
to current contracts as well as existing solicitations and limiting the 
application of this rule to first tier subcontractors.
    Response: In accordance with FAR 1.108(d), contracting officers 
may, at their discretion, include the FAR changes in solicitations 
issued before the effective date, provided award of the resulting 
contract(s) occurs on or after the effective date; and contracting 
officers may, at their discretion, include the changes in any existing 
contract with appropriate consideration.
    The rule is not limited to first-tier subcontractors, because that 
is inconsistent with the OMB memo that this rule implements, and would 
reduce the number of small entities that may benefit from this rule.
10. Regulatory Rulemaking Process
    Comment: One respondent encouraged the Government to delay the rule 
and hold a series of public meetings to gain a better understanding of 
the challenges the rule would create.
    Response: The public was provided an opportunity to comment through 
the standard rule-making process of publication of the proposed rule in 
the Federal Register. All comments received were considered in the 
formation of this final rule.
11. Implementation
    Comment: One respondent noted the current budgetary crisis and 
recommended a delay in the implementation of this rule. Another 
respondent recommended the rule emphasize that prime contractors be 
required to make accelerated payments only if the Government 
accelerates payments to the prime contractor.
    Response: If the Government does not accelerate payment to a prime 
contractor, that prime contractor is under no obligation to accelerate 
payments to its small business subcontractors. While the clause 
requires the prime contractor to accelerate payments to its small 
business subcontractors under certain conditions, it does not prevent 
the prime contractor from paying any of its subcontractors on an 
accelerated basis, if it elects to do so, without regard to the receipt 
of accelerated payments from the Government.
12. Accelerated Payments
    Comment: One respondent recommended guidance that states that 
Government payments will not be considered accelerated if they are made 
beyond the Prompt Payment Act thresholds for the incurrence of 
interest.
    Response: Payments under which prompt payment interest has been 
applied are not Government accelerated payments.

III. Additional Rulemaking

    The Councils are considering the need for further FAR guidance 
relative to facilitating accelerated payments to small business 
subcontractors. This additional guidance could take the form of 
additional FAR revisions, or new FAR provisions and clauses, if 
appropriate. The Councils may decide to publish a Request for 
Information in the near future to consider its options to address 
accelerated payments to small business subcontractors. This will 
support the OMB Memorandum M-13-15, Extension of Policy to Provide 
Accelerated Payment to Small Business Subcontractors, requirement for 
the Councils to solicit public input on strategies that might be used 
over the longer term to help maintain effective cash flow and prompt 
payment to small business subcontractors.

IV. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

V. Regulatory Flexibility Act

    DoD, GSA, and NASA have prepared a Final Regulatory Flexibility 
Analysis (FRFA) consistent with the Regulatory

[[Page 70479]]

Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as 
follows:

    Although it may have a positive impact on small business 
subcontractors, DoD, GSA, and NASA do not expect this rule to 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 this rule implements the temporary 
policy provided by OMB Policy Memoranda M-12-16, Providing Prompt 
Payment to Small Business Subcontractors, dated July 11, 2012 and M-
13-15, Extension of Policy to Provide Accelerated Payment to Small 
Business Subcontractors, on July 11, 2013, which are designed to 
accelerate payment from Federal contractors to their small business 
subcontractors. The rule imposes no reporting, recordkeeping, or 
other information collection requirements. The rule does not 
duplicate, overlap, or conflict with any other Federal rules, and 
there are no known significant alternatives to the rule.
    This final rule adds a FAR clause that will provide for 
accelerated payments from the prime contractor to its small business 
subcontractors when the prime contractor receives an accelerated 
payment from the Government thus implementing this OMB policy. This 
rule requires prime contractors, upon receipt of accelerated 
payments from the Government, to make accelerated payments to their 
small business subcontractors, improving small business cash flow 
overall.
    No comments were filed by the Chief Counsel for Advocacy of the 
Small Business Administration in response to the rule and no changes 
were made to the rule.

    Interested parties may obtain a copy of the FRFA from the 
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy 
of the FRFA to the Chief Counsel for Advocacy of the Small Business 
Administration.

VI. Paperwork Reduction Act

    The final rule does not contain any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 12, 32, and 52

    Government procurement.

