DOD Contracting:

Techniques to Ensure Timely Payments to Subcontractors

NSIAD-93-136: Published: May 28, 1993. Publicly Released: May 28, 1993.

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Pursuant to a legislative requirement, GAO provided information on: (1) statutory and regulatory provisions that provide for timely payments to subcontractors working on federal contracts; and (2) whether additional proposed payment protections for subcontractors were needed and reasonable.

GAO found that: (1) although statutory and regulatory payment protections for federal subcontractors were generally feasible and used on a limited basis, the provisions often added to contractor costs and administrative burdens due to the additional data, procedures, and controls needed; (2) in response to a GAO questionnaire, 151 federal subcontractors reported late or delayed payments totalling $345 million for fiscal year 1991; (3) although federal subcontractor payment problems adversely affect contractor and subcontractor cash flow and overall financial subcontractor health, additional statistical data were needed to ensure that payments problems were widespread; and (4) contracting officers have the authority to provide for additional payment protection, however, substantial evidence of payment problems would be required before they could enact additional protections and they were often reluctant to take corrective action because the existing policy and procedures did not clearly state when and how they should act.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD has issued a policy memorandum restating and emphasizing contractor officer responsibilities concerning subcontractor payment problems. Additional steps are being taken to highlight that information in a Defense Acquisition Circular and ensure it is addressed in training courses and the Contract Administration Manual.

    Recommendation: The Secretary of Defense should issue policies and procedures for: (1) identifying the circumstances under which contracting officers should take action to provide payment protection for subcontractors; and (2) implementing appropriate payment protection techniques.

    Agency Affected: Department of Defense

 

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