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Subcontractor Payment


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Does a subcontractor have any recourse to federal government to obtain payment on supplies furnished to a prime under an ordinary purchase order, non-construction? Are there any lien procedures? If so, is there a period, such as 30 days after delivery, when a lien could be filed against the federal government?

Thanks!

Bob Thompson

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Yes, and that recourse is to district court, not the government PCO.

Note FAR 28.106-8 ("The contracting officer will only authorize payment to subcontractors or suppliers from an ILC (or any other cash equivalent security) upon a judicial determination of the rights of the parties, a signed notarized statement by the contractor that the payment is due and owed, or a signed agreement between the parties as to amount due and owed.") See FAR 28.106-7(a) ("During contract performance, agencies shall not withhold payments due contractors or assignees because subcontractors or suppliers have not been paid.") My understanding is that there is no equivalent of the Miller Act for contracts for supplies or services, but FAR 28.103 does permit payment bonds for other than construction contracts.

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Guest Vern Edwards
Does a subcontractor have any recourse to federal government to obtain payment on supplies furnished to a prime under an ordinary purchase order, non-construction? Are there any lien procedures? If so, is there a period, such as 30 days after delivery, when a lien could be filed against the federal government?

You might be able to go to the CO. See FAR 32.112, Nonpayment of subcontractors under contracts for noncommercial items, which might provide assistance short of legal action if the prime contract is for noncommercial items. If the prime contract is for commercial items, the only recourse is most likely governing state law.

District court would be a venue for a dispute between prime and sub only if the contractor and subcontractor reside in different states and the parties have not agreed to a choice of law or governing law clause.

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Thanks, Vern. Pub. L. 102-190, sec. 806, referenced in FAR 32.112, permits DoD (and, later, all agencies) to "reduce or suspend progress payments with respect to amounts due to the prime contractor." Sec. 806(a)(4)(B)(ii). This is implemented in FAR 32.503-6(e). Under FASA, sec. 8105, this authority was made inapplicable to contracts for commercial items.

Subsec. 806(e) of Pub. L. 102-190 called on the GAO to submit a report assessing the feasibility of, e.g., escrow accounts or direct disbursements to subcontractors, to help ensure timely payment to subcontractors. The response was GAO/NSIAD-93-136. The best copy I could find is here. It discusses arrangements made with the consent of the parties. A prime may have incentive to consent, given the risk of "administrative or other remedial action."

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Subsec. 806(e) of Pub. L. 102-190 called on the GAO to submit a report assessing the feasibility of, e.g., escrow accounts or direct disbursements to subcontractors, to help ensure timely payment to subcontractors. The response was GAO/NSIAD-93-136. The best copy I could find is here. It discusses arrangements made with the consent of the parties. A prime may have incentive to consent, given the risk of "administrative or other remedial action."

If you're interested, GAO has a clean copy on its website. Try GAO/NSIAD-93-136.

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  • 2 months later...

Add to the list of "administrative or other remedial actions" the express (likely always implicit) potential for an adverse responsibility finding. Pub. L. 111-240, Small Business Jobs and Credit Act of 2010, section 1334, requires that when a contractor has a history of unjustified failure to make full or timely payments to subcontractors, the contracting officer shall record the identity of the contractor in the Federal Awardee Performance and Integrity Information System. This requirement is being implemented in FAR Case 2010-008.

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I thought the following section from P.L. 111-240 would be relevant to this discussion.

SEC. 1334. PAYMENT OF SUBCONTRACTORS.

Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) is amended by adding at the end the following:

`(12) Payment of Subcontractors-

`(A) DEFINITION- In this paragraph, the term `covered contract' means a contract relating to which a prime contractor is required to develop a subcontracting plan under paragraph (4) or (5).

`(B) NOTICE-

`(i) IN GENERAL- A prime contractor for a covered contract shall notify in writing the contracting officer for the covered contract if the prime contractor pays a reduced price to a subcontractor for goods and services upon completion of the responsibilities of the subcontractor or the payment to a subcontractor is more than 90 days past due for goods or services provided for the covered contract for which the Federal agency has paid the prime contractor.

`(ii) CONTENTS- A prime contractor shall include the reason for the reduction in a payment to or failure to pay a subcontractor in any notice made under clause (i).

`? PERFORMANCE- A contracting officer for a covered contract shall consider the unjustified failure by a prime contractor to make a full or timely payment to a subcontractor in evaluating the performance of the prime contractor.

`(D) CONTROL OF FUNDS- If the contracting officer for a covered contract determines that a prime contractor has a history of unjustified, untimely payments to contractors, the contracting officer shall record the identity of the contractor in accordance with the regulations promulgated under subparagraph (E).

`(E) REGULATIONS- Not later than 1 year after the date of enactment of this paragraph, the Federal Acquisition Regulatory Council established under section 25(a) of the Office of Federal Procurement Policy Act (41 U.S.C. 421(a)) shall amend the Federal Acquisition Regulation issued under section 25 of such Act to--

`(i) describe the circumstances under which a contractor may be determined to have a history of unjustified, untimely payments to subcontractors;

`(ii) establish a process for contracting officers to record the identity of a contractor described in clause (i); and

`(iii) require the identity of a contractor described in clause (i) to be incorporated in, and made publicly available through, the Federal Awardee Performance and Integrity Information System, or any successor thereto.'.

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