Federal Acquisition Regulation: Accelerated Payments Applicable to Contracts With Certain Small Business Concerns, 9730-9734 [2023-02425]

Agencies

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

[Federal Register Volume 88, Number 30 (Tuesday, February 14, 2023)]
[Rules and Regulations]
[Pages 9730-9734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02425]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 12, 32, and 52

[FAC 2023-02; FAR Case 2020-007; Item I; Docket No. FAR-2020-0007, 
Sequence 1]
RIN 9000-AO10


Federal Acquisition Regulation: Accelerated Payments Applicable 
to Contracts With Certain Small Business Concerns

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA),

[[Page 9731]]

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 a section of the 
National Defense Authorization Act for Fiscal Year 2020 to provide for 
accelerated payments to small business contractors and subcontractors 
and a comparable statute applicable only to the Department of Defense.

DATES: Effective March 16, 2023.

FOR FURTHER INFORMATION CONTACT: Ms. Zenaida Delgado, Procurement 
Analyst, at 202-969-7207 or by email at [email protected] for 
clarification of content. For information pertaining to status or 
publication schedules, contact the Regulatory Secretariat Division at 
202-501-4755 or [email protected]. Please cite FAC 2023-02, FAR Case 
2020-007.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published a proposed rule at 86 FR 53923 on 
September 29, 2021, to implement a policy that provides for accelerated 
payments to contractors that are small businesses and to small business 
subcontractors by accelerating payments to their prime contractors. 
This change implements section 873 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2020 (Pub. L. 116-92). 
Section 873 amends 31 U.S.C. 3903(a).
    Specifically, section 873 requires agencies to establish an 
accelerated payment date for small business prime contractors, to the 
fullest extent permitted by law, with a goal of 15 days after receipt 
of a proper invoice, if a specific payment date is not established by 
contract. Section 873 also requires that, to the fullest extent 
permitted by law, the head of an agency establish an accelerated 
payment date for prime contractors that subcontract with small 
businesses, 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. The final rule implements both aspects of 
section 873. For DoD, however, this case implements section 815 of the 
William M. (Mac) Thornberry NDAA for FY 2021, which amended 10 U.S.C. 
2307(a)(2)(A) (now found at 10 U.S.C. 3801) by striking the language 
``if a specific payment date is not established by contract.'' 
Accordingly, this case excludes from DoD contracts the condition 
reflected in the language ``a specific payment date is not established 
by contract.''
    Four 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 public 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

    There are no significant changes from the proposed rule.

B. Analysis of Public Comments

    Of the four responses received, none provided negative comments on 
the rule, although they suggested changes as described below. No 
changes resulted from the public comments.
    Comment: A respondent suggested adding the following language: 
``the term ``other required documentation'' shall exclude documentation 
that is not commercially reasonable in the circumstances, unless such 
documentation is required by law.'' This respondent stated that its 
suggested change is meant to prevent ``the occasional agency or prime 
contractor [from evading] acceleration of payment under the proposed 
rules by establishing unreasonable requirements for documentation that 
a small business cannot meet.''
    Response: The Councils cannot accept the suggestion because it is 
not consistent with the statute being implemented. Section 873 of the 
NDAA for FY 2020 did not create or modify a definition of ``other 
required documentation.'' The term ``other required documentation'' and 
other similar variations are used in many instances in the FAR and 
other agency regulations. Also, such ``documentation'' may be required 
by the contract or law, or both. The Councils concluded that ``other 
required documentation'' should be sufficient; and that adding the 
suggested language will not make the issue any clearer.
    Comment: A respondent expressed the need for the rule to clarify 
the statement ``with a goal of 15 days after receipt of proper invoice, 
if--(1) a specific payment date is not established by contract . . .'' 
The respondent expressed concern that a contracting officer may insert 
``any type of specific date--i.e., 30 days, 60 days or 90 days into 
their contracts.'' This respondent suggested to remove the term 
``goal'' and make the accelerated payment ``a requirement and that 
there be oversight within contracts to make certain the requirement is 
being achieved.''
    Response: Congress has directed DoD to ``establish an accelerated 
payment date with a goal of 15 days after a proper invoice for the 
amount due is received.'' See section II.C. of this preamble. For 
civilian agencies, the Councils cannot accept the suggestion because it 
is not consistent with the statute.
    Comment: A respondent expressed that small business contractors 
having to flow down the accelerated payment to their small business 
subcontractors would ``essentially eliminate any financial assistance 
by negating the benefit of the accelerated timeline.'' This respondent 
expressed that the flowdown requirement ``could put an undue burden 
onto many small business primes who do not track the size status of 
their subcontractors since they are not subject to the same reporting 
requirements of large businesses. Being required to implement a 
tracking system to comply with the flowdown of accelerated payments 
could prove to be an additional unintended expense on the small 
business that would once again negate the financial benefit of 
accelerated payment.''
    Response: The Councils cannot accept the suggestions because they 
are not consistent with the statute being implemented. Section 873 of 
the NDAA for FY 2020 requires the flowdown. The statute and the final 
rule do not include additional reporting or recordkeeping requirements.
    Comment: A respondent expressed strong support for the rule and 
urged the Councils ``to include in the final rule an expansion of the 
provision to apply these accelerated payment requirements to large 
business subcontractors.'' A respondent expressed support for the rule 
but believed that more analysis of the financial and administrative 
impact of accelerating payments to large subcontractors is required. 
This respondent provided three examples of questions that need to be 
answered: (1) How will it affect contractor ERP systems and reporting? 
(2) What administrative costs will be incurred and what is the overall 
financial impact? (3) How will the requirement be integrated with 
existing regulations that already dictate when payments must be made to 
subcontractors (i.e., FAR 52.232-16, FAR 52.216-7)?
    Response: In the preamble to the proposed rule, the Councils noted 
their interest in understanding the