    Dated: November 18, 2013.
William Clark,
Acting Director, Office of Government-Wide Acquisition Policy, Office 
of Acquisition Policy, Office of Government-Wide Policy.
    Therefore, DoD, GSA, and NASA amend 48 CFR parts 12, 32, and 52 as 
set forth below:

0
1. The authority citation for 48 CFR parts 12, 32, and 52 continues to 
read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

PART 12--ACQUISITION OF COMMERCIAL ITEMS

0
2. Amend section 12.301 by adding paragraph (d)(4) to read as follows:


12.301  Solicitation provisions and contract clauses for the 
acquisition of commercial items.

* * * * *
    (d) * * *
    (4) Insert the clause at 52.232-40, Providing Accelerated Payments 
to Small Business Subcontractors, as prescribed in 32.009-2.
* * * * *

PART 32--CONTRACT FINANCING


32.002  [Amended]

0
3. Amend section 32.002 by removing from paragraph (a)(1) ``32.005'' 
and adding ``32.009'' in its place.

0
4. Add section 32.009 to read as follows:


32.009  Providing accelerated payments to small business 
subcontractors.


32.009-1  General.

    Pursuant to the policy provided by OMB Memorandum M-12-16, 
Providing Prompt Payment to Small Business Subcontractors (and as 
extended by OMB Memorandum M-13-15, Extension of Policy to Provide 
Accelerated Payment to Small Business Subcontractors), agencies shall 
take measures to ensure that prime contractors pay small business 
subcontractors on an accelerated timetable to the maximum extent 
practicable, and upon receipt of accelerated payments from the 
Government. This acceleration does not provide any new rights under the 
Prompt Payment Act and does not affect the application of the Prompt 
Payment Act late payment interest provisions.


32.009-2  Contract clause.

    Insert clause 52.232-40, Providing Accelerated Payments to Small 
Business Subcontractors, in all solicitations and contracts.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Amend section 52.213-4 by--
0
a. Revising the date of the clause;
0
b. Redesignating paragraphs (a)(2)(vi) through (a)(2)(viii) as 
paragraphs (a)(2)(vii) through (a)(2)(ix), respectively;
0
c. Adding a new paragraph (a)(2)(vi).
    The revision and addition read as follows:


52.213-4  Terms and Conditions-Simplified Acquisitions (Other Than 
Commercial Items).

* * * * *
Terms and Conditions--Simplified Acquisitions (Other than Commercial 
items) (Dec 2013)
* * * * *
    (a) * * *
    (2) * * *
    (vi) 52.232-40, Providing Accelerated Payments to Small Business 
Subcontractors (Dec 2013)
* * * * *

0
6. Add section 52.232-40 to read as follows:


52.232-40  Providing Accelerated Payments to Small Business 
Subcontractors.

    As prescribed in 32.009-2, insert the following clause:
Providing Accelerated Payments to Small Business Subcontractors (Dec 
2013)
    (a) Upon receipt of accelerated payments from the Government, 
the Contractor shall make accelerated payments to its small business 
subcontractors under this contract, to the maximum extent 
practicable and prior to when such payment is otherwise required 
under the applicable contract or subcontract, after receipt of a 
proper invoice and all other required documentation from the small 
business subcontractor.
    (b) The acceleration of payments under this clause does not 
provide any new rights under the Prompt Payment Act.
    (c) Include the substance of this clause, including this 
paragraph (c), in all subcontracts with small business concerns, 
including subcontracts with small business concerns for the 
acquisition of commercial items.
    (End of clause)

0
7. Amend section 52.244-6 by--
0
a. Revising the date of the clause;
0
b. Redesignating paragraph (c)(1)(x) as paragraph (c)(1)(xi); and
0
c. Adding a new paragraph (c)(1)(x).
    The revision and addition read as follows:


52.244-6  Subcontracts for Commercial Items.

* * * * *
Subcontracts for Commercial Items (Dec 2013)
* * * * *
    (c)(1) * * *

    (x) 52.232-40, Providing Accelerated Payments to Small Business 
Subcontractors (Dec 2013), if flow down is required in accordance 
with paragraph (c) of FAR clause 52.232-40.
* * * * *
[FR Doc. 2013-28053 Filed 11-22-13; 8:45 am]
BILLING CODE 6820-EP-P