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roro176

Irregular review of deliverable and non-payment to subcontractor

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A small business subcontractor working for a prime contractor has not received final payment for work completed from April 2012 to August 2012 due to the non-acceptance of a major deliverable (a report) by the government. The prime contractor has a cost plus fixed fee contract with the federal government. There have been several iterations of the deliverable in question primarily due to the government COTR changing three times. The first COTR asked for more detail and when revised, a new COTR was appointed, and asked for less detail. The deliverable was revised again to meet his request, and by then, a new COTR was appointed, and again asked for more detail. The prime contractor is in standby mode and not questioning the irregularity in the inspection of the deliverable. The small business subcontractor would like to know what rights, if any, it has in such a situation to elevate this irregular review of the deliverable in order to obtain acceptance and receive payment.



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It is the subcontractor's item (deliverable) that was not accepted.

To complicate matters, the subcontractor also submitted several other minor deliverables in the April 2012 to August 2012 that were accepted by the Government agency - and has not received payment from the prime for those either.

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As a general rule, you would not have to have the deliverables accepted in order for you to be paid under a T&M subcontract. If the payment terms in your subcontract are the same as the payment terms in FAR 52.232-7, all you would have to do is provide qualifying labor and properly document costs incurred for material in order to be entitled to payment. Review the payment terms of your subcontract then tell the prime why you think you are entitled to be paid if your review shows that you are. If that doesn't work, contact a good attorney.

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That small business subcontractor has gone without being paid for TWO YEARS on a T&M subcontract under a cost-type prime contract, and is now making inquires what rights it may have. Well, better late than never, I guess.

Dear small business subcontractor: you should have consulted an attorney on or about the 60th day of not being paid for invoices submitted to your prime that were generated in accord with your subcontract. At this point, I suggest you bring that subcontract and all related correspondence to an attorney immediately, without further discussion with your prime contractor. While I obviously do not know all the details of your situation (and terms of your subcontract), I strongly suspect your prime contractor is taking advantage of your good nature.

And if it turns out you accepted a T&M subcontract with payment terms that deviated significantly from the 52.232-7 "norms" (for instance, if you accepted "pay when paid" terms) then I urge you to hire somebody with deep government contracting expertise (if only on a part-time or consulting basis) to help you avoid further missteps in the future.

I'd like to think this advice is helpful, but I fear it's too little and too late.

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It's funny: most business people do not like contracts, do not plan them carefully when they have to have them, and routinely ignore them once they're in place. They just don't like calling lawyers and hold off doing so as long as possible, even when getting ripped off.

A law professor and social scientist, Stewart Macaulay, confirmed this and wrote a famous article about it entitled, "Non-contractual Relations in Business: A Preliminary Study," which was published in The American Sociological Review in February 1963, and I think his findings are still as valid as ever. It's worth a read:

https://media.law.wisc.edu/m/wcwmt/non-contractual.pdf

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Vern, thanks for linking to that mid-century paper. From personal experience I think the conclusions are still valid (as you stated). A business person is always weighing cost and benefit. Attorneys are involved as a last resort because of time and expense and distraction from other aspects of the business.

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