[[Page 9732]]

implications of applying the accelerated payment requirements to large 
business subcontractors and flowing them down to lower tier small 
business subcontractors. Interest in this issue remains, but additional 
research is needed to properly inform the process. The Councils, in 
coordination with the Office of Federal Procurement Policy, will 
consider whether further action through a new rulemaking should be 
pursued to address flowdown of accelerated payments, as well as other 
refinements that may be necessary to ensure the policy objective of 
accelerating payments to small business concerns has been achieved by 
the changes set forth in this rule.

C. Other Changes

    Other changes made to the final rule are as follows:
     To add a clarification at FAR 32.009-1(a) by creating 
paragraphs (a)(1) and (a)(2) to differentiate DoD from civilian 
agencies regarding the removal of the phrase ``if a specific payment 
date is not established by contract'' at 10 U.S.C. 3801 per section 815 
of the William M. (Mac) Thornberry NDAA for FY 2021, Public Law 116-
283; the statutory text was moved from 10 U.S.C. 2307(a) to 10 U.S.C. 
3801.
     To make editorial corrections at: 52.213-4(a)(1)(x) to be 
consistent with the FAR 52.233-4 citation at FAR 52.212-5.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Products, Including Commercially 
Available Off-the-Shelf (COTS) Items, or for Commercial Services

    This rule does not add any new solicitation provisions or contract 
clauses. This rule amends the following FAR clauses: 52.212-5, Contract 
Terms and Conditions Required To Implement Statutes or Executive 
Orders-Commercial Products and Co mmercial Services; 52.213-4, Terms 
and Conditions-Simplified Acquisitions (Other Than Commercial Products 
and Commercial Services); 52.232-40, Providing Accelerated Payments to 
Small Business Subcontractors; and 52.244-6, Subcontracts for 
Commercial Products and Commercial Services.
    The FAR rule makes the 10 U.S.C. 2307(a) (now found at 10 U.S.C. 
3801) and 31 U.S.C. 3903 statutory changes to a requirement already 
applicable to contracts at or below the SAT and to contracts for the 
acquisition of commercial products and commercial services, including 
COTS items.
    The Federal Acquisition Regulatory Council (FAR Council) is 
applying the rule to contracts at or below the SAT and acquisitions of 
commercial products and commercial services, including acquisitions for 
COTS items, in accordance with 41 U.S.C. 1905, 41 U.S.C. 1906, and 41 
U.S.C. 1907. Discussion of the FAR Council determinations is set forth 
below.

A. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold

    41 U.S.C. 1905 governs the applicability of laws to acquisitions at 
or below the SAT. Section 1905 generally limits the applicability of 
new laws when agencies are making acquisitions at or below the SAT, but 
provides that such acquisitions will not be exempt from a provision of 
law under certain circumstances, including when the FAR Council makes a 
written determination and finding that it would not be in the best 
interest of the Federal Government to exempt contracts and subcontracts 
in amounts not greater than the SAT from the provision of law.
    The FAR Council has made a determination to apply this statute to 
contracts and subcontracts at or below the SAT. These accelerated 
payments provide benefits to contractors that are small businesses, to 
contractors that subcontract with small businesses, and to small 
business subcontractors by accelerating payments to their prime 
contractors, without adding any reporting or recordkeeping 
requirements. Approximately 96 percent of Federal contracts are in 
amounts at or below the SAT. An exception for contracts and 
subcontracts at or below the SAT would exclude contracts and 
subcontracts intended to be covered by the law, thereby undermining the 
overarching public policy purpose of the law.

B. Applicability to Contracts for the Acquisition of Commercial 
Products, Including Commercially Available Off-The-Shelf (COTS) Items, 
or for Commercial Services

    41 U.S.C. 1906 governs the applicability of laws to contracts for 
the acquisition of commercial products and commercial services and is 
intended to limit the applicability of laws to those contracts. Section 
1906 provides that if the FAR Council makes a written determination 
that it is not in the best interest of the Federal Government to exempt 
contracts and subcontracts for commercial products and commercial 
services the provision of law will apply to them.
    41 U.S.C. 1907 states that acquisitions of COTS items will be 
exempt from certain provisions of law unless the Administrator for 
Federal Procurement Policy makes a written determination and finds that 
it would not be in the best interest of the Federal Government to 
exempt contracts for the procurement of COTS items.
    The FAR Council has made a determination to apply this statute to 
contracts and subcontracts for commercial products and commercial 
services. The Administrator for Federal Procurement Policy has made a 
determination to apply this statute to acquisitions for COTS items. 
These accelerated payments provide benefits to contractors that are 
small businesses, to contractors that subcontract with small 
businesses, and to small business subcontractors by accelerating 
payments to their prime contractors, without adding any reporting or 
recordkeeping requirements. Over 50 percent of Federal contracts are 
awarded using commercial procedures. An exception for commercial 
products and commercial services, including COTS items, contracts and 
subcontracts would exclude contracts and subcontracts intended to be 
covered by the law, thereby undermining the overarching public policy 
purpose of the law.

IV. Expected Impact of the Rule

    The final rule expands the FAR policy regarding accelerated 
payments to small business contractors by: (1) providing accelerated 
payments to prime contractors that are small businesses; (2) 
establishing a goal of payment within 15 days after receipt of a proper 
invoice; and (3) prohibiting prime contractors from requesting any 
further consideration from the subcontractor in exchange for the 
accelerated payments. The Government expects this rule to improve cash 
flow and access to the Federal marketplace for small businesses, which 
are likely to have lower cash reserves and less access to inexpensive 
credit when compared to other than small businesses, i.e., large 
businesses.

V. 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 not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of

[[Page 9733]]

E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

VI. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before an interim or final rule takes effect, DoD, GSA, and NASA will 
send the rule and the ``Submission of Federal Rules Under the 
Congressional Review Act'' form to each House of the Congress and to 
the Comptroller General of the United States. A major rule cannot take 
effect until 60 days after it is published in the Federal Register. The 
Office of Information and Regulatory Affairs (OIRA) in the Office of 
Management and Budget has determined that this is not a major rule 
under 5 U.S.C. 804.

VII. Regulatory Flexibility Act

    DoD, GSA, and NASA have prepared a Final Regulatory Flexibility 
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 
U.S.C. 601-612. The FRFA is summarized as follows:

