getting paid under government contracts...getting paid under government contracts sandy hoe justin...
TRANSCRIPT
Getting Paid Under Government Contracts
Sandy Hoe
Justin GandersonCovington & Burling
Virtual Class
April 6, 2017
Ralph NashProfessor Emeritus of Law
The George Washington University
2
Requesting And Receiving Payment
Obtaining Financing
Getting Paid When There Is Delay Or Dispute
Agenda
3
Requesting and Receiving Payment
4
Must register in the System for Award Management (SAM) at www.sam.gov to contract with USG and receive payment• No fees to register
• Must obtain a DUNS, Cage Code and TIN
• Registration, and certifications and representations
• Required to receive payment
SAM registration information is “public” unless opt out
Caveat• Accurate certifications/representations … potential fraud
exposure
SAM Registration
5
Need assistance registering … go to the SAM
User Guide
https://www.sam.gov/sam/SAM_Guide/SAM_User_Guide.htm
SAM Registration
6
Invoices FAR 32.905(b) identifies the content of an invoice to be submitted
for prompt payment purposes
Additional details may be needed for interim payment requests under a cost-reimbursement contract for services
Vouchers SF 1034 and 1035 are form vouchers
(1) Name and address of contractor (6) Name and address of contracting
official to whom payment is sent
(2) Invoice date and number (7) Contact information for notification
of defective invoices
(3) Contract number (8) TIN
(4) Description and pricing; (9) EFT banking information
(5) Shipping and payment terms (10) Any other information required by
contract
Payment Requests at Acceptance
7
Invoice or Voucher?• Invoice means “a contractor's bill or written request for
payment under the contract for supplies delivered or
services performed” (FAR 2.101)
• Voucher is an internal USG document which evidences
USG’s obligation to pay an invoice, and must be signed by
authorized USG representative
• Typically contractors prepare a voucher under a cost-
reimbursement type contract, which is then treated as an
invoice
Payment Requests at Acceptance
8
Proper submission of an invoice/voucher is a
prerequisite to payment• USG “shall pay the Contractor, upon the submission of
proper invoices or vouchers” (E.g., FAR 52.232-1)
• Proper invoice/voucher not in dispute
• “If the invoice does not comply with these requirements,
the designated billing office must return it within 7 days
after receipt” (FAR 32.905(b)(3))
Payment Requests at Acceptance
9
USG processing• “The agency receiving official should forward the receiving
report or other Government documentation [e.g., USG
certified voucher] to the designated payment office by the
5th working day after Government acceptance or approval” (FAR 32.905)
USG documentation must include indicia of acceptance, date of
acceptance, signature of authorized USG official
• “Acceptance [of payment package] should be completed
as expeditiously as possible” (FAR 32.905)
Payments at Acceptance
10
Timing of payment• Payment due within later of 30 days of receiving proper
invoice or accepting supplies/services; exceptions include
payments for food items, construction contracts (FAR
32.904)
• USG will “not make invoice payment earlier than 7 days
prior to the due dates specified in the contract” unless
agency permits “accelerated payments” or grants an
exception (FAR 32.906)
Discounts for prompt payment (FAR 32.906)
• As prescribed in contract
Payments at Acceptance
11
Prompt Payment Act• Codified at 31 USC § 3901, et seq.
