H.R.2726 and Its Potential Impact on the Construction Industry
The Small Business Payment for Performance Act of 2023 was introduced to the House of Representatives on April 14, 2023, by Representative Pete Stauber of Minnesota. Seeking to enhance the financial stability of small contracting businesses, the act aims to promote fairness in government projects and support the growth of the construction industry. Our understanding of this amendment is that it will provide small business contractors with interim partial payments due to changes in the terms of a construction contract.
When a contracting officer unilaterally changes the terms of a construction contract without the agreement of the small business contractor, they will be able to submit a request for equitable adjustment to the budget. This request must be made promptly and clearly detail budgetary expenses. Upon receiving a valid request, the appropriate government agency will be required to provide 50% of the requested budget, as well as any additional costs caused by the change in contract terms, in interim payments.
Small businesses that receive payments under this act will be required to pay a first-tier subcontractor a portion of each interim payment. This ensures that the financial relief provided by these payments reaches subcontractors who are also affected by contract changes. Subsequently, these first-tier subcontractors will be obligated to pass on the appropriate portion of the payment to subcontractors at any tier. Contractors who receive these payments will be more likely to complete projects, successfully, deliver on time, and meet performance requirements.
By providing these payments, the bill aims to address the additional costs incurred by small business contractors. By helping to mitigate financial strain and minimize disputes between contractors and contracting officers, bond agencies may see a reduction in the number of bond claims that normally arise due to financial difficulties. However, as more small businesses secure contracts, bond agencies can expect to experience an uptick in demand for performance and payment bonds.
Funds Control allows complete oversight of these payments, ensuring they are used effectively and correctly. In addition to the oversight Funds Control already provides, CFAS will monitor these payments to ensure they follow all necessary regulations in order to help prevent bond claims. This allows small businesses to continue performing their contractual obligations without undue financial strain. These interim payments are not considered actions to validate the request for an equitable adjustment, acknowledging the ongoing negotiation between contractors and contracting officers. The current language of the bill, specifically regarding the unverified amount owed in the payments, opens the potential for claims against both the surety provider and contractor. CFAS is able to provide services that insure the receipt of these payments and provide third-party verification regarding the amount paid.
Aiming to bolster the position of small business contractors, the Small Business Payment for Performance Act has the potential to alleviate the financial burden caused by contract changes and has the potential to enhance the financial viability of small businesses within the construction industry. This act emphasizes the flow-down payments to subcontractors, fostering fairness and stability throughout the contracting chain. CFAS is closely tracking the progression of the Bill, which is subject to change as it advances. Currently located in the House’s Small Business Committee, the Small Business Payment for Performance Act has the potential to hugely impact the construction market.
For more information, visit https://www.congress.gov/bill/118th-congress/house-bill/2726/text?s=1&r=31.