As part of the jobs package that he presented to Congress earlier this month, President Obama announced a new “QuickPay” initiative that would reduce the deadline for federal government payments to small business prime contractors from 30 days to 14 days.
Many such contractors are often plagued by cash flow problems, even though they have a good deal of government business. They simply aren’t getting paid on time to pay their bills. The 30-day payment lag can put them into a negative cash flow situation and can jeopardize their financial well-being. And if small businesses go under, jobs are lost.
As Jill Aitoro recently reported in the Washington Business Journal, the Office of Management and Budget has instructed all federal agencies to make this change as soon as possible, if not immediately.
But is there less here than meets the eye? Aitoro made a good point about the new plan: It doesn’t apply to subcontractors, so they still need to wait until the prime contractors get paid and then, in turn, pay them. Naturally, if the prime contractor is paid faster, payments to subcontractors should be similarly accelerated. However, it remains to be seen if the benefits of acceleration will be noticeable as they trickle down the subcontractor chain.
We have heard other concerns from small business as well. Many in the government contracting community think this initiative may be more talk than substance. In addition to the subcontractor issue, there are other reasons why this may not change very much on the ground.
Even if an agency is committed on paper to paying within 14 days, a contracting officer can still trot out various bureaucratic reasons why payment was not required to occur in a particular instance until later. The “usual suspects” spring to mind: “The application was not prepared completely,” or “The pay app was not received” by the billing office by the anticipated trigger date. In some situations, the government is already paying more quickly than 30 days, as when the Government Purchase Card can be used by a contracting officer. Some contractors have told us that the change to electronic payments has vastly improved collections, and that when they are not paid within 30 days, they receive Prompt Payment Act Interest immediately.
Some small businesses in the government contracting sector also note that the Obama initiative doesn’t address equally important issues such as giving small businesses better access to the government sector, reducing or eliminating bonding obligations (a huge obstacle for many small businesses), and the like.
So we look forward to the implementation of the Obama plan with optimism tempered by caution.