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Posted on Tuesday, August 22, 2017

FAR Provisions Help Subcontractors Get Paid

A common question from subcontractors and suppliers is “what can we do when a prime contractor doesn’t pay us?”

The simplest solution, calling up the contracting officer and complaining about the prime’s failure to pay, seems like a prohibited one. Subcontracts often contain a subcontractor’s promise that it will not contact the government during the course of the subcontract without the prime’s approval.  Subcontractors obviously are reluctant to breach the subcontract.

However, whether the subcontractor’s promise is enforceable when payment issues are involved is questionable. FAR includes several provisions to help subcontractors get paid in noncommercial item contracts that, significantly, are based on federal statutes. Undoubtedly, the prime contract expressly obligates the prime contractor to comply with all federal statutes and presumably the subcontract contains an identical provision.

Thus, one allowable approach to getting paid is to use several FAR sections that are based on Federal statutes to try to get paid. One statute deals with payments under noncommercial item contracts and construction contracts.

FAR 32.112 Nonpayment of subcontractors under contracts for noncommercial items, contains two provisions implementing these federal statutes. One subsection allows the subcontractor to “assert,” to tell the contracting officer of nonpayment; the second subsection allows the subcontractor to get information from the contracting officer on payments made to the prime.

Asserting nonpayment.

FAR 32.112-1, Subcontractor assertions of nonpayment, sets up a two-stage process to help subcontractors as well as suppliers get paid. The first stage allows the subs to “assert” they haven’t been paid, following which the contracting officer “may” not “shall” – determine whether the prime has in fact made payments to the subcontractor or supplier that complies with the terms of the subcontract purchase order or other agreement with the prime contractor. The second stage of FAR 32.112-1 gives the contracting officer alternatives if the prime is not complying with subcontractor agreements. Specifically, the contracting officer “may encourage” the prime to make timely payments or reduce or suspend progress payments to the contractor. Finally, this FAR provision refers to a helpful “forcing” mechanism: any certification to the government that the prime has made to get any previous payments. If the contracting officer determines that a prime’s certification is inaccurate because the subcontractor had not been paid as the prime had certified, “the contracting officer shall initiate administrative or other remedial action.” Thus, the prime is exposed to contractor breach and the False Claims Act penalties from a false certification.

Requests for information. 

The second FAR subsection, FAR 32.112-2 Subcontractor requests for information, gives subcontractors an excellent information gathering mechanism. That provision allows a subcontractor to get information from the contracting officer on the status of prime contractor payments received from the government. If a contracting officer receives such a request, the contracting officer “shall promptly advise the subcontractor or supplier as to-(1) Whether the prime contractor has submitted requests for progress payments or other payments to the Federal Government under the contract; and (2) Whether final payment under the contract has been made by the Federal Government to the prime contractor.”

Of course, how useful these provisions are to any subcontractor depends on the status of the subcontractor’s relationship with the prime, and perhaps ever with the contracting officer. Regardless, it’s important to know that subcontractors have alternatives when the circumstances call for their use.

Berenzweig Leonard is teaming up with Red Team Consulting for a monthly newsletter featuring upcoming contracts, key protest decisions, legal updates, events, and more. This post was published in the July 2017 Monthly Insights newsletter. For more information on how to sign up for Monthly Insights, please click here.

Terry O’Connor is a Partner at Berenzweig Leonard, LLPHe and Stephanie Wilson lead the firm’s Government Contracts practice. Terry can be reached at TOconnor@BerenzweigLaw.com.