• Interest “automatically” begins to accrue at Treasury rate if
unpaid after due date (FAR 32.907)
See http://www.fms.treas.gov/prompt/
• Penalty for late payment of interest
• If interest not paid within 10 days after invoice is paid, contractor
may make written demand within 40 days of payment for additional
penalty
• Additional penalty equals to 100% of late payment amount, not to
exceed $5,000
Payments at Acceptance
12
Payment requests• OMB Memo No. M-15-19 (July 17, 2015)
“Directs agencies, by the end of FY 2018, to transition to electronic invoicing
for appropriate Federal procurements”
DOD Agencies Invoicing, Receipt, Acceptance, and Property Transfer (iRAPT) system
(formerly Wide Area Work Flow) at
http://www.dfas.mil/contractorsvendors/irapt.html
DFARS 252.232-7003, Electronic Submission of Payment Requests and
Receiving Reports
Civilian Agencies Varies by agency
Electronic Systems
13
Receiving payments• Electronic Funds Transfer (EFT) generally used to make
contract payments (See FAR 32.11)
• Enter EFT information when registering in SAM
• EFT information is not disclosed to public
Electronic Systems
14
Financing
15
Advance payments (FAR 32.4)
• Payments made in anticipation of, and for the purpose of complete performance under one or more contracts
• To be used “sparingly”
Progress payments based on costs (FAR 32.5)
• Payments made “on the basis of costs incurred by the contractor as work progresses under the contract”
• Customary rate is 80% of costs for large businesses; 85% for small businesses
Progress payments based on percentage of completion (DFARS 232.102)
• “Progress payments based on percentage or stage of completion”
• Authorized only for contracts for construction, shipbuilding, and ship conversion, alteration, or repair
Non-Commercial Item Financing
16
Performance based payments (FAR 32.10)
• Payments made on the basis of “quantifiable measures of
results” like “[o]bjective, quantifiable methods” or
“[a]ccomplishment of defined events”
• Commonly referred to as milestone payments
Provisional delivery payments (DFARS 232.102-70)
• May “establish provisional delivery payments to pay
contractors for the costs of supplies and services delivered to
and accepted by the Government . . . if undefinitized”
• Applies to certain types of contracts like orders under basic
ordering agreements and indefinite delivery contracts
• To be used “sparingly”
Non-Commercial Item Financing
17
Commercial advance payment (FAR 32.2)
• A payment “made before any performance of work under the contract”
Delivery payment (FAR 32.2)
• A payment “for accepted supplies or services, including payments for accepted partial deliveries”
Commercial interim payment (FAR 32.2)
• Any payment “that is not a commercial advance payment or a delivery payment”
• A payment “after some work has been done” (includes installment payments)
Only if “appropriate or customary in the commercial marketplace and in the best interest of the United States”
Commercial Item Financing
18
Lien on contractor assets• Commercial item financing
• Advance payments for non-commercial items
Reduction or suspension of payments• Failing to “comply with material requirements” or contract
performance is “endangered”
Applies to performance based and progress payments
• “Substantial evidence that the contractor’s request for . . .
payments is based on fraud”
Applies to advance, partial, or progress payments
• Loss projected on fixed price contract
Reduction in percentage of progress payments
USG SecurityContract Financing
19
Submission and timing• Form of submission/request and timing of payment varies
based on contract terms
Concept of “liquidation”• To “decrease a payment for an accepted supply item or
service under a contract for the purpose of recouping
financing payments previously paid to the contractor”
Late financing payments• Prompt Payment Act interest? No!
Payment Requests and PaymentsContract Financing
20
Interim contract financing obtained by assigning
contract proceeds to a private, third-party• Contract proceeds provide the credit for the third-party
financing
• Third-party is secured by assignment of contractor proceeds
What is an assignment?• The transfer of certain rights or property under a contract
Third-Party Financing
21
“Anti-Assignment Act “ Assignment of Claims Act (31 USC § 3727)
Prohibits the contractor from freely transferring claims against USG to
another party
Assignment of Contracts Act (41 USC § 6305)
Prohibits the contractor from freely transferring USG contracts or rights in
USG contracts to another party
Violation annuls USG contract
Exceptions USG waiver
Made “by operation of law”
Assigning proceeds due under USG contract to “a bank, trust company,
Federal lending agency, or other financing institution”
Implemented in FAR subpart 32.8
Assignments of USG Contract Proceeds
22
Assignment must cover full balance
Single assignment
• Single entity or single entity as agent or trustee for others
Must provide USG with written notice of
assignment
Assignee must be registered separately in SAM
Implemented in FAR subpart 32.8
Assigning Proceeds to Third-Party Financial Institutions
23
Cash flow• “No-setoff" provision – avoiding payment offsets arising from
causes that are independent of the contract
• Doctrine of contract severability – protecting against cross-
defaults when portions of contract are “severable”
• “Step-in rights” – agreement allowing financing party to cure a
potential breach of contract to avoid contract termination
• Take action directly against USG for non-payments
• Not required to refund amounts paid by USG if subsequent issue
arises with contractor performance/payment
Perfecting security interest in receivables• Advisable to comply with UCC requirements
