[Federal Register Volume 78, Number 227 (Monday, November 25, 2013)]
[Rules and Regulations]
[Pages 70477-70479]
From the Federal Register Online via the Government Publishing 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]
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