Prime's subcontract says they pay us only after the agency pays them. Is that allowed on a federal task order?

Question

We're close to signing our first subcontract. It's just the two of us, doing help desk and network support under a prime's task order with a civilian agency. The draft subcontract says the prime pays our invoices only after it receives payment from the government for that work. No outside date, just "when paid."

My partner thinks that's standard and we should sign. I'm nervous. We don't have much cash to float payroll if the agency sits on the prime's invoice, or if the prime's invoice gets kicked back for something that has nothing to do with us.

Is a pay when paid clause like this actually allowed under federal rules, and what can we reasonably push back on before we sign, like a backstop date?

Keisha W. · Answer

The FAR doesn't ban pay when paid in a services subcontract. Payment terms between a prime and a sub are a private deal, and the government only steps in around the edges.

Here's what the FAR does give you. If the prime has a small business subcontracting plan, the task order carries FAR 52.242-5, and the prime has to tell the contracting officer in writing within 14 days when it pays a small business sub late or short. Late there means more than 90 days past due under your subcontract terms, and it only counts once the government has paid the prime. FAR 52.232-40 has to flow down to you too: when the agency pays the prime on an accelerated basis, the prime owes you accelerated payment within 15 days of getting paid, to the maximum extent practicable. FAR 32.112-1 lets you tell the contracting officer you haven't been paid per your subcontract terms, which is exactly why the terms you sign matter.

What I'd push on, from years of floating payroll for temps before the client pays:
- an outside date, so you get paid a set number of days after your proper invoice even if the agency hasn't paid yet
- your payment doesn't get held when the prime's invoice is rejected for reasons unrelated to your work
- the prime tells you when the agency paid the lines covering your hours

Your partner's half right. It's common. Common isn't the same as fine for a two person shop.

Keisha W. · Answer

A "pay when paid" clause is allowed in federal subcontracts because the FAR does not regulate payment terms between a prime contractor and its subcontractors. Keisha is right that the government does not typically intervene in these private agreements. However, your prime contractor has a responsibility to pay its subcontractors promptly, and if they are a large business with a subcontracting plan, they are incentivized to do so. The subcontracting plan requires the prime to report to the contracting officer if they pay a small business subcontractor more than 90 days late. This reporting requirement ensures some visibility into payment timeliness, but it does not mandate specific payment terms or an outside date.

Prime's subcontract says they pay us only after the agency pays them. Is that allowed on a federal task order?

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Prime's subcontract says they pay us only after the agency pays them. Is that allowed on a federal task order?

2 answers

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