Protecting the Third-Party Assignee
24
Changing the Payment Recipient
25
Same company, new name• Must enter into a change-of-name agreement with USG
(see FAR 42.1205)
• Must update SAM (see FAR 4.1102(c)(1)(i))
• Case law has recognized that this transfer is made
pursuant to the “operation of law,” and therefore, not
subject to Anti-Assignment Act
Business Changes Name
26
All of a contractor’s assets (or the entire portion
of assets involved in performing the USG
contract) are purchased by another company• USG, contractor (transferor) and “successor-in-interest”
(transferee) permitted to enter into a “Novation Agreement” to
effectuate transfer (FAR 42.1204)
• FAR 42.1204 delineates specific deliverables to process/approve
novation and rights/obligations thereunder
Asset transfer documentation and approvals
Opinion of legal counsel regarding the transfer
Guarantee of performance
Assumption of obligations / waiver of rights
Contractor still liable for performance until novation agreement is
executed
Business is Purchased (Asset Purchase)
27
All of a business’s stock is purchased by another
company• Novation agreement not required, but may need to address
change in ownership with Contacting Officer (FAR 42.1204(b))
• Could result in change of name
• Certain case law has recognized that this transfer is made
pursuant to the “operation of law” and therefore not subject to
Anti-Assignment Act
Business is Purchased (Stock Purchase)
28
Getting Paid When There Is A Delay Or Dispute
29
Getting Paid When There Is A Delay Or Dispute
30
Resolving Delayed Payment From USG
Simple delay of payment – no dispute
• Proper invoice submitted
• Due date has passed
• No payment received
Steps to get paid
• Contact the CO
• Contact DFAS or the civilian agency payment office
• Convert routine request for payment into a claim
Prompt Payment Act interest accrues, where
applicable
31
Subcontractor – Delayed Payment
Request information from CO about status of payments to prime contractor (FAR 32.112-2)
• CO “shall promptly” advise whether prime contractor has submitted requests for payments or whether final payment has been made
Assert prime contractor non-payment to CO (FAR 32.112-1)
• If prime contractor is not in compliance with subcontract payment provisions, the CO may “[e]ncourage timely payment” or “[i]f authorized by the applicable payment clauses, reduce or suspend progress payments to the contractor”
• If prime contractor’s certification of payment of a subcontractor is “ inaccurate in any material respect,” CO “shall initiate administrative or other remedial action”
32
Resolving Disputed Payments
Disputes
• Failure to pay a routine payment request within a
reasonable amount of time
• Entitlement to amounts due under contract Expenses to correct defects
Deduction of payments based on allowability of costs
Reduction or suspension of payments under contract clauses
Price adjustments resulting from Cost Accounting Standards (CAS)
noncompliance
33
Resolving Disputed Payments
Disputes
• Withholding and set-offs Withholding of contract payments due to violations or disapproval of
certain requirements like the Service Contract Labor Standards
(FAR 52.222-41) or Contractor Business Systems (DFARS
242.7000)
Set-off debts that arise independently of the contract
34
Resolving Disputed Payments
The Contract Disputes Act (CDA)
• Provides current statutory framework for prosecuting and
resolving claims arising out of or related to USG executive
agency contracts (41 USC § 7101, et seq.)
• Definition of a “claim”:A “written demand . . . seeking, as a matter of right, the payment of
money in a sum certain . . . arising under or relating to the contract. . . .
. A voucher, invoice, or other routine request for payment that is not in
dispute when submitted is not a claim.” (FAR 2.101)
• Obligation to continue performance pending resolution of
dispute
35
CDA Claims
Contractor claim
• Contractor submits claim to CO Claim provides legal/factual basis for challenging basis for USG
nonpayment (e.g., failure to adjust contract for full amount of
changed work performed under the contract)
“A voucher, invoice, or other routine request for payment . . . may be
converted to a claim, by written notice to the contracting officer as
provided in 33.206(a), if it is disputed either as to liability or amount
or is not acted upon in a reasonable time.” (FAR 2.101)
If claim is greater than $100,000, then must certify
CDA interest (for benefit of contractor) begins to accrue on date of
claim submission
• CO issues Final Decision to contractor
36
CDA Claims
USG claim• USG submits claim through CO Final Decision that provides basis
for nonpayment (e.g., finding of defective pricing under the contract
and offset of future payments)
• USG interest
• CO issues Final Decision to contractor
Debt deferment permitted under certain
circumstances• Allows contractor to enter into a “deferment agreement” to defer
payment of “contact debt” pending resolution of dispute
• Granted based on various factors, including contractor’s “financial
condition”
37
Litigating a CDA Claim
Appealing a CO Final Decision• Appeal to Board of Contract Appeals or US Court of
Federal Claims
• De novo trial review; ADR is possible
• Further appeals to US Court of Appeals for the Federal
Circuit, and then US Supreme Court
38
Recovering on a Successful ClaimAgainst the USG
From agency appropriations
Judgment Fund
• Codified at 31 U.S.C. § 1304
• Permanent indefinite appropriation
Available to pay any judgments and awards against the USG
Agencies required to reimburse the Judgment Fund for
judgments rendered in a CDA dispute
39
Sandy [email protected]
202-662-5394
Justin [email protected]
202-662-5422
Ralph Nash
Contact us with any questions