Good news came in April. GSA has cut payment times down to 15 days for both small business subcontractors of prime GSA contract holders and for small businesses acting as prime contractors. What should you know about this change?
How it started
April 2020 initiative wasn’t the first time when GSA introduced ways to speed up payments and the procurement process as a whole.
In 1998, General Services Administration announced beginning of the GSA SmartPay program that helps federal agencies procure certain services much faster and pay for them with a SmartPay card. The SmartPay program also allows instant payments on Blanket Purchase Agreements (BPA) allowing agencies to quickly get urgent supplies without much paper work, and vendors can receive payments the same day.
Further, in 2012, President Obama’s Administration issued an Office of Management and Budget Memo that introduced accelerated payments for small businesses that are GSA subcontractors. This initiative promoted quick payments to small business subcontractors within 15 days instead of 30 temporarily, for one year.
April 2020 payment acceleration
In April 2020, GSA cuts payment times for small businesses. In parallel with that, Department of Defense also announced accelerated payments for small businesses. Let’s take a look at the changes to the Prompt Payment Act as of April.
1. Payment times are cut down to 15 days as a goal
In order to support small businesses working with GSA, General Services Administration officially allowed payments within 15 days after receipt of a corresponding invoice unless the contract explicitly defines some other payment date.
2. Two types of small business contractors are eligible
The new accelerated payments apply to all SB contractors including small businesses that are prime contractors and any prime contractors that have small business subcontractors. Previously, the FAR provided for accelerated payments to small business subcontractors only.
3. Accelerated payments apply to all civil agencies
The FAR Class Deviation CD-2020-08 introducing changes to the Prompt Payment Act applies to all civil federal agencies. Military agencies are governed by the final DFARS rule as of April 8, 2020.
4. Only GSA single-agency contracts are eligible
The change does not cover FSS contracts or multi-agency contracts. Also payments can be accelerated if GSA is the only agency making payments.
5. Multi-year contracts are preferred
GSA’s contracting personnel is allowed to decide which specific contract is eligible to cut payment times. Larry Allen, Managing Director of BDO USA comments: “The rule probably doesn’t impact contracts such as a one-time order and shipment of 1,000 laptops. It does apply to multi-year agreements that might ship 1,000 laptops per quarter.
What about DoD contracts?
DoD contracts will also be eligible to accelerated payments (the same 15 days as with GSA) under the final DFARS rule effective April 8, 2020. Here are the changes:
1. Accelerated payments apply to all DoD contracts below SAT
The statistics indicate that 96% of DoD contractors fall under the Simplified Acquisition Threshold (currently $250,000). Only SAT contracts and contracts for the acquisition of commercial items including commercially available off-the-shelf (COTS) items are eligible for quicker payments.
2. The Rule also applies to prime contractors that are small businesses
Previously, only small business DoD subcontractors were eligible. Now, DoD prime contractors that are small businesses can also receive payments faster.
3. 15-days payment goal is established
The new DFARS regulation sets a 15 days goal for payments to contractors. The current standard is 30 days.
4. SAT has increased
In addition to cutting payment times, DoD also increases the Simplified Acquisition Threshold to $750,000 for domestic product purchases and to $1.5 million for international purchases. This is to address the pandemic and process COVID-19-related procurements faster. For vendors this means they can receive even more money without much complication.
Some important notices you should know about
Both GSA and DoD initiatives in cutting down payments time for small businesses are very welcome. However, please consider the following:
- 15-days period is merely a goal, not a guarantee. GSA formulates this as follows “Agencies may pay a small business as quickly as possible, when all proper documentation, including acceptance, is received in the payment office and before the payment due date”.
- Accelerated payment is formulated as “a payment made prior to the due date”, which means your accelerated payment may take longer than 15 days (or even 30 days) if the contract’s due date allows that.
- The new rules prohibit any further fees charged for the accelerated payments to small businesses, so this means that not only payment times are cut, but also costs associated with receiving these payments.
- You should carefully review existing solicitations and RFQs to make sure the new accelerated payment clause is included. Do this before you submit your proposal or quote, otherwise you may not be eligible for accelerated payments.