There are multiple layers and issues associated with payments for federal construction projects; both by agencies to contractors and by contractors to lower tiers. A thumbnail overview of the basic requirements are:
The underlying basic federal construction payment mandates
are in the Federal Prompt Payment Act (31 U.S.C. §§ 3901, et seq.) and FAR
Subpart 32.9, et seq. While having many aspects, the basic mandates are that payments
should be promptly made by both agencies to contractors and contractors (and
their lower tiers) to those of lower tier below them.
While there are more involved aspects, the short overview is
that payments are due by federal agencies: 1) on the date specified in the
contract; 2) in accordance with discount terms; 3) in accordance with
Accelerated Payment Methods; or – most typically – 4) 30 days after proper invoice.
When received, contractors then have 7 days to make payment
to their lower tiers (subcontractors and suppliers), and those lower tiers then
7 days to make payment to their lower tiers, and so forth. Those requirements
must be incorporated into all construction contracts.
However, the prompt payment requirements do still allow
certain withholdings, if: they are provided for in the contract; and relate to
retainage or relate to a withholding about which the contractor has given
notice to both the lower tier and the agency.
If contractors discover after their payment application but
before they make payment to their lower tiers that there is cause to withhold
payment from a lower tier, then they can withhold payments; but only if notice
has been furnished to the lower tier of the withholding cause, with copy to the
agency.
Payment must then be made to the lower tier as soon as
practicable after the withholding cause has been corrected (and within 7 days
of corrective action if agency has already made payment to the contractor or
alternatively within 7 days after payment to the contractor).
Of note, contractors may not request payment from agencies
for any amounts withheld or retained in accordance with contract rights until
such time as the contractor had determined, and certified to the agency, that
the subcontractor is entitled to payment. Of further note, false certifications
respecting payments by contractors are subject to other federal laws, including
the False Claims Act (31 U.S.C. §§ 3729, et seq.).