    This final rule amends the FAR to provide for accelerated 
payments to contractors that are small businesses, and to small 
business subcontractors by accelerating payments to their prime 
contractors. Specifically, the statute requires agencies, to the 
fullest extent permitted by law, to establish an accelerated payment 
date for small business contractors, with a goal of 15 days after 
receipt of a proper invoice, if a specific payment date is not 
established by contract. For contractors that subcontract with small 
businesses, the statute requires agencies, to the fullest extent 
permitted by law, to establish an accelerated payment date, with a 
goal of 15 days after receipt of a proper invoice, if--
    (a) A specific payment date is not established by contract; and
    (b) The contractor agrees to make accelerated payments to the 
subcontractor without any further consideration from, or fees 
charged to, the subcontractor.
    For DoD, however, this rule implements section 815 of the 
William M. (Mac) Thornberry NDAA for FY 2021, which amended 10 
U.S.C. 2307(a)(2)(A) (now found at 10 U.S.C. 3801) by striking the 
language ``if a specific payment date is not established by 
contract.'' Accordingly, the final rule excludes from DoD contracts 
the condition reflected in the language ``a specific payment date is 
not established by contract.''
    The objective is to implement section 873 of the NDAA for FY 
2020 (Pub. L. 116-92), which amends 31 U.S.C. 3903(a). The rule also 
implements a change made by section 815 of the William M. (Mac) 
Thornberry NDAA for FY 2021 to 10 U.S.C. 2307(a), now found at 10 
U.S.C. 3801, which requires DoD to keep the 15 days rather than 
allow a different specific date to be established in the contract.
    There were no significant issues raised by the public comments 
in response to the initial regulatory flexibility analysis.
    The final rule applies to small businesses that are prime 
contractors, and to small businesses that are subcontractors on 
Federal prime contracts. Based on data obtained from the Federal 
Procurement Data System, 120,907 unique entities (including 78,813 
small businesses) were awarded contracts for FY 2021. There is no 
data source to know how many subcontracts are awarded to small 
businesses. With regard to the impact of the prohibition on fees or 
other consideration in return for accelerated payments, it is not 
possible to estimate how many of these small business subcontractors 
may have been required to provide consideration or pay fees to the 
prime contractor in order to receive accelerated payments.
    The final rule does not include additional reporting or 
recordkeeping requirements. There are no available alternatives to 
the final rule to accomplish the desired objective of the statute.

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

VIII. Paperwork Reduction Act

    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 (44 U.S.C. 3501-3521).

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

    Government procurement.

William F. Clark,
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 4 and 10 U.S.C. 
chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 
20113.

PART 12--ACQUISITION OF COMMERCIAL PRODUCTS AND COMMERCIAL SERVICES


12.301  [Amended]

0
2. Amend section 12.301 by removing paragraph (d)(15).

PART 32--CONTRACT FINANCING

0
3. Revise sections 32.009 and 32.009-1 to read as follows:


32.009  Providing accelerated payments to small business contractors 
and to prime contractors that subcontract with a small business 
concern.


32.009-1  General.

    (a)(1) Pursuant to 31 U.S.C. 3903(a), agencies other than the 
Department of Defense (DoD) shall provide accelerated payments, to the 
fullest extent permitted by law, with a goal of 15 days after receipt 
of a proper invoice and all other required documentation, if a specific 
payment date is not established by contract, to--
    (i) Small business contractors; and
    (ii) Prime contractors that subcontract with a small business 
concern, if the prime contractor agrees to make payments to the small 
business subcontractor within 15 days of receiving the accelerated 
payment from the Government, after receipt of a proper invoice and all 
other required documentation from the small business subcontractor, to 
the maximum extent practicable, without any further consideration from 
or fees charged to the subcontractor.
    (2) Pursuant to 10 U.S.C. 3801(b), DoD shall provide accelerated 
payments, to the fullest extent permitted by law, with a goal of 15 
days after receipt of a proper invoice and all other required 
documentation, to--
    (i) Small business contractors; and
    (ii) Prime contractors that subcontract with a small business 
concern, if the prime contractor agrees to make payments to the small 
business subcontractor within 15 days of receiving the accelerated 
payment from the Government, after receipt of a proper invoice and all 
other required documentation from the small business subcontractor, to 
the maximum extent practicable, without any further consideration from 
or fees charged to the subcontractor.
    (b) 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.
    (c) Agencies may use the Governmentwide commercial purchase card as 
a method of payment (see 32.1108) to facilitate accelerated payment, to 
earn refunds, and to reduce invoice processing costs.


32.903  [Amended]

0
4. Amend section 32.903 by removing from paragraph (a)(5) ``5 CFR 
1315.5'' and adding ``5 CFR 1315.5, but see 32.009-1(a)'' in its place.

