Prompt Payment Requirements Now in Effect

June 27, 2016

Small business subcontracting payment protections supplement those already in place in the Federal Prompt Payment Acts of 1982 and 1988 for construction subcontractors.

Those requirements (Far Part 52.232-5) require the prime contractor to pay the subcontractor within seven days of the prime’s receipt of payment for the subcontractors’ work.

The law permits the prime to impose retainage on the sub and permits withholding for written cause for specific performance deficiency. Interest is payable on late payments after seven days; interest accrues on payments withheld for cause after seven days as well. The payment rules affect all subcontractors on the covered project.

In addition, the Obama Administration has issued supplementary guidance to the Prompt Payment Act (PPA) calling for accelerated payments to small business prime contractors and subcontractors within 15 days of the contracting agency’s receipt of an invoice (the PPA permits agencies to take 30 days from receipt to pay the prime).

Click below to access OMB memos extending the accelerated payment procedures through December 2016.

OMB Memorandum

OMB Memorandum

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