DOD Contracting

Subcontractors depend on cash flow generated by progress or other periodic payments from prime contractors to meet payrolls and pay other bills. This report focuses on whether federal prime contractors are paying subcontractors promptly, a significant issue given that payments to subcontractors sometimes constitute well over 50 percent of prime contract costs. This report (1) identifies existing statutory and regulatory provisions that provide payment protection for federal subcontractors and (2) evaluates the feasibility and desirability of additional payment protections for subcontractors.

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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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