A memorandum issued by the Office of Management and Budget on Wednesday, September 14, 2011, establishes a new Executive Branch policy that agencies should pay small business government contractors within 15 days of receiving proper invoicing documents. Currently, agencies are required to pay contractors within 30 days of receiving proper documentation under the Prompt Payment Act (“PPA”), or they are subject to late-payment interest penalty provisions. For cash flow purposes, agencies generally do not pay contractors earlier than seven days in advance of the 30-day PPA requirement. However, the PPA does not prevent agencies from paying contractors earlier if it is “necessary,” and current OMB regulations allow agencies to pay small businesses “as quickly as possible.”

This new policy provides that agencies are required to use their PPA authority and establish an “earlier, accelerated date for their making payments to small business contractors” and that the goal should be to pay small business contractors within 15 days of receiving all required documentation necessary for payment. In outlining this new policy, OMB explains that the “acceleration of payments to small businesses is necessary because. . . .this acceleration improves cash flow. . . .and provides them with a more predictable stream of resources.”

Noticeably absent from the OMB memorandum, however, is any sort of carrot or stick to ensure agencies implement the spirit and letter of this new policy. Indeed, the policy does not change the operation of the PPA, so agencies will only be liable for late-payment interest if they fail to pay contractors by the required payment date which is usually 30 days after the receipt of all invoicing documents. As such, early payment to small businesses is a goal, and nothing more.

Thus, while this new policy is a first good step toward ensuring small businesses are promptly paid, it will be interesting to see how many agencies actually start paying small businesses on an accelerated basis.