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  • Question

    Based on FAR, CFR and USC requirements, can a prime contractor include terms in subcontracts that allows them to bill for and receive funds from the government under the contract for work satisfactorily completed by a subcontractor and hold those funds until the subcontractor bills/invoices the prime contractor and then pay the subcontractor in accordance with Prompt Payment Act, or must the prime contractor pay the subcontractor pay to the subcontractor for satisfactory performance under its subcontract not later than 7 days from receipt of payment out of such amounts as are paid to the Prime under the contract regardless of whether the subcontractor has invoiced/billed the prime?


    Answer

    In accordance with FAR 28.106-7, during performance agencies shall not withhold payments due contractors or assignees because subcontractors or suppliers have not been paid.
     
    Payment bonds were created to cover subcontractor and supplier nonpayment.  The Miller Act allows laborers and mechanics, subcontractors, and material suppliers, who deal directly with the prime contractor, the right to sue on the prime contractor's payment bond, if payment is not received in full within 90 days after the date for which work was performed. This payment protection extends no further than the first two tiers of subcontractors.
     
    As you can surmise, we have privity of contract with the prime only.  The Miller Act and payment bonds govern your inquiry.  As you can see, 90 days is allowed if work has been successfully performed.  A prime may have ligitimate reasons for withholding payments.

    Thanx for the inquiry,

    joel
    DAUWEST
    805-982-2854 

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