0
5. Amend section 32.906 by removing from paragraph (a)(2) ``are 
necessary (see 32.903(a)(5))'' and adding ``is

[[Page 9734]]

necessary'' in its place, and adding a sentence to the end of the 
paragraph.
    The addition reads as follows:


32.906  Making payments.

    (a) * * *
    (2) * * * See 32.903(a)(5), but see 32.009-1(a).
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Amend section 52.212-5 by--
0
a. Revising the date of the clause;
0
b. Redesignating paragraphs (a)(5) and (6) as paragraphs (a)(6) and 
(7); and adding a new paragraph (a)(5);
0
c. Redesignating paragraph (e)(1)(xxii) as paragraph (e)(1)(xxiii); and 
adding a new paragraph (e)(1)(xxii); and
0
d. In Alternate II--
0
i. Revising the date of the Alternate;
0
ii. Redesignating paragraph (e)(1)(ii)((U) as paragraph (e)(1)(ii)(V); 
and adding a new paragraph (e)(1)(ii)((U);
    The revisions and additions read as follows:


52.212-5  Contract Terms and Conditions Required To Implement Statutes 
or Executive Orders--Commercial Products and Commercial Services.

* * * * *

Contract Terms and Conditions Required to Implement Statutes or 
Executive Orders--Commercial Products and Commercial Services (MAR 
2023)

    (a) * * *
    (5) 52.232-40, Providing Accelerated Payments to Small Business 
Subcontractors (MAR 2023) (31 U.S.C. 3903 and 10 U.S.C. 3801).
* * * * *
    (e)(1) * * *
    (xxii) 52.232-40, Providing Accelerated Payments to Small Business 
Subcontractors (MAR 2023) (31 U.S.C. 3903 and 10 U.S.C. 3801). Flow 
down required in accordance with paragraph (c) of 52.232-40.
* * * * *
    Alternate II (MAR 2023). * * *
    (e)(1) * * *
    (ii) * * *
    (U) 52.232-40, Providing Accelerated Payments to Small Business 
Subcontractors (MAR 2023) (31 U.S.C. 3903 and 10 U.S.C. 3801). Flow 
down required in accordance with paragraph (c) of 52.232-40.
* * * * *

0
7. Amend section 52.213-4 by--
0
a. Revising the date of the clause;
0
b. Redesignating paragraphs (a)(1)(viii) and (ix) as paragraphs 
(a)(1)(ix) and (x); and adding a new paragraph (a)(1)(viii);
0
c. Revising the newly redesignated paragraph (a)(1)(x);
0
d. Removing paragraph (a)(2)(vi);
0
e. Redesignating paragraphs (a)(2)(vii) through (ix) as paragraphs 
(a)(2)(vi) through (viii); and
0
f. Removing from the newly redesignated paragraph (a)(2)(vii) ``(DEC 
2022)'' and adding ``(MAR 2023)'' in its place.
    The revisions and addition read as follows:


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

* * * * *

Terms and Conditions--Simplified Acquisitions (Other Than Commercial 
Products and Commercial Services) (MAR 2023)

    (a) * * *
    (1) * * *
    (viii) 52.232-40, Providing Accelerated Payments to Small Business 
Subcontractors (MAR 2023) (31 U.S.C. 3903 and 10 U.S.C. 3801).
* * * * *
    (x) 52.233-4, Applicable Law for Breach of Contract Claim (OCT 
2004) (Pub. L. 108-77 and 108-78 (19 U.S.C. 3805 note)).
* * * * *

0
8. Amend section 52.232-40 by revising the date of the clause and 
paragraph (a) to read as follows:


52.232-40  Providing Accelerated Payments to Small Business 
Subcontractors.

* * * * *

Providing Accelerated Payments to Small Business Subcontractors (MAR 
2023)

    (a)(1) In accordance with 31 U.S.C. 3903 and 10 U.S.C. 3801, within 
15 days after 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.
    (2) The Contractor agrees to make such payments to its small 
business subcontractors without any further consideration from or fees 
charged to the subcontractor.
* * * * *

0
9. Amend section 52.244-6 by--
0
a. Revising the date of the clause; and
0
b. Removing from paragraph (c)(1)(xix) ``(NOV 2021)'' and adding ``(MAR 
2023)'' in its place.
    The revision reads as follows:


52.244-6  Subcontracts for Commercial Products and Commercial Services.

* * * * *

Subcontracts for Commercial Products and Commercial Services (MAR 2023)

* * * * *
[FR Doc. 2023-02425 Filed 2-13-23; 8:45 am]
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